Mr. Speaker, it is a pleasure to speak on Bill C-103.
Bill C-103 will play a major role in maintaining a vibrant and flourishing Canadian magazine industry. I would like to present the House with the broader perspective of the government's ongoing commitment to this industry. This bill should be understood in the context of the long established tradition of government support to the Canadian magazine industry as well as the industry's contribution to the economy.
Most important, in a country where natural geography makes communications difficult, magazines play a key unifying role. Canadian periodicals are an essential medium of cultural expression for Canadians. They serve as channels for conveying Canadian ideas, information and values. They are an integral part of the process whereby Canadians define themselves as a nation. Moreover, beyond the direct social and cultural impact of the Canadian magazine industry there are sizeable indirect effects which contribute to the smooth functioning of the Canadian economy.
Canadian publications, both consumer and business, inform, educate and entertain but they also are an important advertising vehicle for Canadian products and services. While it is true there are other mass media which can reach consumers, the Canadian trade press fills a unique role in the economy by providing an affordable marketing tool for Canadian business and industrial suppliers.
These producers and services often face stiff competition from foreign companies which reach Canadian customers through spill-over advertising in American trade periodicals. In the absence of an active Canadian trade press reaching Canadian customers, an important segment of our economy would be left without a major communications and advertising vehicle.
Unfortunately Canadian magazines are confronted with a series of unique challenges: massive penetration of the Canadian market by imported magazines; the relatively small size of the Canadian population and its dispersion over a vast territory; the openness of Canadians to foreign cultural products; the effect of cover prices of imported magazines on the Canadian price structure; the impact of overflow advertising on the potential advertising market in Canada.
Even if the magazine industry had flourished culturally with over 1,300 titles, its financial position is fragile, with overall pretax profits of less than 6 per cent on revenues of $795 million in 1993-94.
In my opening remarks I mentioned the Canadian government has supported the domestic magazine industry and will continue to do so for many reasons. The principal reason is the importance Canadians place on having a means of expressing their unique identity and the difficult and challenging environment which the Canadian magazine industry faces.
The need for structural measures of support for the Canadian magazine industry has long been recognized by successive Canadian governments. Over the years a number of policy and program instruments have been designed and put into place which help to ensure the development of the Canadian magazine industry while not restricting the sale of imported periodicals in Canada.
Among them, the publications distribution assistance program, better known as the postal subsidy program, is one of the earliest nation building programs. It is designed to unify a country where natural geography makes communication difficult. Its main objec-
tives are to support Canadian cultural identity and sovereignty, to ensure affordable access to subscriptions for Canadian periodicals and to provide stability in the level of distribution costs for Canadian periodicals in order to permit publishers to develop and implement long term business plans.
Canadian consumer magazines have limited access to Canadian news stands. Less than one-quarter of Canadian magazine circulation revenue is derived from news stand sales. As a result, the industry relies on subscriptions to reach its audience. The postal subsidy, which finances concessionary postal rates for Canadian magazines, has been an important instrument in helping the industry to reach its market.
In 1989 this program was subjected to a cut of 50 per cent, from $220 million to $110 million, as part of a larger government-wide exercise to reduce public expenditures. I am pleased to say that in developing a plan for the implementation of the cut, a decision was made to focus support on subscriber paid periodicals versus non-paid or free publications. Furthermore, it was believed that periodicals, which typically have a national or regional focus and rely exclusively on mail distribution, should take priority over local publications which have alternative means of distribution.
As a result, the most vulnerable component of the industry was protected then and also more recently when the government had to reduce once again the amount of available funding. For the past two years we have limited the increase of the subsidized rates to 5 per cent a year. Therefore the postal program still enables Canadian magazines to reach rural or remote readers at a reasonable cost.
Fiscal measures provide another useful tool to support the magazine publishing industry without investing a considerable amount of money. Two fiscal measures encourage Canadian advertisers to use Canadian magazines to reach Canadian readers. The first measure, section 19 of the Income Tax Act, has been in place since 1965. For advertisements aimed directly at the Canadian market section 19 limits tax deductions of advertising expenditures to advertisements placed in Canadian magazines. A Canadian magazine is defined as one which is 75 per cent Canadian owned and controlled and whose editorial content is 80 per cent different from the editorial content of any other periodical.
The second measures is customs tariff code 9958. Tariff code 9958 prohibits the physical importation into Canada of split runs or special editions of periodicals whose editorial content is substantially the same as the original edition except for the advertising which has been purchased especially to reach a Canadian audience.
Until recently the tariff code dissuaded offshore magazines from soliciting advertising in the Canadian market. Moreover, it succeeded in doing so through voluntary compliance. These fiscal measures were put in place to ensure that the Canadian magazine industry had access to Canadian advertising revenues. There is no evidence that our current policy has made the Canadian industry any less efficient or less profit conscious than its foreign counterparts.
Financial support is provided to a number of cultural and scholarly publications through the Canada Council, the Social Science and Humanities Research Council and through a modest distribution program administered directly by the Department of Canadian Heritage.
Another initiative is the cultural industries development fund which was established in 1990 with a budget allocation of $33 million. Its mandate is to provide Canadian owned and controlled firms within the cultural industries with a range of flexible financing services with an emphasis on investment loans.
The CIDF was created in order to make loan money available to Canadian owned and Canadian controlled cultural firms to compensate for the shortage of capital available to Canadian cultural businesses and improve their financial situation, the intention being that these firms will achieve a sound financial base through the fund and thereby be eligible at some later date for conventional bank financing. The fund was established to reinforce and stimulate the growth of Canadian cultural enterprises which have proven to be dynamic and which have demonstrated their ability to improve their competitive position in the marketplace.
The magazine industry is an active user of the cultural industries development fund, having set up a travelling consultant program in addition to accessing loans through the fund.
The reluctance on the part of financial institutions to create a new financing instrument, the degree of risk involved and the perceived low earning potential of the magazine industry justify the government's establishment of mechanisms such as the CIDF. With more than 20 per cent of the loans awarded and a repayment rate of more than 90 per cent, the magazine industry has demonstrated its professionalism and its managerial expertise.
We can conclude that all of these federal measures have served the industry well. However, with the arrival of the new technological contribution to an increasingly competitive marketplace Canadian businesses must adapt to those market changes and secure and invest new capital in order to bring themselves up to date with modern technology. It is the government's role to review its initiatives and to make sure they still correspond to the new market realities.
Technology has progressed far beyond what could have been foreseen in 1965 when the tariff code 9958 was introduced as a measure of the government's support for the Canadian periodical industry. New technological developments have changed the dynamics of the publication industry. For example, it is now possible to transmit information electronically. Thus it is now possible to bypass international borders and circumvent tariff code 9958.
The proposed amendments to the Excise Tax Act will contribute to maintaining the integrity of Canada's longstanding policy on split runs. The proposed amendment to the Income Tax Act will add an anti-avoidance rule to section 19 of the act. The purpose of this provision is to ensure that newspapers and periodicals that claim to be Canadian are Canadian owned and controlled for the purposes of the act.
The Canadian government has been consistent. Its magazine policy has not changed. What the federal government is doing with these amendments to the Excise Tax Act and the Income Tax Act is modernizing its policy instruments. In this way the entire range of government policy and program instruments can better achieve the overall objective of a vital and flourishing Canadian magazine industry.