Game Development and National Tax Policy

There's been a lot of yelling lately about the UK coalition government's campaign-trail promise to enact a moderate reduction in the rate at which game producers are taxed, and the elimination of that tax break in the national budget the Conservative/Liberal Democrat government has actually proposed.

Let's leave aside for a moment the issue of politicians breaking promises made while campaigning. It's worth stopping for a second to consider the language that's being used in the news stories that gamers are reading to inform themselves about this issue of tax breaks for game development.

As a representative example, here are a couple of quotes from the story as written by the Computer and Video Games website:

"[P]ulling the tax breaks from the budget saves the country £190 million [$283.54 million]."

"Although the body [TIGA] admits that the planned tax break would cost £192 million, it claims over £400m would be recouped in tax receipts."

Both of these statements are misleading; they describe tax policy in terms of "costs" and "savings" that have no connection to the normal meanings of these words.

Reducing the rate at which businesses will be taxed in the future is not a "cost" because the government hasn't taken that money yet and therefore doesn't have it to spend.

And choosing not to reduce a tax rate does not "save" money. All it does is continue to extract money from producers at the existing rate. There is no "savings" in the normal (non-government weenie) sense of preserving money that would otherwise have been spent because, as noted above, no existing money is spent if the rate of future taxation is reduced.

More importantly, this deliberate misuse of language (which is definitely not restricted to the UK government) to portray reducing national taxation as "costs" and preserving existing tax rates as "savings" flows entirely from the assumption that all money belongs to the government to begin with. Only if all money is considered the government's money is it a "cost" to reduce the rate at which government takes that money from the producers who earn it through their labor, or a "savings" to continue taking the existing amount of money from businesses and individuals.

That assumption needs to be questioned.

Seen from the perspective that money belongs to the people and corporations who work together to earn it, a reduction in the rate at which the income of UK games producers is taken by the government would mean several things: a future UK government would have slightly less money available to spend; UK games producers would have more money available to them for investment in game development and publishing projects; and -- importantly -- investment in more games production than otherwise would have happened (because lower tax rates mean more money available for new projects) would potentially result in the government receiving *more* money in tax receipts even at a lower tax rate (though perhaps not as much as £400m as TIGA speculates).

But consider: if a reduction (not "elimination"!) of taxes for games producers could actually help generate slightly higher tax receipts to the government through the increase in business activity prompted by the games producers having more money to invest in new projects, then why not apply that logic across the board? Why make a special deal with games producers, which the government could then turn around and threaten to take away? Instead, why not reduce taxation on all producers to enable revenue-generating capital investment throughout the private sector of the national economy?

And by all accounts, that's precisely what the new budget from the UK coalition government proposes... at least for businesses. As Gamasutra reported in its own story on this issue: "The new budget also raises the value-added tax to 20 percent, makes cuts to National Insurance, and reduces the corporations tax." This is more of a shifting of revenue sources than an actual revenue-generating budget, since the likely benefits of reducing the corporate tax rate will be offset somewhat by hiking the VAT that increases prices everywhere.

Still, it's a step in a better direction than just mindlessly raising tax rates, which fails to maximize taxable new capital because it promotes government spending that is less efficient than private sector investment. Gamers don't need to be upset by the coalition government reneging on its promise of a tax break for the game industry specifically -- *all* industries, including game development, will be getting a break if this budget is enacted. (Gamers and everyone else can certainly be ticked off by politicians breaking promises, but that's an old and separate problem from economic policy.)

It's just a shame that so much of the reporting simply parrots the government spin that reducing tax rates to let people and businesses keep more of the money they work to earn is a "cost," and choosing not to reduce any tax rate constitutes a "savings." Reporters ought to be more careful that the language they use isn't unthinkingly promoting a government's self-interested agenda, and news consumers need to hold journalists to that reasonable standard.