Advertising tax credit could make tomorrow’s bread today

You might not have to take the horse to France to get consumers to spend again

In Italy, where Venice shopkeepers gathered on Monday to call for a reopening, the government has introduced a 30 per cent tax credit on advertising in certain media. Photograph: Marco Sabadin/AFP

In Italy, where Venice shopkeepers gathered on Monday to call for a reopening, the government has introduced a 30 per cent tax credit on advertising in certain media. Photograph: Marco Sabadin/AFP

 

With television ad breaks not overstaying their welcome at the moment, one particular commercial might be leaping out for some. “You know who I am? I’m today’s bread today. I’m the one who is taking the horse to France, ” it begins.

Yes, you know who it is. It’s the television ad for, er, television advertising, here to claim it can and does “make your brand unforgettable”. Featuring actor Adam Weafer – better known as David Hennessy to fans of late Irish soap Red Rock – the “TV builds brands” campaign bears the logos of RTÉ, Sky, Virgin Media Television, Nickelodeon, Channel 4, TG4 and Eir Sport, hailing from them and audience measurement body TAM Ireland.

Made by Virgin Media Television’s in-house team Red Hot Creative, the ad first ran in late 2019, returning in March just as a rake of advertisers cancelled or deferred campaigns they had planned pre-pandemic.

It’s the kind of message-sending collaboration that we should see more of across the media as times get tough. It recalled for me a cross-media one, from the heady days of 2012, that valiantly tried to nudge advertisers into thinking that any cuts to their 2013 ad budgets would be counterproductive.

On that occasion, the aim was not to promote the reach and value of one particular medium, but to hammer home the message that advertising can be an engine of recovery and growth. Almost every media brand operating in the Irish market backed it, including some that are no longer with us, such as Thomas Crosbie Holdings and UTV Radio.

Pat Kiely, then the commercial director at what was TV3 Group and now the outgoing managing director at the rebranded Virgin Media Television, described it at the time as “a very timely reminder to decision-makers in companies in Ireland that advertising is an investment and not a cost”.

So why isn’t there a tax credit here for advertising? Previous efforts to persuade the Government that such a policy would be worth the cost have met with scepticism

The 2012 campaign also cited 1980s research by McGraw-Hill that studied how the sales of companies that advertised aggressively during the 1981-82 US recession – at that point the worst downturn since the Great Depression – enjoyed significantly higher sales after the economy recovered than those that went “dark” on consumers: they were 256 per cent higher, to be precise.

Indeed, it is a frequently upheld logic that having a better share of voice than your competitors will pay off (unless the advertisement itself is a creative disaster). That’s not the same as saying the more advertising is out there, the more readily consumers will open their wallets to see what’s left inside.

Consumer spending

But that case is often put forward too. In 2017, a report commissioned from Deloitte by the World Federation of Advertisers argued that advertising contributed €643 billion to GDP across the European Union. The Value of Advertising report, in talking up the ability of advertising to spur consumer spending, innovation and employment, claimed that for every €1 invested in advertising, €7 was generated for the European economy.

An Irish report that same year, by Core chief executive Alan Cox and economists Jim Power and Chris Johns (who writes for The Irish Times), suggested that every €1 invested in advertising in the Irish market delivered a gross sales return of €8.26 and a net return on investment of €5.44.

So why isn’t there a tax credit here for advertising? Previous efforts to persuade the Government that such a policy would be worth the cost have met with scepticism. Nevertheless, the subject is now back. With the economy once again in a nosedive, a new bid is afoot to persuade the Government that an advertising tax credit would do its bit to drag the Covid-scarred economy into a recovery.

Retailers, cafes, hotels and others will want to explain, amid ongoing social distancing requirements, how they will operate in a way that keeps everybody safe

In a move supported by the web of creative and media agencies contending with an almighty wobble of a year, the Association of Advertisers in Ireland (AAI) has written to Minister for Finance Paschal Donohoe urging the introduction of a 25 per cent tax credit for companies that invest in advertising in 2020 and 2021.

Minister for Finance Paschal Donohoe: was urged to bring in a 25 per cent tax credit for firms investing in advertising.

It’s not a leftfield call. Similar lobbying has taken place in France, Spain, Denmark, Belgium and Finland, with the example they all want followed provided by one of the countries to be worst affected by Covid-19: Italy.

On March 17th, the Italian government introduced a 30 per cent tax relief on advertising spending during 2020. This was doubling down on an existing policy. A tax credit for incremental ad spending, already in place pre-coronavirus, means that if a company increases its annual advertising investment in newspapers and magazines (both print and digital) and local broadcasters, a decent tax credit applies to the increased sum.

Restart credit

But for governments that have, up to now, been unconvinced by the merits of a tax credit on advertising have reason to look at it afresh in 2020. This recession is not like the others.

A great deal of companies have, by necessity, pressed pause on their ad budgets in light of the unavailability of their product or service throughout the pandemic shutdown. And yet there will come a time for some – most, hopefully – when they will want to let their previous customers, and perhaps some new ones, know that they are once again open for business.

Retailers, cafes, hotels and others will want to explain, amid ongoing social distancing requirements, how they will operate in a way that keeps everybody safe. And yet they won’t exactly be swimming in cash to place ads or commission big campaigns. To convey useful information that will get their corner of the consumer economy going again, an advertising tax credit could be the answer.

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