Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 16 - Evidence - Meeting of April 17, 2008
OTTAWA, Thursday, April 17, 2008
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-10, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that act, met this day at 10:45 a.m. to give consideration to the bill.
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good morning, honourable senators, ladies and gentlemen and viewers on CPAC and the webcast. My name is David Angus. I am the Chair of the Standing Senate Committee on Banking, Trade and Commerce. I always introduce my colleagues around the table.
The vice-chair, Senator Goldstein, I am sure will be here at any moment. To my right is a very distinguished-looking gentleman; he is our in-house artist and distinguished Canadian, Senator Tommy Banks from Alberta. To his right is another well-known Canadian with a deep knowledge and interest in matters relevant to these hearings, Senator Francis Fox from Quebec. With us as well we have Senator Michael Meighen, a Quebecer at heart and by origin, but from Ontario, for which we will forgive him; distinguished Senator Ringuette, from New Brunswick; Senator Mobina Jaffer, from British Columbia; Senator Paul Massicotte, from Quebec, an ex-patriot of Manitoba; and Senator Michel Biron, from Quebec.
As well, we have our distinguished clerk, Dr. Line Gravel, and our researcher from the Library of Parliament, Ms. June Dewitering.
As you know, this is another hearing on the provisions of Bill C-10, which is an omnibus bill that combines numerous technical amendments and housekeeping amendments. We have reached the stage where we are not sure whether they are technical, of substance or housekeeping. They are what they are, and they are enshrined in a bill consisting of 547 pages. We are trying to give it senatorial sober second thought.
There has been quite a discussion regarding the provisions relating to tax credits for the film and video industry. There seems to be a debate as to whether or not these provisions have the potential to restrict freedom of expression generally in Canada and, in particular, in the film industry.
The government's view is that this is strictly an accountability measure that gives them powers that they would not wield unless they were faced with a terrible production in the works, and this way they could decline public funding for it.
The matter is shaping up; senators are getting ready to decide what to do with the bill, and you are amongst our last witnesses that we will hear on the subject.
Senator Fox: A quick point of order, Mr. Chair. I am wondering what happens to the correspondence that comes in. We have a letter from the Mayor of Toronto making strong objections to the bill that is in front of us. Will that be read into the record or appended to the record? Will it be published somewhere?
The Chair: Normally the clerk receives correspondence that is not produced through a witness, has the correspondence translated and circulates it to all members of the committee.
Senator Fox: I have seen that, yes.
The Chair: Then committee members will have that data to influence them one way or the other when they vote. That is as far as we go. As a matter of procedure, I am open to discussing this later, if you wish.
Senator Fox: Thank you very much.
The Chair: My distinguished vice-chair, Senator Goldstein, has arrived, and we will begin. I was just about to introduce the witnesses, Senator Goldstein.
I welcome our first panel of witnesses this morning: Mr. Christopher Waddell, from Pen Canada; Ms. Susan Swan and Ms. Deborah Windsor, from The Writers' Union of Canada; and Mr. Marc Grégoire, from the Société des Auteurs de Radio, Télévision et Cinéma.
Christopher Waddell, Chair, National Affairs, PEN Canada: Thank you, Mr. Chair, for giving PEN Canada an opportunity to speak to Bill C-10 today, and we thank the committee for holding these hearings. With more than 1,100 members who are journalists; writers of fiction, non-fiction and poetry; playwrights; publishers; translators; editors; and screen writers, PEN Canada is one of the most active of the 145 centres of International PEN around the world.
We are an independent, non-profit literary and human rights organisation that is committed to advancing the right to freedom of expression. We campaign on behalf of writers around the world who have been persecuted for their thoughts. We lobby governments in Canada and internationally; organize petitions; send letters, faxes and postcards for the release of persecuted writers in prisons in such places as China, Cuba and Iran; and conduct public awareness campaigns about freedom of expression. We also develop networking and professional opportunities for writers living in exile in Canada.
In Canada, we speak out against efforts to restrict freedom of expression, such as attempts to ban books or publications and to prevent journalists from protecting confidential sources. Frequently we work in conjunction with many other groups, such as The Writers' Union of Canada and the Book and Periodical Council.
Our position here today is similar to that of the Canadian Civil Liberties Association, who appeared before the committee last week, I believe. We are not experts in the financing of films or in the intricacies of the Income Tax Act. However, we are very concerned when we see proposed legislation that contains provisions that give government the ability to restrict benefits on the basis of the content of a film being ``contrary to public policy.''
As others have told the committee, the idea that a government should be able to deny retroactively tax credit status to a film because its content is contrary to public policy is a dangerous intrusion upon freedom of express. Much of the discussion at this committee has revolved around whether films that include gratuitous violence or sexual exploitation should be denied tax credits. As we see it, the issue is much broader. Should Bill C-10 pass in its current form, it will state that tax credits can be denied retroactively to films with content deemed by the minister, or his or her representatives, to be contrary to public policy. That is an extraordinarily broad definition and invites abuse over time. The minister has said that guidelines will be drafted to administer this proposed rule, but guidelines are subject to change and revision at the whim of politicians and the bureaucrats who administer them. If this bill passes, the door will be wide open for a future government to deny tax credits to a wide variety of films on vague and subjective grounds.
Among those subjects that could be deemed contrary to public policy would be a documentary about the Maher Arar case that might reveal new information that the government has kept secret; a docudrama that is critical of Canadian Forces activities in Afghanistan; a film that advocates a carbon tax to deal with climate change; or a film or television series that suggests there is a secret plan to export water from Canada. Such legislation might affect the production of dramas, works of pure fiction, a film that imagines or depicts the breakup of the country, or even films that feature drug addiction and needle exchange programs. It is not illegal to debate or to depict any of these issues, but they could be or might be viewed as contrary to public policy and, presumably, could be denied tax credits.
If a future government used the power it gives itself under this proposed legislation, the result would be a significant undermining of freedom of expression in Canada. For that reason, we would urge this committee and the Senate to send this bill back to the House of Commons for the proper consideration and debate that it never received initially. When the issue returns to the House of Commons, if the government decides to proceed with a revised bill, rather than simply to drop the provision, which we prefer to see happen, then we trust that whatever revisions are proposed will be the subject of hearings and public submissions before a standing Commons committee before the House is asked to approve it.
PEN Canada supports the approach discussed earlier before this committee by both the Canadian Civil Liberties Association and the Canadian Film and Television Production Association. The determining factor in rejecting eligibility for tax credits should be violation of the provisions of the Criminal Code. Further, it should be the court, not a minister or his or her delegates, that determines whether a film violates the Criminal Code.
PEN Canada would like to thank the committee for providing a forum to give this issue the public attention that it deserves.
Deborah Windsor, Executive Director, The Writers' Union of Canada: Good morning, Mr. Chair and honourable senators. The Writers' Union of Canada appreciates this opportunity to participate in the Senate's consultations on Bill C-10.
The WUC was founded for writers by writers in 1973 and has evolved into the national voice for over 1,650 writers of books, mainly fiction and non-fiction. Our mandate is to promote and defend the interests of our creator members and to speak to the freedoms of all Canadians to read, to write and to publish. The Writers' Union of Canada has an important role to play in helping to shape legislation that will achieve your objectives.
Susan Swan, Chair, The Writers' Union of Canada: Thank you for making us feel so welcome. I thought you might be wondering why writers of books are here to talk to you about the withdrawal of tax credits for films. As you may have seen in the brief, a number of famous Canadian writers who are members of The Writers' Union of Canada have had films made out of their books, for example Michael Ondaatje, The English Patient; Barbara Gowdy, Kissed; Margaret Laurence, The Diviners; Margaret Atwood, A Handmaid's Tale; Nino Ricci, Lives of the Saints; Guy Vanderhauge, An Englishman's Boy; and Alice Munro, Away From Her. I believe the committee heard from Sarah Polley last week, who adapted that short story by Alice Munro. I have also had a film made of my novel, The Wives of Bath, about a murder in a girls' boarding school. It was made into a film called Lost and Delirious, with Mischa Barton, Piper Perabo and Quebec actress Jessica Paré. It was chosen to open the Sundance Film Festival in 2001 and was shown in 33 countries around the world. It has been made into a Japanese manga comic, without my receiving any payment for it, I might add.
My background as a writer who, like many other writers in Canada, has gone through the experience of having a book made into a film has taught me a lot about filmmaking in Canada. Frankly, we have had great success recently with Canadian films, but it is extremely difficult to get money to back a Canadian film. It is already hard to do.
The task might be compared to an explorer finding the Northwest Passage two centuries ago. One production house spent 15 years trying to make a film of my novel The Biggest Modern Woman of the World. They found a wonderful Australian director, Gillian Armstrong, and had all the financing in place after 15 years, but it felt apart because a financial problem arose.
Lost and Delirious took 10 years to make. It changed directors about five times and production houses three times. Finally, it was produced by a wonderful production company in Quebec. The director, Léa Pool, brought it to the screen after a harrowing struggle. I did not understand this about making a film in Canada. Most Canadians do not have a clue about how difficult it is to get a film project off the ground.
I am here today as chair of The Writers' Union of Canada to tell you that our films, which are starting to be noticed around the world, need to be encouraged, not sabotaged by a clause in a tax bill originally designed to encourage a vibrant television and film industry in Canada. Instead, this new development is driven by backroom fundamentalist religious groups, from what I can understand. This bill was put forward to turn that mechanism to promote our films into a way of promoting Canadian decency. I think that is misguided and foolish. I am here to discourage you from accepting this clause. You have no idea what kind of a chill it will put into the film industry here, which is already under financial pressure.
It will make directors nervous about raising money for anything that is the least bit controversial. They will have to tell their investors, the banks and other producers that they might not get the tax credits. That will be of paramount concern to film production houses.
We already have guidelines in place for Telefilm Canada. I believe artistic freedom is the best public policy. I am not interested in the guidelines particularly, but they exist for film already for most of the government funding bodies. This seems like an extrajudicial mechanism. It will create grave problems for the Canadian film industry, for Canadians who want to see films about our country and for Canadian writers who would like their books to be made into films and television shows.
There is a very practical problem with this clause. It threatens our film industry, and I cannot urge you strongly enough to send this bill back to the House of Commons where it can be debated in more detail.
The other point I want to make is that it also creates an artistic chill. The Writers' Union has long been concerned about self-censorship, wherein writers can be encouraged to censor themselves. They do not fully exploit an idea they may have because they think it might be too controversial. This will definitely contribute to a climate of the chill of ideas and artistic expression.
Perhaps it will not affect a writer as determined as myself, but I am already a veteran. I have written six novels and am on my seventh. I have had films made of my books other than Lost and Delirious. I will keep going. However, practically, it will discourage younger writers from plumbing the depths of their creative potential.
Those are the two points that I want to stress today. This clause threatens the film industry and helps create an artistic chill that will make it more difficult for writers, not only filmmakers, to express themselves and tell their stories to the Canadian public.
Ms. Windsor: In conclusion, as Ms. Swan has said, we do not need an extrajudicial system to judge our films. To do so contravenes the democratic principle of the collective sharing of the public costs for institutions like our schools and other public bodies. It introduces a ``big brother'' approach to the arts — an approach that gives unwarranted and dangerous powers to the federal government and confirms that Canadian culture is entering perilous times.
Canada's courts enforcing Canadian law can and will enforce that function as necessary. The Writers' Union of Canada and its members believe that clause 120(3)(b) of Bill C-10 will lead to increased self-censorship by writers and other artists and will cast a greater chill on the expression of ideas. This is unacceptable to a society whose freedom of expression is enshrined in its Charter of Rights and Freedoms, and we call on the Senate to defeat the bill and return it to the House of Commons.
[Translation]
Marc Grégoire, Chair of the Board of Directors, Société des auteurs de Radio, Télévision et Cinéma: Mr. Chair, thank you for having us here. The Société des auteurs de Radio, Télévision et Cinéma, or SARTEC, was founded in 1949. It represents 1,200 radio, television and screen writers of French who write fiction, documentaries, series for young people, and films, both private productions and for public or private broadcasters.
Should anyone be surprised to see the Société des Auteurs de Radio, Télévision et Cinéma come here to express its concern about a clause that is widely perceived to contain the seeds of censorship? Freedom of expression is a fundamental value in any democratic society; it is also an essential condition for creativity and for a vibrant culture. We are therefore fiercely opposed to the idea that audiovisual productions are to be submitted to the vagaries of a subjective funding method, the rules of which would be known only to a handful of people responsible for certifying tax credits. Tax credits should be allocated according to clear and transparent rules.
When it came to transparency, however, Bill C-10 seemed promising: it even accommodated some of the requests that SARTEC and other associations had put forward. So, for example, clause 186(2) amends the present provisions of the act by permitting the Minister of Canadian Heritage to communicate to the public certain information about productions for which a film or video production certificate has been issued, such as the title of the production for which the certificate was issued, the name of the taxpayer to whom the certificate was issued, the names of the producers of the production, the name of the individuals for whom and places for which points have been allotted, the total number of points allotted and any revocation of a certificate.
Because of the current secrecy in tax matters, this information was not available unless you went through the credits of each production to find out if it was eligible or not.
Since the Cinar affair, SARTEC, like other organizations, has deplored this lack of transparency and demanded that information on projects funded by these automatic assistance measures be published just as they are for projects receiving selective assistance.
Publishing this kind of information was considered essential, even by the industry. Tax credits provide a fundamental tool for involvement in audiovisual production. How can the effectiveness of government policies be measured, along with their cultural impact? Well, in 2005, SARTEC and UDA — the Union des artistes — revealed that Canadian funding of young people's series and animation had risen to $1.4 billion between 1994 and 2004, but that almost none of the funded series had been written in French by writers from here. But this information that francophone writers had not benefited from significant government funding had been very difficult to discover because information on productions funded by tax credits remained confidential.
By helping to make it harder for the ``front men'' spectacle to be repeated and easier for the impact of tax credits on our industry to be measured, Bill C-10 could have been very useful.
Unfortunately, it did not stop there. We are here today because, like the entire audiovisual community, no, the entire cultural community, we find it very worrying to contemplate the possibility that funding for a production could be revoked because its content is deemed to be contrary to public policy.
Tax credits are funding tools that are considered to be neutral or objective, especially for the federal government. In the past, SARTEC has unsuccessfully asked for a language premium, as there is for Quebec tax credits, in order to help productions in French and has been told that it is not successful quite often by the Department of Canadian Heritage.
So, certificates granting federal tax credits must be based on objective factors, such as where the creative team or the production costs come from.
In that sense, it remains perfectly legitimate for the government to require that the rules be observed. It would be quite logical, for example, if the government moved to revoke the tax credits of a producer who declared that his crew was Canadian when they were not. This would be an objective criterion, objectively easy to verify. Just like productions declared ineligible from the outset: information programming, reality television, and so on.
But by bringing in considerations of public policy to review decisions already made about certifying productions, the bill introduces a completely subjective approach into a so-called objective process.
Audiovisual productions cannot be submitted to the vagaries of a funding method that is based on a moral approach the rules of which would be known only to a handful of people responsible for certifying tax credits. Tax credits should be allocated according to clear and transparent rules. Unlike broadcasters, for example, or agencies like Telefilm, SODEC or CAVCO, the government has no expertise in content analysis, it has a technical role to play and it is by no means desirable for this role to change.
At the moment, public funding of the audiovisual sector has enough indicators. Productions considered pornographic, or that gratuitously depict violence or sexual exploitation, or that are defamatory in nature do not get by the decision-makers.
So why does the government consider it necessary to make it possible to review decisions using public policy criteria. Which problem is the government reacting to? What are measures like this intended to achieve? Which films or other productions have caused such an outcry along these lines that the present structure needs to be adjusted out of all proportion? In our view, nothing justifies a provision that so resembles censorship and that is all the more abhorrent because it strikes from behind with economic weapons.
Writers deal with topics that are entrenched in the concerns of the society of which they are a part: sex and violence are topics or themes of interest that are addressed in many works of art. Some of the audience adores a film; others find it too violent or too racy. Sin, like beauty, is often in the eye of the beholder.
In a democratic society where freedom of expression is a fundamental principle, can we let a committee that is in place to apply tax rules judge artistic merit on public policy criteria and allow it to revoke the funding it has given? Are societal norms of acceptability now to be set by tax policy? Who would dare to write or produce projects on controversial topics or themes knowing that funding already obtained could possibly, at some stage, be denied?
We repeat: some kinds of subject matter are already excluded under current rules. Films are also rated: some that contain difficult scenes of extreme violence, for example, are not to be shown to a young audience.
To avoid the pitfalls of censorship, therefore, SARTEC requests that the provision allowing financial support to be denied retroactively from productions deemed contrary to public policy be withdrawn.
The Chair: Thank you. Could you tell me how many members are in your organization?
Mr. Grégoire: We have 1,200 members.
[English]
The Chair: I was going to introduce Senator Harb, but he arrived and then left. Another senator, Senator Johnson, from Manitoba, is here today representing the sponsor of the bill, Senator Eyton. I am not sure they are exactly on the same wavelength in their view of the bill, but I would point out that she is representing the sponsor of the bill.
Senator Meighen: I want to start off picking up a phrase that Ms. Swan used, ``grave problems.'' She enumerated quite a list. I am not saying they are not grave problems; I share her view that if they come to reality, they are grave problems. I think most people on this committee share that view.
What I would like to get my mind around is whether, in your view or in anyone's view here, there is any middle ground. We all seem to agree that the Criminal Code has clear definitions, or as clear as human ability can make them, of obscenity and pornography. Can you envisage a situation where a production or writing would not fall under those definitions but would nonetheless cause the same sort of general public outrage as a film that did violate those provisions? Therefore, is there a need for further additions to the Criminal Code list or for regulation? Mr. Waddell does not like guidelines, and I can understand perhaps why.
Do we need to move beyond the Criminal Code, or is the present Criminal Code sufficient, in your view? Or should we remove the definitions of the Criminal Code — not that that is before us?
Mr. Waddell: To some extent, what you are talking about is a problem of democracy. In a democracy, we do not always like everything we hear. We disagree with things that people have to say. We find some things that people have to say offensive; but, as a society, we have rules that we generally agree on in the Criminal Code about what exceeds normal behaviour.
If you move beyond that into something that falls short of that, and you start to determine the middle ground you are looking for, who would enforce that middle ground, and what decisions would be made? My concern would be that, inevitably, middle ground becomes a movable target to some degree, depending on who happens to be around doing the enforcing at the time.
On issues of freedom of expression, I think it is important that legislators do not write legislation that can be interpreted by subsequent governments however those subsequent governments or bureaucrats may decide to interpret it. You write it as clearly and as specifically as possible.
To my mind, the Criminal Code provides that clarity and specificity at the moment. I am not a lawyer, but I cannot see an additional need for more Criminal Code provisions. Other people wiser than I may want to make that case, and presumably the House would be a good place to make it, if the bill goes back there.
Senator Meighen: As I understand it, you are saying that the Criminal Code provisions are sufficient. Is that correct?
Mr. Waddell: Yes. My colleagues may have different views.
[Translation]
Yves Légaré, General Director, Société des auteurs de Radio, Télévision et Cinéma: Mr. Chair, funding audiovisual productions is very difficult. The tax credit is generally not the only source of funding. They have to go through Telefilm, through SODEC, and those bodies have a process and they have content analysts who evaluate the artistic quality of the works.
Senator Meighen: Subjectively or objectively?
Mr. Légaré: Always subjectively and objectively at the same time because, if 40 projects are submitted, 10 will be approved and 30 will be rejected for various reasons. And the kind of productions that you are referring to, there are none, the example is hypothetical. If they contravene the Criminal Code, steps can be taken. As for the others, distributors have to be happy; they have to be suitable for showing on television, for example. So there are filters that make sure that each production goes to the audience for which it is intended. Yes, some works are controversial and yes, some are difficult and yes, some will always get people passionate, but always, for 60 years now, these works have caused the very norms of our society to evolve.
Louis Malle's film Pretty Baby was allowed in Quebec, but banned in Ontario. Today, some films are shown at times when children are watching television whereas 40 years ago, they were rated ``18 years and over.'' Rules cannot be set in stone.
At the moment, the system is working well. Productions are not causing controversy every day. Quite the opposite. I think that this rule or provision is fixing the wrong problem and it will cause many more than it will solve.
Senator Meighen: So, if I understand your answer correctly, as well as the provisions of the Criminal Code, productions have to go through subjective and objective tests. The Criminal Code aside.
Mr. Légaré: The Criminal Code aside, to get funding, a project must have artistic qualities and generally, it goes through several filters. Telefilm, for example, will not grant funding to pornography and tends not to fund films with undue violence. Rules are already in place and, in general, they are working.
Anyway, for television, broadcasters want programs that they can show at normal viewing times. ``Prime time'' for a broadcaster is the most interesting. Yes, sometimes people call Radio-Canada to complain about scenes in such and such a show. Should our management accommodate a few calls from unhappy people or can society be open to different forms of expression and to judging a production by its artistic qualities?
Mr. Grégoire: Audiences have a control mechanism when a film has been made: the rating given by the Régie du cinéma. So, films can be general, 13, 18 or older. There already are indicators that let you know in an intelligent way that, if you do not want yourself, your family or your children to be exposed to something you dislike, do not go and see a film that is rated 18 and older because there will be scenes of sexuality or violence. This consumer-oriented indicator provides a final safeguard that prevents people from being inadvertently exposed to something that goes against their personal values as individuals. For example, a very devout and religious Christian may not go and see a film that depicts Christ in a way that he disapproves of.
Like my colleague Yves Légaré, I feel that, in a democratic country like Canada, the rules, taken together, stop us overreacting and throwing the baby out with the bathwater. I guess that is the way to put it.
[English]
Senator Meighen: I follow what you say, and I am sympathetic. In 1995, this type of policy, a similar policy, was announced, and on four occasions, I think, it was stated that it would be written into the Income Tax Act. We did not have hearings like this at that time, and it suddenly blew up. I am intrigued as to why that did not happen in 1995.
Tell me about the provinces. British Columbia, Nova Scotia, Newfoundland and P.E.I. each have a provision contrary to the public policy, and Quebec has a provision against the government policy. That sounds to me extraordinarily worrisome, yet are you marching on the streets in Quebec City?
[Translation]
Mr. Légaré: The problem is that no one noticed this provision. The advantage of this debate today is that we are now finally seeing exactly what could be imposed, but has not yet been. In our document, SARTEC says that we are satisfied with Bill C-10 because it establishes rules for transparency. We have been involved in consultations since 2000. In 1995, tax credits were not a great concern. We are writers, we represent writers, we are not always up on details of finance. But we were consulted in 2000, we were involved again in 2001. We received consultation documents from Heritage Canada. I noticed that some senators mentioned them in the discussions. I re-read those documents and you have to be really into all the provisions to realize that, amid all the paper, there is this mention of public policy. But it was not mentioned clearly and explicitly. Most of the input that SARTEC provided, like other players at the time, focussed more on including the script as an allowable expense and on publishing a list of productions that are eligible for tax credits. I saw nothing about that. So the matter went unnoticed, which is why it is on the agenda today. As we have seen, it contains dangerous elements, and we have to speak out against them.
Mr. Grégoire: We are members of the public, we are not legislators. We are creative people; if this provision has slipped by every single legislator and no one has seen it — which is the legislators' job — how do you expect ordinary Canadians to have seen it? In all these pages, it is one line, and, once, it was in a very confusing paragraph. We do not have the means to find this, it is not our job.
Mr. Légaré: Senator Meighen is showing me a letter that we received. I have follow-up correspondence to that letter. The letter told us that there is a discussion document that deals with the implications of the tax credit. Under ``other technical changes,'' it says:
Other amendments not related to the policy questions above are also proposed. Public policy criteria and expenses acceptable for tax credits that are currently found in the proposed regulations will be incorporated into the act. The Department of Canadian Heritage will have to develop guidelines on the way in which these criteria will be applied.
As I understand it, this is where I should have grasped that they were talking about public policy. A little further on, it says:
A provision of the act exempting officials from confidentiality constraints will allow them to provide information to other officials if the information concerns the way in which the Canadian Film Development Corporation Act is applied to officials, agents and employees.
If this is a simple information document, it should say in detail to whom this information will be sent. If it is about public policy, it should refer to a policy. Our association represents writers; we do not have people in our office who can comb through all these bills. We get consultation documents that make no mention of this difficulty, but it really should have been brought up because, if there is one thing that interests writers, it is when conditions for funding their works start looking like censorship.
This is how the consultation was done. It could have slipped by a lot of people, not just SARTEC, but directors and producers too.
[English]
Senator Meighen: With great respect, I did not hear an answer to my question.
The Chair: Also, there was a reference to a letter that you handed to the witness without identifying the date. Could we get that first? He has commented at length on the letter.
[Translation]
Senator Meighen: I showed Mr. Légaré a letter dated March 9, 2001, from the Government of Canada and signed by Mr. Len Farber, Director General, Legislation, Tax Policy Branch, Department of Finance, and by Jean-François Bernier, Director General, Film, Video and Sound Recording at the Department of Canadian Heritage. I think you have read the same letter.
Mr. Légaré: Yes, I have the document attached to that letter and I even have the replies that we wrote at the time. The replies are as I described: staff costs for scripts and transparency rules for tax credits. We did not deal with the question of public policy at the time because we had not seen that it was there.
Senator Meighen: Can we table the two documents?
[English]
The Chair: I would like to have these letters filed with the clerk in order to form part of the record, as is the normal practice.
Senator Meighen: I have a question with respect to provincial legislation, which talks about public policy, and Quebec legislation, which talks about ``contre la politique gouvernementale.'' How have you dealt with that?
Ms. Swan: I am not sure what your question is. Are you asking why there is a difference in policy between the provincial governments with regards to the arts?
Senator Meighen: No.
Ms. Swan: Because I can tell you that Quebec has a much more progressive policy towards the arts than most of the other Canadian provinces do.
Senator Meighen: That was not my question. I am simply saying that a number of provinces have film tax credits. In order to access those film tax credits, my information is that in British Columbia, Nova Scotia, Newfoundland and P.E.I., it cannot be contrary to public policy, to employ the English term. In Quebec, it cannot be ``contre la politique gouvernementale.'' I find that astonishing, particularly the Quebec provision. I am wondering how you have dealt with that in accessing provincial, and particularly Quebec, film credits.
Ms. Swan: I cannot speak for Quebec, but I wanted to go back to the question you asked earlier about whether there is any middle ground here. I suggest that we already have middle ground and that this clause is overkill. We do not need more compromise. If you open the door to the censors, the censors will come. Look at the Ontario Film Review Board. They censored Not a Love Story, a documentary film that critiques pornography, because they thought it was pornography.
We do not want more middle ground that invites more censorship by uninformed bureaucrats. I appreciate the spirit of your inquiry, but I would suggest, as someone who does not like the guidelines, that we are ``middle-grounded'' to death.
Mr. Waddell: We probably were not observant enough at the time to see that it was happening. Now that the federal government will come back and ensure this does not happen, it will create a national standard. This will allow us to go back to the provinces and ask them why they are doing this and suggest that they should be changing their rules, too.
Senator Meighen: Nobody can tell me why nothing has happened vis-à-vis the provincial legislation.
Mr. Waddell: This proposed legislation is before Parliament. Therefore, it is an opportunity to come and speak to it.
Senator Meighen: It would need to have been before the provincial legislatures, too.
Mr. Waddell: As it was regulation at the provincial level, we would not have had the same opportunity.
Senator Meighen: It would be regulation attached to a piece of legislation.
Mr. Waddell: Normally hearings are not held about regulations.
The Chair: The points were made on this subject yesterday as well. We need to move on.
[Translation]
Senator Fox: Thank you for being with us today, for your participation in the debate and, above all, for your contribution. In 2008, we are trying to come up with the best legislation possible.
[English]
We want to set the best legislation possible in the year 2008. There are a lot answers to many of the questions put forward to you. I do not think anybody can blame you for not seeing it, because when the bill was tabled, it was 560 pages. Three opposition parties did not see it either. No ministerial statement was made in the House to draw anybody's attention to it. Therefore, I think we should forget that part of it quickly.
The Montreal Gazette has a campaign on whose slogan is ``Words Matter.'' I think it comes from one of Barack Obama's speeches. I would like to ask your opinion, since we say that words matter.
In the English text, clause 120(3)(b), says ``public financial support of the production would not be contrary to public policy,'' whereas in French we speak about ``ordre public.'' ``Public policy'' is any white paper that the government issues. ``Ordre public'' goes a lot further.
I would like to have your comments on the use of the words ``public policy,'' which can be a ministerial directive or guideline that can be changed from one day to the next. It can be any kind of governmental edict that is not legislation or regulation.
Mr. Waddell: In our presentation, I think we were clear that ``public policy'' concerns us because it is a very broad term. It is a broad description of everything the government does or may endorse. That is why we think having it in the bill is not a good thing. If Parliament deems there needs to be a provision of additional oversight in this case, then the Criminal Code is the appropriate place to do it and deal with it. Whether it is ordre public or ``public policy,'' we would prefer not to see either one.
Ms. Swan: I echo my colleague's point. We are not in favour of the guidelines. ``Public policy'' is a very broad term that will be interpreted differently by whichever Canadian Heritage minister is in power. That troubles us.
[Translation]
Senator Fox: Does SARTEC have a comment on that?
Mr. Grégoire: Not really, it is a question of translation. As I understand it, the English is a lot less precise than the French. For us, it is clear what ``l'ordre public'' means.
[English]
Senator Fox: The minister, in defending her proposals, says that she does not believe that public funds should be used to fund certain categories of movies even if they are not illegal or go against the Criminal Code. Would you not agree that once you set this out as a principle, it would have to apply to every other sector of arts and culture, including book publishing? If this argument is valid for film, why would it not be valid to say we want books in this country to conform to certain standards and guidelines beyond the Criminal Code?
Ms. Swan: Unfortunately, we do have such guidelines that apply to book publishing. However, the impact is slightly different because it happens before the books are published. Funding is given to the publishers from the government for a group of books. Therefore, if funding was pulled, you would not have a situation where it would be pulled for one book.
It is hard to compare that situation to this film problem because it would not be retroactive on the book that the publisher publishes. However, interestingly enough, this has never happened. Similarly, no government funding has been pulled from magazines, which are subject to similar guidelines. Generally speaking, magazines that will publish blatantly offensive or pornographic material do not seek government funding.
You may say we do not have a problem, so why are we creating one? There is not a precedent of funding being pulled from magazines and books. In answer to your question, in a sense what you ask is already in place. I do not agree with that, but it is already in place. It applies to each artistic discipline but has a slightly different impact, depending on the creative process.
Senator Fox: You are restricting your comments to book publishing. However, is it not a fact that if the government has a right to veto or take away public funding from a film that does not meet guidelines that go beyond the Criminal Code, then you could apply that reasoning to any other sector?
Ms. Swan: Yes. It could create a snowball that would end in a severe climate of oppressive censorship.
Senator Fox: I am not saying they want to do it, but the danger is there.
Ms. Windsor: This is definitely opening up the Pandora's box of censorship. It has the potential to go further than the film industry. Yes, books and magazines, definitely. What about ballet and dance? Will we not fund the National Ballet of Canada because a few choreographed dance steps appear to be lewd or not to the benefit of the general public?
Yes, this is a frightening concept to me. When it is accepted, it then becomes pro forma. People say it cannot be that bad because it is already there. However, being there does not make it right.
We have an opportunity today to raise our voices and say no, do not open this box. Our fear is for what it can do directly and for what it can do to all of the other artistic disciplines, including music, dance, video, film, electronic, known and unknown. We do not know where our artistic world is going in the new electronic age. We are fearful of the doors this proposed legislation will open.
[Translation]
Senator Fox: A few months ago in Montreal, we saw a remarkable film by Carl Parent called La censure au Québec. I do not know if you have had the chance to see it, but it traces a bit of the history of film censorship in the Duplessis years and talks about the Index and so on.
Those of us from greater Montreal, who have reached a certain level of maturity indicated by grey hair, recall the Montreal example Ms. Windsor gave, where an attempt was made to stop a performance of an African ballet following a complaint to the police. I thought we were past problems of that kind. It brings to mind how books were treated some years ago when a group of bureaucrats, just like the minister is proposing here, decided whether or not a book could be imported into Canada. They banned Lady Chatterley's Lover, a great masterpiece of English literature, until another group above them was asked to decide whether or not it was obscene under the Criminal Code. That group decided it was a great literary masterpiece.
Does the system proposed here, with its subjective criteria, not bring to mind that type of situation?
Mr. Grégoire: It certainly does. In Montreal a number of years ago, there was a police chief whose morality rule on pornography came down to ``nudity is fine, but if it moves, it's pornographic.'' With that rationale, on the day the performers from the Ballet National Africain arrived at the Place des Arts, they were deemed to be pornographic because their young women danced naked, meaning that they were moving. As a result, forty or so police officers arrived on the scene and interrupted the performance. That was actually quite the political and diplomatic to-do that considerably embarrassed the Canadian government, because, after all, it was the Ballet National Africain.
I can give you another example that I hope will convince you that we need plain old common sense rather than censorship. Some time ago in Quebec, they wanted to ban cheese made from raw milk because they thought it could make people sick. That caused an outcry because raw milk is very common in Quebec. But the outcry was not necessarily about that, it was about the fact that Swiss Gruyère is made from raw milk too. It was a legitimate error, whose goal was to prevent health problems for the public. But the dairy industry said exactly what we in the cultural industry are saying: our own safeguards are tried and true, we have a lot of experience with them, it is our business. Let our cheese makers make cheese, and, I would add, let our creative people create.
[English]
The Chair: I was going to make a comment. Ms. Swan, perhaps you are seeing the beginnings of a plot for an interesting new book.
Ms. Swan: I think several books.
The Chair: It would qualify.
Senator Goldstein: Murder on a Senate Committee.
Senator Banks: Do not start writing about the Senate, please.
With the chair's permission, and I hope you will correct me if I am wrong, I will make a point with our witnesses and with previous witnesses who have suggested that we need to send this back to the House of Commons for consideration.
There are two Houses of Parliament in Canada. This is one of them, and this is consideration. We will not defeat this bill, because the part we are talking about here today is a tiny offending tale in a very large bill that deals with many things. The only way this bill can be sent back to the House of Commons for further consideration is if this house of Parliament amends it. That is what will happen, or nothing.
We can do three things with bills when they arrive here: we can defeat them, and we have in the past; we can pass them unmolested; and we can amend them, in which case the bill goes back to the House of Commons. That is how it will happen, if it happens.
Thank you for permitting me to say that.
The Chair: That is very good. In addition to being a great musician, you have become quite a parliamentary rules expert.
Senator Banks: Far from that.
I wanted to address my first question to Mr. Waddell. Mr. Grégoire set out in his opening remarks pretty well what I think about this question. I want to make sure that I did not misunderstand you, Mr. Waddell, and that you are sort of in agreement with him.
You said you thought that the application of the Criminal Code in respect of tax credits was appropriate. I am wondering if that is so. Tax credits are based, as Mr. Grégoire pointed out, not on anything ever to do with content — and tax credits have never had anything to do with content. They have to do, rather, with the labour and the application of the right points, which we all know about.
Mr. Waddell: Yes.
Senator Banks: Do you demur from that position, or do you think that the Criminal Code, or any other judgment that is in any way subjective as opposed to based on labour points, ought to apply to the question of tax credits?
Mr. Waddell: Maybe my remarks were somewhat confusing. I essentially agree with my colleagues and the position they were taking.
I was attempting to address an issue raised at previous committee hearings, where some suggestion was made — I believe by Senator Tkachuk — similar to the questions Senator Meighen was posing about whether there is a middle ground in this area that is different from what the government is proposing and from the situation where there is no oversight at all.
Our preference would be a situation with no oversight at all. However, if a middle ground will be proposed and it turns out that members of one chamber or the other decide that a middle ground is appropriate, then the question of whether a film qualifies for government assistance — whether tax assistance or any other form — should be determined by Criminal Code issues, not by some sort of contravening public policy definition that is vague and open to interpretation.
Senator Banks: Would you agree that if there is any such consideration, it ought to be by way of a gate in front of the process?
Mr. Waddell: Absolutely. If it is afterwards, people will not invest in a project because they do not have any idea of the certainty of the tax implications.
Senator Banks: You and other witnesses who have preceded you on this question have all — and I understand this — said that the sky is falling with respect to censorship. I guess this is a devil's advocate question, but is that not a bit rich?
There are provinces that have censors. I happen to know some of them and I do not think they can be fairly characterized as uninformed bureaucrats. The ones I know are very well informed.
We have censorship. We have, in various provinces in different degrees, censorship of one kind or another of films, do we not?
[Translation]
Mr. Grégoire: I can speak for Quebec. The Bureau de la Censure was abolished a number of years ago; censorship no longer exists. Once, the Catholic church used a system of stars for censorship. Today, we have a rating system: ``General,'' ``13 years,'' ``18 years'' and ``XXX'' for pornography, which is a rating as well.
[English]
Senator Banks: Is that not a form of censorship?
[Translation]
Mr. Grégoire: No, it is a way of classifying. It does not prevent a project being made, it controls who can see it, or not see it.
The danger with this bill is that it could prevent projects being made solely because the sensibilities of a group of individuals deemed that they were contrary to public policy.
Mr. Légaré: It helps people make choices. If the film is rated ``18 years,'' you do not take your children to see it. It is an aid that still gives people the freedom to choose to see what they want to see.
[English]
Senator Banks: Nor will broadcasters. I come from a time when the concern was more about exhibiters than it was about broadcasters. I guess these days it is the broadcasters.
Ms. Swan: Ontario Censor Board stopped in 2001. Before that, you might be interested to know that it banned Pretty Baby and asked for sections of The Tin Drum, made out of the great novel by Günter Grass, to be taken out of the film. The producers refused and so The Tin Drum was not shown in Ontario in 1980.
Senator Banks: Ms. Swan, I think you were talking about block grants from the Canada Council for the Arts. Is that what you meant?
Ms. Swan: That is right. There are guidelines for those that are similar to although not quite as broad as the ones being proposed by the Canadian Heritage minister.
Senator Banks: Like the present regulations, they refuse funding to certain categories of books. They say do not even bother asking because they will not fund that kind of thing.
Ms. Swan: That is right.
Senator Banks: There is an analogy between that and the present proposed regulations.
Ms. Swan: I do not believe there is one about gratuitous violence. I will check; my lawyer has sent me a lot of notes on this.
Senator Banks: I did not mean specifically with respect to that. I meant the idea of setting out categories of books. For example, they say not to bother asking for funding for cookbooks because they will not do it. The present regulations say do not bother asking for funding for news programs because they will not do it.
Ms. Swan: Yes.
Senator Goldstein: I have a supplementary, if I may. You have been speaking of the chilling effect, and Senator Banks alluded to this as well.
In the federal regulations, there does presently exist a prohibition against pornography, and in provincial legislation or regulations, also against a variety of language, which appears to imply that there are moral or content judgments to be made by the appropriate authority. That does not seem to have had what I think you call correctly a chilling effect. Why do you think that these guidelines necessarily would have such a chilling effect?
Ms. Swan: They would be applied retroactively to an industry that depends on investors to make it happen. If they are to be punished after the film is made, it would be a disaster. Unfortunately, these guidelines are in place for all the arts. However, they have a different impact on the different artistic disciplines because of the way film production is different from how you make a book. Am I answering your question?
Senator Goldstein: Yes, and it raises another question. If a procedure were set forth that required any decision on content to be submitted to a court of superior jurisdiction immediately before a production and it were determined by summary judgment before a production started, would that meet the concern that you have just expressed?
Ms. Swan: That happens now. When they start on a film, they do a story board and a film proposal that goes before Telefilm Canada, which follows these guidelines. Telefilm Canada would be looking to determine whether the film was pornographic in their minds. Of course, films change. They go through different stages of transformation, so you could never know from the beginning of a film what the end product might look like. For instance, they changed the ending of my film, Lost and Delirious, without telling me. Luckily, I liked the film; otherwise, I would have had a problem. I was glad they did not tell me, because likely I would have objected and told them they had to follow the book, but I would have been wrong. They knew better about making cinema that I knew. The film process is step-by-step transformative.
Senator Jaffer: Your testimony has been very educational. You said that what we see and read helps to develop a society. For example, today's existing race attitudes are because of some of the work that you all have done. You are saying that peoples' collective conscience is evolving. What we would have accepted 10 years ago, we do not accept today.
Ms. Swan, you spoke about Canadian literature and said that the literal imagination is the writer's conscience in action. I was wondering if the four of you could expand on that? If I understand correctly, you are saying that you are censoring what our conscience is, what we imagine. Am I mistaken?
Ms. Swan: I said that for a lecture at York University to celebrate the millennium. I was talking about how the writer's imagination is always concerned with ethical choices. We might not think we are, but underneath most stories is an examination of ethical issues. That is very different from ideological issues, where a writer is trying to be didactic and put a certain point across. Readers no longer will accept that. I do not think that censorship is involved in doing that. Rather, it is just a natural concern that flows out of the writer's fascination with culture and the individuals about whom he or she is writing.
We need a climate where writers are encouraged to explore whatever story they have to tell and not care whether the story seems more left wing or right wing. The initial impetus to create comes out of something much deeper than politics.
Senator Jaffer: I understand then that you are speaking more about policy, not so much about pornography, which is the extreme example. You are saying that if the stories of violence against and abuse of women are not told, then how are we to change people's consciousness and how are we to change society's opinions.
Ms. Swan: That is exactly right. If those stories are not told, we do not develop as a culture. All of us have had the experience of watching a film and feeling uncomfortable. Eastern Promises, by David Cronenberg, made me uncomfortable. I had to get up and leave several times because there was so much violence, but I still found it to be a truly great film. As a democracy, we must give people the opportunity to grow and to become more understanding of other racial groups and genders. Art is a vehicle to do this because it opens up the question and it is open-ended. If it is good, it allows you to make up your own mind, but at times, it can make you feel incredibly uncomfortable. That discomfort is worthwhile because it gives us something more valuable, which is a deeper understanding of what it means to be human. I would hate any legislation to limit that.
[Translation]
Senator Massicotte: Thank you for being here with us today. We have a lot to learn and you are helping us to find our way. Playing the devil's advocate sometimes helps us to gather information. I am going to do that a little. It could be argued that the Criminal Code is perhaps not the best yardstick for measuring what is acceptable or not. From the point of view of society as such, yes, because our society values freedom of expression. But this debate is about a financial subsidy or a tax credit.
There are three aspects to your argument. You are looking for certainty, nothing retroactive, because it is quite difficult to find funding. All the players have to know what their risk is, and everything is clear. You say that you want nothing discretionary because that allows a society to get into trends and that goes against freedom of thought. Those are the points as I understand them.
If we could achieve those two factors, it is still not impossible to establish criteria of another kind, excessive violence or pornography. Our fellow Canadians could say: I do not want to subsidize something that I find excessive, or whatever. I do not like the word excessive because it is relative. But what if we established more specific criteria, independent of the Criminal Code, where freedom of expression was not the issue but subsidies were. Could there be a way of coming up with other criteria that would not be discretionary?
The provinces have criteria like that but they do not apply them. I am not knowledgeable enough to know whether other countries do. Society does not want to subsidize something that it finds objectionable. How can we establish something that is not arbitrary and that moves the line?
Mr. Légaré: First, tax credits can not be designed that way. They are an automatic funding method. If you want to analyze content, the selective assistance method at Telefilm Canada already exists. There are people who look closely at content, who look at artistic merit and who decide that one project perhaps has greater merit than another because funds are not unlimited and so, in order to obtain funding, choices have to be made. A tax credit is automatic in and of itself and you want to superimpose another committee that would make its decisions using criteria that are different from the ones that exist now. People would have no idea what to do any more. It would make things even more complicated. You would be trying to put something in place that we oppose.
We are opposed to moral criteria determining how tax credits are awarded. Would a committee be better than the mechanisms that already exist? The entire cultural sector, especially in cinema and television, needs state assistance. If you block state assistance, you block the creative process. We can understand that you might deny assistance for projects that should be able to find funding elsewhere. Reality programming, for example, is not funded by tax credits because you say that, with the state's limited means, it is up to the broadcaster, or someone else, to pay for that programming. The same thing applies to news; you say that the broadcasters should pay. Generally, you use tax credits to help projects that are harder to fund and that literally would not see the light of day if they did not receive state funding. By introducing criteria, you are paralyzing the cultural sector.
Senator Massicotte: You can accept provincial artistic criteria, which are subjective, but you are saying that the tax credit should be different, that the calculation should be automatic, mathematical. Those provincial criteria are very discretionary.
Mr. Légaré: The provincial tax credit is also a kind of automatic funding. There are language bonuses that increase the amount of assistance granted, but the criteria are normally applied automatically. Assistance is selective at both federal and provincial level. It is not provided according to moral criteria, but rather according to the artistic merit of the projects, the calibre of the production crew, the writer, the director, and so on. There are limits to state assistance, and so, if there are 100 requests, then each year there are a number of interesting projects that are not made. Committees come together — it is not a question of just one person — and try to analyze all the data, basically the ability of the producer, and the entire crew, to make the film.
This is simply because insufficient resources mean that assistance cannot go to everyone. You are suggesting adding another stage, becoming involved in what was essentially automatic. It is going to be difficult for that to work.
Mr. Grégoire: The big problem is the retroactivity. Artists are ready to deal with the discretionary aspects. They do that with Telefilm. People accept the project or they do not. It is done before the film or the program is made. Let me go back to a point you made. You asked if we can find a way for the public not to be subsidizing things they find objectionable.
We live in a democracy: the common good takes precedence over what is good for each individual. If I was an association of vegetarian products, I might ask why you were subsidizing beef producers because I find that objectionable. Any group of Canadians could say: personally, I find such and such objectionable and I do not want my taxes going there. If I am for or against Canada's position on Iran or Afghanistan, it is a personal decision. We live in a society where we have an upper House and a lower House and a democratic system precisely in order to make sure that the common good and the individual good fit together. Here we have a tax act saying that, since 2006, you cannot make that film and charging you tax that you did not know you owed. Any retroactive law is reprehensible in my view. If we can avoid making one in 2008, whatever happened before, let us seize the opportunity today to at least be on the right road.
[English]
Senator Johnson: My colleagues have covered many of the questions I had. I entirely agree with all of you about an artistic chill. I feel it already and it worries me very much as a senator, a legislator and also as the president of a festival in Manitoba where I work with artists, writers and film producers trying to put money together to put our stories on the screens. As a result, I want a healthy cultural community. I welcome the discussions we are having in these Senate hearings because I think the arts must be discussed more in our country. I get upset when they are not. Even if the opportunity has to come this way, it is still a tremendous opportunity for everyone to say what they really think not only about this bill but also about what is happening overall.
Ms. Swan, I admire your work very much. You should have added Fugitive Pieces to the list, by the way.
Could you elaborate on the comment you made about backroom fundamentalists? This proposed legislation has been drifting around for a long time and has found a home in this huge omnibus bill we are faced with now. It did not find recognition in the House. They sent it to the Senate where this committee picked it up, not on this aspect, but on a pension point. This came about rather by accident, for which I am thankful, but, at the same time, where does the comment about backroom fundamentalists come into play?
Ms. Swan: I share your view. I am glad to be here to discuss these ideas, because we do need more cultural debate. That is how we learn from each other and grow, and how the arts get stronger.
When this story first broke in the newspapers, Reverend McVety was quoted as saying that he was responsible for getting this mechanism in the bill. I see in The Globe and Mail this morning that he denied yesterday that he had anything to do with it. There is a feeling that one of these things is true. I have no proof; I am simply responding to a sense that, with the background of some Conservative Party members, there may be a core group that wants to apply a more literal interpretation to the arts because they have a more fundamentalist approach in their religion.
I certainly affirm their right to have a voice, but I do not agree with it. I know this legislation originated with the Liberals. I think it was designed originally to deal with the hate bill, but I do not think it went beyond the draft stage. I am pretty sure they have no interest in it being used as a way to censor Canadian films through the back door.
Senator Johnson: As Senator Banks pointed out, the Senate can only pass, amend or defeat a bill. There are no other options. That has to be made clear, not only to you but to all artists around the country. As the Conservatives have only 18 or 19 senators, we will not be able to defeat it.
Given what is happening, do you think the minister's suggestion of giving her guidelines for administrative procedures in the next year is of any value to you? Would you prefer that we plough ahead and make a decision on this bill now?
Mr. Waddell: As senators, you are legislators, and you tend to remain here longer than the life of any particular government. As governments come and go, attitudes of governments change. How governments interpret legislation changes over time.
You need to be conscious that any government of the day may have the best of intentions, as every government says it does, but that does not mean that is how a future government will assess things.
Were you to agree to guidelines being acceptable, there is no guarantee that guidelines written now will be maintained five years from now. This starts down a path you do not want to take relating to issues of freedom of expression. It would be much better to draw a firm line in the sand on that.
Although PEN Canada is not a major player in this, we are not interested in working on guidelines, because I think guidelines move us away from the issue we are concerned about, which is the ability of successive governments, whether at the political or the bureaucratic level, to redefine a broad phrase such as ``contrary to public policy'' to whatever may suit their interests at the time, which will be harmful to freedom of expression.
The answer, in short, is no. We think the answer for the committee would be to take that clause out of the bill — amend the bill by removing that clause — which would have the effect of sending it back to the House.
Senator Johnson: I come from the province of Manitoba, which in its last budget increased tax credits for filmmakers. A lot of American films are made in Manitoba. We also have some Canadian films; Phyllis Laing and Buffalo Gals Pictures do some very good films of Canadian stories like The Stone Angel, which has just come out.
My concern is that they do not have to meet any criteria in the content of their films. Do you think this adds to the argument about removing this clause from our bill?
Mr. Waddell: This issue of the clause's differing applicability to Canadian as opposed to foreign producers has been raised at the committee.
Senator Johnson: The provinces differ in the number of tax credits they offer to film. Manitoba has made it almost a policy to develop the film industry in the province, as have other provinces, such as B.C. Do you think they should get more scrutiny at all levels, too?
Ms. Swan: No. I think Canadian films need to be encouraged, because we are starting to see them take off the way Canadian literature did in the 1970s with Margaret Atwood and Michael Ondaatje. It seems to be a particularly crucial point in the film industry here, in English Canada anyway.
The Quebec film industry has been much stronger in the last 20 years than the English Canadian film industry. Now the industry is taking off in English Canada, and it is wonderful that it is happening in Manitoba. I would encourage everyone here to support our Canadian films and to go see one tonight.
Senator Johnson: I do not think people realize how much revenue and jobs the film industry gives to provinces. That should be on the record in terms of reviewing not only this particular bill and this clause in it, but the arts in general.
The Chair: That is an important point to clarify.
I welcome our next witnesses, Mr. Robert Morrice, from Aver LP, and Ms. Elaine Morissette, from the National Bank of Canada.
Robert Morrice, Principal, Aver Media LP: Honourable senators, thank you for allowing me to appear today. My goal, along with that of my contemporary Elaine Morissette, is to provide you with a lender's perspective on the potential impact of the ``contrary to public policy'' disqualifications for the refundable tax credit as contained in Bill C- 10.
I am a principal Aver Media, an entrepreneurial lender to the film and television industry. I am a career banker in this sector and have provided billions of dollars of interim financing to film and television productions. I have been financing the federal labour tax credit since its inception in 1995.
Aver Media is a new entity, having commenced operations in mid-2006, but our senior management team has decades of experience in the sector. In addition to interim financing production, Aver also offers financial advisory services, rights navigation and consulting services to the film and television sector. To date, Aver has completed almost 100 financings representing production budgets of more than $500 million.
By way of background, only three Canadian banks — the Royal Bank of Canada, the National Bank of Canada and HSBC Bank Canada — currently offer production loans to the film and television industry.
The Chair: Do you mean that those are the only banks among the chartered banks or among all banks?
Mr. Morrice: No one else in Canada is doing it regularly at this time.
Prior to 1982, most Canadian banks provided loans to film productions secured by the tax shelter of that era. All of the banks experienced losses when the tax shelter rules changed in 1982, which to this day keep some Canadian banks from lending to the sector. The Royal Bank lost less than the other banks did, and for a number of years it was the only one that continued to lend to the industry. In the mid-1990s, rapid growth in the industry, along with several public offerings, led five banks to re-enter the sector. The National Bank of Canada and HSBC are the only two that remain active. The rest wound down their film financing operations. This is a specialized sector with significant risks to lenders who lack sufficient expertise.
I mention this history because few Canadian producers are able to produce film and television projects without an interim lender, and producers have few Canadian sources of such loans. Bill C-10 might further restrict producers' options. An interim loan is required because the producers do not collect the proceeds from the financing sources until the project is delivered. Typically, tax credit proceeds are not received until several months after delivery.
Interim financing loans to film and television productions are structured as project financings. The loans are repaid by the sources of financing, which include commercial sales to exhibitors and/or broadcasters; proceeds from Telefilm Canada or the Canadian Television Fund; and federal and provincial tax credits, or provincial grants in the case of Alberta. With the exception of tax credits, each of these sources of financing is sum certain with fixed amounts due and payable upon certain milestones or specific dates. The interim lender provides up to 100 per cent of the value of these contracts, in contrast to traditional commercial lending where contracts are margined at 75 per cent or less if the contract is with a party from outside Canada.
As for the tax credits, the standard practice is to provide a loan of up to 75 per cent of the value of the tax credit until receipt of confirmation certificates from the Canadian Audio-Visual Certification Office, CAVCO, and the respective province. Once the certificates are received, the interim lender advances up to an additional 15 per cent to bring the advance rate up to 90 per cent. The reason for the lower advance rates against tax credits is the fact that they are not sum certain. The actual amount of the refundable tax credit earned is not determined until production costs have been audited. Producers have sufficient experience with the tax credit to accept that these margining rates are sufficient to compensate for the risk that the tax credit amounts are not sum certain.
It is up to the individual producer to finance the other end of the tax credit — the portion not financed by the interim lender — at the rate of 25 per cent at the outset and falling to 10 per cent once the certificates are received. This requirement is a major burden on producers and frequently means that they cannot pay themselves until the tax credit proceeds are received. A reduction in the rate of margining would mean that producers would somehow have to make up the difference.
At present, the factors that can affect the amount of tax credit payable are clear, objective, consistent and predictable. Subclause 120(12) of Bill C-10 would introduce a new, unpredictable factor that could reduce the tax credit proceeds to zero. In such an environment, it is quite possible that producers would not be able to obtain financing against the tax credits. Few producers would be able to proceed with a production unless they could obtain interim financing against those tax credits.
In my 20 years of banking this sector in Canada, I have analyzed and financed several different iterations of public support, from shelters to grants to equity investments to the current refundable tax credit. The overriding principle in determining whether each of these programs was bankable was that the factors determining the amount to be paid were clear, objective, consistent and predictable.
This concludes my formal remarks, and once again I thank you for this opportunity.
[Translation]
Elaine Morissette, Senior Manager, TV and Motion Picture Group, National Bank of Canada: Mr. Chair, I am the head of the TV and Motion Picture Group at the National Bank of Canada. The National Bank funds about 400 to 450 productions a year. We have been doing so since 1998. In Quebec, we were the first lender to provide funding of this kind; most producers get their funding from us.
For us, Bill C-10 would have an impact on our ability to lend against the tax credit, and, in fact, on funding Canadian content in general because we need certainty and, as Mr. Morrice said, because we have to provide our loans before production starts and during it. If we had no clear picture of the production's eligibility for tax credit, it would be almost impossible to provide the funding.
The impact is greater than simply funding the tax credit because, when we conduct our risk analysis, we have to make sure that producers have the funds for their films. For example, if they have two million dollars in tax credits to come but have no access to funds with which to pay their expenses during the production, the whole project could really be at risk. And very rarely does a producer have two million dollars in cash to fund a production. I feel that it would certainly be difficult for them to begin a production without being certain that they were eligible.
The Chair: Does that conclude your testimony?
Ms. Morissette: I do not want to repeat what others have already said.
The Chair: Fine then. We have a list of senators who want to ask questions, but I have a question for you first.
[English]
Mr. Morrice, my question is about a completion guarantee as part of the package necessary to give certitude to the money lenders. What is a completion guarantee and how does it work?
Mr. Morrice: A completion guarantee is a unique form of insurance. It is the only policy of insurance I am aware of that actually covers fraud as well. All the amounts of financing that we spoke of are contingent upon completion and delivery of the film or television project.
Quite often, if high risks are involved — and they might involve certain factors of the production or certain aspects of the past behaviour of producers, directors or stars — then certainly lenders look for an outside party to come in to guarantee that the production will be completed on time and on budget. That enables these contingent sources of financing to be triggered and earned. The tax credit is also a contingent form of financing in that certain tests need to be met for that tax credit to be earned.
The Chair: Then it is in the same sort of realm, and the person dispersing the funds must have that comfort level.
Mr. Morrice: When negative pickup financing began in the mid-1940s as a way to get around the guilds and studio relationships, almost everything done was covered by a completion bond. Today, many producers have shown themselves able to complete and deliver without needing a completion bond. It is not the case in every production.
The Chair: It is a case of their credit.
Mr. Morrice: It is more than just their credit. It is actually an unlimited exposure at times to be able to complete and deliver a film. The policy of insurance is different in this case because the completion bonder actually puts its own money at risk to complete and deliver the film.
Senator Goldstein: I take it, then, that the completion bond of which you are speaking is not dissimilar to the completion bonds we see in other kinds of project financing, for instance real estate projects, and bonding mechanisms that may or may not be insurance.
There are some opinions that these bonds are not an insurance. However we may characterize them, you are not in that field, and this provision — correct me if I am wrong — would not affect completion bonding.
Ms. Morissette: The completion bond company will request that no matter what happens, the lender disburses the money and that there is sufficient money available to produce. Otherwise the completion bonder is not on the hook, I would say.
In the guarantee, the lenders will require that, if the completion bond company takes over production, it will have to comply with tax credit rules and make it qualify. It has an impact on the completion guarantee.
[Translation]
Senator Goldstein: So then, in your opinion, the guarantee could also be affected by the proposed provisions.
Ms. Morissette: Possibly. They run the extra risk of guaranteeing that the production would qualify, if additional conditions were in place. In any event, there would be no need to have a completion guarantee if the funds are not available in advance.
[English]
Mr. Morrice: You are correct that it is a different kind of completion bond than what used in the construction industry. In this case, the completion bonder does put its own money at risk to bring the production to completion. The completion bonder has a clause in the bond that says they will only guarantee that the production will be made on time and on budget if all of the sources of financing are made available to the producer as agreed in the financing structure. Should one of those financing sources fail to materialize, the bonders are off the hook.
Senator Meighen: Off the hook in whole or in part? What if you only get 50 per cent?
Mr. Morrice: If you get 98 per cent, the bonder is off the hook.
[Translation]
Senator Ringuette: Ms. Morissette and Mr. Morrice, last week your colleagues from the Royal Bank, which you identified as the other financial institution that provides financing for film productions in Canada, conveyed to us the same message that you have delivered to us today, namely that when it comes to financing arrangements, if the federal film tax credit provisions are not clear —
[English]
If the tax credit for films is not clear, not, as you said, predictable and consistent, the financial institution will back away from financing productions. That is a major concern. When we first started hearing witnesses on this, the minister and her officials were before us and I asked whether they had done an economic impact study on that piece of legislation. Their answer was that no, they had not.
That this tax credit needs to have a clear, predictable, consistent and reliable message is the ground floor for the industry. Otherwise, I sense that none of you would be interested, as you have shown in the past, in providing financial assistance to the industry. Am I wrong?
[Translation]
Ms. Morissette: You are absolutely right. Some productions, such as non-Canadian ones, will not present a problem. However, with respect to Canadian productions, if there are no guarantees, then certainly we will have reason to be very concerned. We conduct financial analyses, not qualitative analyses of production content. That is the job of other institutions and we defer to them. It is also important that the process of analysing content not be repeated by all stakeholders, because everyone will bring with them additional costs. The idea is to put the money into films, not into financial analyses.
Senator Ringuette: Earlier, Ms. Morissette, you stated that on average, you finance close to 400 productions every year. I would imagine that you do not respond positively to every single request that you receive. Of the total number of requests received, what do these 400 productions represent, percentage wise?
Ms. Morissette: To be honest, I do not have any exact figures to give you, but I will say that we rarely turn down requests, perhaps in only 5 per cent of the cases, because we usually find a way to structure arrangements with producers. With the current legislation, and the certainty and predictability it provides, we are able to work things out. We want to promote the film industry and therefore, wherever possible, we agree to provide some financing.
[English]
Senator Ringuette: You have certainly shown your interest in the Canadian film industry. Are you also financial providers for American productions in Canada?
Mr. Morrice: I would not categorize ourselves that way, in terms of financing the service production tax credit for American or offshore producers. Aver does business outside of Canada. We do most of our business in Canada. We do lend to U.S. producers, typically for productions in the U.S. We do lend in the U.K. as well, typically for productions in the U.K.
Of those 100 deals, we financed productions in India, China, New Zealand, Australia, Italy and in a number of countries. The production took place in many places other than Canada.
[Translation]
Ms. Morissette: We finance Canadian, American and foreign productions that are filmed in Canada. Our focus is on Canada.
[English]
Senator Banks: The testimony of these witnesses is taking me back to a deep, dark, distant time in my past when I actually dabbled in producing films. I cannot believe that I was mad enough to do that.
The testimony we have heard over the past few weeks has made us at least partly aware of the fragility of the financing of film productions in Canada. To characterize it as a house of cards would not be overstating the case. If you remove one card, or any part of one card, the whole thing falls down. It is enormously intricate.
You provide front-end as well as back-end financing, I presume. Is that correct?
Ms. Morissette: We do different things. The National Bank does mostly interim or bridge financing.
Mr. Morrice: We can get involved earlier with projects. Earlier there was a question about the approval ratio. Typically producers have worked for four or five years on a project before they approach a lender to interim finance the financing they have sourced. We can consider things as collateral that traditional banks cannot always consider, and that is the potential commercial value of a product in an unsold territory. We also get involved hands-on with producers in helping them secure the maximum value of their project around the world.
Senator Banks: From the various sources of funding, including distributors, exhibitors, broadcasters and government agencies?
Mr. Morrice: Less so with government agencies, because they are more driven by rules, whereas exhibitors and distributors are making subjective judgments.
Senator Banks: We hear about how tough things are in the film business in Canada, how awful it is and how hard it is with the percentage of films that lose money. You are doing okay, because you are in this. You said that you have recently gone into a new venture that deals with this. Therefore, there must be some aspects of the film business in Canada that are pretty good. They have attracted you.
Mr. Morrice: Yes and no.
Senator Banks: You are not flagellating yourselves; you are not philanthropists.
Mr. Morrice: We are in it for more than just the money. We do take great personal pride in some of the projects we have been involved with that have had tremendous success. We have helped run auctions for Canadian shows that have found homes in other countries at tremendous values. One of my partners was a producer for more than 20 years.
Senator Banks: Now he has gone into the smart end of the business, lending money to producers.
Mr. Morrice: His comment is that they get to work on it for five years and we get involved for the last six months. Most of the heavy lifting has been done by the time they come to us.
Senator Banks: You are both intimately familiar in ways that we are not with the financing of films. We have heard repeatedly over the past few weeks from people who are involved in films how important that last 10 per cent or 11 per cent is that will be derived from the tax credits that have to do with labour numbers.
Is it really the case that, with a $10-million budget, a producer, having raised $9 million, hits the wall at that point? My experience in raising money is limited to amounts with two zeros on the end. Does it stop there? I know the last steps of a journey are hard, but if you have raised $9 million out of $10 million, can you not get the last $1 million from someplace else and tell everyone to stuff it up their nose when it comes to these questions?
Mr. Morrice: You can do that, but that is the fastest way to lose a lot of money in this industry. People who have used that as a business strategy have not succeeded. There are many projects that get to the 80 per cent stage and no further. There are many films made each year that are not properly funded, and they never receive commercial exploitation. This problem of filmmakers is not unique to Canada; it is a problem of independent filmmakers around the world.
Senator Banks: In your experience, do the proprietors of the film, who are usually the producers, really only get paid for their efforts at the tail end, and that very often is derived only from the tax credits?
[Translation]
Ms. Morissette: Based on my experience, they are paid only when tax credits are issued, and often, the amount of money involved is not considerable. However, the process can be part of an overall business strategy. Substantial revenues are rare, particularly in the film industry.
[English]
Mr. Morrice: I would go further and say that in addition to producers not being paid in many cases until the tax credits are received, in many cases they are not even paid then, because when they were at the 90 per cent level, they contributed their fees to get the project made, and they will carry those fees as a deferred item on their balance sheet ad infinitum.
Senator Banks: I know of only one instance in which that worked. It was an Edmonton producer who made a film called Love Story. He took points in the film rather than money, and he won the bet.
The Chair: Mr. Morrice, is Aver Media LP the correct name of your company?
Mr. Morrice: It is.
The Chair: Is it a limited partnership?
Ms. Morissette: It is a Manitoba limited partnership, yes.
The Chair: It is not a bank?
Mr. Morrice: We act as a lender, although we are not a licensed bank.
The Chair: Are there many partners?
Mr. Morrice: We have a total staff of 12.
The Chair: Is it not listed on any stock exchange?
Mr. Morrice: It is a very private concern.
The Chair: I am trying to get a sense of the capitalization, of how big of a loan you might make and what the risks are.
Mr. Morrice: We like to focus on how much we collect rather than on how much we lend.
The Chair: Do you mean collecting from investors?
Mr. Morrice: No, from buyers, from tax credits, from foreign sales, and from Canadian television sales. These are the monies that pay back the loans we grant to producers. Last year, our first full year of operation, we collected just over $100 million.
We were founded by two gentlemen who have had tremendous personal success and who contributed millions of dollars of their own money. Genuity Capital Markets contributed more money and brought in a major pension fund. With that equity base we went to three Canadian banks — Scotiabank, Royal Bank and, more recently, Bank of Montreal. We have lines of credit with those banks that we use to bolster our resources, and that is the money we lend to producers.
The Chair: Do you act in a way has a broker?
Mr. Morrice: Absolutely not. These are our monies. The credit committee is entirely internal. Our lenders have no say on which projects we pursue.
The Chair: I am trying to get a clear picture of what you do. Something you said made me think you might be an intermediary on behalf of the producers of films to apply for the tax credits, for example.
Mr. Morrice: We do not do that. There are some companies that do. However, we do act as an intermediary for producers with foreign broadcasters and foreign buyers.
The Chair: In terms of marketing the end product?
Mr. Morrice: Or finding the right buyer for it. In more than one case we have run an auction. We have told the producers, for example, that there are really only five or six people in the world who would be the right fit to buy this, and told them who those people are. We have set up meetings between those people and the producers. In some cases, the producer has been overwhelmed because many people want to buy a film but they are all offering different terms. They ask for help in understanding which is the better deal.
We have been fully involved in helping the producer choose which buyer was right for them. This is a case where foreign buyers are used to dealing with Canadian projects, and the first question they ask is what is your deficit. If it is a 10 per cent deficit, the foreign buyers will often say that they will give you 10 per cent for your project. The buyers do not try to determine what the project is worth. We have been in meetings where the producer has been able to say, ``Aver is backing me, so I do not have a deficit. What will you pay me for the project?'' I must say it is entertaining to watch the reaction of the foreign buyers when suddenly for the first time they have to decide what the project is worth. Many projects have turned out to be worth three times as much as they would have offered originally.
The Chair: To conclude these clarifying questions, it is a rather unique business that you people have put together. Are there competitors that do the same thing in Canada?
Mr. Morrice: We do not really have a competitor anywhere in the world. There are several hedge-fund-backed entrepreneurial funds involved in this sector, but they have to pay such a high rate of return to their investors that they simply cannot do the interim lending that Aver does. They cannot afford to lend money at a couple of points over prime because their cost of capital is so high.
Senator Goldstein: You are in the niche right there. Is it a niche market, from your perspective?
Mr. Morrice: It is a niche, yes.
Senator Fox: You indicated that there are approximately four companies that do film financing in Canada. I think you mentioned the National Bank of Canada, the Royal Bank, HSBC Bank Canada and yourself. When this legislation was brought forward by the department, were you consulted on what the potential effects of these proposed changes could be on film financing in Canada?
Mr. Morrice: Aver was in no way consulted on this.
Senator Fox: Was the National Bank of Canada consulted?
Ms. Morissette: No.
Senator Fox: Bond completion was raised at the beginning of your testimony. My colleague referred to the Royal Bank's statement that was filed with the FilmOntario submission. I am not sure whether you are aware of this, but FilmOntario also quoted the president of cineFinance, which is a completion bond company. I quote from the statement of the president of cineFinance, which is included in the FilmOntario statement.
Any condition subsequent, such as what I understand is being discussed, would prevent us from issuing our bond and I believe would have a serious detrimental impact on the ability of banks and other financiers to provide financing for independent films.
If they were unable to issue their bond, what would be the effect on your subsequent financing?
Mr. Morrice: You would see fewer films with high-risk elements in them. You would not see the explosions you saw in Bon Cop, Bad Cop. You would not see anything involving outdoor shooting near as much. You would still see films, but they would look more like My Dinner With André, in which the production elements were controlled because you had two people sitting and talking to each other. You would see a narrowing of the productions.
Senator Fox: The bottom line is that if they could not issue a completion guarantee it would be have a very real effect on the financing of films in Canada.
Mr. Morrice: It would.
Senator Fox: The minister in her testimony indicated that if some films were not eligible for the tax credit system under the guidelines that she proposed, and the guidelines would go beyond the usual Criminal Code provisions, it would be a subjective decision as to what would be available. She believes there would be other financing available. I am not asking you to endorse my proposal, but this is a bit of a Marie Antoinette proposal. If you cannot eat bread, eat cake. Where would the cake come from if the bread were not available?
Mr. Morrice: There might be money available — though it is unlikely — but any available money would be much higher risk capital than either of our organizations currently provide. With the risk, they would be looking for substantial returns.
Senator Fox: I assume there would be no completion bond here either because there is no tax credit at issue?
Mr. Morrice: Now we are talking about a much higher risk type of financing opportunity — not a loan but more of an investment. Any funds provided in that situation would erode any money that the producer would ever see from the project. If the project turned out to be enormously successful, that financier would be looking for the majority of that upside to compensate for having taken the risk of providing money in this uncertain situation.
Senator Fox: I am told by some small companies in Montreal that do $3-million productions that they count on an advance of the tax credit at the beginning to do their film. Obviously the film is not made, and at the end of the day the film would be judged under the proposed ministerial guidelines, which can change from one day to the next because they are not regulations. What effect would that have on your decision to advance the financing on the tax credit?
Mr. Morrice: Predictable.
[Translation]
Ms. Morissette: We would not be able to provide funding. An advance from lenders against the tax credits is required in probably 90 per cent of the projects that are carried out. I think it would be extremely difficult.
Furthermore, they need to get their hands on this money very quickly because they may have been working on a project for some time. Once the go-ahead is given, they need to go into production quickly, either because of the season, or because a particular actor is available. Often, funds need to be advanced within a 48-hour period or within a week. This would be impossible without some assurance that the funding is available.
Senator Fox: I take it then from your answer that you were not consulted by the department on the possible implications of these changes to the financing structure.
Ms. Morissette: That is correct.
[English]
Senator Johnson: What specific criteria do the banks and investors consider in determining whether to get involved in a film project, particularly in your case where this is specifically what you do? How integral are your tax credits?
Mr. Morrice: The tax credits are a critical part of the financing for most Canadian projects. Very few Canadians projects are over-financed; mostly they only just get there. Any reduction on any factor in their financing structure simply means that they cannot even commence. For us to perform our analysis, we get the financing structure. On a $10-million project, we see where every penny of every dollar is coming from. We perform analysis on each of those entities.
In the early 1990s, I remember there was a Canadian film with an $11-million budget, and I believe there were 27 sources of financing. It was a Canada-U.K. co-production. I think it was Jessica Tandy's final starring roll as a U.K. citizen. These are very complex financings, and we look at every item in the financing structure to make sure the buyer is able and willing to pay that amount when the film is completed and delivered. The tax credit is an integral part of that. If the tax credit is not available, then we no longer have a fully financed project.
Senator Johnson: How about the content? How closely is that scrutinized in a project before you invest in it?
Mr. Morrice: Again, we come to investing versus lending. We see a very clear line. We get repaid; investors recoup. If the film goes on to make $100 million, if all we have done is a straight interim financing, we get back only our loan and our interest. We have no carried interest in the film. There have been a couple of occasions in the 100 deals we have done to date where we have had a carried interest, but that is quite unusual. It is an important distinction, because we receive only the rates of a bank as opposed to the rates of an investor.
Senator Johnson: You have your own standards for discriminating or choosing projects that have gratuitous violence and pornography. Therefore, the proposal in Bill C-10 is not something you want. Is that correct? Does another layer of financing need to be added to films in Canada?
Mr. Morrice: Bill C-10 introduces a factor that is not objective or consistent. It makes the job of assessing each of those financing sources much more difficult because we can no longer determine whether the money will actually be payable. We will not know until much after the fact.
Few producers can afford to have a lender demand that they return the money that was lent to a production. We are talking about millions of dollars in many cases.
Senator Johnson: Are you in Manitoba?
Mr. Morrice: We are based in Toronto.
Senator Johnson: Ms. Morissette, are you mostly in Quebec?
Ms. Morissette: We are all over the country.
Senator Johnson: Why do you think Quebec has produced more films in the last 20 years than the rest of Canada proportionally? It is an important point. I run a film festival, and sometimes we get more films from Quebec than from all of the rest of Canada. There is much more funding there. Is that because of government money?
[Translation]
Ms. Morissette: I am not an expert in such matters, but several of the reasons given by the industry are logical. One is that the culture is different. The public wants to see a film that reflects its culture. There is an enormous pool of talent out there, not only in Quebec but across Canada. Quebec may offer more government programs than other jurisdictions. However, in Quebec, and elsewhere, tax credits are a major source of financing.
[English]
Mr. Morrice: Lending policy directly impacts the activity levels in the production industry. The Royal Bank of Canada adopted film financing as an official line of business in 1994. It set up offices across Canada and made it predictable for producers to be able to access funding to produce television and film programs. There was enormous growth at that time. In 1992, the Royal Bank was doing about $30 million per year in new loans to this sector. By 1997, it did $1 billion of new loans to the sector. Producers had a reliable, consistent and predictable source of interim financing that they could bring to their projects.
Senator Johnson: How many producers are you working with at the moment in Canada and elsewhere?
Mr. Morrice: The Canadian Film and Television Production Association, CFTPA, has comprehensive data that shows there are about 750 active producers in Canada. It also has all the economic and spinoff effects of which you were speaking. The latest report came out in February. I strongly recommend it.
[Translation]
Senator Biron: Ms. Morissette, you stated if the bill is adopted, perhaps 90 per cent of the loans would not be financed because of the uncertainty generated by the new legislation.
What would this represent, in terms of economic losses? Are we talking about hundreds of millions of dollars? Do you have any idea?
Ms. Morissette: Given the provisions on public policy, it would be difficult for the bank to do 1 per cent of the financing currently provided for Canadian productions. I would need to see figures that exclude US productions, but I do not have them with me. Film production in Canada is a $3 billion industry, or thereabouts.
[English]
The industry is $5 billion.
Mr. Morrice: Again, the CFPTA report is helpful.
Senator Biron: That would be important for the impact on the economy for all of Canada.
Senator Meighen: I have to get in quickly before you rule me out of order, Mr. Chair, because my question is not tied to Bill C-10.
Mr. Morrice, if you will forgive me, judging by the fact that you have one or two grey hairs, I venture to say you may remember the 1980s and the tax shelters. I am sure Ms. Morissette would not remember that. In those days, there was a lot of interest in that. It sank in a welter of abuse and criticism.
Given your comment that there are few over-financed Canadian films, would the tax shelter — properly administered, run and supervised — be a suitable and helpful method of financing for Canadian films?
Mr. Morrice: That is a loaded question. I think if you asked producers that question you might get an interesting answer. Before 1995, producers were actively lobbying for the tax credit to replace the tax shelter structures. Of the money diverted into the tax shelters, only about a third was winding up on screen in the representations of the producers. They thought the tax credit would be a more effective tool in getting the money directly onto the screen.
They did not realize that by the end of the time frame for tax shelters, money was being paid up front on the first day of production, whereas sometimes the tax credit was not available until two years after production. They were giving up dollars today for future dollars that were subject to the inspection of CRA auditors, or in those days Revenue Canada auditors. Many producers may have changed their minds over which scenario they would like to operate under: the certainty of a tax shelter or the uncertainty and delay associated with the tax credit system.
As a banker, we did not make anything on money that showed up on day one. However, when we are lending against the Government of Canada's commitment in the tax credit and that loan is outstanding for a couple of years, that is money being earned by banks and lenders that is taking money away from producers.
The Chair: I would like to thank you both very much for coming. You have added much to our debate.
The committee adjourned.