Thursday, July 1, 2010

Location, Location, Location: The politics of tax incentives when development is global...

Making headlines in several locations is the UK's decision to discontinue its plan to provide tax breaks for game developers, making locations like Canada, Singapore, and eastern Europe more appealing.  This is a shame for the industry as a whole, as the UK is known to be a big talent hotspot for the industry.

Here's one of the articles.  Apparently, Activision Blizzard, the biggest game publisher (and one of my stocks) is not going to invest in the UK after this decision, as well as other companies with large pools of developers such as Sony.  (Sony will carry out its existing plans, but will likely not open anything new.)

After a little digging, I found this article from a year ago, addressing Britain's praise and encouragement for the industry.  You can then see when the labour party announced tax incentives here.  So what SHOULD it have done?  Was the government right to repeal the tax breaks?  Personally, I'm not for governments making decisions on what "deserves" to be encouraged by providing artificial incentives, so I can see the appeal of repealing the tax break, despite the game industry lobbies in the country.  How do they really determine value that warrants millions of dollars in tax incentives?  Who can truly judge this fairly?  I think where perhaps they went wrong was promising the incentives in the first place.

Perhaps the UK government was thinking along the lines of bait-and-switch:  attract foreign investors, then pull out support once they're already tied up in the industry?  It was also political:  The labour party wants to provide the incentives, and the conservative does not.  But it's a little more fluid than that.

I think this article is important because it has bearing in how this business does business in the 21st century.  It's becoming fluid and global like so many other spheres.  (True, it's not the same as a factory job, where the challenges lie more in facilities than specific education.)  Moving and investing in cheaper areas is relatively easy, causing governments to proactively try to keep certain things they deem valuable.

Sounds like a familiar pattern...

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