Consultation Paper Summary
E7. Gambling taxation
Gambling taxes constitute an important revenue source for State governments. Online gambling, however, may break down market power in some sectors of the gambling industry and reduce the States' capacity to tax economic rent. Competition between States may also limit their capacity to raise revenue from gambling.
The current tax burden on the gambling industry as a whole may be appropriate, but the way it is distributed may not be. The current rates of tax on different forms of gambling differ markedly from form to form for reasons that are not entirely clear. The burden of gambling taxes may sometimes fall on economic rent, but sometimes on gamblers and gambling businesses. There are also biases in the way different race wagering is taxed, which damages competition.
It is not clear how problem gamblers react to higher taxes. In most forms of gambling, the price of gambling is not easily observable. Even if problem gamblers do observe changes in price, it is not clear that they respond by reducing the amount they lose. Higher gambling taxes do, however, harm responsible gamblers, who must pay higher prices for their entertainment.
At the Australian government level, GST is payable at a rate of one eleventh on the player loss of a gambling business, across all forms of gambling (ATO 2009a). This is equivalent to the treatment of other goods and services.
The four main types of gambling are wagering (betting on horses, sport etc), gaming machines (poker machines), casino gambling (casino table games like roulette, and gaming machines) and lotteries. Each of the four is taxed by State governments on a different basis.
Wagering is usually taxed on player loss. For example, totalisator wagering (through a TAB) involves the gambling business pooling the bets and deducting a percentage (the player loss) before distributing the remainder as prizes. Different States deduct different percentages. The rate of deduction also varies according to the type of bet. For example, in Victoria, the rate for place bets is 14.25 per cent while the rate for trifecta bets is 20 per cent. A proportion of the player loss is paid to State governments in tax (Australian Treasury 2008). Fees are also paid to the racing industry in each State (Productivity Commission 2009). Wagering through bookmakers is generally free of specific gambling taxes, although small taxes on bookmakers' turnover remain in Tasmania and the NT.
Gaming machines are taxed on player loss. In most States, a club with gaming machines pays tax on player loss according to an increasing scale. For example, in New South Wales marginal rates range from zero for clubs with revenue under $200,000 per quarter to 30.9 per cent for clubs with revenue over $20 million per quarter. (Victoria has a flat rate and Western Australia has no gaming machines outside its one casino.) In most States, a hotel with gaming machines is subject to higher rates than clubs, under either a flat rate on player loss or an increasing scale.
Casino gambling raises revenue for government by means of licence fees, together with a tax based on a measure of revenue, usually player loss. Licence fees vary in their structure. For example, Star City Casino in Sydney paid a one-off licence fee of $256 million. Wrest Point Casino in Hobart pays a monthly licence fee, indexed annually, which amounted to $129,600 in 2008–09. Casinos also pay a tax based on some measure of revenue, usually player loss. Tax rates vary from 8 per cent of gross profit in the Northern Territory to 21.25 per cent of gross gaming revenue (plus a super tax) in Victoria. Lower rates apply to commission-based players (high rollers). Casinos are generally subject to special, lower rates of tax on player loss from their gaming machines (Australian Treasury 2008).
Lotteries are taxed more heavily than other forms of gambling, with tax rates on player loss ranging from 45 to 90 per cent (Australian Treasury 2008). Average tax rates for other forms of gambling range from 20 to 35 per cent of player loss (Productivity Commission 1999a).
Full details of State gambling taxes are available in Treasury's Architecture of Australia's tax and transfer system.
In 2004–05, player loss across Australian gambling enterprises amounted to $15.5 billion (ABS 2006d), on a total amount wagered of around $130 billion. In 2007–08, the States raised $4.9 billion from gambling taxes, amounting to 9.1 per cent of their tax revenue. Of this, 7.0 per cent came from race betting, 61.5 per cent from gaming machines, 7.7 per cent from casinos and 23.1 per cent from lotteries (ABS 2008b).
State governments impose restrictions on the availability and design of most gambling services. In every State, off-course wagering is dominated by a TAB (whether privately or publicly owned). In all States, limitations are placed on the total number of gaming machine licences and, in some States, on the number of machines in particular areas or venues. Minimum payout ratios — the ratio of prizes paid to money bet — are also enforced. All casinos are regional monopolies. NSW, WA and SA have a single, publicly owned lottery provider. Queensland has a single, private provider. Victoria and the NT have two private providers. Tasmania has three private providers. The ACT has a public and a private provider.
All State governments allocate part of gambling revenue to social programs such as problem gambling services and research into the impact of gambling on the community. In some States, substantial amounts of revenue are allocated to health services. In Victoria, for example, over $1 billion per year from gambling revenue is allocated to various social programs: the Community Support Fund, the Hospitals and Charities Fund and the Mental Health Fund.21
Some gamblers experience self-control problems, incurring substantial costs as a result and imposing costs on others. The family and friends of problem gamblers may incur costs from theft and relationship breakdown. It appears that if you have a problem gambler among your family or friends you are more likely to be a problem gambler yourself, so there may also be some external 'contagion' effects (Productivity Commission 1999b). Governments bear costs from problem gambling through the criminal justice and public health systems, though these appear to be relatively limited (Independent Gambling Authority 2003). Health fund members also bear some health costs. Problem gambling may also be associated with loan sharking and other criminal activity, which impose additional external costs (Productivity Commission 1999b).
Taxes are unlikely to be an effective way of reducing the costs of problem gambling. To the extent that existing gambling taxes recoup economic rent they do not affect the odds that gamblers face. But even when taxes do more than recoup economic rent, they can only mitigate the effects of problem gambling if they increase the average amount lost by a player per dollar bet, and if problem gamblers respond by reducing their losses.
The price of gambling for some games, such as many casino table games, is fixed by the rules of the game and will not be affected by gambling taxes (although businesses may be able to adjust the price by providing discounts of various types or making marginal adjustments to the rules).22 In other games, such as TAB wagering, the price of gambling (that is, the average player loss) may be affected by gambling taxes but is not immediately apparent to the gambler. In such cases, increasing the price of gambling is not likely to affect the behaviour of problem gamblers.
Even where the price of gambling is affected by gambling taxes and is apparent to the gambler, problem gamblers may not markedly reduce their losses. If their gambling is constrained only by the amount of money available to them, their losses will not fall. If they face other constraints on their gambling, like the amount of time they can devote to gambling, higher prices may lead to higher losses and more severe problems (Productivity Commission 1999b).
Only around 1 per cent of the adult population are problem gamblers, so using taxes to help counteract problem gambling imposes high costs on the large majority of non-problem gamblers. Other policy interventions may help to address spillover costs and the costs borne by gamblers themselves. These interventions, some of which have been implemented in Australia, include:
- limiting or prohibiting the advertising of gambling services;
- requiring games to encourage (or be limited to) small bets;
- restricting the opening hours of gambling venues;
- requiring gambling venues to display clocks and admit natural light;
- improving information to gamblers about the price of gambling services;
- limiting the granting of credit by gambling providers;
- mandating self-exclusion arrangements, where a gambler can ask a gambling venue not to admit them; and
- requiring the use of electronic card technology to provide gamblers with information on their bets and losses.
Measures such as these may be more closely targeted at targeting problem gambling than gambling taxes. However, given the Review's terms of reference, it has not made recommendations on the appropriate mix of non-tax measures to address problem gambling.
The internet makes gambling services more accessible to consumers and can offer very low cost access to some forms of gambling — though this may be at the cost of some attractive aspects of the gambling experience (such as atmosphere). Australian-based internet gambling businesses should be taxed like other gambling businesses. In the longer term, a competitive internet gambling marketplace, characterised by low-margin and highly accessible offerings, may erode the capacity for State governments to create economic rent by restricting the supply of gambling services. If gambling taxes are focused on economic rent, revenues may fall away as gambling markets become more competitive and more mobile. This would allow consumers to enjoy the benefits of greater access and competition but could also increase the risks that people will develop gambling problems.
21 Victorian State Budget 2009–10, Statement of Finances, Budget Paper No. 4, p. 201.
22 Casinos subsidise restaurant, accommodation, parking, and entertainment offerings to induce customers to gamble in their facilities. A variant is to provide customers who meet minimum betting requirements with complimentary goods and services.
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