VAT-exemption or tax credits for newspapers?

VAT-exemption skews the Norwegian media support system in the big newspapers' favour. A look at alternatives.

New­spa­pers are con­side­red to be impor­tant pro­vi­ders of infor­ma­tion, cul­tu­re and lan­gua­ge, and have a redu­ced Value Added Tax (VAT) in most countries. In Nor­way, new­spa­pers are not sub­ject to VAT at all, but this poli­cy might chan­ge. A Media Sup­port Com­mittee was appointed by the Govern­ment last autumn, and will sug­ge­st a new regi­me for media sup­port in a Green Paper that is expec­ted to be issued before New Year 2010.

The cur­rent tax exemp­tion amounts to about NOK 1.5 bil­lion of the NOK 1.8 bil­lion com­pri­sing total Nor­we­gi­an press sub­si­dies. Today, the tax exemp­tion is reserved for new­spa­pers’ print editions, and new­spa­per com­pa­nies are figh­ting despe­ra­te­ly to retain this pri­vi­le­ge. At the same time, they want to bring this eco­no­mic advan­ta­ge over to their electro­nic ini­tia­ti­ves.

In a time whe­re digi­tal dis­tri­bu­tion is becoming increas­ing­ly impor­tant, it will be dif­fi­cult for the Media Sup­port Com­mittee to argue that the large­st sup­port com­po­nent should be reserved for printed new­spa­pers. This can be com­pared to finan­cial­ly sup­por­ting com­po­sers under the con­dition that they relea­se their music on vinyl records!

A pos­sib­le solu­tion could be to intro­du­ce a plat­form-neut­ral redu­ced VAT. The Media Busi­nesses’ Associa­tion recent­ly agre­ed on a com­pro­mi­se pro­po­sal in which a redu­ced VAT on “cul­tu­re” will be an impor­tant part of the futu­re media sup­port. This com­pro­mi­se is expen­si­ve. Accor­ding to the pro­po­sal, print new­spa­pers will keep their tax exemp­tion, whi­le onli­ne new­spa­pers, magazi­nes and the spec­ia­list press will get a redu­ced VAT, rat­her than today’s full VAT. 

Intro­du­cing a redu­ced VAT for the press will also crea­te pro­blems of delimi­ta­tion. Deci­ding who qua­li­fies for tax exemp­tion can be dif­fi­cult enough under the cur­rent regi­me, but it may pre­sent a far more urgent pro­blem in a digi­tal world whe­re the dis­tri­bu­tion of jour­na­lism, music, telep­ho­ny and she­er enter­tain­ment increas­ing­ly con­ver­ges. It is the­re­fore impor­tant to com­ply with the intended aim of the VAT, name­ly to rai­se money to the Trea­sury. Sub­si­dies should be pro­vi­ded through other, more targe­ted arran­ge­ments.

Accor­ding to the Media Sup­port Committee’s man­da­te, media sup­port is pri­ma­ri­ly aimed at main­tai­ning a diver­sity of media and cul­tu­re to ensu­re broad pub­lic access to news and high qua­li­ty deba­te. Exis­ting sub­si­dies are large­ly a pro­duct of poli­ti­cal hor­se tra­ding and his­to­ri­cal coin­ci­den­ces. The impor­tan­ce of the tax exemp­tion has grown over time and has resulted in an extreme­ly dis­tor­ted dis­tri­bu­tion of total sub­si­dies towards the major new­spa­pers. This is hard­ly inten­tio­nal. Had the press been sub­si­dized in the form of jobs, the Media Sup­port Com­mittee would have some 2,000 jour­na­lists to spre­ad among the country’s news­rooms. The cur­rent norm of dis­tri­bu­tion cor­re­sponds to a situa­tion in which 540 such jour­na­lists would have been desig­nated to the two large­st new­spa­pers, VG and Aften­pos­ten, both located in Oslo. From a qua­li­ty per­s­pec­ti­ve, sup­por­ting lar­ge edi­to­rial environ­ments is impor­tant, but such an extre­me sub­si­di­sing of the large­st media com­pa­nies in the coun­try is hard­ly a cost-effec­ti­ve way to crea­te media diver­sity.

An inter­e­s­ting alter­na­ti­ve sugge­stion comes from Sven Egil Omdal of Stav­an­ger Aften­blad. Omdal sug­gests sup­por­ting jour­na­li­s­tic work direct­ly through, for examp­le, geo­grap­hi­cal­ly dis­per­sed work grants channe­led to talented indi­vi­duals. Jour­na­lists are impor­tant pro­du­cers of know­led­ge and eco­no­mic rese­ar­ch sup­ports the claim that the free mar­ket fails to pro­du­ce enough know­led­ge on its own.

Selecti­ve and direct sup­port of the type Omdal pro­poses would be more accu­ra­te than the VAT exemp­tion, but exten­si­ve direct sup­port also has its draw­backs. Eva­lua­ting a lar­ge num­ber of pro­ject appli­ca­tions requi­res a lar­ge admi­ni­stra­ti­ve appa­ra­tus and may easi­ly end up as an are­na vul­ne­rab­le to lob­by­ing. Indi­rect sup­port through the taxa­tion sys­tem is cheaper, more robu­st and pro­vi­des grea­ter pre­dicta­bi­li­ty for the industry as it is not allo­cated over the sta­te bud­get from one year to the next.

One sugge­stion that has been pro­moted in the Ame­ri­can deba­te on press sub­si­dies is tax deduc­tion for edi­to­rial positions[1]. This form of sup­port finds its paral­lel in the Nor­we­gi­an “Skatte­funn” sche­me, whe­re com­pa­nies rece­i­ve tax credits for invest­ments in R&D — anot­her form of know­led­ge production[2]. As major news­rooms car­ry grea­ter labor costs than smal­ler news­rooms, such an arran­ge­ment would also bene­fit the major com­pa­nies, how­ever this sup­port would not be tied to cir­cu­la­tion and would not be lin­ked to the VAT rate. This pro­vi­des more free­dom both in terms of over­all sup­port and in terms of dis­tri­bu­tion. The Nor­we­gi­an R&D tax credit sche­me, for examp­le, applies dif­fe­rent tax rates for lar­ge and small busi­nesses, and places a limit on the total tax credit to pre­vent lar­ge com­pa­nies such as Stat­oil and Tele­nor from cap­turing more or less the who­le pie.

Today’s tax exemp­tion implies that the five large­st new­spa­pers in Nor­way obtain 40 per­cent of total press sub­si­dies. The Media Sup­port Com­mittee will need to pro­vi­de a very good jus­ti­fi­ca­tion should this situa­tion con­ti­nue.

Foot­notes
1. See e.g. “The Death and Life of Ame­ri­can Jour­na­lism” by Robert McChes­ney and John Nichols.
2. The Dutch R&D tax credit sche­me, WBSO, may repre­sent an even bet­ter model for indi­rect media sup­port than the Nor­we­gi­an Skatte­funn-sche­me as it is based on rese­ar­chers’ wages. The tax bene­fit con­si­sts of a reduc­tion in wage tax and social security con­tri­bu­tions paid for emp­loy­e­es car­ry­ing out R&D. In 2010 the R&D deduc­tion is 50% of the fir­st € 220,000 in R&D wage costs and 18% for the remai­ning R&D wage costs. Start-up com­pa­nies rece­i­ve as much as 64% of the fir­st € 220,000.

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KOMMENTÉR
  1. Sven Egil Omdal sier:

    Josh Stearns, som er sen­tral både i FreePress.net, en av USAs største og vik­tigs­te lobby­or­ga­ni­sa­sjo­ner for medi­e­re­form og styr­king av pub­lic ser­vice media, og søs­ter­or­ga­ni­sa­sjo­nen SaveTheMeda.org, har blog­get om Møens for­slag: http://www.savethenews.org/blog/10/11/08/proposal-subsidize-journalists-norway

  2. […] digi­tal age. Recent­ly, Vox Pub­li­ca, a web­si­te discus­sing the evo­lu­tion of Nor­we­gi­an pub­lic media, pub­lis­hed an in-depth look at the debates hap­ping in Nor­way and some of the poli­cy changes under investi­ga­tion […]

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