There is now a good opportunity to set the course for success in the new year: Without party-tactical manoeuvring and fact-oriented assessment of the empirically proven facts, there is nothing to be said against and much to be said for quick resolutions on the Film Subsidies Act (FFG) to be reformed and the new version of the existing, tried and tested Research Allowances Act to be passed - with adjustments for film production as a tax incentive model. With the courage of the political players, the way is clear for quick new elections. However, the decisions are of such central, existential importance for entrepreneurs and jobs that no delay until next year can be risked. Germany has a long tradition of managing major crises. In an international comparison, an economic policy that attracts private capital for an entire industry and generates framework conditions for successful existing economic players has always been more successful than microeconomic measures for individual companies selected by politicians. Rarely do the various stakeholders in an industry agree on what needs to be done. This is the case here and should therefore be listened to by the members of the Bundestag. The reforms currently being supported by a broad community in the industry to create competitive framework conditions will inevitably lead to the implementation of major international and German projects in Germany.
One political school of thought sees the collective at the centre, with an active state that strongly regulates and helps citizens: redistribution from the successful and therefore wealthy to those who need help. As a consequence, the state must cover all expenditure itself, which can only be achieved by increasing taxes or debt. In Germany, the SPD and the Greens in particular follow this concept, in the USA it is the Democrats.
Liberal-conservative policies aim to reward the "hard-working", primarily through tax relief. Success factors should remain in the country and successful people and companies from abroad should be motivated to settle here. If the concept works, private investment in infrastructure and higher tax revenues will bear a large part of the burden that the state would otherwise have to shoulder. In Germany, this is part of the party programme of the CDU/CSU and the FDP; in the USA, it was actually the DNA of the Republicans before Donald Trump's MAGA takeover.
Entry into competition with other locations is based on more attractive economic framework conditions, which are supplemented by generally accessible sector programmes (here we would speak of automatic promotion) in order to compensate for structural disadvantages or provide additional incentives. In theory, these incentive models should only be used temporarily until the structural framework conditions are in line with international competitiveness.
Due to the constantly growing global market for entertainment production, there is a worldwide promotional effect that is expected by international players. This is due in particular to the leverage effect that film productions have on an economy (SPI Olsberg speaks of the ripple effect, others of the leverage effect). Every production budget euro (or dollar) spent locally generates additional expenditure by the crew in local private activities, improving the marketability of the region for tourism or increasing the attractiveness of a location for attracting international skilled labour for other industries. This effect has been regularly proven worldwide by recognised experts and is also undisputed among fiscal specialists. In the international system, the producer therefore receives a kind of indirect reward through automatic, expenditure-driven promotion.
In order to honour the local spend of the producer, offsetting against tax liabilities has proven itself internationally. Depending on the specific model, these are called tax incentives or tax credits, for example. The difference often lies in the redeemability of these tax credits, i.e. whether they can be converted directly into cash, sold to other taxpayers or offset against a company's own tax liabilities. With the DFFF, Germany has opted for a genuine subsidy programme: a non-repayable grant. Incidentally, all of these distortions of competition are regulated in the EU, whereby smaller countries or smaller volumes can benefit from exemptions.
The massive economic effect of these incentive models can be seen in the UK, Hungary and Canada. Even within the USA, the country with the highest level of investment in the entertainment industry worldwide, the states are competing with each other. Shortly before the US election, the budget increase of the Californian subsidy system to bring back TV productions from neighbouring states that had already migrated caused a stir. The economic strength of Democrat-ruled California had declined so much that the state wanted to do something to counteract the exodus of many skilled workers, top performers, investors and celebrities from its prosperous, Republican-run neighbours.
As a rule, locations with little economic strength of their own try to attract foreign projects. Only production activities, i.e. filming, post-production and VFX, generate a significant economic effect through the described leverage effect. Germany has the great advantage of having its own successful, substantial creative industry. Germany's strong economic power is also reflected in the direct income available through the sale of cinema tickets and streaming subscriptions as well as indirect marketing income, where content is needed as an audience magnet and "advertising packaging".
The laws currently being discussed to improve the local framework conditions, which are about to be implemented, would also have a direct impact on Germany as a business location in the short term. In film, even unskilled workers, both in front of and behind the camera, are traditionally paid comparatively high wages. The entry barrier is lower than in most other industries. Production activity is not limited to urban centres, but extends across the entire country, from the Black Forest to the Baltic Sea. Strong production activity also sustainably strengthens infrastructures in structurally weak regions. Hardly any other sector has such strong growth forecasts as the entertainment industry. Innovative technologies and manufacturing, both absolute strengths of Germany as a business location, can look back on a long tradition and international reputation. The potential for employment, location marketing and ultimately tax revenues is unrivalled.
The list of benefits goes far beyond the scope of this article and is well documented in numerous scientific papers and specialised literature. Each individual can now use their voice, reach and network to help improve the location. As described at the beginning, there are different schools of thought on economic policy. This package of measures is in line with both positions and could therefore also serve as a model for other sectors of the economy. Help us to improve our location - together.
P.S.: The subject matter of this article is not without complexity and gender labelling makes it more difficult to read and understand. It goes without saying that we support equality, justice and inclusion, regardless of origin, gender, faith and political views.
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(Author: Markus Vogelbacher)
Image created with the help of OpenAI's DALL-E