Monday, 9 October 2017

Pokies: A time to be brave

Everyone is trying to pressure Opposition Leader Rebecca White to make up her mind what to do about poker machines post 2023, the government even bringing on a motion in Parliament a few weeks ago to try to embarrass her. A few weeks even a month or two isn’t going to make an ounce of difference.

All too often the overwhelming social arguments against poker machines are trumped by the gambling industry’s mantra of jobs jobs jobs. It’s important the bogus economic arguments are fully understood by Ms White.

Dear Ms White

You were right to delay framing a new position on EGMs until the Joint Committee presented its findings based on the latest evidence. That was the aim of the inquiry.

From a policy viewpoint an inquiry becomes pointless if trying to confirm predetermined policies drives the process.  Fortunately the Chair managed to keep focussed.

Confirmation bias however dominated the approach of both the Liberals and the Greens, culminating in Ms Courtney’s dissenting report arguing  that the significant reduction in EGMs in pubs and clubs recommended by four of the other five committee members would have “devastating economic and employment impacts on many businesses and communities..”.

Recommendations are supposed to be based on evidence presented. No evidence was offered by non EGM businesses stating withdrawal of some or all EGMs from communities would have adverse effects let alone devastating ones. Communities clamouring to retain EGMs to prevent devastation were also conspicuously absent.

The only evidence presented about the adverse effects of EGM reduction was from and on behalf of EGM venues. THA’s figure of 1,000 job losses if EGMs are removed from the community was a figure derived from the exaggeration bias of affected THA members rounded up to the nearest thousand. For other businesses and the community to be affected would require EGM spending to remain unspent. No evidence was advanced to support this hypothesis. In fact the contrary was the case with Professor Mangan’s modelling showing increases in employment under three credible scenarios where EGMs were removed from the community.

It is important to distinguish Prof Mangan’s modelling from the modelling presented to the inquiry by the Federal Group revealing its contribution to the Tasmanian economy. The latter was a static snapshot where people’s spending with the Federal Group was basically relabelled as the Group’s contribution to the economy, spending that would have contributed just as much, if not more, if spent elsewhere. The Mangan modelling on the other hand estimated the likely positive effects on employment if EGMs were removed from communities.

It is open to reject evidence, but making recommendations without it is contrary to best practice.

The inquiry unanimously decided against granting licenses in perpetuity which means even if licenses of a shorter term are instituted, an upfront payment to government is unlikely. There is a trade off between an upfront fee and annual taxes. Be cautious about comparing tax rates across jurisdictions where there are different upfront fees and fees when licenses are traded. In any event there is no need to pay too much attention to what happens elsewhere. We can decide what’s best for Tasmania. The concept of competitive tax rates for EGMs is a nonsense proposition. It will only lead to a race to the bottom.

Ms Courtney’s dissenting report also made the observation that our Keno tax should be comparable to other jurisdictions and that arbitrary increases in Keno tax should be avoided.

However it was not only Ms Courtney who failed to establish the rationale for gambling taxes other than following the herd. The whole committee failed to consider the matter. It is crucial for you to establish the public policy reason why taxes are set at whatever rate.

The current understanding of who bears the burden of gambling taxes is wrong. Operators don’t. Players do. The former may remit the tax but the latter bear the burden.

It’s not a question of how much tax operators pay, it’s a matter of how much they are allowed to retain from a government protected activity. And this should relate not only to EGMs in the community should they continue, but to EGMs in casinos and Keno in both the community and in casinos.

It is important to set out a sound basis for taxing them all, especially as the prospect of receiving up front amounts for licenses is unlikely.

The committee didn’t fully consider how casino EGMs should be taxed. It shouldn’t be forgotten that casinos EGMs attract almost 40% of total EGM losses and most are from locals. The committee was unanimous in its view casino EGMs should pay the same Community Support Levy as community based EGMs. Logic suggests they should pay the same rates of taxes. Why not?

The THA has fired a shot across your bow warning you not to flirt with removing any EGMs from the community. However one area where you won’t get much opposition from THA is raising Keno taxes. So much could be done with just raising taxes to levels similar to EGMs. Why not?

Also the THA aren’t going to spend a lot of lobbying capital helping the Federal Group keep taxes on casino EGMs below community based EGMs. Why would they?

Should you decide to continue with community based EGMs post 2023 and significantly reduce numbers instead, there are plenty of available carrots. Tax rates for EGMs where marginal tax rates increase with higher EGM turnover can easily be established to tailor the amount of losses retained by venues. A different set of stepped rates could be established for venues with say, less than 20 EGMs, to encourage a transition to reduce EGMs. Too many different tax rates may sound complicated but in practice it would be easy and could be designed to achieve any level of taxes and numbers of EGMs in the community that a government may choose.

The comment in Ms Dawkins’ dissenting report that stepped tax rates would risk increasing dependence by governments on EGM taxes demonstrate a misunderstanding of how they can be structured. And it also overlooked the option to reduce the $ amount of EGM taxes simply by altering the house percentage, in other words the amount lost on every spin.

There are plenty of options to reset the State on a different path. The economic arguments are compelling. The status quo is on shaky ground. All the stars are in alignment. The Federal Group are holding a poker hand without even a pair of twos.

It’s time to be brave.

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