Home General Discussion

UK tax payers to cover 25% tax break

2

Replies

  • Kwramm
    Offline / Send Message
    Kwramm interpolator
    gray wrote: »

    the corporations want a piece of the chinese consumer market. the chines say ok we will give that to you but in return you have to move the jobs here.

    easier said than done. they're already running out of skilled workers here and thus the wages get up. What China has a are lots of unskilled workers though who can do things at the assembly line. Not exactly the guys you want to sit in front of a Maya workstation.

    The aging of the Chinese society isn't helping either. The 1 child policy made that China's population will age rapidly very soon, just like Japan. Coastal cities like Shanghai already get too expensive for labour intensive work and stuff is moving inland. But that's a game that won't work forever. And people here too want more money - they don't want to be kept poor! Salaries will raise. Maybe at some point eastern Europe will be cheaper than China (although it will lack the amounts of people available here)

    However the internal Chinese market growing is good! Then they will export less and consume more domestically - this goes for games and vfx too. Growth is good. And the Chinese gvt wants internal growth. Compared to western economies China's GDP comes mostly from exports and thus they depend on the west. They want to get rid of this dependence. The Chinese government wants China to be like the US/EU in the long run. They don't want to be a "we steal ur jobs to make cheep shite" country forever. They dream of living like we do - car, family, own home and all. Other countries will get to be those sweatshop places in the long run. But once China's economy, salaries and wages are on par with the west (or at least eastern Europe), the advantage they have now (price) will be mostly gone. Actually that's a good thing (for us and them) - question is, can they achieve it? How to increase domestic spending? How to move from low skilled labour to high skilled labour? How to keep the competitive edge while bringing wages and living standards up - is this even possible?

    And Singapore? Have a look how small it is (5 mio people. compare this to the EU/US). Plus the locals don't like influx of foreigners that much - there's even been a rare protest not long ago. So even if there's 2 or 3 mega studios in Sgp, how is that going to threaten all of the rest of the world? Plus it's not that cheap there either. It sure is more expensive than China. And China is already more expensive than India - except the Indians don't like being herded into Foxconn style factories. That model just doesn't work there. Plus their infrastructure is worse.
  • gray
    @almighty_gir

    thats a nice little chart. take that to some studio heads and see if you can get a job as there lead tax attorney. because you have the whole equation there in just 5 lines. unfortunately there response will be to laugh you out of the building.

    taxes don't work like that. they have an over paid teams of attorneys. there job is to soak up every last available pound they can get there hands on. one thing you can be sure of the production cost and the all the other figures will be massaged to key numbers to give them the maximum available tax subsidies they can get.
    the current tax break/subsidy available per production is $178 million U.S. and its based on a variety of production costs and earnings not just turnover profit. they have to file a prospectus with estimates and sign contractual guarantees in both directions. and like i said earlier that credit is now 'transferable' which means its as good as an asset they can use to borrow against etc. its essentially as good as cash at this point.

    if an average production cost between 200-300mil i'm sure they will shift there cost and profit in the right way to get 25% of the production covered by subsidies and still come in well under the maximum.

    directly from the bbc article.

    "The scheme would see 25% tax relief offered on up to 80% of a game's production budget if the cash was spent designing, producing and testing the title in the UK. "

    production budget not just revenue. that can be anything and everything right down to drinks at the pub. they essentially want to bring the game subsidies into line with film. and we all know how well that is working out. its just tit for tat with canada or who ever is next to break out the cash for jobs scam.
  • gray
    @kwramm

    some solid points. it gives me a little hope i'm wrong :).

    the only thing i will pick at is the aging population bit. i dont really buy into that. thats the sort of thing that is put out there in the media by the business lobby capitalist so they can increase immigration and outsource. there is not much proof that a higher median age in an advanced society will cause huge economic dislocation. it has not stopped china from achieving gdp figures for the past 20 years that make the rest of the world look like destitute losers. germany is in much better shape then most of europe etc.

    and at most we are talking about a few hundred thousand jobs. maybe a million jobs, not sure what the global figures are. but lets say there is 5 million game, vfx, and animation jobs. (cg jobs in general). china has a population of 1.3 billion people. i think they can produce a few million creative people that are just as good as anyone in the west. the wages and the renminbi will never be floated to there proper value. controlling there currency is the key to there success. the wto and the whole world has been screaming about that for 20 years and so far the chinese just give us the finger on that. they would be crazy to give up the linchpin of there economic success.

    over all a solid argument. i will take it into consideration.
  • Richard Kain
    Offline / Send Message
    Richard Kain polycounter lvl 18
    Taking advantage of a tax break to improve the quality of life of your employees, and possibly lower the general cost of development is well and good. But in the current business environment of game development, there is a real temptation to build your entire budget around the fact that you get that tax break. And that's a dangerous road to walk.

    It is never a good idea to make your company's future dependent on factors that you have no real control over. That tax break could dissappear next year. Even with lobbying, things aren't always to go your way. As such, tax breaks should be considered as bonuses, not as something to build your company's revenue around.

    And what kind of company is going to be most likely to make that mistake? The same kind that would relocate just to take advantage of such a tax break.

    Tax breaks by themselves can be good for boosting the industry in the region that they are issued. But there is a lot of room for abuse in the current business culture, and I worry that most of the companies that would flock to the UK due to this tax break will flock away as soon as it goes away.
  • Bibendum
    and at most we are talking about a few hundred thousand jobs. maybe a million jobs, not sure what the global figures are. but lets say there is 5 million game, vfx, and animation jobs. (cg jobs in general). china has a population of 1.3 billion people. i think they can produce a few million creative people that are just as good as anyone in the west. the wages and the renminbi will never be floated to there proper value. controlling there currency is the key to there success. the wto and the whole world has been screaming about that for 20 years and so far the chinese just give us the finger on that. they would be crazy to give up the linchpin of there economic success.
    China has enjoyed 30 years of 7%+ growth on the premise of cheap labor from foreign investors who will abandon them the moment their labor stops being cheap. That's why they're manipulating their currency. With so much of their economy reliant on that it would be political and economic suicide at this point to stop. That's not a linchpin of economic success it's a noose hung around their neck while they struggle to keep themselves balanced on the chair that is supporting them. They need more skilled jobs and they know it and are working slowly toward that end.

    As China's economy develops and becomes less reliant on low cost manufacturing exports it will be less in their interest to continue to keep the yuan flat against the dollar. Labor costs will rise and the whole fear of all of the CG jobs going to china will become a moot point because the benefits won't look like what they do today.

    You're also assuming that the number of CG jobs is fixed. As China grows into what is essentially going to be the entertainment industries largest consumer there will be a lot more demand for content and more jobs will (hopefully) come with it. Much of China is still farmland and those people aren't buying a lot of video games. But they will (if china can also fix its piracy problem)...

    Of course it's possible that cultural homogeneity and the fact that the entire world is trending toward consuming the same kinds of entertainment will mean that the actual development jobs in the industry don't grow much because 99% of the population will be playing the same 50 games. Which means a shit load of money and not necessarily more jobs. Well... more art jobs anyway. But I think the state of indie game dev and whether or not the industry can actually come up with a better way of targeting consumers with products is going to dictate how that plays out.

    Edit: There's also the possibility that china won't be able to make the smooth transition to away from manufacturing... China's economy at this point has been a massive experiment in pseudo-communist capitalism and there is no guarantee that they're going to be able to pull it off. It's tempting to think about China's economic supremacy as if it were a foregone conclusion but it really isn't.

    TL;DR: You probably have nothing to fear from China.
  • Dataday
    Offline / Send Message
    Dataday polycounter lvl 8
    Bibendum wrote: »
    A tax break *IS* a subsidy. That's not some subjective opinion, it's the economic definition of what a subsidy is. It's also the easiest subsidy for politicians to pass because it's ostensibly seen as "free" by the public because it pays indirectly. But just because you aren't collecting money and redistributing it doesn't mean the government isn't paying for it. They pay for it in lost revenue as opportunity cost.

    Edit: Let me put it this way:

    You break something in the office and your boss demands you pay for it

    Scenario A: You give them $500 after your next payday
    Scenario B: They dock your pay $500 from your next paycheck

    Are you still paying for it in scenario B? Of course you are. You've paid for it in the form of lost income. In both cases the net result is exactly the same, you're $500 poorer.

    The government pays for a tax relief subsidy in the form of lost income as well. And the government is "you", not you specifically, but you as the collective taxpayers who now have less money to spend on other things "you" might think are important to society such as teachers/bridges/roads/fireman/social safety nets/or simply paying down debt. So yes, you are paying even when no money changes hands.

    Its only a subsidy if you go by that websites definition, but every other site including websters dictionary do not consider it a subsidy by definition. Subsidies are tied to grants, not tax breaks.

    Its also a fallacy to say the government loses money by granting tax breaks. They actually generate more wealth, not less.

    IF the UK has 5 studios which make games, and they want more...they offer incentives. A tax break is one such incentive. Thus lets say it attracts 5 more studios. That makes 10 studios. Studios create jobs, jobs create wealth, wealth is spent, spent wealth is taxed and thus money still goes into the government.

    Your premise is flawed because those extra 5 studios cant be counted for their taxes if they dont even exist to begin with, but by offering incentive they do begin to exist. You still get revenue from them if they are there, but if they are not, then they can never be counted to begin with.

    There are also multiple instances where less taxation actually brought in more revenue. Why? Because its an economy boost, more money is spent, more jobs available, more revenue over all. Its one of the reasons why the US had its "roaring 20s".

    Btw this is worth watching:
    BBC documentary about how the UK spends its money and its taxation, as well as the problems there in.

    [ame="http://www.youtube.com/watch?v=ILENLM60Ubg"]How Governments Spend Your Money | BBC Documentary on Taxation | Part 1 - YouTube[/ame] (part 1)
    [ame="http://www.youtube.com/watch?v=n5hwrT-41Ec"]How Governments Spend Your Money | BBC Documentary on Taxation | Part 2 - YouTube[/ame] (part 2)
  • Kwramm
    Offline / Send Message
    Kwramm interpolator
    Bibendum wrote: »
    It's tempting to think about China's economic supremacy as if it were a foregone conclusion but it really isn't.
    Yup, despite all the successes there are still many many problems for them to tackle and many risks ahead.

    Also I don't see studios spouting like Mushrooms here, except maybe small casual and mobile ones. There's definitely not an AAA place opening here whenever one in the west shuts down.
  • Bibendum
    Dataday wrote: »
    Its only a subsidy if you go by that websites definition, but every other site including websters dictionary do not consider it a subsidy by definition. Subsidies are tied to grants, not tax breaks.
    No actually pretty much every other website including the "concise encyclopedia" section of Websters definition page and Wikipedia both support the definition I gave you. The only difference in websters definition in fact is a matter of semantics over what "payment" is which I already outlined in my post. You'd be hard pressed to find an economist on the planet who does not agree.

    And if my premise was flawed yours is equally flawed because it simply assumes the opposite, that the studios would not have existed without tax incentives. But lets assume you're right and they wouldn't have, you're still paying for them! The only difference is that you're getting something in return. You could think of this as the cost of doing business. The hope that politicians have when they pass these is that it will be revenue positive but while I'm not familiar with UK politics, I can tell you in the United States, that is VERY often not the case as the biggest beneficiaries of tax subsidies are often not the people they were intended for.

    For the record I have no opinion on whether or not these particular subsidies are good or bad, subsidies can be a net positive to society and the local economy even when they are revenue negative to the state. The only purpose of my post was to correct the rampant misconception that tax breaks are somehow not subsidies and that they don't cost anything which is blatantly false.
    There are also multiple instances where less taxation actually brought in more revenue. Why? Because its an economy boost, more money is spent, more jobs available, more revenue over all. Its one of the reasons why the US had its "roaring 20s".
    Yes the roaring 20s, the cornerstone of modern conservative economic policy. Just cut taxes and growth will follow! All you have to do is ignore the last 65 years where low taxation has coincided with poor economic growth.
  • gray
    @Dataday

    your discounting the last 20 years of multinational corporate business strategy. the whole point is that the system is broken and they are gaming the system. if tax subsidies were for small home grown industry you would have a point but thats not how things are working. the main players that can take advantage of this sort of deal are the large multinationals and big conglomerates that can satellite there operations and shift there labour and profits. these tax subsidies are designed to attract these studios not grow local ones. in the case of the canadan subsidies there labour tax credits factored into the cost of the production so its a direct tax payer subsidy for salaries. there is also a floor for the development costs to qualify of over $150 million. for every dollar invested in subsidies there's no multiplier for the taxpayer the other production costs get subsidies in one form or another and it provides no lasting stimulus. its subsidized labour and production costs in exchange for short term local employment by a relatively small number of people. this is the same sort of subsidy the UK is trying to get so the can out subsidy canada. it causes distortions in the market and is detrimental to other states and provinces. which is why its under investigation. these programs have been cut and reformulated numerous times all over the world because they just don't provide any values for the investment. and as soon as the studios find better subsidies and incentives they shutter the studios and shift all the jobs to the new location.

    you don't have to go very far to see all the massive job losses and shifting of jobs all over the world. and the media hubs built on unsustainable tax credits to understand how this works.
  • Justin Meisse
    Offline / Send Message
    Justin Meisse polycounter lvl 19
    gray wrote: »
    if tax subsidies were for small home grown industry you would have a point but thats not how things are working.

    It actually seems to have helped out the small studios like Capy: link
  • gray
    It actually seems to have helped out the small studios like Capy: link

    often times there are more then one program for subsidies. one for 'local' and one for 'global' subsidies.

    looking at bc canada again they have 'film incentives bc' and the 'production survive tax credit' the local one is just a fraction of the production service tax credit. yes some small studios will qualify for tax subsidies under one plan. but they do not qualify for the larger tax subsidies. that is done on purpose so the vast majority of subsidies go to multinational corporations. if you wiped the 'production survive tax credit' away then all the local studios would not even be effected. they would probably be better off because they could grow if there is a real market but that pie is totally owned by the multinationals who get the lions share of subsidies.
  • crazyfool
    Offline / Send Message
    crazyfool polycounter lvl 13
    Well foil hats aside, tax break is going to mean great things for the uk dev scene. We are slowly turning into Australia unfortunately where the dev scene is in real trouble. I always saw the recession as survival of the fittest and that we as an industry we had become over inflated and unfortunately now we see sequel hell and everybody so fixated on money that there's only a few gems every year and a hell of alot of shit. You also forget that there are rules to these tax breaks, you have to have a mostly British workforce, you have to have most of the game developed in the uk, it has to have British themes etc. It's almost identical to what the uk tax breaks for the film industry are, which means only a few studios will be eligible.

    As anything in the uk, our government doesn't do anything to help people out. We have stupidly expensive higher education fees which are done so that only a handful of people will be able to pay it off by the time they are 65 and means guaranteed income for them in student loans for decades to come. They up the non taxable personal allowances for everybody but then lower the same figure for the over 65s. This tax break is designed to make them money, it's not to stabilise our industry or make the uk a glorious dev scene once again, thats an added bonus. In giving a small tax break they make more studios pop up, mostly start ups and they help out the big companies a bit which means more production value and hopefully better games. They stand to make alot of money if they do it right, they are playing the long game in establishing a large dev hub. So instead of taking alot of tax off of a few studios they take a smaller amount but off of a larger amount of studios, their gamble is in balancing that out where there are enough studios to make that money back and then when the tables are mildly stable they can start lowering their tax break incentive and have their fingers in alot more pies

    I don't think we will see what we have in recent months where studios high tail it to Canada. Only a few places have done this to jump on their big development scene. They can shift a studio over here yes but it will cost them alot of money, they would have to rehire uk talent after letting go of pretty much all their staff to be eligible for the tax break and even then they don't know how long the tax break will last. The money you save on tax isn't enough to justify such a move unless the company is set to make a substantial amount of money.

    So yea I don't think it's enough to entice job losses around the world, the outsourcing to china etc is in decline by alot of places as the quality isn't always there and ends up costing you money when you need to fix everything. The tax break will mean a more stable industry for the uk, that doesn't mean that the rest of the world will struggle.

    The investigation should be interesting. They are basically questioning whether or not the uk dev scene is actually in trouble and enough so to even justify a tax break. Well I can tell you what used to be a booming south now is a wasteland and if you want a job you need to move to London pretty much or you freelance like crazy. If you are smart and have a talented team behind you you can survive anywhere.
2
Sign In or Register to comment.