Why the Liberals Don’t Want to Tax Netflix

Well, I’ll say this much for the federal Liberals: their culture policy does not Netflix and thrill.

(Sorry. I’m so sorry.)

Cast your mind back to September, which in the distorted hyperreal time of 2017 feels like it was 30 years ago. The federal government unveiled its new Canadian culture policy, whose centrepiece was a commitment from Netflix to spend $500 million on Canadian content over the next five years as well as building a permanent production facility inside the country.

At first blush, it looks pretty good. Netflix is at the vanguard of changing trends and habits in both media consumption and production. Millions of people in this country have a subscription to the service that they use to either supplement, or altogether replace, their cable television subscriptions. If the future of film and television in Canada is one dominated by streaming services—lead for the foreseeable future by Netflix—then it makes sense to incentivize the company to produce more Canadian content.

According to Digital Mosaic, David Taras’ 2015 study of the Canadian media landscape, Canada is the only country in the developed world whose citizens prefer watching foreign programming to watching domestically-produced television. Protecting and shepherding Canadian cultural production from the American cultural juggernaut was already an uphill battle when content regulations were brought in back in the 1970s, and the changing media landscape makes that even harder today. It’s much easier for the federal government to work with major companies like Netflix than against them, and this deal very much fits within the Liberal modus operandi of encouraging established or aspiring private behemoths to come in and revolutionize the country’s economies. Consider the Netflix deal along the same lines as the infrastructure bank, or the plan to cultivate “innovation superclusters” from coast to coast to coast.

There is, however, a slight problem with all this. While Netflix has committed half a billion dollars to Canadian content production over the next five years, they do not appear to be subject to any of the other Canadian content regulations that media companies in Canada are required to obey. Nor will they be subject to many (or any) of the taxes as their purely homegrown Canadian competitors.

The worry from the Canadian culture industry is that the Liberal policy effectively gives Netflix an unfair advantage vs other Canadian content producers and distributors. Canadian companies have to charge sales taxes to subscribers (even for Netflix-like digital subscription services like Bell’s CraveTV), meet minimum Canadian content requirements among their media offerings, and contribute a remittance to the Canadian Media Fund to finance domestic cultural production. Rather than prop up Canadian media content in a brave new digital world, the fear is that in the long run this is just going to give a powerful American company a new branch plant in Canada while ultimately undercutting Canadian culture.

These concerns are especially pointed in Quebec, where cultural producers are especially concerned with producing (and protecting) French-language works. Cultural workers in that province worry that programming decisions at Netflix will ultimately be made at a remove from the province—whether elsewhere in English Canada or even at Netflix’s headquarters in California—putting Francophone works at a far starker disadvantage than those of their Anglo peers, who will have an easier time pitching to an American company. The province’s artists and politicians are especially incensed that Netflix won’t be paying any Canadian sales taxes, on the grounds that it cuts governments out of money that could be used to support domestic producers to either appropriately work with—or compete against—US giants like Netflix.

So while the Liberals’ Netflix-centred cultural policy has gone over like a lead balloon with many cultural workers across the country, the blowback has been harshest in Heritage Minister Melanie Joly’s home province. Because Quebec is one of the few provinces to take the politics of cultural production seriously—for better and for worse—the National Assembly there has already voted unanimously to subject the streaming service to its provincial sales tax. The province is wary, however, of how easily it will be to collect those taxes from online companies based outside its borders (or even internationally) without the cooperation of those companies. This may be difficult to secure given that the federal government seems aggressively disinterested in pursuing them.

Then again, just how ‘aggressively disinterested’ depends on who you ask. Joly, required to strike a precarious balance between holding the party line and not becoming a human sacrifice on the altar of Quebec Culture, has mostly just demurred that she is not opposed to a federal tax in principle, but that it remains fundamentally out of her hands. Taxation is, after all, the finance minister’s job. Meanwhile, poor Bill Morneau—who would surely prefer to never take a question about a controversial tax again in his life—on this question takes all his marching orders from prime minister Justin Trudeau. And Trudeau, as we all know, is very emphatically against raising even the spectre of a tax on Netflix.

While there are obvious obstacles to collecting sales taxes levied at foreign-based companies that operate primarily online, it’s not impossible, and even comes recommended by a recent Parliamentary committee struck to examine this exact problem. Last June, the Canadian Heritage committee delivered a majority report to the House of Commons with 20 recommendations on how to best re-regulate the Canadian media environment in the midst of all this digital disruption.

Among other suggestions, it called for a 5% Canadian content levy on subscription services like Netflix that would generate hundreds of millions of dollars for the CMF as well as level the playing field for Canadian companies. (This levy would be separate from a sales tax, as it would be specifically collected to underwrite the production of new Canadian content, whereas the money collected from a sales tax would simply go back to the general revenue stream of the federal government with no strings attached to where and how it must be spent.)

But both the levy and the idea of a federal sales tax were dead on arrival the minute the Heritage committee report hit the table. Trudeau and Morneau are resolute that nothing even remotely resembling a Netflix tax will ever come to pass on their watch. Predictably, Trudeau has emphasized that this would be a tax hike on the middle class, which is not what his government stands for. It’s hard to avoid the feeling that this is rooted more in Trudeau’s desire not to get roasted by Stephen Harper from beyond the political grave than a deep-seated belief that asking Canadians to pay an extra 45-70 cents a month to watch Stranger Things is an affront to liberal democracy.

Of course, the Liberals have eaten a lot of crow this fall on the tax file, so some hesitancy to take another crack at selling a tax hike to Canadians is understandable. “A man sooner forgives the death of his father than the loss of his patrimony,” and all that. But the Trudeau government is going to have to do a better job of explaining why they’re so reluctant to do this. Allowing Netflix privileged access to Canada’s domestic media market, and allowing them to outmanoeuvre Canadian companies and cultural workers in production, content requirements, distribution, and tax burden seems like it’s going to do more damage to the prospects of a “Canadian” middle class in the long run.

Follow Drew Brown on Twitter.