Thursday, 8 February 2018

Love your local

Just tuned into the latest Love Your Local promo on the LYL facebook page featuring the Beach Hotel Burnie. It was surprisingly frank. Whilst it only gave half the story that half was reasonably truthful. But telling only half the story can be misleading.

Five employees out of the of the pub’s staff of 26 are involved in the gaming side of the business which also includes meals and bars and a little hotel style accommodation. The recently released pokie loss figures reveals the pub in the top 20 of pokie pubs in the State. Beach Hotel punters lost $2 million in the pokies in 2015/16 according to recently released figures.  That’s about 2% of state-wide losses. Extrapolating gives about 250 jobs losses across the State’s pokie venues, roughly the figure suggested by the government’s recently released Fourth Social and Economic Impact Study of Gambling in Tasmania, and a far cry from the 5,100 job loss figure in the Liberals’ policy manifesto.

Industry benchmarks suggest the wages figure for pokies with $2 million of player losses is around $150,000. Or about 3.5 FTEs. It was not clear the 26 employees were all FTEs. This is unlikely. So, five employees may well imply about 3.5 FTEs. The claim about five employees being under threat sounds about right.

One bit that was left out of the story was that with player losses of $2 million, $1.54 million leaves town immediately courtesy of Network Gaming. Only $460,000 remains. Local sporting clubs may get a few dollars of what’s left but most of it has already left town. After pokie wages of say $150,000 and say other direct expenses such as cleaning and electricity, the pokies are estimated to contribute $260,000 to the bottom line of the pub, which is likely to be the largest contributor by a long shot given the product mix.

The other bit that was omitted from the narrative was Liberals’ policy might ensure a few pokies jobs remain but the overwhelming winner will be the pub’s owners, by virtue of increased revenue in the future which in turn implies a massive windfall gain for them. The estimated gain is $5 million.  In accounting terms that is the present value of future revenue increases.

The Liberals originally undertook that any pokies licenses post 2023 would be allocated via a market based tender. After the Libs were blindsided by the ALP’s policy to remove pokies from the community, it hastily cobbled together a policy which coincidentally was almost identical to the joint THA/Federal Group proposal of August 2017 presented to the parliamentary inquiry at that time.

The point about a market based tender is that once the government determines the parameters such as the tax rate to apply to pokie losses, for instance, the market will decide how much a licence is worth to enable the license owner to earn a ‘normal’ rate of return.

The Government chose not to proceed with a tender to allocate licences among interested venues. It also ignored recommendation 17 of the parliamentary inquiry which suggested progressive rates of tax on pokie losses be investigated as another way of removing excess profits from participants so that they earned ‘normal’ rather than usurious rates of return rates currently prevailing.

Instead the Liberals intend to gift the licenses to existing venues and levy a flat rate of tax regardless how profitable a venue may be. With pubs and clubs due to get more commission, if the licenses are allocated in perpetuity, the licenses will be worth a total of $250 million across the 96 pubs and clubs with pokies. The bigger the player losses, the bigger the capital gain. The Beach Hotel is in line for a $5 million windfall. The Federal Group via its twelve Vantage Group pubs will receive a windfall gain of $75 million.

This is not a speculative assertion. Federal Group’s CEO in evidence to the parliamentary inquiry in August 2017 stated his proposal would increase capital values of pokie pubs and clubs by $150 million, from existing levels. But compared to a zero value which will eventuate if pokies are removed under the ALP, the Liberal’s policy will result in a $250 million windfall.

Pokie employees are understandably concerned about their jobs. But the real battle these foot soldiers are being asked to wage is for the windfall gains of their bosses. This issue has been avoided by all in the current debate.

A belief in markets and finding market-based solutions in supposed to be in Liberals’ DNA. Abandoning this supposed core principle and instead handing out $250 million worth of gains to the few fortunates who happen to be in the right spot at the right time and who have already benefited enormously over the last 20 years would be mind boggling if it wasn’t so disturbing.

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