REELING IN DECEIT: MALTA’S FILM REBATE SCAM

by a Blog Reader

Malta’s Tourism Minister, Clayton Bartolo, and Film Commissioner, Johann Grech, recently declared that a study they commissioned from a foreign company regarding the effectiveness of the country’s cash rebate system for film productions “factually confirms” that it significantly benefits Malta’s economy. However, they refused to release the document. Sunshine and transparency are fatal to scams.

During a press conference, Bartolo and Grech asserted that the study found that for every €1 spent on cash rebates for film productions, the Maltese economy “gained €3.” This is a grossly inflated claim and too conveniently well-rounded. Give 100 cents in rebates to Hollywood and Malta gains 300 cents in return: “Clayton Bartolo and Johann Grech say Malta makes €3 for every €1 spent on rebates,” as The Times summarized it. Nonsense. If the model were so wonderful, the government would be selling bonds like crazy for (the usual) peanut returns to the bondholders and donating the proceeds in rebates to Hollywood, tripling the rebate gains for the country. Only Socialists talk about the world of commerce like this. Fistfuls of euros, easy-peasy, raining from the sky. Remarkable figures with no legitimacy. No wonder they don’t want to show you the study.

About a year ago, the National Conference of State Legislatures, in the United States, published conclusions from state fiscal office evaluations. The California Legislative Analyst’s Office wrote that “In our evaluation of the first film tax credit, we found that the costs exceeded the benefits.” In another state, the Virginia Joint Legislative Audit and Review Commission concluded that “the impact is smaller than that of other economic development incentive programs. The film tax exemption has… a negligible benefit to the Virginia economy and provides a negligible return on the state’s investment.” In yet another state, the Pennsylvania Independent Fiscal Office noted that in its analysis of Pennsylvania’s tax credit it simply retained jobs that would otherwise be lost. There was only a “net return on investment (ROI) of 13.1 cents of state tax revenue for each tax credit dollar.”

Massachusetts saw a pitiful return on investment, with the state recouping a mere 13 cents in revenue for every dollar of film tax credits awarded from 2006 to 2011, leaving taxpayers to shoulder a hefty cost of $128,575 per film job created for a Massachusetts resident.

What Clayton Bartolo and Johann Grech did in their presentation to the media is that they confounded the multiplier effect and net return on investment, two distinct concepts in economics. The multiplier effect is based on the idea that when someone spends money, that money circulates through the economy, creating additional rounds of spending. Thus, the film company may book a block of hotel rooms in Valletta. The Valletta hotel uses the rent money to pay off the various suppliers to the hotel. The suppliers then pay off the wholesalers who in turn may buy beautiful dresses and cruises for their spouses. You get the gist. Bartolo and Grech didn’t. However, the money doesn’t revert back to the government that issued the rebates. Most of it leaks out to third parties and foreign economies. Yes, the government may recoup some of it through third parties’ wage taxes down the line, but the net return on the investment will likely be, at best, a few cents on each €1 of tax rebates. In summary, the multiplier effect deals with the broader economic consequences of spending or investment, while net ROI is a financial metric used to assess the profitability of a specific investment. The government’s profitability, if any, on its tax rebate investments is speculative, at best.

Jobs for the Maltese was the mantra of the Bartolo and Grech presentation. They claimed that were it not for the film Napoleon, 500 Maltese crew would have been registering for work. And had it not been for Gladiator, another 650 crew would be registering for work. Alas, nothing is further from the truth. To start with, Maltese employers, in all areas, can’t find enough workers. In a full employment economy, the crew members would likely have worked somewhere else instead of in the film industry. Bartolo and Grech wrongly assume that the crew members would have been registering for unemployment benefits instead.

Second, many of the crew for Napoleon are also the crew for Gladiator. Thus, Bartolo and Grech are double, triple, quadruple counting how many are making a living as crew members. In 2022, Malta saw 24 film productions. Think about the inflated outcome when government officials multiple count the same crew members. Film making in Malta lasts for a few weeks – forget the current fallout from the prolonged writers’ strike in California – not years. Many of the crew are part-timers in the film industry. If Bartolo and Grech can’t count the number of those employed through the tax rebates, how can they count the percolating economic benefits, if any, of the model?

The decision not to make the study public or provide a copy to journalists has been justified with vague references to legal advice. What is the legal concern? Has anyone been milking the Commission’s budget for personal gains? The lack of transparency should raise red flags. It’s worth noting that the National Audit Office is currently investigating the Film Commission, suggesting that there may be legitimate concerns. However, hiding criminality and spending neither reduces criminality nor spending.