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UK Gov't Claims £190m In Savings From Scrapped Game Dev Tax Break
by Leigh Alexander [PC, Console/PC]
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June 25, 2010
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A UK budget with no tax breaks for game developers disappointed the region's industry after months of promises -- but the government says major savings are at stake.
According to CVG Online, the government claims that pulling the tax breaks from the budget saves the country £190 million ($283.54 million) during a time of economic stress. The new budget also raises the value-added tax to 20 percent, makes cuts to National Insurance, and reduces the corporations tax.
But the opposing Labour party -- which, like the Conservatives, had stated a commitment to game developer tax breaks earlier this year -- questioned the figure's accuracy and asked for an accounting verification. The report suggests the number comes from a "repurposing" of data from TIGA, the trade body representing the UK game industry and a vocal lobbyist on its behalf.
"Why are so many of the video games industry workforce leaving the UK at a time when global video game sales grew by 24 percent between 2007-09?" said Labour Minister Luciana Berger.
An as-yet-unverified report yesterday in UK trade paper Develop suggested that the government scrapped the tax breaks under pressure from "one of the biggest game companies in the world", but the report declined to name the alleged publisher.
Today, however, director general Michael Rawlinson of the UK's Entertainment and Leisure Software Publishers Association told GamesIndustry.biz that such an accusation is "totally left of field", and that it "isn't realistic" for one company to be able to stop the process.
"I think it was a cynical move by a government that wouldn't have had to deal with the consequences following the election," said Rawlinson, commenting on the culled breaks.
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"Although the body [TIGA] admits that the planned tax break would cost £192 million, it claims over £400m would be recouped in tax receipts."
"[P]ulling the tax breaks from the budget saves the country £190 million ($283.54 million)."
Reducing the rate at which businesses will be taxed in the future is not a "cost" because the government hasn't taken that money yet, and therefore doesn't have it to spend, which is the normal human being's definition of a "cost."
And choosing not to reduce a tax rate does not "save" money. All it does is continue to extract money from producers at the existing rate. There is no "savings" in the normal (non-government weenie) sense of preserving money that would otherwise have been spent because, as noted above, no existing money is being "spent" when the rate of future taxation is reduced.
This deliberate misuse of language (which is definitely not restricted to the UK government) to portray reducing national taxation as "costs" and preserving existing tax rates as "savings" flows entirely from the assumption that all money belongs to the government to begin with. Only if all money is considered the government's money is it a "cost" to reduce the rate at which government takes that money from the producers who earn it through their labor, or a "savings" to continue taking the existing amount of money from businesses and individuals.
Seen from the perspective that money belongs to the people and corporations who work together to earn it, a reduction in the rate at which the income of UK games producers is taken by the government would mean several things: a future UK government would have slightly less money available to spend; UK games producers would have more money available to them for investment in game development and publishing projects; and -- importantly -- investment in more games production than otherwise would have happened would potentially result in the government receiving *more* money in tax receipts even at a lower tax rate (though perhaps not as much as £400m as TIGA speculates).
But consider: if a reduction (not "elimination"!) of taxes for games producers could actually help generate slightly higher tax receipts to the government through the increase in business activity prompted by the games producers having more money to invest in new projects, then why not apply that logic across the board? Why make a special deal with games producers, which the government could then turn around and threaten to take away? Instead, why not reduce taxation on all producers to enable revenue-generating capital investment throughout the private sector of the national economy?
And by all accounts, that's precisely what the new budget from the UK coalition government proposes... at least for businesses. As Gamasutra reported: "The new budget also raises the value-added tax to 20 percent, makes cuts to National Insurance, and reduces the corporations tax." This is more of a shifting of revenue sources than an actual revenue-generating budget, since the likely benefits of reducing the corporate tax rate will be offset somewhat by hiking the VAT that increases prices everywhere.
Still, it's a step in a better direction than just mindlessly raising tax rates, which fails to maximize taxable new capital by promoting government spending that is less efficient than private sector investment. Gamers don't need to be upset by the coalition government reneging on its promise of a tax break for the game industry specifically -- *all* industries, including game development, will be getting a break if this budget is enacted. (Gamers and everyone else can certainly be ticked off by politicians breaking promises, but that's an old and separate problem from economic policy.)
It's just a shame that so much of the reporting simply parrots the government spin that reducing tax rates to let people and businesses keep more of the money they work to earn is a "cost," and choosing not to reduce any tax rate constitutes a "savings." Reporters ought to be more careful that the language they use isn't unthinkingly promoting a government's self-interested agenda, and news consumers need to hold journalists to that reasonable standard.
Taxes like the one that was supposed to take place in the UK do not cost the government anything until a company ponies up to the table and spends it first. So its not like anyone is being given "free" money like what you see routinely given to more traditional 'arts' based mediums like fine and performing arts, tv & film.
Also with that said its been proven in every jurisdiction where grants have been put in place that the government makes its money back and then some by starting up programs like this. At bare minimum the return has bee 2:1 on every dollar and it gets much higher in locations where these programs have been in place much longer. Much of this return actually comes from retaining and attracting employees as various levels of government make far more in taxes from the individual employee than they ever would from a business.
Simply put the issue here is now how much money that the UK government thinks it might save but what are the long term repurcussions of not investing in their games industry. I can guarentee you that they will lose a lot more than 190M a year in 5 years when the majority of the UK games industry has moved elsewhere (taking their high paying, high spending and high taxed jobs with them) and all that is left are struggling indie studios that have a tough time pushing a dollar further to ensure that they can stay competetive. Short term gain, long term pain.