An apparently escalating decline in local production has prompted the state of California to propose a tax incentive to encourage film and TV producers to shoot in the state.

California governor Gray Davis has announced that, if instituted, the labour-based tax credit would return $230m to the production community over three years. Although by no means the first such tax credit - more than 30 states offer incentives - it is the most generous.

However, the scheme is unlikely to affect so-called runaway production of feature films. Projects eligible for the tax break would have a budget ceiling of $10m. The average studio-backed motion picture has a budget of $50m. Slated to take effect in 2004 - legislation will be required to implement it - the system would provide a 15% credit on the first $25,000 earned by a California worker.

According to a government statement, the new credit would target California-based productions that have been the most "negatively impacted" by runaway production: low- or mid-size productions such as Movies of the Week, mini series and cable productions. And yet, according to data compiled by the LA-based Center for Entertainment Industry Data and Research, the biggest growth area in Canadian-based production was in films with budgets in excess of $50m, followed by productions in the $20m-$50m range.

The proposal comes in the wake of the withdrawal of a petition before the US Commerce Department by the labour-backed Film and Television Action Committee (FTAC). The petition sought to bring about tariffs against Canadian exports in retaliation for the productions lost to Canada.

The petition was opposed from several quarters, especially the Motion Picture Association which referred to the petition as "dangerous", adding "it is a direct incentive to a trade war and goes against the trade policies of the U.S. government." The petition was withdrawn because FTAC could not prove it represented the US film industry and was opposed by other unions and production companies.

Canadian observers are bemused by the spectacle of their US neighbours demanding a level playing field when US-based film distributors control 90% of the Canadian theatrical box office and US-produced television programmes dominate Canadian television.

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