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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.

2 KOMMENTARER

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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