Levies as end-runs around the Generic Tax Policy Process

A few years ago, Willie Jackson proposed levying tech platforms to fund news outlets. 

I'd warned that this kind of thing amounts to a dangerous end-run around IRD's generic tax policy process.

Levies can make sense in some contexts. If a producer group agrees to be levied to fund research or marketing that has industry-wide benefits, that's fine. Agreement tests whether those benefitted actually benefit. 

Or if it amounts to a user-charge that can't easily be collected in other ways. It requires a tight link between what's being funded and who's being levied to pay for it.

But Jackson's proposal was nothing like that. There's no link between tech platforms and news outlets that would warrant a levy. 

The levy instead tried to use force to recreate a relationship that had been superseded by technological change. In olden-times, newspapers were the best place for advertisers to reach customers. Google and Facebook became better ways of linking advertisers with eyeballs. Since platforms 'stole' that link, it must be reforged through levies. It's a terrible approach to tax and tech policy. 

Paul Goldsmith was initially enthusiastic about continuing with that approach when he was made Minister, but it's since been shelved. 

Now Goldsmith's back with a new levy proposal. This time, Disney and Netflix will be levied to fund NZ content creation. 

Same problem as last time. There is no link that justifies a levy here. 

NZ taxpayers subsidise local content creation; it gets broadcast on by anyone willing to pay for the rights to distribute it. It's a generally decent approach because what gets created still faces a market test. NZ content creators are perfectly free to license to Netflix or Disney or anyone else who's willing to pay, and those outlets will be willing to pay if they expect the additional offerings to get or keep subscribers they otherwise would have missed. It's fine.

Irene Gardiner, president of NZ Screen Producer's Guild Spada, has views:

“The big international streaming companies operate here without any regulation. They don’t pay company tax here, they use our broadband infrastructure that the taxpayers paid for, and they have no requirement to commission any local content or contribute to the New Zealand screen sector in any way.

“We’ve been lobbying the Government for some form of legislation in this area for over two years.”

Gardiner worries that after legislation was introduced in Australia last year, New Zealand is getting “left behind” – particularly amid the “devastating” impact of streaming services and Big Tech on local media.

“If any of the big streaming companies, Netflix or Apple or Amazon, had taken a genuine interest in commissioning in New Zealand and done some significant commissions in the long time that they’ve been operating, I think we’d feel differently. 

“But the reality is that they haven’t, and so if they’re not going to do it voluntarily then here we are.”

Households pay for broadband. Their broadband subscriptions help cover the cost of the broadband network. They can choose to stream whatever over that fibre, including Netflix or Disney or Amazon or whatever else. 

If Kiwi subscribers put value on seeing NZ content on any of those platforms, those platforms would have incentive to offer it. As it stands a lot of NZ content is only available on really crappy NZ services where you can't pay to avoid ads. If Kiwi viewers hate ads more than they like seeing NZ content, then they won't watch there. You could maybe make a case that international streaming platforms, by offering a far better product, wind up meaning declining viewship for stuff only available on TVNZ+ - but that would be a case for TVNZ+ to start offering a no-ads subscription version. 

And presumably any platform seeing potential gain in it could outbid TVNZ+ or whoever else for the streaming rights. If they aren't, then the benefits they see in increased global subscriptions aren't worth the cost - even though the product's creation and consequent cost was likely heavily subsidised through existing content subsidy schemes. 

If there were a principled tax-policy basis for taxing international digital platforms, that case should be evaluated through IRD's generic tax policy process. 

This levy-based approach will prove increasingly tempting to a government that does not want to reduce spending to meet its tax revenue, doesn't want to increase taxes transparently, and wants to provide services through other funding mechanisms. 

Coming up with new tied levies is a way of short-circuiting all of that. "It's not a tax, it's a levy" to keep the Taxpayers Union from yelling at them (probably won't work) but also to keep it away from IRD analysis on whether the proposed tax is coherent with the rest of tax policy.