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. 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. 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.
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.