Tax incentives in the picture

When Irish film producers gather in Galway today for The Big Picture, an international conference examining future trends and financial strategies in the audiovisual industry, many of them will find much to discuss in Charlie McCreevy's announcement in his Budget this week on the future of tax incentives for film.

The uneasiness in the industry earlier this year, fuelled by a slump in production and uncertainty over the future of Section 481 incentives, has been somewhat abated by an increase in production levels this autumn, and now by the Minister for Finance's announcement - but not all will be happy with the scope of its provisions.

Acknowledging the disappointment at last year's decision that Section 481 would only be extended for 12 months, the Minister declared that there had been "misplaced concern" as a result about the future of Section 481.

The 12-month extension had been agreed pending the report from the "think tank" (Strategic Review Group) established last year by Minister for the Arts, Sile de Valera, to look at the future of the industry.

The incentives are now secured for the next five years - the longest ever commitment to Section 481, which up to now has been renewed every three years since it was first established (as Section 35) in 1987. But the think tank's recommendation that 100 per cent relief should be restored for films with budgets of under £4 million has been ignored. The think tank's rationale was that the great majority of indigenous films - as opposed to offshore productions like Saving Private Ryan - would benefit from 100 per cent relief (which applied to all films in the earlier days of Section 481, but which was reduced some years ago to 80 per cent at the height of the so-called Irish film boom).

Reaction to Wednesday's announcement has been mixed. Rod Stoneman, chief executive of the Irish Film Board, issued a positive statement about the decision. "The Board welcomes the Minister's renewal of Section 481 until the year 2005, despite a general climate where tax incentives have been abolished or reduced," he says. "In this context, the Government's commitment to the Irish film industry must be welcomed."

Not everyone is so happy, though. Another state body, the Screen Commission of Ireland, which promotes the State as a production location, expressed its "dismay at Mr McCreevy's myopia" and criticised his "apparent lack of interest in and understanding of the film and television industry".

FILM Makers Ireland, the organisation representing independent producers, immediately issued a press release expressing "bitter disappointment" at the Government's failure to implement one of the key recommendations of the think tank report.

"With marginal tax rates in decline, it's getting harder and harder to attract investment in feature film," said James Flynn, Irish producer of Angela's Ashes and chairman of FMI's film subcommittee. "I predict that today's announcement of relief at 80 per cent could lead to a collapse in finance available to Irish producers."

However, some hours later, Flynn contacted this writer to qualify that initial response. "One hundred per cent relief would have been a huge boost to indigenous production, but it is an achievement to get the incentives extended, particularly as it's for the next five years."

Flynn's chief concern, along with other producers, centres on the overall effect of tax changes in the Budget on Section 481. With marginal tax rates reduced to 44 per cent, and projected to fall to 40 per cent in the next two years, the investment in film production becomes progressively less attractive, and the net benefit to producers is reduced. (Without going into the arcane minutiae of Section 481, suffice it to say that it effectively functions as a tax shelter shared between "investors" and producers, rather than as a real risk investment.)

"There is a proposal in the think tank report that the relief might be adjusted to take account of changes in marginal tax rates," says Flynn. "If that's reflected in next year's Finance Bill, then that would be positive. If not, then my original comments still stand."

Flynn sees this week's appointment of Ossie Kilkenny as the new chairman of the Film Board as a hopeful sign. Kilkenny also chaired the think tank, and his new appointment, Flynn believes, signals a commitment to continuity and to implementing that body's policies.

But other producers are much more critical. "The only concrete fiscal recommendations in the report have been ignored. It flies in the face of the think tank's recommendations," says David Collins, the overall chairman of FMI. "The very least we would have expected was some improvement in the incentives to reflect the change in marginal tax rates.

The politicians have taken the easy option of appointing the chair of the think tank as chair of the Film Board. I would hate to think that in three or four years' time, the think tank would be seen as having been some sort of shabby PR exercise, but the Minister hasn't given us any comfort."

According to Collins, the relative weakness of the Irish pound vis a vis the dollar and sterling is more important to producers than the incentives at the moment. "But the whole point of this is that we're trying to inject some kind of stability into this industry. The supreme irony would be if, by the time it comes up for renewal again, it's seen to have been worthless."