The Day the Liberals Walked Away from Canadian Journalism

There is probably one thing about Heritage Minister Mélanie Joly’s re-boot of Canadian media regulation that few anticipated: her September 28th announcement did not make the slightest effort to save Canadian journalism.

Canadian journalism is built on a foundation, namely newspapers. Every day our nation’s dailies ---in print and online--- are safeguarding democracy and satisfying our thirst to know what’s going on in our world.

Local TV stations reach a big audience as well, nevertheless “print” dailies remain the bedrock of local news coverage in over a hundred cities and communities across Canada.

But “print” ---what a misleading term in the year 2017--- is in deep trouble. Its advertising-driven revenue model has disintegrated year after year since 2011, to the point that advertisers no longer subsidize the free or low-cost journalism to which we are accustomed.

To measure the impact on coverage, you just need to know that the headcount of editorial staff at American newspapers dropped 42% between 2003 and 2015, a number that is likely replicated in Canada although no one tracks the numbers as accurately here.

Our biggest newspaper chain Postmedia has such a crushing debt load that the combination of interest payments and sinking ad revenues makes it an odds-on bet to go bankrupt in the next 18 months, according to Moody’s bond rating service.

Joly and the Liberals know all of this. Their consultant Ed Greenspon told them so in his 2016 report, “The Shattered Mirror.” Then a parliamentary committee dominated by Liberal MPs delivered the same message in a June 2017 report. Both Greenspon and the Heritage Committee drew up a thoughtful list of moves the government could make to generate subsidy-supporting revenue or otherwise influence tax policy to help journalism.

Joly and the Liberal cabinet rejected them all.

The Minister’s policy document “Creative Canada” genuflected in the name of journalism, local news and democracy. Journalism was elevated to the rhetorical level of one of “three pillars” of her new policy. It’s just that the pillar was hollow.

It’s not Pollyannish to believe that Liberals want Canadian journalism to survive the coming debacle (maybe you couldn’t say that about the previous government).

So why did the Liberals walk away from Canadian journalism on September 28th?

It’s the Tax thing.

The Liberals clearly have a pathological fear of being tagged as the Tax Party. That’s why the Prime Minister and the Heritage Minister publicly rejected their own MPs’ proposal to tax the delivery vehicle of free online news ----the Internet services owned by Canada’s big media companies--- before the chair of the Heritage Committee Hedy Fry could finish her press conference announcing the idea.

The Liberal tax fear produces such a bad case of self-induced paralysis that they would not even take on the most elementary modernization of media regulation, collecting sales tax on US-owned video services like Netflix. This was a no-brainer from the perspective of tax fairness to Canadian media companies competing with Netflix. Now, given the Liberals’ recent difficulty in explaining Small Business tax fairness, it’s unlikely we’ll see this sales tax issue revisited for a while.

Advocates for Canadian journalism (like Greenspon, Unifor, the Friends of Canadian Broadcasting, and the Heritage Committee, to name a few) knew the Liberals were going to have to navigate dangerous tax waters.

That’s why a proposal was tabled to modernize section 19 of the Income Tax Act, a measure with only the remotest of impacts on Canadian consumers.

The Income Tax Act rewards Canadian advertisers for putting their money into Canadian newspapers and broadcasting, rather than American publications and border stations. Only ads placed with Canadian media are tax deductible. Ads directed at Canadians through foreign-owned media are not deductible expenses and therefore cost more to Canadian advertisers. When these measures were enacted in the 1970s, they boosted substantially the ad revenues of all Canadian media.

The proposal is to extend these pre-Internet tax rules to online advertising. It would stem the motherlode of online advertising dollars being drained out of Canada by Google and Facebook, reclaiming an estimated $500 million in additional ad revenues for Canadian media, while increasing government tax revenues annually by $1.15 billion in corporate taxes that could be put to good use at the CBC or other Canadian media. The research for these numbers is found at http://www.friends.ca/pub/14384

It’s interesting that in the Minister’s public reply to the Heritage committee, she shut the door tight on almost all of their recommendations but, quietly, left the door slightly ajar on revisions to the advertising expense tax rules.

Nevertheless, after September 28th anyone looking for federal leadership on the journalism file may be grasping at straws.

Perhaps the politics will turn around. The Liberals are getting pasted in Quebec for inaction on Netflix. If Postmedia collapses, or another major newspaper goes out of business, the Liberals may remember they actually do believe in journalism.

But it’s getting awfully close to midnight.