The Victorian budget has been predictably overshadowed by this evening’s federal budget, not to mention revelations about the HSU and other political imbroglios.
However, one aspect of the Victorian budget that slipped by without a lot of scrutiny was that Treasury forecasts show surprisingly little confidence in the harm minimisation measures the Victorian government is committed to implementing this year.
From August, the pokie duopoly of Tabcorp and Tattersall’s will be dismantled. Pokie venues will own and operate their own machines, and a new “progressive” tax regime is to be put in place. Clubs will pay between 0-50% of their net pokie revenue as tax, and pubs between 8.33-58.33%, based on monthly average net revenue per poker machine. The top rate will be payable on net player losses of above $150,000 per poker machine per year.
The dismantling of the 20-year-old duopoly provided the Victorian government with a wonderful opportunity to fund a harm minimisation “dividend” — i.e. introduce effective harm minimisation measures, such as precommitment or reduced maximum bets, and yet still retain the same state revenue as well as the same revenue to venues. Taking Tattersall’s and Tabcorp out of the system freed up their share of revenue for this purpose.
However, the Brumby government didn’t go down that path, preferring to offer windfall gains to pokie operators in the hope that they would bid up licence entitlements. However, the auction of pokie licences was roundly criticised by the Auditor-General as having fallen well short of what it should have achieved
The Baillieu government adopted its gambling policy from Brumby, but ditched the move to precommitment (initially voluntary, moving towards an effective scheme down the track) under cover of the Gillard-Wilkie deal. But it has retained a commitment to introduce a ban on automatic teller machines in gambling venues from later this year.
Budget figures, however, show solid growth of around 8% in pokie tax revenue for the state in 2012-13, on top of growth of over 3% for 2011-12, as Ferrier Hodgson also note. Some pro-industry pundits have attributed this to increased revenue share arising from the changes to taxation and ownership arrangements, but modelling the impact of the new taxes suggests quite the opposite.
Of course, we don’t yet know what people will put through the pokies in 2012-13, and Treasury hasn’t disclosed its estimates. But we do have good data on pokie expenditure in past years. Applying the new tax rates to actual Net Gaming Revenue (or NGR, i.e. player losses) for all Victorian venues for 2010-11 would have resulted in state tax revenue of $919.4 million on total NGR of $2650 million. Of this, $709.2 million would have come from hotels and $210.2 million from clubs, on NGR of $1,740 million and $911.6 million respectively. This translates into an average poker machine tax rate of 34.7%.
In 2010-11, the budget papers show actual poker machine tax revenue of $1000.6 million. This amounts to an average poker machine tax rate of 37.7%. Thus, the effective average tax rate under the new tax regime will be about three percentage points lower than the existing arrangements.
Applying this rate to the budget forecasts for 2011-12 (noting that the 2011-12 year is not yet complete) the estimated poker machine NGR in 2011-12 is $2741 million — an increase of 3.4%, resulting in a real increase of about 1.8% (ABS all groups CPI increase for the year to March 2012 was 1.6%).
Applying the same average poker machine tax rate to the budget poker machine tax forecast for 2012-13, discounting the $85 million which I understand the minister has advised relates to progressive payments for poker machine licences in that year, and allowing the two-month period from July to August before the new arrangements kick in, state tax revenue forecasts would be achieved on NGR of about $2950 million, just under $3 billion.
This represents an increase of 7.6% on 2011-12. This is likely to be well in excess of CPI. Thus, it is clear that the Treasury does not believe that there will be any revenue impact from the key harm minimisation measure scheduled to be introduced in 2012 (the removal of ATMs from gaming rooms). Given the significant amount of pokie losses attributable to problem gamblers (40% of revenue, plus 20% from at-risk gamblers), this suggests that Treasury has no confidence in the harm minimising aspects of this measure.
The new tax arrangements are very generous to venue operators, at the same time as they reduce the effective proportion of NGR collected by government as poker machine tax.
In other words, pokie users are expected to spend more, venues will keep more of the punters’ money, and the government share will decline.
Examples of the increased revenue for pokie operators (in 2010-11 dollars) include:
- Vegas at Waverley Gardens (Hawthorn Football Club venue). Retained earnings 2010-11 = $3.86 million from NGR of $11.69 million. Under the new tax arrangements this club would retain $6.65 million (an increase of 72%), or 56.9% of NGR.
- Clocks at Flinders Street Station (Doxa social club venue). Retained earnings 2010-11 = $1.96 million from NGR of $7.84 million. Under the new tax arrangements this club would retain $5.15 million (an increase of 163%) or 65.8% of NGR.
- Skyways Taverner (ALH-Woolworths venue at Airport West). Retained earnings 2010-11 = $4.68 million from revenue of $18.7 million. Under the new tax arrangements this hotel would retain $8.56 million (an increase of 83%) or 45.7% of NGR.
- Shoppingtown Hotel (ALH-Woolworths venue at Doncaster). Retained earnings 2010-11 = $4.01 million from NGR of $16.01 million. Under the new tax arrangements this hotel would retain $7.7 million (an increase of 92.2%) or 48% of NGR.
- Derrimut Hotel (located in Sunshine). Retained earnings 2010-11 = $2.04 million from NGR of $8.2 million. Under the new tax arrangements this hotel would retain $4.02 million (an increase of 97%) or 49.2% of NGR.