Should Australian State governments gain a significant proportion of their revenues from gambling taxes?
Echo Issue Outline: copyright © Echo Education Services
First published in The Echo news digest and newspaper sources index.
Issue outline by J M McInerney
In an interview published on March 1, to mark his first year in office, the Prime Minister, Mr John Howard, criticised the extent to which the States were becoming financially dependent on revenues raised from gambling taxes.
Mr Howard declared that he believed that Australia had reached `saturation point' with regard to gambling outlets. He also suggested that gambling has become a `social blight' in Australia with many people gambling who cannot afford to do so. Mr Howard expressed concern about the social consequences of such behaviour.
Mr Howard's criticisms were rejected by a number of spokespeople for the gambling industry. They were also criticised by the State premiers, who maintained they had no choice but to raise revenue through gambling taxes.
Background
The figures cited by Mr Howard on March 2, 1997, indicate that Australians lost $9.4 billion gambling last financial year. This figure represents about 2 per cent of Australia's gross domestic product.
The 1995-96 figure was a $1.1 billion increase over the previous year.
The total amount that Australians spent on gambling in 1994-95 was $61.1 billion.
The recent increase in money spent gambling has been largely attributed to the introduction of poker machines into Victoria and Queensland, and the building of new casinos, including Melbourne's Crown Casino.
Figures released on March 4, 1997, by the Australian Bureau of Statistics, indicated that the gross income of Australia's 14 casinos increased by 36% in the year ending June, 1996. The Bureau's figures also indicate that the combined takings of these 14 casinos has nearly trebled, rising from $818 million in 1991 - 92 to $2231 million in 1995 - 96.
Over the period from 1991 to 1996 the number of casinos has grown from eight to 14. Over the same period the number of poker machines grew from 7,282 to 8,225, and takings per machine rose from $47,200 to $56,300.
The four largest operators (including Crown Casino) share 80% of the gross takings. This is $1.78 billion. They make a before tax profit of $191 million. This is 11 per cent of their income. Twenty per cent of their income is paid in taxes.
As of June, 1996, casinos employed 18,490 people. This is double the 9218 employed four years ago. The average wage of a casino worker is $30,000 per year. In 1992 the average wage for a casino worker was $25,500.
It has also been estimated that $1 of every $200 Australians spend ends up on a casino table or in a poker machine. Casinos have doubled their share of the consumer market since 1992, rising from 0.3 per cent to 0.7 per cent.
In 1991-92, 10.4 per cent of the tax revenue of all states was made up of gambling taxes. Last year, gambling taxes accounted for 14.6 per cent of the states' taxation revenue. This means that one in every eight dollars that the states derive from taxation comes from gaming taxes.
Arguments in favour of state governments gaining a significant proportion of their revenues from gambling taxes
One of the primary arguments offered in favour of State Governments generating a significant proportion of their revenues from gambling taxes is that they are effectively compelled to do so.
According to this line of argument, the policies being adopted by the federal government are placing the States under great financial strain and so they are turning to gambling taxes to boost their revenues.
The Premier of Tasmania, Mr Rundle, has stated, `The expansion of gambling in Australia is the direct result of the very narrow tax base of the states and territories.'
Some State leaders have directly attacked the Prime Minister on the issue. The NSW treasurer, Mr Egan, has stated, `The States have very little option. They have a lot of bad taxes, but Mr Howard doesn't have the gumption to put Commonwealth-State financial structures or tax reform on the governmental agenda.'
The shadow federal treasurer, Mr Gareth Evans, has claimed, `There is no doubt the states are being forced into more and more revenue-raising options of this kind because of the squeeze that is being put upon them by the Federal Government.'
Critics of Federal Government policy maintain that a `squeeze' is being put on state budgets in two directions.
Firstly it is claimed that federal grants to the states are being reduced.
Mr Evans has stated, `It's the height of hypocrisy for Mr Howard to be attacking the states for their revenue-raising activities when in the last Budget he's knocked off $1.5 billion of financial assistance grants to the states and he's cut back their specific purpose grants by 3 per cent annually ...'
The other suggested source of this supposed `squeeze' on state finances is that it has been claimed that the Federal Government is requiring States to provide some services that were formally provided through Federal sponsorship.
Included in the services which were once fully federally funded and which are now said to have to be either partially or fully state-funded are the former Commonwealth dental program and legal aid.
According to this line of argument, if the States are going to be required to provide more services with less money, then they are going to have to find an alternate source of income.
Some people consider taxes on gambling an appropriate way to raise the additional revenue required.
One of the reasons why it is claimed that gambling taxes are an appropriate way for governments to raise additional funds is that because many people appear to enjoy gambling, a gaming tax is one they are more ready to pay.
Mr Rob Wootton, the executive director of the Victorian Council on Problem Gambling, has claimed, `Gambling is often referred to as the "happy tax" for governments ... as the majority of gamblers enjoy the pursuit while donating handsomely to government coffers.'
Mr Wootton has gone on to suggest that other forms of taxation are far less attractive to taxpayers and may cost any government voter support.
According to this line of argument, a practical solution to the problem of reduced funds is to have people pay taxes on a product or service, such as gambling, which they are strongly motivated to buy or use.
It has also been maintained that some of the negative consequences said to came from gambling are exaggerated.
Defenders of states raising revenues through gaming taxes note that a recent report titled, The Impact of the Expansion in Gaming on the Retail Sector, found that the increase in gambling has had virtually no effect on Victoria's retail sales. The report (commissioned by the Victorian Casino and Gambling Authority) indicated that in 1990 Victorians devoted some 35.9 per cent of their household income to retail spending, while in 1996 the percentage had risen to 38.2.
It has also been claimed that to the extent to which some sectors of the retailing industry had experienced a decline in sales this may not be attributable to gambling.
Mr John Richards, the head of the Victorian Casino and Gaming Authority, has said that while gaming is growing more strongly than retailing this is not because money is being directed into gambling rather than retail spending.
Mr Richards has suggested that the difficulties some sectors of the retail industry are facing are the result of factors such as the spread of discount superstores, low consumer confidence and direct marketing.
It has further been suggested that restricting gambling puts an unreasonable limit on people's civil rights and would be a paternalistic action for any government to take.
Here it is claimed that if people, as reasonable adults, choose to gamble it is not the business of governments to intervene.
This view, also, has been paraphrased by Mr Wootton, who has stated, `It is often stated by the Government and the gambling industry that no one is forced to gamble - it is an individual's choice.'
There are also those who maintain that the gambling industry actually benefits the different States.
Firstly, the claim is made that taxes from gambling contribute some 14 per cent to all State budgets and thus allow for State works and programs to go ahead that would otherwise have to be scrapped.
Then it is claimed that gambling actually provides a boost to State economies attracting tourists who then spend money at other venues.
Finally it is noted that gambling is a significant employer, with the casinos alone directly employing some 18,000 people, in addition to the goods and services that have to be produced to service them.
Mr Gary O'Neill, a spokesperson for Crown Casino, has claimed, `While it might suit some politicians sometimes to make these general points, I would hope they realise that the industry has an on-going positive input both in the community and to government revenue.'
Another argument offered in support of the States deriving revenue from gaming taxes is that much gambling is a harmless recreational activity.
Mr Steve Murphy, a spokesperson for the Victorian premier, Mr Jeff Kennett, has claimed, `It covers a broad range of leisure activities and I don't think that anybody is suggesting that these activities are anything but legitimate.'
Arguments against state governments gaining a significant proportion of their revenues from gambling taxes
One of the primary arguments offered against state governments raising a significant proportion of their revenues through gambling taxes is that gambling taxes are inequitable.
An inequitable tax is one which does not fall proportionately on different sectors of the community but significantly penalises some groups more than others.
Income taxes are said to be relatively equitable because those who pay the highest taxes are theoretically those who earn the largest incomes.
Gambling is said by some to be an inequitable or regressive tax because a disproportionate percentage of those whose gambling attracts state taxes are relatively poor and thus not properly able to bear the burden of such taxes.
Mr Rob Wootton, the executive director of the Victorian Council on Problem Gambling, has noted that 52 per cent of (Crown) casino's regular patrons and 48 per cent of regular electronic gaming machine players are not in the workforce.'
Mr Wootton has referred to gaming taxes as `regressive', because they tax `those who can least afford it.'
This leads to the second major argument offered against raising state revenues through taxes, that is that gambling itself creates major social problems and thus is not an appropriate means through which to supplement state funds.
It is claimed that those on low incomes, in particular, cannot afford to take up gambling.
It is claimed that this is because they have little real discretionary income. Discretionary income is money that can be spent as the members of a household wish, because it is not needed to buy necessities.
According to this line of argument, when many low-income households begin to spend a significant proportion of their income on gambling, then necessities such as food, clothing and accommodation may no longer be able to be purchased.
This point was made by The Australian in its editorial of March 4, 1997. The same point was made by the Prime Minister, Mr Howard, who has stated, `People who can't afford to do so are losing large amounts of money gambling.'
The Age has reported that calls to G-line, the crisis service for Victorians seeking help with a gambling problem, have risen to 15,000 a year.
Kendall Hill, writing in The Age, has stated that many gamblers are `humble migrants in acrylic sweaters and synthetic shirts and frocks.' Ms Hill further claims that `their empty purses and wallets contributed to the $271 million revenue generated by Crown (in Victoria) in the first half year to December, 1996, of which $30.1 million was net profit.'
It has also been suggested that an increase in gambling reduces people's savings.
A report recently released by the Victorian Casino and Gambling Authority has suggested that household savings in Victoria have dropped from 10.5 per cent of household income in 1990 to 3.5 per cent in 1996. The report further suggested that such a drop in household savings was more significant for low-income earners as it would remove a `cushion against the effects of future recession.'
It has also been claimed that an increase in gambling has had damaging effects on other sections of the States' economies.
According to this line of argument, people are spending their disposable income on gambling rather than on purchasing goods from the retail sector.
It has been claimed that this trend is particularly evident in country areas. A report recently commissioned by the Victorian Casino and Gaming Association has claimed that `on a geographical basis retailing in some areas ... has probably been affected.'
Mr Ron Thomlinson, the executive director of the Retail Traders Association of Victoria, has claimed that the effect of gambling on retail trade had been `disastrous'.
Mr Thomlinson has claimed that `Gambling addiction is not only biting savings but reducing discretionary saving.' Mr Thomlinson cited a 12 per cent decline in clothing sales in January, 1997, which he said was `an extra-ordinarily bad result.'
Mr Thomlinson has further claimed, `We can't win against this thing (gambling) ... It's eating into our livelihood.'
A further criticism of State Governments becoming reliant on taxation revenue gained from gambling is that it may place State Governments in the position where they are effectively sponsoring or supporting gambling.
This criticism has been leveled at the Victorian Government, which some critics claim, has appeared to support and encourage the operations of Crown Casino, and gambling outlets generally.
Reverend Tim Costello of the Collins Street Baptist Church in Melbourne has claimed, `There is an explosion and an epidemic of gambling in Victoria and it is distressing to think that the Premier sponsors it.'
According to this line of argument once State Governments become dependent on gambling revenues they cease to be in a position to take action to rein gambling in should that be necessary. They may also find themselves in the reverse position, where, acting only in their States' immediate economic interests, they appear actively to encourage gambling.
This position has also been put by the federal treasurer, Mr Peter Costello, `The trouble with these sin taxes as they are called is that sin taxes can be quite addictive (for governments). It's the same with tobacco and grog. The states have got very reliant on tobacco consumption.
`Tobacco consumption in itself is not a good thing, but from a revenue perspective you get to a stage where you don't want it to decline. And you could easily get into that situation in relation to gambling.'
Finally, it has been claimed, gambling may not be a freely chosen recreational pursuit for many people. Instead, it has been claimed, it can become a compulsion, with many of those who take part in it unable to rationally control their behaviour.
Further implications
It will be interesting to note what future directions this issue will take. To date there is nothing to indicate that the Federal Government proposes to increase grants to states so that they can take measures to reduce the extent of gambling in the areas under their control.
The Australian in its editorial of March 4, 1997, stated, `Mr Howard cannot have it both ways. If he believes gambling is a social ill which should be discouraged then he must encourage the States to find an alternative revenue source rather than just attack them for their level of public sector spending. Unless an equally effective alternative is provided, Mr Howard's latest campaign might be stillborn.'
The States have meet and are proposing the establishment of a review panel to look at the introduction of a state-based consumption tax. This meeting was in direct response to the Prime Minister's criticisms of the amount of the States' revenues that was coming from gambling taxes. However, in the short term it seems highly unlikely that the Federal government will introduce a consumption tax.
The Coalition gave a clear undertaking during the last election campaign that it would not introduce a consumption tax. Now that the Coalition is in office, this seems to have translated into an assurance that no consumption tax will be introduced during the Government's current term.
Mr Ron Thomlinson, the executive director of the Victorian Retail Traders Association, has called on the Victorian government to put a permanent cap on the number of gaming machines to be allowed in the state. He has also demanded that the ban on gaming machines in shopping centres be continued and that there be a halt to any further expansion of the casino. No response from the Victorian Government has yet been published.
The Prime Minister has urged a similar attempt to limit the future growth of the gaming industry. Mr Howard has argued that the gaming industry should be treated as the tobacco industry now is, that is, it can be used as a source of revenue, but there should be restraints upon it that include controls on the manner in which it can be advertised.
It has also been proposed that all state governments should conduct community awareness campaigns to warn people of the dangers of compulsive gambling.
To date there has been no sign of action on these proposals.
Sources
The Age
1/3/97 page 1 news item by Niki Savva, `PM warns of gambling "blight"
3/3/97 page 1 news item by Niki Savva, `Gambling losses $9.4 billion: PM'
3/3/97 page 2 news item by Belinda parsons, `Walker politely rejects PM's view of gambling'
3/3/97 page 14 editorial, `Battling the blight'
4/3/97 page 3 news item by Niki Savva, Leonie Wood and Tim Colebatch, `PM a hypocrite over gambling, says Labor'
4/3/97 page 3 news item by Kendall Hill, `They're toiling for out city'
4/3/97 page 3 news item by Shane Green, `States join to hatch tax plan'
5/3/97 page 5 news item by Tim Colebatch, `Australia's 14 casinos hit the jackpot as income soars 36%'
5/3/97 page 17 analysis by Rob Wootton, `When the chips are down'
7/3/97 page 5 news item by Tania Ewing, `Victorians dig into nest eggs to gamble'
8/3/97 page 19 analysis by Shane Green, `How the Lucky Shop became the Lucky State'
The Australian
1/3/97 page 1 news item by Michael Gordon, `Howard decries gambling's grip'
3/3/97 page 1 news item by Ian Henderson, `Gambling the only option, say States'
3/3/97 page 2 news item by Ebru Yaman and John Ellicott, `Pulpits echo PM's attack on gambling'
4/3/97 page 12 editorial, `Howard's way a gamble'
5/3/97 page 3 news item by John Short, `Howard to maintain rage over gambling'
5/3/97 page 3 news item by Ian Henderson and Belinda Hickman, `Criticism stings most down south'
7/3/97 page 4 news item by Tim Boreham, `Savings loss a sure bet'
8/3/97 page 4 comment by Hugh Mackay, `Politicians punt on national weaknesses'
The Herald Sun
7/3/97 page 11 news item by Greg Thom, `Sales not hit by gambling'