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Ottawa was right to unplug the notion of a tax on the Internet

Politicians are sometimes said to struggle with "developing policy at Internet speed," but Thursday the government gave new meaning to the words. As Liberal MPs were presenting the much-anticipated Standing Committee on Canadian Heritage report on media that included a recommendation for a 5-per-cent tax on broadband access, Prime Minister Justin Trudeau and Canadian Heritage Minister Mélanie Joly were assuring Canadians that the government had no intention of accepting the committee's proposal.

Ms. Joly left the door open to an Internet tax last year through her national consultation on Canadian content in a digital world, steadfastly refusing to take a firm position on the issue. The committee report effectively ended the debate as the immediate criticism of the ill-advised policy measure means that an Internet tax has about as much future as a dial-up modem.

The prospect of an Internet tax should have never reached the recommendation stage, however, as the committee put it in the policy window without any meaningful analysis or effort to grapple with its repercussions.

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Had it done so, it might have noted the mounting evidence that foreign funding for Canadian television production is largely replacing declining support from Canadian broadcasters and broadcast distributors. Despite claims of impending doom, $2.6-billion was spent last year on Canadian television production backed by licensing fees, tax credits, government support and private investment.

Foreign financing, the rise of which coincides with major investments from Netflix in original content, now exceeds virtually all other sources of funding, growing from 10 per cent of financing in 2013-14 to 18 per cent in 2015-16. Indeed, the data confirm the creative community is experiencing significant growth in new sources of funding that largely offset declines from mandated contributions.

The committee might have also addressed the legal barriers to an Internet tax. In 2012, the Supreme Court of Canada ruled that an Internet tax is inconsistent with the Broadcasting Act, since Internet providers are not "broadcast undertakings" for the purposes of that statute. In other words, the government cannot mandate an Internet tax without overhauling Canadian communications law.

The committee should have also recognized that Canadians may use the Internet to stream video or listen to music, but its similarity to cable television ends there. A taxation system such as the one used for cable and satellite companies is highly inappropriate given the Internet's importance for communication, electronic commerce, Web banking, education and tele-health. Given its integral role in virtually every aspect of modern life, it is wrong to treat network access as little more than an ATM for the cultural sector.

Most important, the committee should have listened more to experts on the cost of Internet access and what an Internet tax would mean for the digital divide. Had they studied access costs, they would have learned that the CRTC's annual report on communications in Canada found that Canadian broadband prices are higher than many comparable countries.

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Moreover, they might have listened to Navdeep Bains, the Innovation, Science and Economic Development Minister, who just last week delivered a major address on the broadband affordability problem. Mr. Bains stated that the digital divide is unacceptable and rightly lamented that "only six out of 10 low-income households in Canada have Internet service."

Increasing broadband costs through a new tax scheme would have run directly counter to Mr. Bains's priorities, making the Internet less affordable and effectively creating a tax on basic communication, commerce, education and health care.

Given its importance to virtually all aspects of modern-day life, there are few policy goals more essential than ensuring that all Canadians have affordable access to the Internet. That goal would be badly undermined by an Internet tax that would have increased consumer costs and stymied Canadian innovation. With so much on the line, it was good to see the government demonstrate law at Internet speed, killing a terrible proposal before it could even get out of the news conference.

Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can be reached at mgeist@uottawa.ca or online at www.michaelgeist.ca.

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