The Trudeau government’s tax subsidy for journalism puts the Halifax Examiner in an impossible situation
Besides everything else I do, I am first of all a business owner. I started Halifax Examiner Inc. in 2014 with all my life savings, $10,000. By the time the first post went live, I had something like $2,000 in the company bank account.
Since then, I’ve operated the company very conservatively, and I think prudently. The Examiner has not borrowed any money, so there is no debt. All taxes are paid on time and in full. I’ve hired freelancers only when there was money in the bank to pay them, and then I’ve paid them immediately upon publication (none of this stringing freelancers along stuff that is typical for the industry). I didn’t hire my one employee (admin person extraordinaire Iris) until I had six months of her salary and benefits in the bank. We pay all bills promptly.
I’ve recognized from the start that none of this would be possible without subscribers, but additionally, my conservative business strategy has worked well. I’ve been able to live off the business, and I’ve been able to grow the business such that now there are regular contributors doing important work. It’s been my plan all along to move forward with the same strategy, and I can see this little enterprise continuing to grow purposefully and with care. Steady as she goes.
Well, until the 2019 federal budget came down. Now I’m left with some very tough choices.
At issue is the part of the budget the Trudeau government labels “Support for Canadian Journalism.” The specifics are found on page 373, here. My observations follow.
The budget announcement as it relates to journalism consists of three initiatives:
• allowing journalism organizations to register as qualified donees;
• a refundable labour tax credit for qualifying journalism organizations; and
• a non-refundable tax credit for subscriptions to Canadian digital news.
Sounds good for the Halifax Examiner, no? Well, no.
First, media organizations must qualify. “These measures are intended to provide support to Canadian journalism organizations producing original news,” reads the budget:
An independent panel will be established to recommend eligibility criteria for the purposes of these measures. Once the panel has made its recommendations, eligibility of organizations will be evaluated and a recognition process will be put in place.
The panel will rule on which media companies are a “Qualified Canadian Journalism Organization,” or QCJO.
I’ll wait to see the details, but this already scares me. Who’s going to be on this “independent panel”? Mark Lever? I’m sure he’d jump right on certifying the Halifax Examiner.
The devil will be in the details of the eligibility criteria, but it already seems designed as a big tax giveaway to legacy media.
A QCJO will be required to be organized as a corporation, partnership or trust.
As it’s a corporation, Halifax Examiner Inc. qualifies, but right off the bat, many startups organized as sole proprietorships or as co-ops won’t.
One provision seems specifically designed to accommodate PostMedia:
A QCJO that is a corporation will be required to meet the following additional requirements in order to qualify:
- if it is a public corporation, it must be listed on a stock exchange in Canada and not be controlled by non-Canadian citizens; and
- if it is a private corporation, it must be at least 75-per-cent owned by Canadian citizens or by public corporations described above.
PostMedia is owned primarily by an America hedge fund, but the weird criteria in this provision allows it to receive the tax subsidy because PostMedia is offered on the Toronto stock exchange and is “controlled” by Canadians — that is, its president and officers are Canadian, even if its budget and profit demands are ultimately dictated by the hedge fund.
Moreover, the budget goes to great lengths to exclude small operations:
…an organization will be required to meet the following conditions to be a QCJO:
…
it regularly employs two or more journalists in the production of its content who deal at arm’s length with the organization.
“Arms-length” means that the subsidized reporter does not control the corporation. So, Halifax Examiner Inc. can’t receive the subsidy to offset Tim Bousquet’s wages. As the Examiner is currently organized, we’d be ineligible for any of the tax credit, as we don’t pay two full-time reporters who aren’t named Tim Bousquet. Again, nearly every other startup media entrepreneur — Mary Campbell in Sydney, Joey Coleman in Hamilton, etc. — would be excluded. All the money goes to the big players.
And here are the details of that money:
Budget 2019 proposes to introduce a 25-per-cent refundable tax credit on salary or wages paid to eligible newsroom employees of qualifying QCJOs. This will be subject to a cap on labour costs of $55,000 per eligible newsroom employee per year, which will provide a maximum tax credit in respect of eligible labour costs per individual per year of $13,750.
Let’s apply this to Halifax media operations. I don’t know the exact size of each newsroom, so the following are my best guesses.
The Chronicle Herald, with a newsroom of ~30 people, will receive a $412,500 annual subsidy. The umbrella SaltWire network, which I’m guessing conservatively has 100 reporters, will receive a $1,375,000 annual subsidy.
allnovascotia.com, which has about 20 reporters and editors, will receive an annual subsidy of $275,000*.
Torstar, which has three reporters in its StarMetro Halifax division, will receive an annual subsidy of $41,250 for those reporters. Of course, the much larger Torstar organization will receive tens of millions of dollars annually.
Halifax Examiner Inc. will receive $0.
Now, I recognize that the Examiner positions itself as an alternative to the other media, and we try to report on things that aren’t covered at all by other media and from an angle that is often ignored. Still, there’s no denying that the companies that will receive the tax subsidy are at least to some degree our competitors, and the subsidy will allow them to get onto our turf a bit.
In practice, I doubt Mark Lever and Sarah Dennis will use their subsidy to hire new reporters. Probably the money will just go to pay down the huge debt for that printing plant and maybe pay for a new coat of paint on their south end mansion. But the subsidy will put off the inevitable collapse of the Herald, which is the point where, all other things being equal, the Examiner and other startups begin to get much wider traction.
In terms of day-to-day news coverage, it’s Torstar and allnovascotia that will use the subsidy to out-compete the Examiner.
Which leads me to the hard choices I have to make. I can continue to carry on with the Examiner as I’ve always have, or I can go after the subsidy for the Examiner.
Following the “continue on” course of action means, necessarily, putting off expansion plans, as the market is suddenly an even less level playing field. I’ll wait for all the free market enthusiasts to rush to my defence.
So the other choice is to go after the subsidy for the Examiner. That would mean hiring two full-time reporters. There are several risk factors with that strategy.
First, what if I hire two reporters and then the “independent panel” says the Halifax Examiner is a piece of junk that doesn’t qualify? Do I disrupt two reporters’ lives by hiring them only to immediately lay them off?
Even if the Examiner does qualify, hiring two reporters gets into some iffy financial territory. My back-of-the-envelope calculation (I’ll further develop this) is that I could hire two reporters at $55,000 salary plus benefits, equipment, and costs, at a revenue cost of about 1,000 subscribers. I don’t want to curtail the existing freelance budget (or my own meagre dividend payments), so that means 1,000 new subscribers.
That’s not a crazy number. I think that’s attainable. But I can’t say how long it would take to get there.
So what this really means is that if I’m going to chase the subsidy for the Halifax Examiner, the company needs to go into debt, and significantly so, with the hope that the new reporters generate enough new subscriptions to pay for themselves by some point in the future. This goes against every guiding principle under which I’ve operated the company so far. Going into debt means placing the future of the Halifax Examiner at risk.
Hiring two full-time reporters also means changing my role, as I would become more of a managing editor and less of a reporter. I remind myself I started the Examiner in large part so I could do the kind of reporting I like to do.
I have no idea what I’m going to do. I’ll think on it for a good while and consult trusted advisors before making any decisions.
But this is the impossible situation the Trudeau government has put me in.
*This article was updated on Thursday March 28, 2019 at 3:07 p.m. ET to more accurately describe the operation of allnovascotia.com.
