Ottawa urged to use tax code to favour Canadian publishers, and create fund to preserve journalism by Sean Craig

Jan 27, 2017

Source: Calgary Herald

A new report commissioned by the federal government is urging Ottawa to consider changing tax laws to favour Canadian news publishers in the digital advertising market and use the new revenue stream to establish an independent, publicly-subsidized journalism fund.

The recommendation comes from the independent think-tank Public Policy Forum, which says advertising with foreign-owned websites should no longer be deductible under the federal Income Tax Act. This is already standard for print newspaper and broadcast advertising.

Authored by former journalist Edward Greenspon, “The Shattered Mirror: News, Democracy and Trust in the Digital Age” issues a dire warning that the media industry in Canada is at a “crisis point” where a deficit of local reporting caused by falling revenues and cuts to journalism jobs threatens the country’s democracy.

The report recommends that, by extending a 10 per cent withholding tax on advertising in foreign digital media, the government could create a new revenue stream of $300 to $400 million annually.

It suggests Ottawa use that revenue stream to finance a fund to support digital news innovation in Canada, which would back news organizations that are determined to provide a “civic function,” with a particular emphasis on local and indigenous content.

The fund, which would act as an independent agency, should be seeded with a start-up investment of $100 million and financed by the tax on foreign advertising in the years to follow, the report’s author recommends. Part of its mandate should be to provide legal advice and assistance to support start-up news organizations “so they can pursue their journalism without fear of reprisal.”

The tax changes, which would also include extending the GST to foreign online ads, could notably draw revenue from foreign tech giants Google and Facebook, which the report says “were seen as suitable sources of funding for public programs, voluntary or not.” Together, Google and Facebook earn about two-thirds of the online advertising revenue in Canada.

“I think what the report does is validates what I and many other people who run newspapers in Canada have been saying all along,” said Paul Godfrey, CEO of Postmedia Network Inc., the country’s largest newspaper publisher and owner of the National Post. “There are no actual solutions here, but there are some good ideas.”

The report, which was mostly funded by the federal government, contains 12 recommendations, among which is a call for the government to establish a research institute to investigate the origins of and combat the distribution of fake news in Canada.

In addition to tax law, the Public Policy Forum calls on the government to reform non-profit and charity rules to allow philanthropy-supported media organizations to operate in Canada.

That would bring the country in line with others, such as the United States and Germany, where non-profit investigative newsrooms like Propublica and CORRECT!V have thrived by producing independent work and partnering with other outlets.

In order to address an increasing shortage in local news resources, the Public Policy Forum says the Canadian Press wire service — which is privately held by Torstar Corporation, The Globe and Mail and Gesca Limitée — should be given $8 to $10 million annually out of the new journalism fund to establish a second, non-profit news service to serve communities with coverage of courts, legislatures and city halls.

It also makes several recommendations for the Canadian Broadcasting Corporation. Among those, the report says the CBC should cease selling digital ads, which would create a revenue gap of $25 million, and publish its news content under a Creative Commons licence, making it free for competing domestic news organizations to distribute.

“There is little precedent for this kind of digital-age approach among public broadcasters,” reads the report. “CBC would be staking out a leadership position.”

“Our government understands the importance of a vibrant, local and reliable news media ecosystem as it is a pillar of democracy,” Minister of Canadian Heritage Mélanie Joly said in a statement. “We also acknowledge that news media is facing industry-wide challenges as they adapt to changing technology, demographics, audience preferences and competition for advertising dollars.”

She said the Public Policy Forum’s report will be one among many resources the government reviews as it mulls ways to address upheaval in media economics, and added it was too soon to speculate on policy outcomes.

In the coming weeks, a panel of MPs on the Standing Committee on Heritage are expected to release their own recommendations on news and local communities after spending much of 2016 hearing testimony from executives across the industry.

Speaking before the committee in November, Google voiced objection to the sort of levies proposed by the Public Policy Forum. “Our view is the way forward is through innovation,” Jason Kee, Google’s counsel for public policy, said. “Creating subsidies is not profitable in the long run. It doesn’t spur the innovation needed for sustainable models.”

Joly and her department are also reviewing the submissions from a series of consultations held last year on Canadian content industries. These timelines mean it is unlikely any reforms or assistance for media companies will appear in next month’s federal budget.

© Calgary Herald