An Examination of the New South Wales Electronic Gaming Machine Industry 1995 to 2005 and its Historical, Regulatory, Political and Economic Contexts
Mark Sargent MBA MMktg
Doctor of Philosophy
July 2012
Statement of Originality
This thesis contains no material which has been accepted for the award of any other degree or diploma in any university or other tertiary institution and, to the best of my knowledge and belief, contains no material previously published or written by another person, except where due reference has been made in the text. I give consent to this copy of my thesis, when deposited in the University Library, being made available for loan and photocopying subject to the provisions of the Copyright Act 1968.
(Signed) ______
Mark Sargent
i Acknowledgements
I liken the completion of this work to the intellectual equivalent of winning the Tour de France.
Although after a long and arduous journey, of many stages, only one rider has the honour of wearing the maillot jaune down the Champs Élysées, behind that rider is an entire team which in some significant respects shares in the satisfaction of the achievement. So also, I hope, shall be the case in respect of this thesis, and, as such I wish to acknowledge the indispensible contributions of the team that has supported me.
To my supervisors Scott Holmes, John Jenkins, Ron Plotnikoff and David Lubans, I firstly express my gratitude for your assistance and guidance. I also express my admiration of your perseverance and ability to bring focus to my often tangential meanderings. I also thank Kim
Colyvas for his invaluable contribution to the task of transforming a vast, and vastly disorganised, data set into a consistent and comprehensible form that allowed its meaningful analysis. I should also acknowledge Michael Costa, who in his role as NSW Treasurer, permitted access to the data required for this study, and Neil Jameson, for his assistance in enabling access to relevant historical media sources. I also thank Dr Kathryn Holmes for her timely methodological guidance.
To my wife Helen and daughters Georgia and Courtney, thank you for your enduring, although occasionally somewhat bemused support, as husband and father wrestled with what became known within the household as ‘a hobby that no-one else in the world cares about’. I am continually grateful for your support in this and my other endeavours. To those numerous others who have provided and offered their support along the way, I also thank you collectively.
In memory
Don Sargent
1937 - 2008
ii Table of Contents
PRELIMINARIES Acknowledgements ii Table of Contents iii List of Tables vii List of Figures viii Synopsis ix List of Abbreviations xi
CHAPTER 1: INTRODUCTION 1.1 Overview 1 1.2 Overview of the Conceptual Framework of the Thesis 10 1.3 The Research Problem 11 1.4 Research Questions 13 1.5 Justification for the Study 13 1.6 Objectives 14 1.7 Relationship to Extant Research 16 1.8 Structure of the Thesis 18
CHAPTER 2: PUBLIC POLICY AND THE POLITICAL ECONOMY OF GAMBLING REGULATION
2.1 Political Economy and Public Policy in Australia 22 2.2 General Definitions of Political Economy 23 2.3 Interpretations of the Australian Political Economy 2.3.1 Australian Federalism 24 2.3.2 Pluralist and Corporatist Models 25 2.3.3 Fragmentation 27 2.4 Effects of Australian Federalism – the States’ Perspectives 30 2.5 The NSW Context 38 2.6 Summary 43
Key Findings – Chapter 2 45
CHAPTER 3: THE HISTORICAL CONTEXT OF GAMBLING REGULATION IN NSW: A SELECTIVE HISTORY 1906-2001
3.1 Overview 46 3.2 The Gaming and Betting Act 1906 No. 13 3.2.1 Introduction 47 3.2.2 The Bill 48 3.2.3 Post-Federation NSW Society and the Gambling Evil 48 3.2.4 The Role of the Government of J.H. Carruthers 52 3.2.5 The State of the Economy 57 3.2.6 Summary 59 3.3 The Totalisator Act 1916 No 75 3.3.1 Introduction 64 3.3.2 A Changed Environment? 67 3.3.3 Influences and Interests 73 3.3.4 The State of the Economy 76 3.3.5 Summary 77
iii 3.4 The Gaming and Betting (Poker Machines) Act, 1956, No.17 3.4.1 Introduction 80 3.4.2 Egalitarianism in practice – the Development of the NSW Club Industry 82 3.4.3 Liquor, Gaming and the Government Response 83 3.4.4 The Parliamentary Debates 87 3.4.5 Summary 95
3.5 Gambling regulation and the tenure of the Carr Labor Government 1995- 2005 3.5.1 Overview 99 3.5.2 The Liquor and Registered Clubs Further Amendment Act 1996, No.103 3.5.2.1 Introduction 101 3.5.2.2 Contention in the Parliament 102 3.5.2.3 The Media Perspective 107 3.5.2.4 Gaming machine Proliferation and its Social Impacts 114 3.5.3 The Gaming Machines Act, 2001 No. 127; the Gaming Machine Tax Act 2001 No. 72 3.5.3.1 Introduction 116 3.5.3.2 Parliamentary Debates – Legislative Assembly 120 3.5.3.3 Parliamentary Debates – Legislative Council 124 3.5.3.4 Media Commentary 127 3.5.4 Summary 131
3.6 Conclusion: Public Policy Theory and Gambling Regulation in NSW 1906 to 2001 134
Key Findings – Chapter 3 148
CHAPTER 4: GAMBLING TAXATION THEORY AND ITS APPLICATION TO GAMING MACHINE TAXATION POLICY AND PRACTICE IN NEW SOUTH WALES, 1956 TO 2005
4.1 Overview 149 4.2 Aspects of the Political Economy of Gambling Taxation 150 4.3 General Tax Design Criteria 156 4.4 Taxation Theory: The Nature of Gambling Taxes 159 4.5 The Ramsey Rule 162 4.6 The Pigouvian Prescription 165 4.7 Application of Ramseyian and Pigouvian Theory to EGM Taxation in NSW 167 4.8 Methods Applied to Taxation of Gambling 4.8.1 Introduction 168 4.8.2 Licence Fees 168 4.8.3 Turnover-based Taxes 169 4.8.4 Profit-based Taxes 171 4.8.5 Other Implicit Taxes 172 4.9 Club EGM Gambling Taxation in NSW 1956 to 1996 4.9.1 Comment on Tax Methods Applied 172 4.9.2 Economic Efficiency 181 4.9.3 Equity 192 4.9.4 Administrative Simplicity 196
iv 4.10 The Structure of EGM Gambling Taxation in NSW 1996 to 2005 4.10.1 EGM Tax Structure and Rates 197 4.10.2 Goods and Services Tax Provisions 201 4.11 Observed Outcomes of NSW EGM Policy 202 4.12 Summary 208
Key Findings – Chapter 4 211
CHAPTER 5: AN EXAMINATION OF THE NEW SOUTH WALES ELECTRONIC GAMING MACHINE INDUSTRY, 1995 TO 2005
5.1 Context, Description and Methods
5.1.1 Overview 212
5.1.2 Precedent Research 5.1.2(a): EGM Distribution and its Socioeconomic Implications 213 5.1.2(b): Limitations of Precedent Research 214
5.1.3 Acquisition and Description of Principal Data Set 5.1.3(a): Data Acquisition 219 5.1.3(b) : Primary Database Characteristics 220 5.1.3(c): Database Limitations 221
5.1.4 Supplementary Data and its Sources 222 5.1.4(a): Australian Bureau of Statistics – Census and Regional Population Growth Data 222
5.1.5 Approach to Preparation of Data Sets and Composition of Functional Data Sets 223
5.1.6 Selection of Concentration Measure 5.1.6(a): Methodological Considerations 225 5.1.6(b) : Application of the Herfindahl Index 229
5.1.7 Selection of Measures of Socioeconomic Status (SES) – ABS Socioeconomic Indexes for Areas (SEIFA) 5.1.7(a): SEIFA Indices 230 5.1.7(b): Selection of SEIFA Indices for Application in Analysis 231
5.1.8 Statistical Methods 5.1.8(a): Principal Analysis – Repeated Measures ANOVA 237 5.1.8(b): Description of RM ANOVA Output 238 5.1.8(c): Additional Analyses 239
5.1.9 Approach 239
5.2 Results
5.2.1 Liquor and Registered Clubs Further Amendment Act 1996 No. 103 241 5.2.1.1 Descriptive statistics 5.2.1.1(a): Population per EGM (EGM Density) 241 5.2.1.1(b): EGM Concentration 242
v 5.2.1.1(c): Profit per Capita 243 5.2.1.1(d): Profit Concentration 245 5.2.1.1(e): Tax per Capita 246 5.2.1.1(f): Tax Concentration 247
5.2.1.2 Results 5.2.1.2(a): Repeated Measures ANOVA 249
5.2.2 Gambling Legislation Amendment (Responsible Gambling) Act 1999, No. 49 251
5.2.2.1 Descriptive Statistics 5.2.2.1(a): Population per EGM (EGM Density) 251 5.2.2.1(b): EGM Concentration 252 5.2.2.1(c): Profit per Capita 254 5.2.2.1(d): Profit Concentration 255 5.2.2.1(e): Tax per Capita 256 5.2.2.1(f): Tax Concentration 257
5.2.2.2 Results 5.2.2.2(a): Repeated Measures ANOVA 259
5.2.3 Gaming Machines Act, 2001, No. 127 and Gaming Machine Tax Act, 2001 No. 72. 260
5.2.3.1 Descriptive Statistics 5.2.3.1(a): Population per EGM (EGM Density) 260 5.2.3.1(b): EGM Concentration 262 5.2.3.1(c): Profit per Capita 264 5.2.3.1(d): Profit Concentration 265 5.2.3.1(e): Tax per Capita 267 5.2.3.1(f): Tax Concentration 268
5.2.3.2 Results 5.2.3.2(a): Repeated Measures ANOVA 270
5.2.4 Summary 271
Key Findings – Chapter 5 272
CHAPTER 6: DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS
6.1 Overview 273 6.2 Discussion 6.2.1 General Discussion 273 6.2.2 Commentary on Group Effects 275 6.2.3 Commentary on Time Effects 277 6.2.4 Commentary on Interaction Effects 289 6.2.5 Liquor and Registered Clubs Further Amendment Act 1996 No. 103 290 6.2.6 Gambling Legislation Amendment (Responsible Gambling) Act 1999, No. 49 295 6.2.7 Gaming Machines Act, 2001, No. 127 and Gaming Machine Tax Act, 2001 No. 72 299 6.3 Strengths and Limitations of the research 304
vi 6.4 Conclusions and Recommendations 306
Reference List 317 Appendix – Additional RM ANOVA Post Hoc Testing Results 340
LIST OF TABLES
Table 3.1: NSW Government revenues 1901-1906 58 Table 4.1: Poker machine licence fees – as legislated 1956 173 Table 4.2: Club EGM tax rates – imposed under 1996 legislation 198 Table 4.3: Hotel EGM tax rates – imposed under 1996 legislation 198 Table 4.4: EGM tax rates – registered clubs - as legislated 2001 199 Table 4.5: EGM tax rates – registered clubs – March 2012 199 Table 4.6: EGM tax rates – hoteliers – as legislated 2001 200 Table 4.7: EGM tax rates – hoteliers – March 2012 200 Table 4.8: EGM tax rate adjustments for GST – July 2000 201 Table 5.1.1: Excluded LGAs 224 Table 5.1.2: Base and derived variables for analysis 225 Table 5.1.3: Description of EGM gambling variables used in analysis 230 Table 5.1.4: Comparison of SEIFA disadvantage (D) and SEIFA education and occupation (EO) terciles 233 Table 5.2.1: Population per EGM – means and related data 1995-1998 241 Table 5.2.2: EGM concentration (Herfindahl Index) – means and related data 1995-1998 243 Table 5.2.3: Profit per capita – means and related data 1995-1998 244 Table 5.2.4: Profit concentration (Herfindahl Index) – means and related data 1995-1998 245 Table 5.2.5: Tax per capita – means and related data 1995-1998 246 Table 5.2.6: Tax concentration (Herfindahl Index) – means and related data 1995-1998 248 Table 5.2.7: Main effect test results - 1995-1998 249 Table 5.2.8(a): Post hoc test results – interaction effects 1995-1998 249 Table 5.2.10: Population per EGM – means and related data 1998-2001 252 Table 5.2.11: EGM concentration (Herfindahl Index) – means and related data 1998-2001 253 Table 5.2.12: Profit per capita – means and related data 1998-2001 254 Table 5.2.13: Profit concentration (Herfindahl Index) – means and related data 1998-2001 255 Table 5.2.14: Tax per capita – means and related data 1998-2001 257 Table 5.2.15: Tax concentration (Herfindahl Index) – means and related data 1998-2001 258 Table 5.2.16: Main effect test results – 1998-2001 259 Table 5.2.17(a): Post hoc test results – interaction effects 1998-2001 259 Table 5.2.19: Population per EGM – means and related data 2000-2005 261 Table 5.2.20: EGM concentration (Herfindahl Index) – means and related data 2000-2005 263 Table 5.2.21: Profit per capita – means and related data 2000-2005 264 Table 5.2.22: Profit concentration (Herfindahl Index) – means and related data 2000-2005 266 Table 5.2.23: Tax per capita – means and related data 2000-2005 267 Table 5.2.24: Tax concentration (Herfindahl Index) – means and related data 2000-2005 269 Table 5.2.25: Main effect test results – 2000-2005 270 Table 5.2.26(a): Post hoc test results – interaction effects 2000-2005 270
vii Appendix: Table 5.2.8(b): Post hoc test results – time effects 1995-1998 340 Table 5.2.9: Post hoc test results 1995-1998 340 Table 5.2.17(b): Post hoc test results – time effects 1998-2001 341 Table 5.2.18: Post hoc test results 1998-2001 341 Table 5.2.26(b): Post hoc test results – time effects 2000-2005 342 Table 5.2.27: Post hoc test results 2000-2005 343
LIST OF FIGURES
Figure 1.1: Timeline of significant events addressed in the thesis 3 Figure 1.2: Schematic of conceptual framework 21 Figure 3.1: Budgeted and actual tax revenues 1995-1996 to 2000-2005 133 Figure 4.1: Timeline of significant poker machine and AAD tax legislation 1956-1993 174 Figure 4.2: Summary EGM data FY1994-1995 to FY2004-2005 182 Figure 4.3: Gaming machine tax revenues FY1956-1957 to FY2004-2005 184 Figure 4.4: Annual proportional change in tax revenues FY1956-1957 to FY2004-2005 185 Figure 4.5: Tax and poker machine data FY1956-1957 to FY2004-2005 186 Figure 4.6: Comparison of club and poker machine counts FY1956-1957 to FY1997-1998 187 Figure 4.7: Club and hotel EGM gambling measures FY 1994-1995 to FY 2004-2005 189 Figure 5.1.1 Population and EGM totals by SEIFA Index terciles 1998 236 Figure 5.1.2 EGM gambling variable means 1995-2005 238 Figure 5.1.3: Timeline of key EGM legislative events: Carr Governments 1995-2005 240 Figure 5.2.1: Population per EGM by SES 1995-1998 242 Figure 5.2.2: EGM concentration by SES 1995-1998 243 Figure 5.2.3: Profit per capita by SES 1995-1998 244 Figure 5.2.4: Profit concentration by SES 1995-1998 245 Figure 5.2.5: Tax per capita by SES 1995-1998 247 Figure 5.2.6: Tax concentration by SES 1995-1998 248 Figure 5.2.7: Population per EGM by SES 1998-2001 252 Figure 5.2.8: EGM concentration by SES 1998-2001 253 Figure 5.2.9: Profit per capita by SES 1998-2001 254 Figure 5.2.10: Profit concentration by SES 1998-2001 256 Figure 5.2.11: Tax per capita by SES 1998-2001 257 Figure 5.2.12: Tax concentration by SES 1998-2001 258 Figure 5.2.13: Population per EGM by SES 2000-2005 262 Figure 5.2.14: EGM concentration by SES 2000-2005 263 Figure 5.2.15: Profit per capita by SES 2000-2005 265 Figure 5.2.16: Profit concentration by SES 2000-2005 266 Figure 5.2.17: Tax per capita by SES 2000-2005 268 Figure 5.2.18: Tax concentration by SES 2000-2005 269
viii Synopsis
This thesis examines historical, political, regulatory and economic aspects of gambling policy in
New South Wales (NSW), with specific emphasis on the evolution of electronic gaming machine (EGM) gambling as a key element of the State’s fiscal policy. This includes analysis of major regulatory initiatives, including a review of contemporary parliamentary and press material surpassing any identified comparable research on gambling and EGM policy in NSW.
It was established that although policy has generally been made on isolated, ad hoc bases, precedents and contexts for subsequent legislation have resulted. It is demonstrated that although these events are prima facie unrelated, they collectively form part of an expansionary progression, largely impelled by governments’ pursuits of taxation revenue.
In order to investigate outcomes of this progression, empirical research on EGM gambling over the three terms of the Carr Labor Governments (1995 to 2005) was also undertaken. Access to the restricted, comprehensive NSW EGM gambling database for this period permitted a comparatively more detailed and definitive analysis of EGM gambling than has previously been possible.
The empirical research adopts two alternative measures of EGM distribution. These are a conventional ‘EGM density’ measure (the ratio of population to EGMs) and the introduction of a concentration measure, the Herfindahl-Hirschman Index (Herfindahl Index). This results in a novel comparative approach to assessing EGM distribution. In addition, regulatory practice and previous studies in the field have customarily relied on the use of one measure of socioeconomic status (SES), ordinarily being the Australian Bureau of Statistics’
Socioeconomic Indexes for Areas (SEIFA), to assess impacts. This study extends its comparative approach by also adopting a second SEIFA index. The application of Repeated
Measures Analysis of Variance (RM ANOVA) testing to the data resulted in identification of statistically significant distributional differences among groups of LGAs on the basis of SES.
ix The findings have implications for policy development, regulatory practice and further research on how these differences affect tax impacts.
The thesis establishes that assessment of EGM policy and impacts is to some extent contingent on the measures used in the assessment process. This is particularly relevant to the measure of
SES adopted, in which distinct differences were detected, based on the SES characteristics employed. Regarding the distributional findings, EGM gambling measures based on the
Herfindahl Index approach were also found to behave differently to orthodox metrics. The importance of these methodologies lies in their applicability to the practical regulation of gambling.
The thesis is a contribution to the further understanding of how public policy formulation and implementation in a policy field that is central to government fiscal planning has evolved. The findings indicate that alternative policy determinations may have resulted had different, and perhaps more comprehensive, approaches been employed. These are methodological initiatives that may be prospectively applied in the future development of gambling research and policy.
x
List of Abbreviations
AAD Approved Amusement Device (card machine)
ABA Australian Broadcasting Authority
ABS Australian Bureau of Statistics
ACLG Australian Classification of Local Governments
ACOSS Australian Council of Social Services
AD Anno domini
AHA Australian Hotels Association
AJC Australian Jockey Club
ALP Australian Labor Party
ANOVA Analysis of Variance
ATM Automatic Teller Machine
BC Before Christ
CDSE Community Development and Support Expenditure
CMS Centralised Monitoring System
Cth Commonwealth (distinguishes Commonwealth legislation).
DGR Department of Gaming and Racing (NSW)
DLG Department of Local Government (NSW)
EGM Electronic Gaming Machine (formerly poker machine)
ERP Estimated Resident Population (ABS)
FY Financial Year
Hon. Honourable (parliamentary honorific).
GIS Geographic Information System
GST Goods and Services Tax
GWR Geographically Weighted Regression
IPART Independent Pricing and Regulatory Tribunal (NSW)
xi LAB Liquor Administration Board (NSW)
LGA Local Government Area
LRA Liberal and Reform Association
MP Member of Parliament (federal)
MTGM Multi Terminal Gaming Machine (linked EGM)
NSW New South Wales
OLGR Office of Liquor, Gaming and Racing (NSW) [formerly DGR]
RCA Registered Clubs Association
RM ANOVA Repeated Measures Analysis of Variance
RTP Return to Player
SEIFA Socioeconomic Indexes for Areas (Australian Bureau of Statistics).
SEIFA D SEIFA index of Disadvantage
SEIFA EO SEIFA index of Education/Occupation
SES Socioeconomic Status
SMH Sydney Morning Herald
TAB Totalisator Agency Board (NSW)
UK United Kingdom
ULVA United Licensed Victuallers Association
xii Chapter 1
Introduction
1.1 Overview
Modern-day Australian gambling and in particular that in New South Wales (NSW), is dominated by Electronic Gaming Machine, or EGM, gambling. NSW introduced poker machines, the precursors to EGMs, in 1956. It remained the sole Australian state or territory to permit access to machine gambling in venues other than casinos until 1987, when the Australian
Capital Territory (ACT) adopted a similar position.
By 1995 all states and territories, with the exception of Western Australia, had liberalised access to the machines (Drabsch, 2003). A corollary to the national expansion in EGM gambling was an associated increase in its prominence as a source of gambling-derived taxation revenues. In its 2010 report, the Productivity Commission noted that “In five states and territories, EGMs from clubs and hotels alone provide over 50 percent of such revenue” (Productivity
Commission, 2010, p. 2.10).
Despite the effective increase in competition for EGM gambling and its tax yields, particularly from neighbouring Queensland and Victoria, NSW has remained the state with the largest number of EGMs. The Productivity Commission (1999) observed that NSW then still held over fifty percent of the nation’s EGMs. The State’s continued pre-eminence during this period of national EGM expansion is indicative of the further liberalisation that occurred simultaneously in NSW.
This thesis examines EGM policy in NSW during the period coinciding with this more general expansion. During the tenures of the NSW Labor Governments led by Bob Carr (1995 to 2005), the State initially further liberalised and subsequently attempted to limit access to EGMs. The
1 historical component of the research reveals the precedents and influences that shaped the policy-making processes and the policy outputs which were subsequently enacted by the parliament. The empirical component of the research employs the government’s own authoritative EGM data for the period to examine specific aspects of the outcomes of these policies.
As the reference to the initial legalisation of poker machines in 1956 suggests, in order to more fully appreciate the context of policy in the Carr Governments’ terms, it is beneficial to understand the legislative precedents that NSW had earlier established. To this end, this period of extraordinary policy activity is contextualised by examining the range of historical, politico- economic, fiscal and social elements that have characterised gambling regulation in NSW since federation. In defining this context, an analysis of contemporaneous parliamentary and press records that surpasses any single collation of relevant material identified in the conduct of this research is included. This approach links the commonalities evident in individual policy events to a progressive shift in policy foci over time towards the dominance of the fiscal imperative.
The following timeline (Figure 1.1) indicates the major legislative events examined in this thesis. Additional relevant regulatory events that have impacted on the development of gambling, and particularly EGM gambling are also noted. As Figure 1.1 indicates, the thesis focuses on regulation in NSW in the twentieth and early twenty-first centuries.
2 Figure 1.1 Timeline of significant events addressed in the thesis*
Legislation Year Premier/ Summary of major policy changes Government Gaming and Betting Act Carruthers Betting restricted to race courses. Betting 1906 1906, No. 13 Liberal houses prohibited. Totalisator introduced for use on race Totalisator Act 1916, No. Holman 1916 courses. Tax established on totalisator 75 Nationalist takings. Gaming and Betting Poker machines legalised in registered Cahill (Poker Machines) Act 1956 clubs. Licence fee-based tax introduced on Labor 1956, No. 17 operation of machines.
Liquor (Amusement Wran Introduction of Approved Amusement Devices) Amendment Act 1984 Labor Devices into hotels. Licence fee-based tax. No 57, 1984,
Liquor (Amusement AAD limit increased from 5 to 10 for each Greiner Devices) Amendment Act 1988 hotel. Licence fees replaced by turnover- Liberal No 94, 1988 based tax.
Liquor and Registered Carr Electronic Gaming Machines permitted in Clubs Further Amendment 1996 Labor hotels. Tax concessions to registered clubs. Act 1996, No.103
Liquor and Registered Community Development and Support Clubs (Community Carr Expenditure Scheme introduced, resulting 1998 Partnership) Act No 12, Labor in tax rebates for community contributions 1998 for some clubs.
Gambling Legislation Amendment of seven gambling related Amendment (Responsible Carr Acts. Provisions address general 1999 Gambling) Act 1999, No. Labor responsible gambling practices, venue 49 advertising etc.
A New Tax System (Goods and Services Tax) Act Howard 1999 (Cth); Liberal (federal) Federal government introduction of GST. Intergovernmental 2000 Amendments to EGM taxes to Agreement Carr accommodate GST Implementation Act 2000, Labor (NSW) No 44 (NSW) Gaming Machine Tax Act 2001 Carr Adjustments to tax rates relating to 2001, No. 72 Labor subsequent Gaming Machines Act
Gaming Machines Act 2001 Carr Reductions in EGM numbers for certain 2001, No. 127 Labor clubs. Restrictions on grant of new EGM entitlements. Mandatory daily shutdowns of EGM operations.
*Note: The legislative events with year and Premier/Government highlighted in black are the major events analysed in this thesis. The events highlighted in grey indicate other significant regulatory developments, which are observed, but not examined in detail.
3 As part of the context of these events, it must be recognised that gambling is an activity with a history that long predates the colonisation of Australia, and which is an inherent phenomenon within most human society. For example, Chinese gambling can be traced back 4,000 years, and betting on horse racing was common among the Hittites (of modern-day Turkey) circa 4,000
B.C. (McMillen, 1996). Evidence also exists of gambling in Egypt well before 3,000 B.C.
(Wykes, 1964). In Britain, gambling predated the Roman conquest of 43A.D., with the Romans finding the British tribal rulers Cymbeline and Boadicea, to be “practiced dice players”, a game which was “presumably brought in by the earlier Celtic invaders” (Wykes, 1964, p. 40).
So pervasive a characteristic of British society had gambling become by the eighteenth century that Charlton (1987, p. 5), in reporting on its practice being commonplace in the “fashionable
London clubs” of the day, recorded in detail one wager made on the floor of the House of
Commons, which he ironically described as “the best club in London”. Even on the southward journey of the First Fleet, both officer and convict alike engaged in gambling activity (Charlton,
1987). This was the gambling heritage passed to Australia on British settlement of the continent.
Along with this cultural inheritance, Broome (1980) suggested that factors such as the “frontier” nature of colonial society also fuelled the appetite for gambling, observing that: “Australia was for much of its early history crazed with get rich quick values – after all, making money was the immigrant dream!” (Broome, 1980, p. ix).
Not surprisingly then, gambling has historically been a cultural feature of some prominence within Australian society. As NSW was the first British settlement on the continent, gambling first took root in the earliest days of the colony (for example, O’Hara, 1988). Cumes (1979) discussed the prevalence and consequences of gambling, both for the colony and for individuals, circa 1794. Formally organised gambling activity was recorded in Australia as early as 1810, when the colony’s first horse racing meeting was held in Sydney (Drabsch 2003). Charlton
(1987) described in detail gambling on boxing, pedestrianism (walking and running races), cricket, sailing and more barbaric ‘sports’ such as cockfighting and Aborigine-baiting in the
4 colony of the nineteenth century, with betting on one cricket match being “in both cash and kind, with wagers made in sawn timber, fat pigs, maize, butter, salted fish and snake-skin shoes” (Charlton, 1987, p. 37). Broome (1980) concluded that the prevalence of gambling in the early 1900s was such that among significant parts of the population “gambling was unfortunately enshrined as the national pastime” (p. 126). Indicating the durability of gambling as a national interest, toward the end of that century, the Productivity Commission’s 1999 report found that 82 percent of Australian adults participated in at least one gambling activity in the twelve months prior to being surveyed (Productivity Commission, 1999).
This is not to say that gambling has been embraced by all Australians. Gambling’s evolution is punctuated by, and intertwined with, the efforts of those opposed to it to proscribe its practice in both colonial and modern Australia and NSW. From the Reverend Samuel Marsden in the late eighteenth and early nineteenth centuries (see variously, Cumes, 1979; O’Hara, 1988) to the
Reverend the Honourable Fred Nile MLC1 in the late twentieth and early twenty-first centuries, there is a parallel and continuing lineage of seemingly Sisyphean opposition to gambling in
NSW.
Despite the exertions of these detractors, pre-liberalisation populations often chose to ignore existing laws in order to sate their gambling urges and post-liberalisation populations eagerly adopted new forms of gambling as they became legalised (O’Hara, 1988). This left governments with little choice, if they were to maintain any control over gambling, but to enact legislation which has been generally accommodating toward gambling providers and consumers.
Both O’Hara (1988) and Smith (1999) asserted that government control, particularly with the intent of curtailing illegal gambling, was often the declared primary motivation for legislation,
1 As examples of Reverend Nile’s opposition to gambling legislation, refer to the following parliamentary speeches: NSW Legislative Council Hansard, Liquor and Registered Clubs Legislation Amendment Bill, 19 November 1996 p. 6107; NSW Legislative Council Hansard, Totalisator Legislation Amendment Bill, Second Reading, 19 November 2003 p. 5709 5 particularly in earlier Australian and NSW history. However, as gambling regulation has developed there has increasingly been some concomitant benefit to state revenues in the form of the taxes imposed as part of the regulatory structure. This is the more so, given that gambling taxes are perceived as “politically easy” to impose (Smith, 2000, p.128), and that this relative indifference of the electorate in general has rendered these taxes a resort “when government revenue needs were pressing” (O’Hara 1988, p. 220). In enumerating the factors influencing governments’ gambling policies, Rubner (1966) listed these as: “the need for public revenue; the weight of religious opinion; administrative capacity; the honesty of the State machinery; and the crookedness of private gambling ventures” (p. 9).
The nomination of the fiscal imperative as the first of the factors described by Rubner (1966) is likely to be purposive, as will be substantiated in later chapters. To state the revenue-raising factor as merely one among the government motivations for regulatory activity is to understate the increased focus on this aspect of regulation over time. For example, Dunstan (1997),
Marshall (1998), Smith (1999), McGowan (2007), Collins (2007) and Adams (2008) each concluded that the revenue raising element has progressively become the primary motivation for expansionary gambling regulation.
As noted previously, it is evident that Australian state and territory governments’ reliance on gambling taxes is a common feature of their fiscal structures. However the relative importance of these taxes measured as a proportion of total state and territory revenues has varied over time.
The Productivity Commission (1999, p. 19.7) showed that in NSW, gambling tax comprised
12.8 percent of own-tax revenues in 1975-76, 9.7 percent in 1990-91 and 10.2 percent in 1996-
97. The underlying reasons for these variations are complex. Johnson (1985) observed that “as a percentage of state tax revenue, gambling proceeds have not shown any discernable pattern”
(p. 79). However, there is broad agreement that the appetite for, and quantum of, additional taxation revenue has been driven by the liberalisation and resultant growth of gambling (e.g.,
6 Smith, 1999). It should also be observed that the converse argument is also sustainable; that government pursuit of tax revenues has impelled gambling liberalisation.
The Productivity Commission (1999) and the Australian Institute for Gambling Research (1999) concurred with Smith’s (1999) assessment, but were both more explicit in identifying the sources of tax revenue growth. These were interpreted as being the expansion of gaming, as distinct from other forms of gambling, and in particular gaming related to casinos and EGMs.
An examination of gambling taxation revenues substantiates this, particularly with respect to
EGMs. The New South Wales Budget estimate for gambling taxation revenue for the 2011/2012 financial year was $1.815 billion, of which club and hotel EGMs accounted for $1.17 billion, or
64.5 percent. Forward estimates for the EGM share of gambling taxes for the subsequent three years averaged 64.8 percent (New South Wales Treasury, 2011). The magnitude of these tax yields demonstrates that regardless of the share of these taxes as a proportion of total state revenues, gambling taxes, and particularly EGM taxes, constitute a significant source of revenues in the NSW budget.
The rapid increase in machine-based gaming, discussed in Chapters 4 and 5, also emphasises the influence of technology on a number of the key developments in gambling in NSW. The legalisation of the totalisator in 1916, and the poker machine legislation of 1956 (O’Hara,
1988), were watershed events in the expansion of NSW gambling, which had impacts in the immediate sense, but also in the long term context. These two pieces of legislation (examined in detail in Chapter 3) involved the legalisation of technologies that accelerated the growth of gambling and the amount of tax revenue derived from such gambling.
The fact that EGM gambling, which became more accessible relatively recently is now the dominant source of the growth in state and territory gambling revenues, may suggest a number of contributory factors. These include the possible effects of a “product life cycle” for longer- established gambling forms (for example, Adams, 2008). Factors such as individuals’
7 participation in multiple forms of gambling, and the general social trend towards the importance of convenience in guiding consumer choice are perceived as drivers of this life cycle theory.
This convenience may be interpreted as either representing access to gambling opportunities, or the ease of play of certain gambling forms (Productivity Commission, 1999).
EGM gambling has become so widespread in NSW, and has drawn such a level of attention to the negative externalities relating to it and other forms of gambling, that more recent legislation has been directed at limiting its further unchecked expansion. Exemplifying these more recent policy interventions are the Responsible Gambling Act 1999, the Gaming Machines Act 2001 and the associated Gaming Machines Regulation 2002. With regard to the latter two initiatives, the NSW Government enunciated its position thus: “The key measures in the package were aimed at addressing community concerns about the increasing number of gaming machines, and introducing additional controls to reduce harm associated with problem gambling from gaming machines” (NSW Department of Gaming and Racing (DGR) 2002, p.1).
One of the key measures in this legislative package was the introduction of a cap on the number of EGMs permitted in NSW, being a total of 104,000 EGMs, with 78,020 in registered clubs and 25,980 in hotels. In addition to the use of direct measures to restrict or reduce access to
EGM gaming, such as forfeiture provisions that remove a proportion of EGMs from the system with each transfer of EGM entitlements, and reductions in the EGM holdings of certain large clubs, the 2001/2002 legislation also included provision for a Social Impact Assessment (SIA) process. This process was intended to ensure that any additional EGM entitlements that may have been granted by the State were licensed only in circumstances which, “will not be detrimental to the wellbeing of the community in that area” (Second Reading debate, Gaming
Machines Bill, NSW Legislative Assembly Hansard, 30 November 2001). These regulatory measures addressed the expansion and impacts of EGMs by restricting access, quantified by the number of available EGMs. Despite these measures, EGM expenditure has continued to grow, as has public awareness of the problem gambling-related impacts associated with EGM use. In
8 the period 2001/2002, when the legislation was introduced, to 2004/2005, which is the final year of the period examined in this thesis, EGM numbers declined by 1.4 percent but profits increased by 14.1 percent (DGR, 2006). These figures raise questions about the efficacy of the regulatory approaches adopted as ameliorative measures. A detailed examination of the expansion of poker machine, and subsequently EGM gambling, is presented in Chapters 3 and
5.
It is evident that the significance of gambling in Australian society is not strictly limited to its cultural role. The plurality of gambling’s roles within, and contributions to, Australian and
NSW society, both perceived and actual, are replicated in the various policy stances that have informed gambling legislation over time. This plurality is also evident in the breadth of interests which have been brought to bear on the development and implementation of gambling policy.
O’Hara (1988) for example, characterised the rival social forces acting on the development of gambling policy in late nineteenth-century Australia as being class-based. As will be observed in Chapter 3, the more activist interests that developed from this social structure in the twentieth century would have significant impacts on gambling policy processes. Regardless of their objectives, each interest group was possessed of its own experiences, perceptions, expectations and aspirations, as remains the case in modern policy debates. As time has progressed, interest groups have been inspired by different motivations. Yet they commonly remain in conflict over the proliferation of gambling. A detailed examination of parliamentary debates and press coverage on the 1996 and 2001 Acts (Chapter 3), provides insight into the range of these interests and the conflicting points of view between them in the more contemporary context.
Gambling’s plurality is also reflected in the diverse and increasing engagement of academics, policy-makers, interest groups and broader communities in the field of gambling studies. Reith
(1999) provided a list of six academic disciplines that hold an interest in gambling and its role in contemporary society. These are psychology, history, sociology, mathematics, law and economics.
9 This thesis directly addresses three interrelated disciplines, by examining the historical, sociological and economic aspects of gambling policy. Their relevance is intimated in the preceding overview of gambling and its regulation, and they provide the basis for the conceptual framework of the thesis. They help address the research problem and specifically inform the three research questions. In order to establish these linkages, the research problem and research questions are defined in the following sections, and the study’s purpose, the approach to the research and the structure of the thesis are outlined. The conceptual framework and the relationships between the components of the thesis, the disciplines and research questions are then explained in Figure 1.1.
1.2 Overview of the conceptual framework of the thesis
There are three postulates that underpin the conceptual framework of this research. The first of these postulates is that governments in NSW have increasingly focused gambling regulation towards its role as a source of tax revenues, from among a range of regulatory motives which have been advanced by interested parties over time. The second postulate is that socioeconomic status is a moderating factor in how decisions arising from gambling regulation affect localised communities, particularly in relation to the taxes imposed. This is particularly relevant in relation to EGM gambling, as this will be shown to be a common form of gambling and a major source of externalised impacts. The third postulate is that in developing and assessing EGM regulation, NSW governments have historically paid insufficient attention to the relative effects that the distribution of EGMs across venues in communities may have. Once again, at the level of communities, as opposed to individuals or households, the taxes extracted from such communities will be demonstrated as being a relevant measure of impacts at this level.
This thesis identifies the pattern of gambling and gaming machine regulation in NSW and its progressive shift toward its principal taxation objective. A key component of this progression is the coupling of regulatory interventions with fiscal initiatives. The research also examines the
10 concurrent shift from largely religio-moral bases for the regulatory component of gambling legislation, toward consideration of broad social and economic impacts on populations. The historical trajectory of regulation in NSW is then compared with the more recent record of the
NSW Labor governments led by Premier Bob Carr. The empirical research on this latter period demonstrates the importance of a holistic approach to assessing the role of socioeconomic status in gambling regulation. It is also demonstrated that responses of the market to EGM regulation in particular, and how this may affect communities are also matters for consideration.
1.3 The Research Problem
The Australian and NSW experience of gambling suggests that irrespective of the level of regulation, some gambling activity will still occur. Marshall and Baker (2002) arrived at such a conclusion in their comparative study of the evolution of EGM markets in Melbourne and
Sydney, finding that “the market structures examined here have evolved largely independent of government regulation” (p. 288). This being the case, an absolute, general question may be,
“why legislate?” This question can also be applied to any particular piece of legislation. In any given case there may be a combination of motivating factors, but it is a matter of some interest to employ available historical records and empirical data to determine which of these factors may be the critical determinant or determinants in any such circumstance. It may also be instructive to examine these decisions collectively over time to observe the presence of patterns or commonalities. This is the approach taken in this thesis.
Observing the tenures of the Carr Labor governments (1995-2005), with the addition of the contextual richness obtained through consideration of public policy theory and earlier policy precedents, allows the opportunity of obtaining insights into policy decisions and their determinants. The underlying premise is that the Carr Governments’ tenures were comprised of an initial period of liberalisation of EGM gambling, followed by a period of contractive and in key respects, corrective policy. This pattern of behaviour is analogous to the biological theory
11 of “punctuated equilibrium” (Krasner, 1984). Krasner applied this theory to describe policy development. The construct identifies a tendency for long periods of stasis, interspersed with brief periods of rapid change (speciation). The analysis of the Carr governments’ rule includes three particularly important pieces of legislation which might be likened to speciation. The analysis reported in Chapter 5 identifies these and the subsequent periods in which the effect of these major policy changes is observed.
The research problem, therefore, is to observe and determine the practical effects of regulatory policy on the distribution of EGM gambling and its impacts. The principle metric in this endeavour is the EGM gambling taxes extracted from each Local Government Area (LGA).
The research seeks to investigate the relative effects of EGM gambling and taxation on LGAs, and how the distribution of access to EGMs within LGAs affects the comparative scale of these tax imposts. The focus on taxation outcomes is based on the well-founded assumption that
EGM taxation may be reasonably considered as an indicator of the broader impacts of gambling, in particular those relating to problem gambling (for example Productivity
Commission, 1999; IPART, 2004). This assumption is supported by the fact that a significant number of these impacts initially manifest as financial problems (for example Productivity
Commission [1999]). The association between EGM expenditure, taxes and the development of such problems will be shown to have been well-established.
The historical propensity for gambling taxation to be coupled with other regulatory interventions, particularly those relating to expansion of gambling forms, will be established through the observation of past gambling regulation. The critical analytical outcome of this practice is that the manner of expansion in EGM numbers is identified and adopted as the secondary measure in assessing the distribution of impacts. Profits from EGM gambling are also observed, as this metric assists in emphasising the effect of certain regulatory interventions on levels of taxation, as compared to gambling activity.
12
The data obtained from the NSW Office of Liquor Gaming and Racing (OLGR) for this period provide quantified geographic and temporal measures for the research. In addition to the number of EGMs, the number of venues and the population of each LGA are employed to derive measures that allow for differences between LGAs. The approach to the research problem of exploring the relative impact on these communities necessitates the adoption of a measure of the relative socioeconomic status of these communities. The broad measure adopted is the
Australian Bureau of Statistics’ Socioeconomic Indexes for Areas (SEIFA), 2001.
1.4 Research Questions
The examination of the period 1995 to 2005 focuses on three specific legislative parcels passed during that time. These are: the Liquor and Registered Clubs Further Amendment Act 1996, No.
103; the Gambling Legislation Amendment (Responsible Gambling) Act 1999, No. 49; and the paired Gaming Machines Act 2001, No. 127 and Gaming Machine Tax Act 2001, No. 72.
There are three research questions which are applied to the analysis for each of the Acts. It is noted that the 2001 Acts are analysed jointly, recognising their expressed status as a legislative package (see Section 3.5.3.2). The three research questions are;
Research question (a): What were the effects of the Act and its associated policies?
Research question (b): Did the policy result in a change in EGM taxation?
Research question (c): Were any effects of policy contained in the Act moderated by
socioeconomic status (SES)?
The application of the questions to each piece of legislation is detailed in Chapter 5.
1.5 Justification for the Study
The approach adopted in the present study recognises limitations in existing research. Much of the extant body of research in this area of public policy focuses on the negative externalities of
13 gambling associated with the behaviours of problem gamblers. Assessing these externalised costs necessarily requires some attempt to estimate or attribute such behaviours and the resulting impacts within communities. In the instance of financial impacts, for example, existing survey-based work, including that predicated on relatively comprehensive survey instruments, such as the ABS Household Expenditure Survey (HES) (For example; Layton & Worthington
1999; Worthington 2001; Pickernell, Brown, Worthington and Crawford 2004; Worthington
2007), remain subject to the inherent limitations of any research based on a survey sample.
Perhaps principal among these limitations is the need to extrapolate the results derived from the household sample onto larger populations, even if only at the local community level.
The current research does not attempt to model the extent of problem gambling or its impacts.
Rather, the data available for the research allows an examination of the practical outcomes of regulatory intervention in an area of public policy which, both fiscally and socially, is of significant importance to the government and the community. This critical examination of relatively contemporaneous public policy may prove instructive to policy makers in other jurisdictions in such a way as to avoid repetition of the negative outcomes produced, or allow consideration of the policy successes achieved, by NSW as the “early adopter” of EGM gambling. Thus there may be some scope for input into EGM regulation in other jurisdictions that may result in more efficient and equitable regulatory outcomes. From the perspective of
NSW, as the subject of this study, the results may provide a greater understanding of past policy outcomes. Once again, this may prospectively be a source of guidance to future policy makers on the manner in which decisions translate into practice across the State’s communities.
1.6 Objectives
The purpose of this study is to investigate the development of gambling in NSW, culminating in the legalisation of poker machines and the subsequent development of that form of gambling.
The research adopts the use of the three previously identified interrelated lenses; gambling’s
14 historical, sociological and economic contexts. The first of these aspects is crucial to the research, as it provides the context in which the latter two factors have evolved. A historical review of key legislative events allows identification of regulatory approaches and outputs that ultimately established precedents for the later legalisation of machine gaming. The major focus of the research, however, will be the combination of sociological and economic aspects, the existence of relationships between these factors, and the effectiveness of the regulatory mechanisms employed to manage these relationships during the Carr Governments’ three terms.
The three key developments in EGM regulation in the Carr Governments’ rule identified in
Section 1.3, and the contemporary economic and political environments in which these policy developments unfolded are observed. The examination allows conclusions to be drawn from the policy aims of relevant enabling legislation and the actual outcomes of these aims.
As a result, the objectives of the research are to quantify, compare and contrast the impacts of the 1996, 1999 and 2001 Acts on LGAs, from the following perspectives:
In comparison to earlier regulation on gambling more broadly, and poker machines and
EGMs specifically;
Changes in the number and distribution of EGMs within LGAs;
Changes in the level of taxation (and by association, expenditure) in LGAs;
The relationships between these outcomes and the socioeconomic status (SES) of
different LGAs;
The influence on outcomes of assessing these changes on the basis of different aspects
of SES;
The relationships between different measures of EGM distribution and the relative
effectiveness of such measures in describing this distribution.
15
1.7 Relationship to Extant Research
There is a relatively modest body of empirical research on the impacts of the taxation of gambling. This statement implies that only a proportion of that body of research relates directly to EGM gambling taxation.
The variety of approaches adopted in earlier research is discussed in greater detail in Chapter 4.
Each of the studies identified adopted variations on the two key parameters discussed above, which are the geographical and temporal bounds. Critically, the majority of the studies also adopted a measure of the relative prevalence of the gambling form under examination. This has commonly taken the form of a ratio between population, often expressed as the number of adults, and the number of gambling outlets or relevant gambling opportunities available in the defined areas.
The current research adopts a similar metric, for the purposes of comparison. This is based on the measure adopted by the NSW Office of Liquor, Gaming and Racing (OLGR), defined as
“EGM density” (see Section 5.1.2[a]). EGM density is the simple ratio of adults to each EGM.
The accumulated research evidence suggests that the output of this calculation allows for a valid comparison of EGM distribution and accessibility between LGAs regardless of their relative size. One aspect of the EGM gambling environment that this approach does not address is the relative distributional effects of EGMs within LGAs.
The present research introduces an additional measure of EGM distribution, in the form of a concentration measure, based on the Herfindahl-Hirschman Index (Herfindahl Index). The
Herfindahl Index is used to measure the concentration of EGMs, profit and tax in LGAs as a function of their number and the number of venues across which they are distributed within each LGA.
16
The adoption of this additional measure extends the precedent body of research. This also begins to address the issue of geographic or spatial distribution which is acknowledged in more recent research as being an area of developing interest. O’Neil and Whetton (2002) indicated that the concentration of EGMs among venues may be an alternative policy formulation input, based on their finding that the number of venues in a defined area (i.e. per square kilometre), was an “influential factor in explaining differences in net gaming revenue between councils [i.e.
LGAs]” (p. 19). More recently there has been an increase in research in respect of the geographical distribution of EGMs. McMillen, Marshall and Doran (2004) and Young (2010;
2011) have adopted the approach of applying geographical information systems (GIS), and
Wheeler, Rigby and Huriwai (2004), geographically weighted regression (GWR) to examining
EGM distributions and their association with socioeconomic status and levels of gambling activity. Each of these studies has provided valid contributions to the canon of EGM gambling research. Each also has methodological limitations associated with their bases in sampling methodologies, as previously identified.
The present study is less constrained in the methodological sense, as it is based on comprehensive empirical data relating to the specific period under examination. The study also adds to the body of knowledge on this subject by adopting a novel comparative approach, as described above, to assessing distributional impacts of EGM policy.
The EGM data acquired for the research is a key factor in establishing the contribution of the thesis to economics, with particular regard to macroeconomic effects relating to fiscal policy.
The comprehensive nature of the data set, coupled with the judicious selection of further explanatory data and methods have been applied to produce new insights into the actual impacts of fiscal policy. In particular, a new perspective on the relationship between how the distribution of EGMs ultimately affects the quantum of taxes extracted from communities has been produced as a result of these analyses.
17
The thesis advances a new perspective on the sociological aspects of this area of public policy.
This is achieved through several means. The inadequacy of analysis of potential social impacts in the development of gambling policy is identified as a recurrent theme. Although there is extant knowledge of this failing with regard to the earlier legislation examined, such outcomes are more conclusively quantified in relation to the Carr regime than has previously occurred.
Once again the contribution of the research to this greater understanding of policy in action is underpinned by the data acquired for analysis of past policy. The thesis also clearly demonstrates the role of expediency, opportunism and context dependence in the development and enactment of legislation and the distortions and externalities that can result from such approaches. In addition, the adoption of a comparative methodology in assessing the influence of socioeconomic factors has demonstrated further shortcomings in applied EGM policy during the period 1995 to 2005. Viewed collectively, the three disciplinary elements of sociology, history and economics have allowed the development of a thesis that provides new insight into the political environments and consequences of gambling policy. The means by which these new understandings are achieved are explicated in the following comments on the structure of the thesis.
1.8 Structure of the Thesis
Chapter 2 examines public policy theory and the applicability of broad ‘models’ of the political economy to gambling regulation in NSW. The models considered in this chapter allow some context to be placed around the issues and influences surrounding the historical events examined in Chapters 3 and 5 in particular.
Chapter 3 comprises a review of several major events in NSW gambling legislation over almost a century. The significance of the Acts examined is their relevance as precedents for subsequent gambling legislation. As earlier indicated, in examining the development of this policy-making
18 heritage, Chapter 3 reports the analysis of primary source materials, in particular parliamentary debates, and, where available, contemporaneous media coverage materials. These sources cannot fully expose the internal machinations of governing parties and the organisations with which they deal in developing policy, and the tone of public sentiment. However, this thesis represents a significant contribution to the understanding of the contexts and drivers of policy as developed, when compared to material presented in any identified previous work on gambling legislation specific to NSW.
The overarching conclusion of this comparison of events is that this thesis is, in some respects, a study in political expediency. The dominant influence of context on the development of isolated policy initiatives will become apparent, and this context, as will be seen, has often been opportunistic, politically expedient, and, viewed collectively, ad hoc. Despite obvious contextual differences, such expedience became a recurrent theme in the development of gambling policy in NSW, emphasising the propensity of governments to enact gambling and related tax legislation as environmental circumstances permitted.
As Chapter 3 illustrates the progressively greater focus on the fiscal component of gambling regulation, so Chapter 4 examines relevant aspects of taxation theory and design and the application of these to actual EGM policy practice in NSW. The rationales supporting changes in tax design over time are discussed. This discussion also substantiates the conclusions of
Chapters 2 and 3 that although regulation has featured some commonalities, it has generally adhered to no fixed pattern. Rather, it has been largely driven by circumstance and the immediate challenge of balancing revenue demands with social, political and electoral considerations, and the demands of gambling industry participants.
Collectively, Chapters 2, 3 and 4 examine the policy development process, and the policy outputs generated by that process. In the earlier Acts examined, the passage of time and the inferior contemporaneous data available inhibit a more detailed consideration of the outcomes of
19 these policy initiatives. The three relevant pieces of major EGM gambling legislation in the
Carr Government period considered in Chapter 3 are less subject to this constraint. Access to the complete NSW Government EGM data base for this period enables analysis of these policy outcomes at a level that has not previously been possible. This is the focus of Chapter 5. It is noted that access to these data remains tightly restricted by the relevant government department.
In this respect, this research represents a unique window into the outcomes of the State’s EGM policies over this period.
The empirical examination of the Carr period then, includes consideration of the policy concepts, processes and outputs (Chapters 3 and 4) and the policy outcomes (Chapter 5) associated with EGM legislation over that time. Contrasting this with the limitations on assessment of earlier legislation associated with the lack of data, the analysis emphasises the positive influence that reliable information can have on ongoing policy development.
Chapter 6 then draws together and discusses the results of these analyses and posit conclusions and recommendations in respect of the findings. Figure 1.1 below provides a schematic depiction of the conceptual framework of the thesis and the relationships between the disciplines and research questions that run through the various stages of research reported in the thesis.
20 Figure 1.2
Schematic of conceptual framework and thesis structure
Figure 1.1: Schematic of conceptualDisciplines framework
History Economics Sociology
Research Questions
RQ (a): RQ (b): RQ (c): Policy effects Tax impacts Influence of SES on policy effects
Chapter 2: Chapter 2: Chapter 2: Political economy, public Fiscal federalism and its Implications of policy policy and the gambling effects on state government formulation processes regulation context gambling and tax policy and outputs for communities
Chapter 3: Chapter 3: Chapter 3: Evolution of NSW gambling Evolution of taxation as the Evolution of bases for policy development; key gambling policy driver addressing contextual, political and socioeconomic economic influences and the implications of policy rise of EGM gambling
Chapter 4: Chapter 4: Chapter 4: Tax policy as applied to Tax design and its Tax policy and equity; EGM taxation over time implications for the outcomes regressivity and related of tax measures issues
Chapter 5: Chapter 5: Chapter 5: Empirical examination of Empirical examination of Empirical examination applied public policy and its impacts of tax policy of relationship between outcomes 1995 - 2005 SES and applied EGM tax policy
Chapter 6: Discussion and Conclusions.
21 CHAPTER 2
Public Policy and the Political Economy of Gambling
Regulation
2.1 Political Economy and Public Policy in Australia
The existence of both positive and negative ramifications of gambling policy for the economic and societal circumstances of NSW invites an analysis of these outcomes from the perspective of public policy theory. In considering the role of public policy as the expression of the framework in which a society manages issues specific to its orderly conduct, Davis, Wanna,
Warhurst and Weller (1993) described public policy thus; ‘at its broadest level… public policy is the complex interplay of values, interests and resources. Policies express values supported, curtail interests and distribute resources’ (p.4). Gambling legislation forms only a small part of the state’s regulatory activities at any time, albeit one that is significant in terms of its fiscal and social influence. A consideration of general theories on the nature of the political economy as they relate to policy making processes in NSW and Australia provides some contextual setting in which to consider the outcomes of actual policy decisions.
Ham and Hill (1985) proposed an appropriate framework for public policy analysis as it may be applied to gambling policy. This approach involves studies of policy outputs which “attempt to understand policies in terms of social, economic, technological and other factors” (pp. 7-8).
These factors are relevant in considering gambling policy formulation and implementation (see
Chapter 3). The status of policies as outputs of a process, and their relationships to the explanatory, environmental factors proposed by Ham and Hill (1985), were succinctly encapsulated by Bridgman and Davis (2004) as providing “a powerful reminder that policy is context dependent” (p. 24). The subsequent examination of historical gambling regulation contained in this thesis provides evidence not only of the immediate contextual influences
22 relating to each specific legislative episode observed, but also of the inter-temporal, structural changes in context that have influenced the development of gambling regulation over the entire period examined. These environmental and contextual factors comprise elements of the contemporary political economy. The purpose of the following section is to evaluate the existing literature on general models of national and state political economies, in order to assess the extent to which these models may have impacted NSW gambling policy formulation and implementation.
2.2 General Definitions of Political Economy
Considine (1994) defined the political economy of a state2 as the “existing structure of key relationships” (p. 10) within a society. This succinct definition is considered to be advantageous for this analysis, as it is applicable to any relevant set of relationships within a state’s policy-making realm. This structure of key relationships is a critical determinant of the form of a state’s policy-making processes. Thus, the public policy literature generally affords considerable attention to the definition of the relationships that inform the nature of a particular political economy.
General models of political economy are primarily focused on the characteristic form and nature of the internal and external economic interactions of a state. In post eighteenth century political theory (e.g., Docherty and Lamb, 2006), these models have been traditionally classified as being ideologically capitalist or socialist. Such categorisations are overly broad, and therefore take insufficient account of the several politico-economic systems and approaches each embraces.
On the basis of the recognition that Australia is fundamentally a capitalist society, appropriate theories from within the capitalist paradigm are relevant for examination.
2 In this context, the term ‘state’ refers to the conventional nation-state. Bell and Head (1994, p. 3) defined the state more inclusively as ‘essentially the entire apparatus of formal roles and public institutions that exercise political authority over populations within a given territory’.
23 2.3 Interpretations of the Australian Political Economy
There exists some divergence of opinion amongst authorities in defining Australia’s political economy within the typology of existing models. Accordingly, a first step is to briefly define the governmental structure and characteristics of the political economy of Australia and NSW.
2.3.1 Australian Federalism.
Considine (1994) noted that “all policy systems are defined by the particular political economy which has been inherited from the past” (p. 10). Australia shares a British colonial heritage with nations such as the United States of America, Canada, India and South Africa.
In 1901 the Commonwealth of Australia was proclaimed as a federation of the six extant colonies, united under the Australian Constitution. The federation is a parliamentary constitutional monarchy. The contemporary six states, along with the two territories, are self- governed to the extent permitted within the Constitution. Australia’s federal structure and the division of powers between Commonwealth and state governments dictate the scope of these levels of government portfolio responsibility. This federal structure has been a dominant influence on the development of the nation’s political economy. However, there is conjecture as to whether federalism is a constraint on governmental effectiveness, when compared to unitary governmental systems, or that it appropriately promotes the autonomy of the states within the federal structure.
The economic impacts of federalism have increasingly become the most influential elements of this structure. Various sources indicate that the impacts of fiscal federalism permeate the entire realm of relationships between the Commonwealth and the states (for example, Saunders, 1986;
Henderson, 1990; Groenewegen, 1994; Mathews & Grewal, 1997). Fiscal federalism is a highly significant environmental factor in the context of this thesis. Its impact on the growth of gambling and in particular the development of EGM taxation is examined in greater detail in
Chapter 4.
24
In relation to the influence of the federal structure on the development of the political economy,
Davis et al (1993) concurred with Stewart (1991) in arguing that:
Australia has failed to develop into either of the two ideal types which characterise
democratic capitalist states – a thoroughgoing pluralist system or a European-style
corporatist state. Instead we have inherited a fragmented political system with neither
the benefits of diverse competing interests, nor [sic] of well-organised and highly
structured policy processes (p. 11).
As exemplars, Stewart (1991) nominated the United States as a pluralist state, and Japan and
Germany as corporatist nations.
2.3.2 Pluralist and Corporatist Models
There is significant argument on the adequacy of pluralism for describing modern capitalist societies. Head (1983) did not consider pluralism as a holistic explanation, stating that “there is little to recommend the pluralist theory as an empirical account of the political economy” (p.
27). However, Head and Bell (1994) conceded pluralism’s relevance as “one criterion of a truly democratic system” (p. 28). Hogwood and Gunn (1984) stated that the flaw in the pluralist argument is the uneven distribution of parties in having their interests heard. Evidence will be presented in Chapter 3 that provides some credence to this argument. Birkland (2001) was also critical of pluralism, perceiving it as being subservient to elitist interests. Birkland (2001) also stated that this subordination does not of itself imply dominance of the “social, political and economic” (p. 113) elites. Evidence of the overriding influences of these elites in the development of gambling policy presented in Chapter 3 indicates that although this outcome may not be implicit, it has been apparent in NSW gambling regulation. Warhurst (1993) placed a relevant, although different, emphasis on the role of these elites. This suggests that the involvement of these interests may represent a point at which pluralism transitions into corporatism. Warhurst (1993) stated that corporatist policy-making is “conducted by a knowledgeable elite which spans the worlds of government and private interest” (p. 117). This
25 interpretation aligns with the Birkland’s (1991) observations of the subservience of pluralism to elitism and ultimately corporatism. These arguments point to a common conclusion: pluralism, although a valid component and indicator of a functioning and perhaps developing democratic system, cannot be held up as an adequately inclusive, explanatory model for the functional political economy of a capitalist state.
Regarding corporatism, Head and Bell (1994), acknowledged some examples of corporatism in
Australian political history, pointing particularly to the Hawke/Keating governments’ “Accord” approach to wage fixation policy. Warhurst (1993) nominated a number of other corporatist policy approaches, which also involved the Hawke and Keating governments. Head and Bell
(1994, p. 56) went on to observe that “corporatism in liberal democracies has most often been associated with social democratic or labour governments”. On the other hand, “conservatives and market liberals” are wary of corporatism on the basis of its “implicit economic planning” and its effect of interfering with market price mechanisms. Given the purported negative disposition of the conservative side of politics to corporatist principles, and historical conservative dominance of federal government in Australia, there may have been little opportunity for such approaches to gain any enduring currency at the national level.
The cautiousness of conservatives toward corporatist approaches such as the Accords may have had some validity. Matthews (1994, p. 195) noted that the “two striking features” of the system were “its partisan character, and the fact that, as a corporatist arrangement, the Accords did not
‘incorporate’ business”. Although the Accords may have stopped short of being truly corporatist in the sense of the inclusiveness in the formalities of the policy and its structure,
Davis et al (1993) provided a contrasting interpretation, noting the Hawke/Keating governments’ “cosy relationship with business” (p. 41), which was concurrent with the establishment and operation of the Accords. This factor indicates that despite their “formal” exclusion from the process, this sector was to some extent engaged. Similar features are apparent in elements of NSW gambling regulation observed in Chapter 3. Distinct elements of
26 the partisanship of corporatism are apparent in the development of the 1956 and 1996 Acts.
There is also evidence that exclusion from any formalised process of policy development has not inhibited practical involvement.
2.3.3 Fragmentation
Birkland (2001) observed that James Madison, fourth President of the United States of America, encouraged the formation of a federal union in that country, with one motivation being the prospect of containing interest groups within their respective states. Thus it may be argued that the “fragmentation” of policy-making influences may in some instances be a deliberately conceived outcome of the ordering of the political economy, rather than, as Stewart (1991) implied, an unintended negative consequence of federalism. Regardless of whether such a consideration existed at the establishment of the Australian Commonwealth, the passage of time and the increased complexity and uncertainty of modern society, as observed by Groenewegen
(1983) and Yeatman (1998), render such an explanation of fragmentation too simplistic in the context of modern Australia. Commenting on this increasing complexity, Colebatch (1993) observed that “the rate and extent of social change is making things harder for the decision- maker” (p. 43).
Regardless of its causes, Stewart (1991) clearly believed that fragmentation detracts from the level of efficacy of Australia’s political system. As Australia is the “in-between society”, as characterised by Stewart (1991, p. 365), it cannot enjoy the benefits of more centrist, structured systems of policy development, nor those of “decentralised competition and adjustment” (p.
365). Contrary to the reasoning of Stewart (1991), Head (1983) argued that the federal structure of nations such as Australia, Canada and the USA typically result in “fragmenting of national
[emphasis added] policy making” (p. 25). Groenewegen (1994) in discussing fiscal federalism and vertical fiscal imbalance between the Australian Commonwealth and the states, further observed that “the experts fully admit that there is no convincing empirical evidence of detrimental efficiency consequences” (p. 179) and that this is also the experience of a number of
27 European federations. Dollery (2002) described this vertical fiscal imbalance as being
“consequent on the fact that the Commonwealth government collects funds in excess of its expenditure needs whereas state and local governments are unable to finance their activities” (p.
4). This situation clearly has fiscal implications for state governments.
Conversely to Groenewegen (1994), Griffith (1997) presented contrary evidence from the
Constitutional Commission (1988) suggesting that vertical fiscal imbalance may impact on the independence of the states. The subsequent analysis will clearly establish how financial dependence on the Commonwealth has impelled gambling growth in NSW.
Stewart (1991) expressed the belief that the fragmentation of governmental structure, and advocacy on behalf of interest groups inhibits bargaining, therefore increasing the likelihood of resulting “political externalities” (p. 365). Pluralist or corporatist systems promote bargaining, whereas the “particularist3” approach which Stewart (1991) saw as endemic in a fragmented system results in “political deals in which economic favours are exchanged for political resources” (Stewart (1991), p. 364). Stewart (1991) was not explicit on the differences between bargaining and political deals. It is implied, however, that the incorporation of relevant, organised interests in a bargaining process has some greater likelihood of arriving at mutually agreed policy resolutions. The various interests “keep each other honest” through bargaining, as distinct from political deals involving economic favours, in which there is a clear implication of
3 There are two definitions of ‘particularism’, which may relevant to Stewart’s analysis. These are: (a) the principle of leaving political independence to each State in an empire or federation (Oxford English Dictionary); and (b) exclusive or special devotion to a particular interest (Merriam-Webster Dictionary). Given Stewart’s focus on the lack of structure (organisation) apparent amongst interest groups in the Australian political economy, the latter definition is assumed to be the appropriate interpretation. The latter definition strongly implies an individualistic tendency on the part of interests which is supportive of Stewart’s argument.
Interestingly, the former definition may be considered to be a counterpoint to Stewart’s position. This definition of particularism describes a principle which upholds the purposefully constructed sovereignty of the states. Following Head’s argument, the fragmentation of national policy making is a consequence of the constitutionally mandated structure of the Commonwealth, rather than a failure of the Commonwealth to adopt, or adapt to, abstract models of the political economy, as is Stewart’s interpretation.
28 consideration being held out in order to exclude interests which are irreconcilable with those of the parties to such a transaction. The language also implies that a bargaining process is more likely to be explicit and open to scrutiny than may be the alternative approach. Bennett (1992) couched a discussion of the actors in, and outcomes of, such transactions as “business friends”, exercising “private influence” (pp. 29-30). The “private” element of this process of exerting influence further indicates the clandestine nature characteristic of such transactions.
Interestingly, it is uncertain how pluralist or corporatist systems account for the consideration arising from permissible political donations. Such donations may influence the operation of policy outcomes. They may also be considered as possessing characteristics of both the legitimate bargaining, and the political deals processes, with the implied differences in propriety associated with both. This matter and that of the comparative level of externalities generated by different approaches to policy development are relevant to EGM policy under the Carr
Governments.
A key element of the argument on fragmentation from the states’ perspectives relates to the previously identified approach of President Madison, noted by Birkland (2001). That approach suggests that fragmentation may occur alternatively by accident or design. When the latter is the cause, this may be more accurately interpreted as that form of particularism relating to the independent functioning of the state within the Commonwealth. This perspective is relevant to the status of gambling regulation as a matter of state control. As will be seen in Section 2.4, however, recent involvement of the Commonwealth in gambling regulation may represent an inverted form of fragmentation in which the state and territory entitlement to deal with gambling generally, and particularly EGM policy, have been impacted by the Commonwealth’s interventions.
A relevant conclusion of this discussion relates to Stewart’s (1991) observation that for interests to have effect, they must necessarily be structured and co-ordinated, lest their legitimate inputs be dissipated into piecemeal contributions which are more easily discounted by those for whom
29 such disregard is advantageous. This is a valid observation on engagement in policy development, regardless of the level of government. It is also apparent in both the successes and failures of interest groups in influencing the several legislative events examined in Chapter
3. Perhaps the clearest examples will be demonstrated to be the parliamentary roles of minor parties in debates over legislation in the period 1995 to 2005.
The effects of federalism on the states are discussed further in the following section. Particular attention is afforded to recent interventions by the Commonwealth in gambling policy across the states.
2.4 Effects of Australian Federalism – the States’ Perspectives
The practical effects of Australia’s form of federalism with respect to the states and territories have been varied. The legislative heads of power contained in Section 51 of the
Commonwealth Constitution include matters over which the Federal Government has legislative jurisdiction. However, in some instances, there is shared responsibility between federal and state governments. These Constitutional powers, coupled with interpretations of the High Court, have also permitted further Commonwealth intervention in state responsibilities and interests over time.
Bennett (1992) stated that a “great deal of State policy is influenced directly by the national government, even in areas where the Commonwealth has no direct constitutional power. This is partly due to Commonwealth success in finding ways around constitutional roadblocks” (p.
15). The successful strategy for negotiating these “roadblocks” has involved the use of expansive interpretations of constitutional powers, supported by the confirmation of the High
Court. From the perspective of the subsequent development of gambling taxation, the critical example is the Commonwealth’s wartime assumption of income taxation powers from the states in 1942. This power was meant to revert to the states one year after the end of the war, but subsequent Commonwealth legislation in 1946 successfully sought to permanently maintain this
30 power. In South Australia v Commonwealth (“First Uniform Tax Case”) [1942] HCA 14; 65
CLR 373), the states unsuccessfully contested the appropriation. This was the origin of the vertical fiscal imbalance that has ultimately impelled the liberalisation of gambling and its taxation.
Warren (2006), argued that the effect of Section 90 of the Constitution, which exclusively vests the imposition of customs and excise duty in the Commonwealth, coupled with the interpretations of this section by the High Court, have had a profound impact on state-level revenue-raising capabilities. With respect to the interpretative role of the High Court, the inclusion of sales taxes under the mantle of Section 90 in particular has constrained the states’ tax bases and the expansion of this section has been a basis for the increase in the reach and influence of the Commonwealth within the fiscal federalism model in Australia. Discussing the relative extent of the High Court’s decisions on these tax matters, Mathews and Grewal (1997) observed that the court had at times defied “all logic, economic history and fiscal practice in other countries” (p. 18).
Bennett (1992) emphasised the similar effects of the Commonwealth’s discretionary fiscal power under Section 96, which empowers the Commonwealth to render “financial assistance to any State on such terms as the Parliament thinks fit” (p. 15). Bennett (1992) observed that the
Commonwealth has used this power to force policies on the states, referring to the practice of making grants for specific purposes.4 It should be noted that this aspect of Commonwealth influence also extends to the third governmental sphere, being local government. The effects of federalism on the lower tiers of government are perhaps no more apparent than in the area of public finance; and, in particular, the impacts of fiscal federalism, which have an obvious, albeit indirect, connection with gambling in its role as a source of revenue for states. This is
4 For more detailed discussion of Specific Purpose Payments (SPPs), or ‘tied grants’ from the Commonwealth to the states, refer, for example, to Bell & Head (1994, pp. 182-184); Wilkinson (2000, pp. 2-4). 31 particularly the case in Australia, where “more emphasis is placed on gambling revenues than in most countries” (Johnson 1985, p. 78).
Exemplifying the concentration of taxation powers with the Commonwealth, personal and company income taxes, along with other Commonwealth taxes and duties, account for the majority of Australia’s taxation revenues. In 2005, at the end of the period examined in
Chapters 5 and 6, income tax comprised 85 percent of all Federal Government revenue, with 58 percent derived from personal income taxes and 27 percent from company income taxation. In total, income taxation accounted for 60.9 percent of all Australian taxation revenues5.
Regarding this influence of Australian federalism on gambling policy, an important distinction must be drawn. As previously noted, the division of powers between levels of government in
Australia is such that gambling regulation is the sole responsibility of the states, as observed by
Painter (1991). In this respect it might be assumed that other forms of federal intervention in gambling policy may be limited. However, this has not been the case. In particular, there are three relatively recent examples of Commonwealth intervention in gambling policy on notionally social grounds, which are outlined below.
The Productivity Commission’s 19996 report, Australia’s Gambling Industries, represented a conscious attempt on the part of the federal government to influence the gambling policies of the states, with particular regard to the social impacts of problem gambling. In a press release dated 16 December 19997 announcing the release of the report, the formation of a Ministerial
Council on Gambling, and the establishment of an advisory body to act on the report’s findings, the Prime Minister stated that although the regulation of gambling was a state responsibility and
5 Estimates derived from Pocket Brief to the Australian Tax System, The Treasury, Australian Government, 2006. 6 The Terms of Reference for the Report were issued to the Productivity Commission by the Treasurer on 26 August 1998. 7 Prime Minister of Australia, Media Release ’National Approach to Problem Gambling’, 16 December 1999. http://www.pm.gov.au/news/media_releases/1999/gambling1612.htm 32 it was not the intention of the federal government to change this situation, the Commonwealth had a “leadership role in coordinating a national response to problem gambling” (para. 4), an issue which required “a national response to what is clearly a national problem” (para. 14). The
Government clearly believed that the national nature of this problem gave it licence to intervene.
The Commission’s report (1999) noted that it had “not been asked to make formal recommendations for reforms to the specific state and territory regulatory regimes applying to gambling” (p. 12.3). However, in general terms, the Commission’s methodology:
1. ‘sets out the generic policy-development and processes and principles that have driven
its findings and which should guide gambling policy generally; and
2. provides an overview of the extent to which current approach [sic] to gambling
regulation converges or diverges from these principles’.
It is evident from this statement of the Commission’s own guiding principles, that its informal recommendation was that these principles should be applied to all gambling regulation in
Australia where appropriate. In practice, the Commonwealth’s use of one of its agencies to critique existing policies and processes and propound its preferred principles is a means for influencing the states’ management of gambling, without explicitly encroaching on the regulatory sovereignty of the states in relation to this policy field. That the Commonwealth’s approach amounted to a unilateralist intervention in state-level policy was enunciated by Smith
(1999), who observed that: “It is unfortunate that the Commonwealth government chose not to involve the States in the establishment of this inquiry which will necessarily reflect a
Commonwealth viewpoint” (p. 24).
As will be observed in Chapters 3 and 4, it should also be recognised that although the Federal
Government’s stated aims in commissioning the report were to address the social impacts of problem gambling, there also existed a further and perhaps more urgent political motivation.
33 This was the imminent introduction of tax reforms including the GST, and the manner of distribution of these taxes amongst the states. It may be, however, that the Commonwealth’s decision to ostensibly “soften” its fiscal intervention by couching it in terms of harm minimisation provided state governments with a mechanism for avoiding genuine long-term reform of gambling taxes. Although data examined in Chapter 5 highlights the short-term effect of the introduction of the GST on EGM tax revenues in NSW, over the longer run, the focus on harm minimisation allowed the opportunity to deflect attention from state-level fiscal issues.
Such an eventuality may be inferred by reference to the 2004 report on gambling by the
Independent Pricing and Regulatory Tribunal (IPART), commissioned by the NSW
Government. The terms of reference included in the report (IPART, 2004) address a broad range of matters for consideration in the area of harm minimisation. Critically, however, there is no explicit mention of the role of fiscal policy or of any interventions that may have had the effect of materially reducing government tax revenues. This may represent both an example of the propensity of state governments to avoid tax reform, as posited by Drabsch (2003), and the occasional practical difficulties of achieving collaborative action between governments that is associated with the fiscal federalism model.
The second of these instances of federal intervention was the commissioning and publication of the Productivity Commission’s second report (Gambling – Productivity Commission Inquiry
Report, June 2010). As was the case with the first Productivity Commission report, this report also increased public awareness of gambling impacts. Its recommendations were critical to the manner in which the third intervention eventuated. Along with the requirement to report an updated analysis of the general gambling situation across the Commonwealth, the terms of reference (Productivity Commission, 2010) also specified analysis of the tax implications of gambling for states’ budgets, and crucially, an assessment of harm minimisation approaches.
Although the longer-run impacts of the report remain indeterminate at the time of completion of this research, a key outcome was that the Commission apparently interpreted the terms of reference as providing an opportunity to make recommendations with respect to those harm
34 minimisation measures which it perceived had proven to be most effective. Among these was a recommendation for all states to introduce a “full pre-commitment system for gaming machines by 2016” (Productivity Commission, 2010 p. 10.44). The strength of such a recommendation suggests that it was intended to be adopted, and that there was some expectation that the states would comply with this federally-dictated direction. As previous evidence indicates, there is, at least constitutionally, some reason for doubt as to whether the states could be compelled to comply with this recommendation, without resort to the High Court. Also, the extent of the
Commonwealth’s initial appetite for enacting this recommendation of its own volition was superseded by subsequent events, which comprise the third intervention.
The third contemporary example of federal intervention in gambling policy resulted from the process of negotiations with independent MPs that led to the formation of a minority Labor
Government following the 2010 federal general election. As part of his terms for agreeing to support the incumbent government, the independent Tasmanian MP Andrew Wilkie required the government to move to enact legislation to introduce mandatory pre-commitment technology on all EGMs nation-wide (see for example, The Age, 2 September 2010)8. Wilkie’s demands essentially replicated the Productivity Commission’s (2010) recommendation. This matter remained unresolved at the time of completion of this research. It is noted that, as with other previous regulatory interventions which represented a perceived threat to the revenue streams of gambling venues, this agreement provoked vociferous resistance from the EGM gambling industry9.
8 The Parliamentary Joint Select Committee appointed to investigate this issue described a comprehensive mandatory pre-commitment system as one which requires ‘poker machine players to set limits on their losses before they start gambling’ and which ‘requires lock-out when limits are reached, cooling-off periods for limit increases, safeguards to prevent gamblers from machine hopping and have available an effective self-exclusion function’ (Commonwealth of Australia, 2011, p. ix). 9 For example a campaign against the legislation, ‘Wont Work, Will Hurt’ was backed by Clubs Australia, the Australian Hotels Association, the Australasian Casino Association and the Gaming Technologies Association. Source: < http://www.wontworkwillhurt.com.au > 35 The first two of these interventions indicate federal governments’ greater willingness to resort to means other than the constitution to influence gambling policy across the states. Nevertheless, like previous constitutionally-based interventions, the outcome of the third development, which was in part precipitated by the second Productivity Commission report, may ultimately be resolved by the High Court.
In addition to these examples of federal interpositions, there are other inputs into states’ policy development processes which derive from the federal structure. Painter (1991) examined in some detail the issue of inter-jurisdictional policy learning. There are numerous examples of the states and territories using the experiences of their counterparts in policy development. Painter
(1991) used the gradual national adoption of off-course betting through Totalisator Agency
Boards (TAB) to illustrate such behaviour. The efficacy of policy learning has been aided by the relative homogeneity of the Australian population (e.g. Head, 1986a; Sharman 1988). This feature is seen as facilitative of the application of other states’ experiences to policy formulation. The literature commonly contrasts this favourable aspect of the Australian
Commonwealth, with another less homogenous federation, Canada (e.g. Galligan, 1998a;
Sproule Jones, 1975). NSW has taken advantage of this policy-making approach and the broad applicability associated with national homogeneity from time to time, as the example of the introduction of the on-course totalisator (Chapter 3) will demonstrate.
In the case of poker machine and EGM gambling, NSW has been the pioneering jurisdiction, and as such as been a reference point for the other states and territories; but the policy lessons for neighbouring Victoria and Queensland may have had a perverse outcome for NSW. The introduction of the machines in those states reduced the revenue benefit that NSW had previously enjoyed as a result of the machines drawing gamblers and their expenditures from these states. Evidence in Chapter 3 will demonstrate that industry activism and broader budgetary pressures were the principal drivers of liberalisation in NSW and these other states respectively, along with what Smith (1999), described as “government rivalry over gambling
36 revenues” (p. 5). In any event, this change in NSW was an element in the general expansionary environment observed briefly in Section 1.1.
In characterising the collective result of policy influences such as these, Considine (1994) referred to the “body count of policy wins and losses” (p. 142), noting that policy evolves as a result of “changing perspectives borne of previous encounters; stories of such encounters; local information regarding the successes and failures of the past; and eccentric perceptions only explicable in the context of a specific history” (p. 142). This is suggestive of the incrementalism proposed by Lindblom (1959). This doctrine of policy development by incremental change has some relevance in the gambling policy field. Quade (1982) in discussing Lindblom’s (1959) theories noted the concept of “disjointed incrementalism”, whereby, “policy is serial, that it proceeds through long chains of political and analytical steps” (Quade, 1992, pp. 26-27). This description is suggestive of the episodic, accretive trajectory of NSW EGM gambling regulation. As is discussed in Chapter 3, there is a significant history of such incremental, yet disjointed, change in NSW gambling regulation.
It should also be recognised that a number of the significant advances which have led to expansion of gambling have been technology-driven. For example, these include the advent of the totalisator, and poker and electronic gaming machines (Chapter 3). When considering such technological advances, it is also important to acknowledge that the critical point in the development and establishment of each innovation in NSW has been the point at which these gambling technologies were legalised. For example, gaming machines were successively prohibited, implicitly tolerated, and permitted in limited circumstances preceding their eventual full legalisation in NSW. This suggests that the technology did indeed develop over time, and was available, albeit only in certain circumstances. And, once legalised in clubs, poker machines proliferated rapidly. The same rapid change is observed in relation to hotel EGMs following the Carr Government’s 1996 legislation (Chapter 3).
37 Taking into account the historical impacts of these combined technological and regulatory developments and their expansionary impacts, a further applicable model for consideration was posited by Krasner (1984), who proposed punctuated equilibrium as an appropriate metaphor for policy development. Drawn from evolutionary theory, punctuated equilibrium describes the tendency for long periods of stasis to be interspersed with short periods of rapid speciation10.
The comparison with the development of gambling policy in NSW is apparent. The periods of stasis are those between significant technological and/or regulatory developments. The periods of rapid speciation represent the innovation, and specifically legalisation, and the immediate post-innovation period, during which the effects of the particular gambling development may manifest rapidly. There is an apparent conceptual similarity between the characteristics of punctuated equilibrium and Lindblom’s (1959) disjointed incrementalism.
The attractiveness of punctuated equilibrium as a descriptive paradigm for the development of gambling in NSW and other states is that it eloquently accounts for the prior existence of a particular form of gambling, the impacts of legalisation with respect to that form, and any rapid or regulatory technological advances which may initiate an expansion of activity in that gambling form. This pattern of punctuated equilibrium as it relates to NSW machine gaming policy is examined in greater detail in Chapters 3 and 4.
2.5 The NSW Context
The political economy of NSW is significantly influenced by its status as a member of the
Commonwealth, but perhaps not to the degree experienced by other states, as suggested by
Thompson et al (1986). A key element of Warren’s (2006) analysis of the fiscal role of the
Commonwealth revolves around economic inequalities between the states and the methods employed by federal governments to address such differences.
10 Merriam-Webster online dictionary < http://www.merriam-webster.com/dictionary > 38 Head (1986a), identified several sources of these inequalities, stating that “on some key policy issues the uneven geographical distribution of industries, population, services and resources tends to generate state/regional differences of economic interests” (p. 21). Head’s (1986a) arguments have relevance in considering the case of NSW. Like Victoria, NSW is one of the more heavily populated states identified by Head (1986a), as a rich industrialised region, which have traditionally enjoyed some economic and political prominence over the other states.
There is, however, a price to be paid for the dominant positions held by these historically more populous and affluent states.
NSW, as the largest state economy11, has historically experienced the loss of tax revenues to subsidisation of the less-developed states and territories arising from vertical fiscal imbalance to a proportionally larger extent than the other states. This subsidisation, or horizontal fiscal equalisation (Warren, 2006), diverts some proportion of taxation revenue generated in NSW to other states, placing greater demands on NSW to employ alternative methods for generating its own revenues to adequately service its population. Gambling taxes clearly constitute part of these alternate tax revenues and are thus to some extent a response to federal fiscal policy. The discussion of the initial legalisation of poker machines in NSW in 1956 (Chapter 3) provides evidence of this response mechanism. The tax-related aspects of gambling regulation are dealt with in significantly greater detail in Chapter 4 of this thesis.
The historical status of NSW as the most populous, developed and diversified state economy in the Commonwealth is also perceived to infer some greater diversity of influences on policy.
The NSW political economy may in some respects be interpreted as possessing some of the pluralist traits lamented by Stewart (1991) as being absent from national policy processes.
Thompson et al (1986), highlighted the proliferation of statutory bodies in NSW, in response to
“the need to cope with rapid change, to be responsive to the growing range of claims and expectations among the general public and to help ministers to cope with the new conditions”
11NSW Government 2012, < http://www.business.nsw.gov.au > 39 (pp. 14-15). Thompson et al’s (1986) observations may also be interpreted as an indicator of the plurality of the NSW political system in terms of policy influences, the expansion in the number of issues and interests and the structures required to manage this expansion. This interpretation provides a level of support for the position countenanced in earlier discussion regarding the relevance of pluralism as a component of a healthily-functioning democratic system.
This pluralistic or more engaged characteristic of state governance is interpreted by Sharman
(1988) as endemic to the federal structure: “The states represent networks of social interaction of an extent and immediacy that makes them the prime components of the political system”; national politics, on the other hand, “might be seen as the politics of the once removed” (p. 3).
Similarly, Chapman (1988) cited a defining characteristic of federalism and the polity of the states as being the larger number of “points of political access” (p. 99), further evidence of the opportunities for diversity in policy intervention at state level.
As will be evinced in Chapter 3, in practice there is some robust evidence for the diminution of effective plurality in gambling regulation over time in NSW. The early twentieth-century legislative episodes examined (circa 1906 and 1916), featured a range of viewpoints expressed by a variety of relevant stakeholders. In the instance of the 1906 Act in particular, with its restrictive focus, there is some evidence of a variety of such groups having had a voice in the debate. In the later Acts examined, and most notably the 1956 and 1996 Acts, much of the debate was dominated by industry operatives exploiting the “points of political access” described by Chapman (1998) in seeking legalised and/or expanded access to machine gaming opportunities. If the two interpretations of particularism observed previously (Section 2.3.3, above) are considered as federally-based (in relation to states’ autonomy within the Federation) and intrastate-based (pursuit of a group’s interests at the exclusion of others), there is also a growing trend toward particularism on the part of the government/industry axis at the intrastate or state level. This has had the effect of crowding out the input of other actors in the policy process. This is particularly evident in the 1996 legislation.
40
These latter observations are also characteristic of an element of corporatist structure. Chapter 4 notes the role of governments as gambling “entrepreneurs” (Smith, 1999, p. 4). In mechanistic terms, the government permits clubs and hotels to provide EGM gambling in return for the tax revenues generated as a result. In this sense, the government and gambling providers act in concert. This corporatist element is one of the sources of the role dissonance described by
Adams (2008), as the government is simultaneously “promoter, provider and revenue collector” from the fiscal perspective and “law maker, enforcer, harm alleviator and honest broker” from the regulatory control perspective (Adams 2008, p. 35).
Young (2011) examined the government/industry alliance in the EGM industry in the context of a theory proposed by Harvey (2003), which the latter termed “capitalist imperialism”. This construct as applied to EGM policy is relatively straightforward in its conception. According to
Young, (2011), the imperialist element, (or, equivalently “internal neo-colonialist” in the context of a state within a federation such as NSW), being the government, permits or encourages the expansion of the capitalist element (gambling operators) in its wealth accumulation goals. This governmental licence may be reciprocated in a number of ways. As has been previously discussed, and will be observed in detail in Chapter 3, there may be benefits to a governing party in respect of electoral and other support from the industry. Once again, the
1996 Act is an example of such a reciprocal arrangement, with its associated consequences.
Perhaps of more general relevance is the fact that the public revenues obtained through such a government/industrial complex allow the pursuit of the government’s general legislative agenda. As NSW has historically been required to subsidise development in other states through tax revenues foregone, the relationship with the EGM industry is important in this respect.
Young (2011) concluded that in the case of EGM regulation, the model of capitalist imperialism may have found its ideal expression, as EGM gambling represents this model as amounting to a
“stunningly efficient form of exploitation where consumption is reduced to the pure cash nexus”
41 (p. 33). This is interpreted as meaning that EGM gambling represents the contribution of profits to gaming entrepreneurs and taxes to government with little or no productive output to show for the participation of the gambler. It is evident that this specific description is apt in the context of describing the EGM gambling industry in NSW.
NSW features relatively developed policy-making structures, which in view of the administrative nature of state politics (Galligan, 1986a)12, might just as appropriately be considered to be policy-management structures. Although such an interpretation is supported by the observations of Sturgess (1990) in relation to the rise of managerialism within the public service with respect to the implementation of policy, Sturgess (1990) further queried the extent to which such approaches were appropriate for the development, as opposed to the enactment, of policy. The distinction between the development of policy and the enactment and management of policy is critical in the context of this study. The research questions address certain analytical propositions which are tested in Chapter 5. These propositions have direct implications for policy development. In turn, use of these approaches in policy development may also indirectly impact on the enactment and management of policy decisions informed by these propositions.
With respect to the internal operation of the State’s gambling-related political economy, the evidence outlined in this chapter and subsequently discussed in Chapters 3 and 4 demonstrates that the policy development approaches employed in NSW over time have resulted in an overall pattern that transcends any one model of political economy, and in some circumstances have simultaneously featured characteristics of more than one ‘model’. This historical pattern is perhaps best characterised by the Productivity Commission (1999), which observed the ad hoc manner of policy formulation, alternatively described by Young (2010) in his critique of the second Productivity Commission report, as “chaotic and fragmented”
12Citing Alan Davies in The Government of Australian States, Davis S (Ed.) (1960), Longmans, London. 42 (p. 45). As Chapter 3 substantiates, this has historically manifested as the government at relevant times having been strongly influenced by engaged elites or the most strident contributors to the contemporary debate, or alternatively in some instances, the most urgent circumstantial factors. This is an important aspect of NSW gambling policy over time. The dominant contributors to successive gambling policy debates, with their respective modi operandi, have cumulatively shifted the focus of gambling policy. These changing influences have left a legacy of inconsistency in specific approaches to gambling regulation over the periods examined herein.
Also contributing to this inconsistency and related to the ad hoc policy characterisation is the episodic nature of the major legislative events in NSW gambling history, particularly those observed in Chapter 3. Evidence will be presented suggesting that the temporal separation of these key events and societal development in the intervening periods between may have some causative association with the ad hoc policy processes observed by the Productivity
Commission (1999). Furthermore this loose form of political economy or policy structure is cognate with the concept of punctuated equilibrium or disjointed incrementalism.
2.6 Summary
The Australian political economy has largely developed in response to the nation’s federal structure. From the state and territory perspectives, fiscal federalism may be considered as the most influential expression of this structure. Commonwealth control of the major public revenue sources translates into a heavy economic reliance on the Commonwealth by the states.
The revenue and expenditure mismatch manifests as vertical fiscal imbalance at state level.
NSW has historically been negatively affected by the mechanism for addressing this imbalance, horizontal fiscal equalisation. Evidence of the historical persistence of this theme in NSW is provided in Chapter 3.
43 The Commonwealth’s reallocation of tax revenues between states has meant that the more economically robust states have needed to diligently exploit the remaining narrow tax base available to them for generating own-source revenue, in order to redress their subsidisation of the developing states and territories. As the subsequent analysis demonstrates, since the mid- twentieth century, NSW has been comparatively more active than other states and territories in developing gambling as an alternative revenue source and exploiting the resultant taxation opportunities.
Gambling’s roles as a key source of government revenue and also as a popular social custom places it at the centre of the political economy of NSW. Returning to the definition of the political economy as the structure of key relationships in a society (Section 2.2), it can be seen that the former role as a source of public funds has at the very least had an indirect influence on many of the government’s activities. This chapter has demonstrated how gambling taxation has also been an element in shaping the state’s relations with the Commonwealth and its state and territory counterparts. It has also been demonstrated that EGM gambling in particular has increasingly become the focus of federal government intervention. More recently, these interventions have tended to place more emphasis on the externalities generated by the simultaneous role of social custom.
Chapter 3 examines the historical development of gambling policy in NSW. It will be demonstrated how, over time, the key relationships that define the political economy of NSW have changed in response a range of factors, and how these have, in turn, altered the political economy of the State itself. As will be demonstrated, there are defining characteristics of each major regulatory event. However, considered collectively, the episodic, ad hoc, regulatory approaches which have evolved have implicitly comprised elements of a number of formal models of political economy, although not strictly conforming to any one in particular. The thesis now investigates selected regulatory history (Chapter 3), and subsequently the taxation implications of gambling (Chapter 4) in the context of this discussion of the political economy.
44 Key Findings – Chapter 2
The growth in state-levied gambling taxes, including EGM taxes in NSW, has to
some extent evolved in response to imbalances between state and federal taxation
powers.
Models of the political economy that recognise the importance of context in the
development of policy are most applicable to EGM regulation.
Despite gambling taxation being the responsibility of state governments, recent
federal governments have become more interventionist, although these
interventions have also been strongly related to context and opportunity.
The episodic, incremental nature of gambling regulation is comparable to
explanatory constructs such as punctuated equilibrium and disjointed
incrementalism
45 CHAPTER 3
The Historical Context of Gambling Regulation in NSW: A
Selective History
1906 to 2001
3.1 Overview
In Chapter 2 (Section 2.3.1), it was noted that Considine (1994) concluded that: “All policy systems are defined by the particular political economy which has been inherited from the past”
(p. 10). The purpose of this chapter is to investigate the past political economy of gambling regulation in post-federation NSW, with the objective of identifying the historical factors that informed the eventual development of EGM policy in the period 1995 to 2005.
This chapter first examines three important pieces of twentieth century gambling legislation in
NSW. The chapter then proceeds to a review of gambling policy under the Carr Governments
(1995-2005). Finally, an examination of the State’s regulatory regime in this area in the context of the public policy theory discussed in Chapter 2 is undertaken.
The first Act examined, the Gaming and Betting Act 1906 No.13, is of interest as it was a major early piece of gambling reform in the post-federation period. The influences on policy making at that time are relevant from a static perspective, against which subsequent developments can be compared, and also from a longitudinal perspective, as a number of the influences surrounding the legislation continued to be pertinent in subsequent policy decisions. The debate in respect of the Act was also pre-emptive of subsequent legislation.
The Totalisator Act 1916 No.75 and the Gaming and Betting (Poker Machines) Act 1956 No.17 both involved regulatory control, taxation and some degree of social policy in their construction.
46 Although there is little need to elaborate on the connection between the 1956 Act and the regulation of EGM gambling in the Carr era, it suffices to say that both Acts were fiscally and technology-driven to some extent.
The evolution of the policy making environment through each of these examples is then compared with that of the major legislative initiatives of the three Carr governments. The features of the models of political economy identified in Chapter 2 and their application in practice are also observed.
3.2 The Gaming and Betting Act 1906 No.13
3.2.1 Introduction
At 8.07pm on the night of Thursday, 23 August 1906, The Honourable Charles Wade, Attorney
General in the Liberal government of Joseph Hector Carruthers, rose in the NSW Legislative
Assembly to move that the Gaming and Betting Bill (No 2) be read a second time. The ensuing debate concluded at 6.20am the following morning, Friday, 24 August, when after a meal break, the Assembly went into Committee until 1.20pm in the afternoon.
Thirty-six members formally addressed the Bill over the course of the debate. On either side of the House, there was general consensus that the Bill was a positive step in the battle to combat
“the gambling evil”. On matters of the adequacy of the Bill’s provisions, and the tactics of the
Carruthers Government in expediting the passage of the Bill, there remained some contention.
O’Hara (1988) observed that “the most consistent opposition in the Legislative Assembly was concerned, not with the Bill’s provisions, but with Wade’s attempt to force it through the house in one sitting” (p. 143).
47 3.2.2 The Bill
The preamble to the Bill described it as:
A Bill for the regulation and suppressing of gaming, betting and wagering; to amend the
Games, Wagers and Betting-houses Act, 1901; to restrict the holding of race-meetings;
for the licensing of race-courses; and for the purposes consequent thereon or incidental
thereto.
The practical significance of the Bill was that it aimed to contain gambling activity to certain environments such as racecourses, while eradicating those forms of gambling which were perceived to be more deleterious to the public good, such as the activities of betting houses. In this respect, the Bill represented a significant step in the State’s regulation of gambling.
3.2.3 Post-Federation NSW Society and the Gambling Evil
This Bill, with the Lotteries Bill now before the Legislature, is part of a
comprehensive scheme of the Government to deal with the gambling mania that seems
at the present time to pervade the state. Although the term “gambling” is used
generically13, the Bill only embraces that part of the so-called gambling evil which
deals with betting in its various phases and betting-houses. (C.G. Wade, NSW
Attorney General, NSW Legislative Assembly, 23 August 1906)14.
These opening remarks of the Attorney General’s second reading speech included the first of twenty-two references made to gambling as an “evil” over the course of his speech. The term evil was to be used in connection with gambling in excess of seventy times, by fifteen speakers, from all parties represented in the House. Gambling was also referred to as “a menace” (Wade
13 The distinction between the more general ‘gambling’ and specific forms of gambling such as betting or gaming, remains valid in current usage. 14 Second Reading Debate, Gaming and Betting Bill (Act No 13, 1906). NSW Parliamentary Debates (second series), Session 1906 (third session of the twentieth parliament), (pp. 1377-1470). 48 [Gordon]15, 1906, p. 1377), a “foolish pastime” (Wade, 1906, p.1385), a “crying abuse” (Arthur
Griffith [Sturt], 1906, p. 1401), a “vicious habit” (Albert Gardiner [Orange], 1906, p. 1416), a
“plague” (William Fleming [The Upper Hunter], 1906, p. 1423), a “craze” (George Burgess
[Burrangong], 1906, p. 1427), a “cancer” (Robert Davidson, [Hastings-Macleay] 1906, p. 1428), a “pernicious habit” (Thomas Thrower [The Macquarie], 1906, p. 1433), a “fever” (Thrower,
1906, p. 1434), and a “sin” (John Meehan [The Darling], 1906, p. 1441).
The language of the members may be considered to be indicative of the general level of public concern over the spread of betting and other forms of gambling within NSW society, particularly in inner Sydney. However, such language may more accurately be considered as a reflection of the interests of specific elements of the populace represented by those parliamentarians, and their attempts to assuage those interests, or at least to be seen to be doing so.
Certainly the social forces abroad in the early years of the twentieth century were such that any debates on social phenomena, such as those relating to liquor and gambling, were largely played out as moral questions, prosecuted by groups with particular interests in such matters. The influence of churches, particularly those of Protestant faith, were at this time a potent force, tied as they were to middle class society and the relative leverage which proximity to the ruling class bestowed on this milieu16.
O’Hara (1988)17 discussed in detail the struggle for cultural hegemony in NSW and Australia more generally, with gambling policy being one focal battlefield in the struggle. In the early years of the century, the mobilised elements of the Protestant majority were ceaseless in their efforts to exert their cultural, social and moral suasion. Both Bollen (1972) and Broome (1980) described the outcomes of this nexus between religion and class, and the determination of the
15 The member’s seat is included in brackets. 16 O’Hara (1988, pp.132-134) provided a good description of the evolution of class and political alliances in the late nineteenth and early twentieth centuries. 17 Refer in particular to O’Hara’s postscript pp. 253-256. 49 defenders of the middle-class Protestant values which were succinctly defined by O’Hara
(1988). The most salient of these outcomes was widespread sectarianism. Given
Protestantism’s association with the middle class in particular, it follows that from sectarianism flowed a confluence of class, moral, political, social and even racial divisions, both actual and perceived, but almost all produced, or at least exacerbated, by the ideological battle of wills over issues such as gambling and liquor regulation.
Bollen (1972) provided a description of the underlying lines of demarcation in early post-
Federation NSW, stating that:
The line of religious division in Australia ran not between Anglicanism and
Nonconformity but between Protestantism and Catholicism. To descendants of
English and Scottish Christianity the Catholic minority seemed improperly big; it
seemed bigger and more offensive because it was Irish. The minority was aggrieved
and restless, the majority begrudged it room, and the wrangling of men in Christ’s
name, sectarianism, became endemic in Australian public life (p. 10).
Inevitably, Protestant groups attempted to parlay the push for cultural hegemony into political influence. Broome (1980) observed the accumulated impacts of these inherited historical divisions, graduating into the development of political sympathies, particularly as they pertained to gambling and the other prominent vice, liquor:
It was also predictable that moral questions would flow into class questions, because
of the political and religious alignments which were solidified by 1904. Since the
moral reformers became identified with Carruthers’ Liberal Party, the liquor trade and
the gambling fraternity gravitated to the Labour [sic] Party. Therefore, an attack on
vice became a means of attacking Labour, and a moral reform victory gave added
social prestige and hegemony to Protestant values and middle class culture
(p. 129).
50 Sylvan and Sylvan (1985, pp. 221-222) explained the logical connection between the
“Protestant work ethic” and its opposition to gambling as being based in the tendency for gambling to be seen as “an archetypal case of people trying to get ahead in the world (in terms of monetary gain) without industriously working for their rewards”.
Bollen (1972) concluded that:
There was under way by 1904 a process of alliance and counter-alliance in NSW
politics, with the Liberal Party, temperance and an aroused Protestantism on one side,
the Progressives, Labour, liquor interests and Catholic opinion on the other. The times
were unfavourable for a flowering of Protestant social concern (p. 138).
It is apparent from Bollen’s observations that Protestant social concern was conditional on compliance with Protestant mores.
Adding impetus to the Protestant temperance effort was the achievement of women’s suffrage in
NSW in 190218. Tellingly, the Suffrage League had its origins in the Protestant Women’s
Christian Temperance League. As such it is evident with whom the political sympathies of this politically engaged and potentially large new voting bloc ideologically rested.
Thus were the ideological forces arrayed, and such was the situation at the 1904 election of J. H.
Carruthers’ Liberal government. This point in the history of NSW appears to be interpreted as the perhaps prematurely assumed zenith of middle-class Protestant endeavours to mould the
State’s populace in its own image (for example, O’Hara, 1988). However, there is also ample evidence to suggest that the election of the Liberal party, with its reformist backers, was rather the advent of the age of “wowserism” (for example, Broome, 1980; O’Hara, 1988). It can be concluded that this more radical development of Protestant-inspired reformism came into being bearing the seeds of its own failure. Viewed in the context of the colony’s long history of comparatively liberal attitudes to pastimes like gambling and drinking, the abstentious and
18 Women in Parliament, Parliament of New South Wales website, < http://www.parliament.nsw.gov.au/prod/web/common.nsf/key/WomeninParliament > 51 abolitionist demands of the wowsers were unlikely to gain sustainable traction across the breadth of NSW society.
3.2.4 The Role of the Government of J. H. Carruthers
O’Hara (1988) pointed to the importance of the temperance and reform movements in the ascendancy of the Liberals. He observed that “the Liberal and Reform Association was aided by
NSW Protestantism in the 1904 elections. Carruthers’ protest that the LRA was not a Protestant party was made despite his background as a Methodist, and occasional lay preacher” (O’Hara,
1988, p. 134). Similarly, Carruthers’ defence against allegations of sectarian sympathies also necessitated denials of class-based biases (Hogan 2001[a]).
Carruthers’ associations were not, however, entirely in accord with the expectations of his
Protestant and reformist supporters. He was a divorcee, and also a director of the Associated
Racing Clubs (O’Hara 1988). Hogan (2001[a]) was more explicit in relation to the extent of
Carruthers’ involvement in racing, noting that proprietary racecourses were one of the Premier’s business interests. Although his government pursued a reform agenda, the extent of those reforms, including the 1906 Gaming and Betting Act, was, as would become the recurrent pattern in twentieth-century gambling regulation in NSW, tempered by the pragmatism of politics, and the extra-cameral associations of members and their various influences.
O’Hara’s (1988) observation that much of the debate in respect of the Bill centred not on the substantive content of the measure, but on the Attorney General’s determination to drive the Bill through the House in one night of sitting, is substantiated in the record of the debate. Various speakers protested the propriety of the approach. Objectors included Donald MacDonell
([Cobar], 1906, p. 1393), Edward O’Sullivan ([Belmore], 1906, p. 1410), George Burgess
(1906, p. 1427), Alfred Edden ([Kahibah], 1906, p. 1410) and John Hurley ([Hartley], 1906, p.
1414). In seeking an adjournment, Hurley (1906) considered the Government’s behaviour a
“very poor compliment to pay us as legislators”, adding that the Attorney General’s attempt to
52 expedite passage of the Bill was “not the way to pass measures for the benefit of the people” (p.
1414). Robert Hollis ([Newtown], 1906) was clear in his objection: “… I feel it to be my duty to enter a protest against the manner in which the measure is being forced through” (p. 1430). John
McNeill ([Pyrmont], 1906) declared his intention to act on his objection, undertaking to “give the Bill all the opposition I possibly can when it is in Committee” (p. 1433). Evidently, the government was intent on using its numbers to achieve its legislative agenda, to the chagrin of some in the House.
O’Hara (1988), noting Premier Carruthers’ association with proprietary racing, reported the
Labor leader J.S.T. McGowen’s speculation on the motives behind the Attorney General’s haste with respect to passage of the measure; “when the Premier had to go home sick, we were told that we had to pass the Bill through all its stages – as far as it could be passed in one night” (p.
144).
O’Hara (1988) went on to note that Carruthers;
Was also absent from the Bill’s third reading, when Wade refused to recommit the
measure. Nor was he present for the second reading of the 1906 Lotteries Bill. It
would appear that the attorney-general [sic] was careful to protect his leader from a
degree of personal embarrassment (p. 144).
Given his business interests in the privately-operated ‘pony’ racing industry, Carruthers’ absence from these debates may have been an expression of political pragmatism, or deference to the norms of propriety, inasmuch as, according to McGowen’s logic, his absence could be interpreted as an implied declaration of a conflict of interest in the matter. No less plausible an explanation is the possibility that the episodes of illness were genuine, as the Premier’s chronic ill-health was a matter of public knowledge, which ultimately contributed to his resignation as
Premier (Clune and Turner, 2006).
53 The conflicts for Labor representatives were no less difficult. O’Hara (1988) made note of the dichotomous responsibilities of Labor parliamentarians to attempt to protect some of their constituents from their own worst excesses, while also combating the passage of legislation perceived as being aimed at one particular class of the citizenry.
The record of the second reading debate indicates a departure by the government from its electoral undertakings to its supporting groups, such as the LRA and the Australian Protestant
Defence Association (APDA), with their expectations of prohibition, to legislative proposals which recognised the impracticality of these demands. Accordingly, the legislation was aimed at constraining the extent of gambling, rather than eradicating it altogether. The means of achieving this reduction in the level of gambling were evidently considered to be contentious in some respects. Betting would be confined to racecourses and sportsgrounds subject to certain conditions.
The proposal on betting at sportsgrounds was subsequently withdrawn, as is evidenced in the second reading speech of the Hon. J Hughes (Legislative Council, 12 September 1906). There is no record of the negotiations that resulted in the removal of this provision from the Act. It is likely, however, that this outcome would have represented a victory for the AJC, and a defeat for any aspirations Carruthers may have had for securing on-course betting rights for the proprietary race clubs. This is because it is likely that among the sportsgrounds contemplated by the legislation, were the pony racing venues. A constructive reading of the definitions contained in the Act as finally passed supports such a conclusion.
The activities of betting shops, particularly those which had proliferated in inner Sydney, were to be prohibited. That the gambling which took place in Sydney’s gentlemen’s clubs was excluded from the ambit of the Bill drew sharp criticism. Robert Hollis (1906), citing the implied exemptions of “the big clubs – Tattersall’s, the Union, or the Australia” from the provisions of the Bill, branded the measure as “class legislation” (p. 1429). John Hurley (1906)
54 stated his similar belief that the legislation represented “one law for one set of people, and another for another set of people” (p. 1413). The Bill would lead to the curtailment of the amusements of the working class, while preserving those of the upper classes.
In the context of such charges, the associations between socio-moral questions and the underlying divisions of the time become more apparent. Furthermore, the discussion of the bases of these divisions undertaken above suggests that the characterisation of the Bill as being class-based was likely to also entail implied injustices on the basis of the other characteristics attendant to the aggrieved class; sectarian, racial, and other. One further pervasive influence is apparent in the documents relating to the passage of the Bill. This is the extent to which the post-colonial government was reliant on the precedents and remote stewardship of the British
Parliament. Attorney-General Wade referred repeatedly to the report of a Select Committee of the House of Lords, both in making the case for the adequacy of evidence supporting the provisions of the Bill, and in resisting calls for the establishment of a select committee to investigate gambling in the State.
Wade (1906) stated that:
Anybody who goes through this report of the select committee of the House of Lords,
made in the year 1902, will see at once that there is quite enough material to guide this
House from every point of view, and that if we wasted further time by the appointment
of a select committee, we should not be doing our duty to the country (p. 1379).
With some justification, Donald MacDonell (1906) took exception to such an approach, emphasising the lack of local context in the Lords’ report: “The House of Lords cannot give us any information concerning Kensington, Ascot or any of the other clubs” (p. 1393), comprising the NSW gambling environment.
55 The dependence on the British report in this instance may illumine a particularly salient example of the influence of Britain in post-colonial affairs, notwithstanding recent Federation.
In 1902, under the preceding Progressive government of Sir John See, a NSW Parliamentary
Select Committee was instituted to investigate the prevalence of the gambling evil. Borchardt
(1975) determined that “although seventeen meetings were held and seventeen witnesses examined, no Report can be traced” (p. 227). Unfortunately this information appears to be the limit of that available on this inquiry, which precludes further investigation into whether the apparently concurrent investigation conducted by the House of Lords referred to by Wade resulted in a conscious decision to curtail the local enquiry. In any event, there exists some further evidence in the debate which certainly substantiates the precedence of the British
Parliament over its colonial protégé. Wade (1906) stated that the Games, Wagers and Betting
Houses (Consolidation) Act, 1902 (No. 18) was “reproduced almost exactly from an English statute of 1853” (p. 1382), and that clauses 25 and 29 of the 1906 Bill were “almost a copy of those contained in an Act passed in England in 1892 by Lord Herschell” (p. 1388).
The acceptance of the dependence on British parliamentary precedents was a reflection of the self-perception of the influential “establishment” element of NSW society as in all significant respects, British. This is illustrated in the speech of the Attorney General (1906), who, in defence of the essential right of a citizen to gamble, referred to the exemplary citizen as an
“Englishman” (p.1381). It can be seen that this social and political Anglo-centrism, bound inseparably as it was to the pre-eminent position and influence of the Protestant churches in the
United Kingdom, further reinforced the ambitions of the Protestant middle class to impose its norms on NSW society, and in the politico-social environment of 1906, to do so by means of exploiting its influence over a sympathetic government.
Notwithstanding the sectarian undertones of the Act, the legislation was ostensibly an attempt to redress a social problem affecting the population of NSW. Unlike much similar subsequent legislation, there were no accompanying, direct, revenue-raising provisions associated with the
56 legislation. Given the severe economic contraction of the 1890s, followed by the adjustment to
Federalism in the earliest years of the century, with its economic and fiscal implications, 1906 was a time of relatively optimistic economic outlook. The robust state and national economies may have gone some way to mitigating the need to introduce more aggressive legislation, entailing measures for generating government revenue. Nevertheless, elements within the parliament (for example Donald MacDonell, 1906) were prepared to revive the legislative case for introduction of the totalisator as a means of simultaneously controlling wagering and supplementing government revenues. Despite such ultimately prescient contributions to the debate, the economic situation in NSW allowed the government to introduce its legislation, free of any associated fiscal imposts on the population.
3.2.5 The State of the Economy
A number of commentators (e.g. Hogan 2001[b]) have stated that Australia’s national and state economies were in a period of recovery over the first decade of the century. The relative robustness of the NSW economy during this period may be inferred from available evidence relating to the recovery of the national economy from the effects of the depression of the 1890s and the subsequent and severe drought which finally broke in 1902-1903. The stronger recovery of NSW relative to that of its neighbour and rival as the leading state economy,
Victoria, was based in the fact that the impact of the 1890s depression was less severe in NSW, and thus the road to recovery not as difficult (Fitzpatrick, 1949; Younger, 1970).
Boehm (1979), Fitzpatrick (1951) and Younger (1970) each noted the strength of the primary and pastoral industries in the State. Mining (Fitzpatrick 1951) and an expanding manufacturing sector (Boehm, 1979) were also sources of economic strength, the latter stimulated by the abolition of inter-colony (state) customs barriers. Given these levels of activity, it follows that industries such as logistics and transport, and the construction of the infrastructure required to provide such services, particularly rail, were also required to expand in order to meet increases
57 in production. As one of the two most populous and developed states NSW benefited greatly from such robust economic circumstances.
Synthesising the accumulated evidence, it is apparent that the NSW economy around 1906 was experiencing a period of relative strength, in the contexts of both the preceding decade, and in comparison with the other states. In terms of the fiscal and budgetary position of NSW itself,
Table 3.1 illustrates the position in respect of key public finance indicators, comparing the 1906 position with that at the time of Federation in 1901.
Table 3.1: NSW Government revenues 1901-1906
Year Net Revenue Percentage Net Percentage Total Taxation Percentage Change Taxation Change Change Revenue 1901 £10,612,422 £1,980,885 £2,999,893 1906 £12,283,082 15.7% £1,297,776 (34.5%) £4,531,698 151% Source: Official Year Book of NSW, 1907-1908.
Gross state-generated revenues increased steadily over the period examined, notwithstanding that net Government taxation revenue decreased. Year-on-year data for the intervening years of the period (Trivett, 1909) demonstrates that the largest declines in taxation revenue resulted from the changes in fiscal arrangements related to Federation. Customs and Excise, Posts and
Telegraphs and Patents were progressively vested in the Commonwealth at the expense of the states, between 1900 and 1904. In balance, however, the large increase in general miscellaneous receipts is largely explained by the inclusion in that revenue category of the revenues collected within NSW and returned to the State by the Commonwealth Government
(Trivett, 1909). The remaining sources of state taxes were indirect taxation, comprising retail liquor and other licences, direct taxation comprising income tax and land tax, and stamp duties.
In terms of taxation of gambling activities, billiard and bagatelle licences were the only nominated source of revenue, comprising £7,338 or 0.16 percent of total taxation. Despite this modest revenue yield from gambling, the 1906 Act was aimed entirely at restricting the spread
58 of gambling, particularly off-course race betting, which appeared to be the most objectionable manifestation of the gambling evil. There was no attempt to incorporate a taxation component into the legislation. As is suggested by the data above, this may well have been related to the absence of any imminent pressure on government finances.
3.2.6 Summary
The circumstances surrounding the passage of the Gaming and Betting Act (1906) reflected the concerns held within the NSW population about gambling. This was most relevant to the metropolitan area, as is substantiated by the parliamentary debates. The nexus between population size and gambling forms part of the empirical investigation in Chapter 5. The bases of these concerns and the legislative response were chiefly moral, and particularly related to the
Protestant middle class. The legislation is perceived as part of a broader agenda to impose the norms of the more politically active and economically robust Protestant movement on the rest of the population of the State (for example, O’Hara, 1988).
In terms of the development of gambling in NSW, the Gaming and Betting Act is of note in a number of respects. The Act may be considered the last defining piece of gambling legislation for nine decades that did not include a taxation component. In this sense, the Act may be seen as a significant social policy measure ostensibly aimed at the protection and betterment of the populace. In NSW society of later decades, such an outcome might be considered to be admirable on the part of the government of the day. However, in early post-federation NSW, introduction of the legislation cannot be considered to be entirely the product of altruistic motivations.
The construction and intended application of the legislation was clearly steeped in the class- based biases of the day. As such it has been interpreted as a divisive exercise which was likely to exacerbate existing tensions within the population. The evidence makes it clear that rather than an act of altruism, the legislation was an attempt to impose the mores of part of the
59 population, the upper and middle classes, on another part of the population, the lower or working classes, with the latter apparently not inclined to subscribe to those imposed mores. In some respects it may be argued that legislation compelled by a revenue-raising motive on the part of the government, with the proceeds being distributed broadly across the State’s communities, could be considered more equitable, and of greater contribution to the reconciliation of a socially divided populace, than would be legislation implicitly aimed at circumscribing behaviours of certain elements of the community based, albeit indirectly, on religion, race and class.
The overtly negative influences of religious factionalism become less apparent in the later legislative episodes to be examined, although their presence lingered for some decades.
Religio-moral bases for opposition to gambling initiatives would remain a feature of policy debate throughout the twentieth century and into the present. What distinguishes the 1906 Act in this respect is that at face value, the legislation was clearly aimed at restricting the extent of, and opportunities for, gambling. Most ensuing major legislative initiatives would be demonstrably expansionary, but would not attract similarly vehement opposition from religious quarters. As will be demonstrated, rather than indicating the absence of such influences in later decades, this outcome is indicative of the general shift toward a more secular society in NSW.
Although taxation measures were not a feature of the Act, there is documentary evidence that it was an option to be considered. The support for the introduction of the totalisator as an alternative form of managing the gambling issues being targeted in the 1906 Act represents only one episode in the continuing and seemingly inevitable advance toward the adoption of the
“Tote”. The debate concerning the totalisator flagged two matters which would eventually shape policy in future years.
The most obvious of these matters was the revenue-raising potential of the totalisator for the
Government. The revenue imperative was not a major issue in the comparatively stable NSW
60 economy of 1906, but the revenue opportunity was nonetheless apparent to some within the parliament, as the previously cited arguments of Donald MacDonell (1906, p. 1394) for the introduction of the totalisator indicate. Within a decade, more pressing international and domestic economic circumstances would bring the revenue incentive to the forefront of policy motivations.
The prospect of applying some component of totalisator takings to expenditure on social causes was also recognised in the debate (for example, Donald MacDonell, 1906, p. 1394). Based on the evidence, it is apparent that these early iterations of hypothecation or “earmarking” were no more technically developed than those which would accompany certain legislative episodes over the remainder of the century. Nevertheless, a gambling tax and use of part of its proceeds in addressing social inequalities was a policy option canvassed at this relatively early stage in the State’s gambling-related regulatory endeavours.
The passage of the Act also provides evidence of the role of inter-jurisdictional policy learning.
Attorney General Wade (1906) stated that the findings of British Parliamentary enquiries were persuasive in the conception of the Act and that parts of relevant British statutes were adopted in its drafting. Wade also told the House that parts of the Act were adopted “almost exactly” (p.
1388) from Victorian legislation. Additionally, those parts of the debate dealing with the question of the totalisator relied heavily on experiences in other jurisdictions, particularly South
Australia and New Zealand (e.g. Albert Bruntnell [Surry Hills], 1906, pp. 1409-1410; Gardiner,
1906, pp. 1421-1422). The reliance on the experiences of other jurisdictions certainly predated the Act, and is a factor that continues to influence public policy-making, particularly in relation to the eventual legalisation of the totalisator.
The reliance on the experiences of other jurisdictions as being indicative of a maturing policy development system is one positive interpretation of this aspect of the Act. In retrospect, however, the extent of this reliance can also be interpreted as being a source of one of the major
61 shortcomings of this policy process. Although the legislation was precipitated by local conditions, the apparent lack of ordered empirical information on that current local situation was legitimately identified as an impediment to development of sound policy (e.g. MacDonell, 1906, p. 1393). The extent to which superior data may facilitate understanding of policy processes and outcomes is demonstrated in the analyses reported in Chapter 5.
The Act also established the pattern for later legislative episodes in terms of the activities of interest groups. In early post-Federation NSW, as in the present, the social and economic roles of gambling ensure that energetic lobbying by industry operatives to advance their interests generally accompanies changes to gambling policy. In relation to the Gaming and Betting Act, the activity of these groups is well illustrated by the rival interests of the AJC and the proprietary racecourses. The establishment AJC was insistent on asserting its primacy and it was clearly in the club’s commercial interest to have betting restricted to its meetings. The private ownership of the pony clubs, ipso facto, provided opportunity for the notionally non- profit AJC to call into question the probity of these alternative operations. Protection of its monopoly rights was paramount in the interests of the AJC.
Activism on the part of gambling proprietors was clearly established at this early stage of the
State’s post-Federation history and has remained an enduring theme of the environment surrounding gambling regulation. In particular, a corresponding confrontation would occur around the 1996 Act, when the incumbent, not-for-profit club sector would resist the attempts of the hotel industry to break its monopoly on EGM gambling.
As the evidence presented substantiates, the active participation of the two components of the racing industry was only one perspective on the legislation. In this instance, there were more diverse interests actively engaged in the debate than are perhaps apparent in the other policy developments observed subsequently in this chapter. A related conclusion is that this is
62 suggestive of a “pluralist” element to the policy-making process, which was less apparent as the
NSW gambling industry continued to develop.
There is some logic to such an outcome. The discussion of theories of political economy undertaken in Chapter 2 suggested that pluralism cannot adequately explain a developed, functional political economy in a state such as NSW, but may be an element of such. There is sufficient evidence to support a conclusion that NSW had not at this point evolved to this more developed level of sophistication. Two salient components of this evidence are discussed below.
As may be expected, the changes associated with federation were significant, particularly from the perspective of the political and economic structure of the State and its relationships with the federal government and the other states. Secondly, the relatively immature state of societal development is perhaps best encapsulated in the influence of sectarianism and its associated ramifications. This was a state in its infancy in the federal context, in which elements of the population were actively attempting to mould a relatively new society to align with their own values.
From the simplistic perspective of the number of actors engaged in the debate, it can be concluded that NSW had reached a stage of development that might be defined as pluralist.
Subsequent events will demonstrate the progressive resolution and consolidation of these influences into a more stable and inclusive societal structure over time. Further evidence in
Chapter 2 substantiates an argument that this plurality may be interpreted as a developmental phase through which the political economy was transitioning. Subsequent events examined in this chapter provide empirical support for the theoretical construct that this pluralist characteristic of the NSW political economy as it stood in 1906 was merely a “snapshot” of the ongoing development of the State at that time.
63 In overall terms, there were some very obvious contextual differences between this legislation and the EGM gambling-related Acts produced by the Carr Governments. This is to be expected, and the influence of context on policy outputs was discussed in Chapter 2. Despite these contextual differences, ninety years prior to the Carr Government’s first significant piece of gambling legislation, a number of the policy features that would be critical in that later legislation were already apparent. In particular, the potential for regulation to include a tax component, and the prospect that some of this revenue might be turned to social causes, are policy stances that informed not only EGM regulation at the end of the century and beyond, but also the other Acts examined in this chapter. Such matters of policy, when coupled with the behaviour of certain interest groups, provide some clear parallels to EGM legislation in the first
Carr premiership in particular.
Despite its advent in the earliest years of the century, the 1906 Act was the final major piece of gambling regulation predicated chiefly the grounds of social welfare and regulation of the level of gambling in the first half of the twentieth century. It would be fifty years before the State enacted legislation that ostensibly sought to preserve the positive contribution to society made by the registered club movement. The object of that legislation would be achieved through the legalisation of poker machines in NSW clubs, but would also embrace the revenue raising objective absent in the Gaming and Betting Act. This shift in policy objectives, from controlling gambling on social welfare bases to controlling gambling with a concurrent focus on obtaining government revenues, could scarcely be more clearly illustrated than in the contrast between this Act and the Totalisator Act of 1916.
3.3 The Totalisator Act 1916 No.75
3.3.1 Introduction
The public debate over the introduction of the totalisator into the NSW racing industry ebbed and flowed through the State’s politics for 40 years, from the late nineteenth century until its
64 ultimate adoption in 1916 and actual introduction in 1917 (Peake, 2006). From the regulatory perspective, correspondence held by State Records New South Wales indicates that the earliest attempt to introduce a Totalisator bill into the Parliament took place in 1897 (SRNSW: NRS906,
[5/5281]). In the course of the second reading debate over the 1916 Bill, the Minister overseeing the introduction of the legislation, Augustus James ([Goulburn], 1916), acknowledged that Bills were introduced into the Parliament in 1898 and 1899. The first of these Bills expired on prorogation of the Parliament. The second “passed through all its stages in the Council” but when it came to the Assembly it “disappeared” (p. 3514).
A further attempt to introduce a similar measure was made in 1903. Correspondence held in the
NSW State Records indicates that the Bill was “vigorously opposed when leave to introduce it was sought” (SRNSW: NRS 906 [5/5281]). In 1907, a Bill was again brought forward. On this occasion, it advanced as far as the second reading stage, but public debate over the measure was fierce and protracted, impeding its progress. Additional State Records material (SRNSW: NRS
906 [5/5281]) indicates that the Bill was still before the parliament in August 1909. Along with its ultimate defeat in parliament, these facts are indicative of the extent of contention over the totalisator. The defeat of the 1907 Bill did not signal the end of the matter. An article from The
Sun (12 October 1911) contained in State Records (SRNSW: NRS906, [5/5281]) shows that the debate was ongoing, and that the revenue opportunity available to the government which had the will to introduce the totalisator, was a recognised component of the measure, both within the
Parliament, and in the public arena:
It is folly for the Government and charitable reformers to ignore this perfectly
legitimate source of income. Here is an enormous sum being used every year in
gambling. If a proportion of it were shed every time it goes into the totalisator, no one
would be more seriously injured than he is at the present time, and the money, instead
of going to parasites and hangers-on, would be applied to worthy and commendable
objects (The Sun, 12/10/11).
65 In 1913, as the policy debate continued, English-born Australian engineer and inventor George
(later Sir George) Julius patented the first automatic mechanical totalisator. The machine was an improvement on earlier iterations in that it allowed simultaneous use by multiple operators19.
The new machine was more reliable than its predecessors, and as such was seen as more attractive to governments as a source of revenue. Although more appropriate technology had become available, it would ultimately require an extraordinary, if not unique, set of circumstances to create a situation in which a government would have the confidence to put forward a case under which the totalisator could be introduced with some pressing justification.
The year 1916 was a tumultuous one in NSW. The nation was at war and NSW, as the most populous state, contributed heavily to, and suffered heavily the effects of, Australia’s war effort, in terms of its commitment of manpower and productive capacity. The economic impacts of this commitment were telling. The State was experiencing significant financial duress (Hogan
2001[d]).
It was in this environment that William Holman’s Nationalist government determined to introduce the Totalisator Bill. The very existence of Holman’s government was part of the social and political ferment in NSW in 1916. Having succeeded J.S.T. McGowen as Labor
Premier in 1913, Holman, along with seventeen of his Labor parliamentary colleagues, was subsequently expelled by the party in November 1916 after the group dissented from the party’s anti-conscription position. The Nationalist Government was subsequently born of an allegiance between Holman and his exiled confederates, and the Liberals, amongst them the former
Premier, Charles Wade.
19 Totalizator (Totalisator) History – A World’s First. http://members.ozemail.com.au/~bconlon/julius.htm#top 66 3.3.2 A Changed Environment?
The political debate on the Totalisator Bill was conducted on much different terms to those which applied to earlier attempts to introduce the machine, and indeed to those to affect any previous gambling reforms. Shortly into his second reading speech on the Bill, delivered on 12
December 1916, Augustus James (1916), the Minister of Public Instruction, made amply clear the key purposes of the legislation: “There are two purposes that I trust will be served by the
Bill. One is that it will return to the Government a considerable amount of revenue; the other is that it will regulate and limit gambling” (p. 3511)20.
Over the course of the ensuing debate, the second of these motivations was to become increasingly subordinated to the principal taxation motive. The difficult fiscal circumstances of the State demanded action, which the government was determined to take. At the time of the introduction of the Bill, the Great War had raged for more than two years, and would continue to eke away Australia’s and the State’s human and financial resources for a further two years.
Hogan (2001[d]) observed that “the war put an abrupt end to the economic good times that
NSW had been experiencing, with some fluctuations, since about 1904” (p. 153), going on to state that a sharp decline in business confidence coinciding with the onset of war resulted in economic contraction and higher unemployment. This was coupled with the State’s inability to access loan funds from the traditional source, Britain. This, too, was as a result of the imperial war effort, and further inhibited the Government’s ability to finance employment-stimulating public works projects.
Souter (1992) alluded to the privations felt by the population. Wage freezes, rising prices and governments seeking to either increase taxes , or introduce new means of taxation all pointed to the effect the war was having on the local economy. Hogan (2001[d]) provided an example, identifying “general increases in taxation” passed in early 1914 which at the time were
20 [Second Reading Debate, Totalisator Bill (Act No. 75 1916). NSW Parliamentary Debates (second series), Session 1916 (fifth session of the twenty-third parliament), (pp. 3511-3572)] 67 “attacked by the opposition and the press” but which with the onset of the war, were considered
“merited by the nature of the emergency” (p. 156).
Thus, a defensible economic argument existed for the introduction of the totalisator measure.
Nevertheless, the morality of the legislation was called into question as it was perceived as promoting frivolous pastimes, even as the country was at war and numbers of its soldiers were making the ultimate sacrifice. The Hon. Albert Bruntnell ([Parramatta], 1916), for example, berated the government for its derogation of its undertaking to “stand behind the Federal authorities as far as it was possible for them to do in the prosecution of the war” by presenting
“a Bill of this kind before us – an incubator for gambling” (p. 3527). Holman’s former leader,
J.S.T. McGowen ([Redfern], 1916) accused the government of “encouraging the people to forget all about the war and the higher moral standards of the nation” (p. 3549).
Conversely, Minister James (1916) argued that the measure would in fact exact a price on the public’s gambling activities:
At the present time we are taxing the bookmaker and the clubs; we derive revenue
from their incomes in that way. In a similar way we propose to tax a class not now
taxed. A large number of people who bet on races do not pay income-tax at all, and by
drawing 10 percent21 of the gross proceeds of the totalisator, we shall derive revenue
from people who pay taxation in no other way. It will be a cause of congratulation to
the Government at any rate that they get revenue from people who can afford to use
their money for race purposes, but do not give at present anything to the State (p.
3512).
A similar argument was put on behalf of the government by the Hon. John Garland (1916) in the Legislative Council.
21 Of the ten percent to be levied, seven percent would be retained by the Government and three percent returned to the operators of the racecourse on which the machine functioned (Garland p. 3577). Further concessions were proposed in respect of non-metropolitan racing clubs, which held fewer meetings and which stood to generate significantly lower gross turnover (James p. 3569). 68
Revenues derived from the betting taxes levied by the NSW Government prior to the introduction of the totalisator are illustrative of the continued growth of gambling. These consisted of licenses and fees received from bookmakers and stamp duties levied on betting tickets issued by bookmakers (The Official Yearbook of New South Wales 1916; 1917). In the half year ended 30 June 1916, betting taxes and stamp duties garnered £58,968 for the Treasury.
In the corresponding period in 1917, these taxes amounted to £88,385. The war had not substantially inhibited gambling activity, and nor would it. As the Hon. Arthur Griffith
([Annandale], 1916) commented: “Men will gamble so long as there are men and money with which to gamble” (p. 3520). The legislation represented a reasonable attempt by the
Government to alleviate its present financial limitations by taxing what Dr Richard Arthur
([Middle Harbour], 1916, pp. 3551 -3552) described as the “luxuries” of the population.
Furthermore, the government indicated that the revenues generated would be applied directly to assisting in the war effort, (Garland, Council, 1916, p. 3567). The wartime economic constraints were never far from the centre of the debate. These privations would eventually pass, along with the war. However, in the Legislative Assembly on the night of 12 December 1916 it was recognised that once introduced, the totalisator would outlast the immediate fiscal crisis upon which its introduction was predicated. Much of the substantive debate related to the administration of the tax. Hypothecation in the form of making provision from the machines’ proceeds for war widows and orphans was advanced as an appropriate use of these revenues
(John Osborne [Paddington], 1916, p. 3545). This was a more specific description of the contribution foreshadowed by Garland (Council, 1916, p. 3567).
There was vigorous debate over the various inquiries which the Government had, or, according to the Opposition benches, had not, relied on in deciding its course. The interpretation of the findings of a select committee into the totalisator during the term of the preceding Parliament was particularly contentious. Hogan (2005), in his presentation of John Osborne’s autobiography, Nine Crowded Years, set out the history of the committee’s report. Osborne’s
69 contemporaneous account stated that “much to the astonishment of everyone who had closely followed the deliberations of the Commission, an adverse report was submitted and the matter was dropped temporarily” (Hogan, 2005, p. 226).
It is apparent that the McGowen Government had not received the advice it had wished to hear, and did not possess the political will to attempt introduction of the totalisator in the absence of supportive findings. It may be interpreted that some time was allowed to elapse between the completion of the report and the renewal of attempts to introduce the Totalisator Bill. In the interim, another significant circumstance had arisen. Holman had by then become head of a
Nationalist Government. This may have provided an expedient opportunity to distance his coalition from the conclusion reached in the report produced under the former Labor
Government, and to initiate the new policy direction. The parliamentary debate demonstrates that Minister James was eager to use the supportive aspects of the inquiry’s findings to support the case for legalisation. Yet, it is interesting that even those members who sought to use the negative aspects of the report to argue against the legislation (for example Bruntnell (1916, pp.
3527-3532), did not refer to the negative overall finding of the inquiry, perhaps reinforcing the unexpected nature of that outcome.
That Holman and his colleagues’ expulsion from the ALP may have provided a catalyst for such an opportunistic break from that party’s indecision over the totalisator is evidenced by the derision aimed at the government in relation to the volte-face of its former-ALP element on adoption of the policy once it had formed the Nationalist government (for example, Bruntnell,
1916, p. 3527; John Storey [Balmain], 1916, p. 3539).
The determination of the Government to introduce the legislation in spite of the contrary majority report of the Commission evidently aroused suspicions, which were perhaps to be expected, given the interests of the bookmakers in maintaining the status quo. The Member for
70 Byron, and a member of the Commission, John Perry (1916, p. 3523), strongly objected to inferences of corruption.
The debate over the issue of what advice was being taken and which influences were being exerted on the Government also radiated beyond the confines of the House. John Osborne
(1916), discussing the morality of gambling, stated his assessment of the interest of the public and the legislature in the following terms: “We have heard that discussed times out of number in the House, and seen it debated in the press week after week, until the subject has been worn absolutely threadbare” (p. 3542). Similar observations on the public debate would be aired in the House eighty years later, in relation to the 1996 EGM legislation.
Evatt (1945) recounted one libellous allegation published in the Mirror, which clearly implied corruption on the part of members of the Government and certain bookmakers. The libel was subsequently withdrawn but the scurrilous nature of such accusations did not prevent a similar insinuation being aired under parliamentary privilege. In the House, John Cusack ([Albury],
1916) stated that:
The average elector entertains the idea that the reason why we have not previously
passed the Totalisator Bill is that the bookmakers have subscribed to a large fund with
which they have bribed members of Parliament to oppose the introduction of the
machine, and any kind of old Bill to legalise the totalisator would have had my
support, even if it were only because it would remove the suspicion attached to us in
the past (pp. 3556-3557).
The Mirror episode may provide some insight on the decisions of earlier administrations to maintain the status quo. However, the insinuations of undue influence were not confined to those interested in seeing the Bill fail. Although strongly refuted, the influence on the government of those holding patents on certain totalisator machines was also canvassed in the debate (see for example, Jabez Wright, [Willyama], 1916, p. 3561). Thus, suggestions of
71 corruption were associated with both anti- and pro-totalisator interest groups. It is clear that various interested industry operatives were, like the government, intent on seizing on the opportunity to advance or alternatively protect their own interests. This outcome followed the pattern established by the 1906 Act. The pattern would also be repeated in both the 1956 and
1996 Acts
The comparatively temperate moral tone of the debate cannot be considered to be indicative of a society within which the deep divisions of earlier decades had been fully resolved. Souter
(1992) suggested quite the opposite, with the historic differences further exacerbated by war- time inequities, be they merely perceived or actual:
The nation was divided – not neatly into two camps, but into several overlapping ones
which all drew their acrimony from the war against Germany. To start with, the
families of men who had gone to the war, and perhaps even lost their lives, looked
askance at those who had not volunteered. The working class was less enthusiastic
about the war effort than the middle class, for it was the more severely affected by war
time wage freezes and rising prices. Many Labor politicians resented the extent to
which the war effort had taken precedence over social reform, and in this they were at
odds not only with the Liberal Opposition but with their own parliamentary leaders
(pp. 244-245).
Souter (1992) also identified an additional, highly divisive element which accompanied and increased these tensions;
Through all these various divisions, like an earth tremor running along fault lines,
went the overriding issue of conscription, shaking friends apart, splitting the Labor
Party, dividing the Roman Catholic Church, exacerbating class hatred, and widening
the gap between returned soldiers and the men who stayed home (p. 245).
72 The third enduring foundation of these divisions was the significant proportion of the working class which identified as Irish and/or Catholic. The identification of Catholic with Irish causes ensured that arguments over perceived inequities, both those related to the war effort and those domestic in nature, were maintained. Hagan and Turner (1991) and Hogan (2001[c]) reported that the working class had campaigned over many years for the election of a Labor Government, and was increasingly frustrated by the failure of the Government on election to address its interests. The increase in Catholic political activity during the period also provoked a revival in
Protestant political interest, which, according to Hogan (2001[c]), had for some time been less obvious than in earlier decades.
It is apparent from these accounts that the sectarian, racial and class differences that had informed earlier debate on the social and moral questions relating to gambling still remained.
Souter’s (1992) account, as previously observed, implied, however, that at that time, the historical divisions were to some extent subsumed by the immediacy of the nation’s engagement in the war, the management of the war’s impacts and the first intimations of the challenges
Australia would face in adapting to life in the post-war period. The advent of the Holman
Nationalist government as a product of the conscription debate provides substantive evidence of the war’s influence on public affairs at home.
3.3.3 Influences and Interests
Along with the implied undue influences observed previously, the second reading debate in part identified the influences being exerted on the legislature. These influences were perhaps best encapsulated by James Dooley (1916), the Member for Hartley and future Premier, who in the course of the debate stated that:
The Minister in framing his Bill had a number of interests to bear in mind. First, there
was the Government interest in the amount of revenue to be derived; secondly, the
clubs’ interests so far as dividends were concerned; thirdly, the interests of the
73 bookmakers so far as their living was concerned; and fourthly, the interests of the
people who will patronise the machine (p. 3519).
The issues and interests relating to the Carr Government’s 1996 legislation are so similar that they might be superimposed over those identified by Dooley (1916). The revenue and patron comparisons are apparent; the racing clubs as the new beneficiaries might be compared to the hotels, and the bookmakers, as the incumbents, to the club sector in relation to the 1996 EGM expansion.
With respect to Dooley’s (1916) comments on the interests of patrons, the record of the parliamentary debate indicates that there was relatively broad public support for the totalisator.
There had clearly been a level of political support for some time. It is apparent that the failure to capitalise on this support precipitated speculation on why the system had not been introduced earlier, thus the insinuations regarding the influence of bookmakers. Perhaps adding credence to these suspicions, several members spoke in defence of the bookmakers who, they argued, perhaps stood to lose their livelihoods and should thus be granted some consideration (for example, Storey, 1916, p. 3538; Robert Hollis, [Newtown], 1916, p. 3539).
Whether or not there was any corrupt conduct surrounding this issue, it is clear that through official channels, such as deputations to ministers and representations through parliamentarians, the bookmakers attempted by a range of means to dissuade the Government from introducing the totalisator. The extent of this activity is perhaps best illustrated by the observation of
Thomas Waddell ([Lyndhurst], 1916), who described an axis of convenience between bookmakers and clergymen opposing the legislation as “an unholy alliance” (p. 3533).
Comparably unlikely alliances were also to become a feature of later legislation. The ultimate expression of this phenomenon may be the eventual alignment of clubs and hotels in opposing the 2001 Act and certain other subsequent policy initiatives.
74 The financial effects were also a concern of the AJC, given that it faced the potential loss of bookmakers’ licence fees charged by the club. These concerns should have been allayed by the government’s position. Minister James (1916, pp. 3511-3512), does appear to have considered any reduction in bookmakers’ activities as supporting the secondary purpose of the Bill in regulating and limiting gambling. However, it seems that the Minister (1916), apparently a practiced pragmatist, hopefully anticipated the continuation of the bookmakers’ trade, stating that: “If we wipe out the bookmakers we shall lose some of the taxation we are now imposing on them and we do not want to bring about that result” (p. 3519). Again, this reasoning is similar to that applied to EGM policy under the Carr Governments. This is most apparent in the
Gaming Machines Act of 2001, which sought to restrict further expansion of EGMs, without incurring a major impact on tax revenues.
Although ultimately not preventing the introduction of the totalisator, the attitude of the
Government towards the clubs, and the nature of certain concessions made, indicate that to some extent the AJC enjoyed some success in ensuring that it secured a satisfactory outcome.
Minister James (1916) expressed the Government’s position on the question of the impact of the legislation on the race clubs in these terms: “I do not think it can be said that we are treating the race clubs too well. Our idea was not to benefit the race clubs, but to leave them in much the same position as they were before” (p. 3518). The Minister argued that the ten percent22 to be levied on the turnover of the machines was in fact a larger amount than was imposed in other jurisdictions. Furthermore, the Government provided for the clubs to retain the unclaimed dividends and the “fractions”23. The former was considered unlikely to amount to a significant sum in any given period. The latter however, as a more common event, was anticipated by the
Government to “represent a very considerable sum” (James, 1916, p. 3519).
22 The government also proposed to levy the tax plus ‘1 percent more, which makes 11 percent, until the machines are paid for by those who erected them’ (James, 1916, p. 3515). 23 A fraction refers to part of a dividend which, due to the calculation of the odds, is less than the lowest monetary unit payable (one penny in contemporary terms). Dividends are rounded down to the nearest penny. The fractions are the cumulative total of the individual fractions on all bets. 75 Coupled with the preference of the Government to see bookmaking continue, the evidence suggests that the Government did not intend to cause major impact to the AJC and the non- proprietary race clubs in country areas. The metropolitan proprietary race clubs, however, were to be disadvantaged more severely by the legislation. The core of the differential treatment related to the rate of tax to be applied to the proprietary clubs on the basis of their private ownership. Whereas the AJC and its affiliates were nominally not-for-profit enterprises that reinvested profits into course facilities, prize money and the development of racing, the proprietary clubs and courses were ultimately owned by private individuals, to whom the profits from operations were distributed. The approach to the proprietary clubs was that, along with the taxation impost, the fractions would also accrue to the State. Despite the less favourable operating conditions mandated for proprietary clubs, Peake (2006) recorded that it was one of these, Rosebery, which pioneered the establishment of a totalisator. The machine commenced service on 4 April 1917. Later in the same year, the totalisator commenced operation at the
AJC-controlled Randwick course, for the 1917 spring racing carnival. As was the case for the
AJC, subsequent gaming machine legislation would also feature more favourable terms for the mutually-structured clubs, than for the privately owned hotels.
3.3.4 The State of the Economy
Souter (1992) and Hogan (2001[d]) described the troubled NSW economy of 1916. Along with the broad macroeconomic effects the war imposed as previously noted, the direct cost to the government was also taking its toll. The Hon. John Garland (1916), in the second reading debate in the Legislative Council, stated that: “During the financial year which ended on the 30th
June, 1916, State expenditure was increased by over £500,000 simply in connection with matters relating to the war” (p. 3576). Included among the Government’s commitments to the war effort was the undertaking that in order to encourage recruitment, “any civil servant who enlisted should have the difference made up to him between the pay which he received as a soldier serving the King and the salary which he was paid by the State Government” (Garland,
1916, p. 3577).
76
An examination of the State’s revenues and expenses for the 1915-1916 financial year further indicates the extent of the constraints confronting Holman’s government. Data presented by
Trivett (1917) indicated that state-levied land taxes reduced from £4,692 in 1914, to £3,190 in
1916. The three-pence-in-the-pound income tax increase imposed in 1914 saw an increase in revenue of almost 95 percent on 1913 revenue. Repeated increases of similar scale in 1915 and
1916 resulted in more modest increases of 28 percent and 32 percent respectively on 1914 revenues. Trivett’s data for 1917 (1918) indicates that the cumulative increase was
53 percent for that compared with 1914. The modest yields from these successive tax increases, coupled with the increase in expenditure cited by Garland, evidence the difficult fiscal circumstances which, as the Second Reading debate on the Act clearly established, was the chief contributing factor to the Government’s decision to introduce the totalisator.
3.3.5 Summary
The legalisation of the totalisator signalled a shift in gambling policy objectives on the part of government in NSW. The Act represented the State’s first legislative endeavour relating to gambling which was primarily motivated by government revenue-raising imperatives.
This policy direction was to prove irreversible once put into practice. Once the government had harnessed this revenue source, its continuation was, in practical terms, guaranteed. The resulting permanency of a taxation policy initially enacted to address short term pressures relating to an Australian war commitment was to be echoed less than three decades later, with the appropriation of income taxation powers by the Federal Government at the expense of the states during the Second World War through the Income Tax (Wartime Arrangements) Act 1942
No. 23 (Cth). Despite the differences in the nature of the taxes involved, both the 1916 state and
1942 Federal taxation initiatives have continued to reverberate through NSW tax policy over the ensuing decades.
77 It is evident that a reliance on gambling activity as a significant source of revenue was firmly established in NSW at this point in history. Comparison with subsequent developments in both the scale and scope of gambling taxation would demonstrate that these revenues prior to 1916 were relatively modest. Despite the extensive precedents for the use of totalisator technology prior to its introduction in NSW, the adoption of the machine also presents an early intimation of the role of changes in gambling technologies. This is perhaps emphasised by the fact that
NSW did not adopt the technology until after the more efficient automated machine of Sir
George Julius became available. The establishment of the on-course totalisator would in turn lead to the introduction of the off-course tote (Totalisator (Off-course Betting) Act 1964 No.1), overseen in NSW by the Totalisator Agency Board (TAB). Thus the introduction of this new gambling technology did not only whet the appetite of succeeding governments for such sources of revenue, but also established the conditions that would generate an expansion of access to this form of gambling and its subsequent uptake by the growing population. This development would be replicated in the eventual legalisation and later liberalisation of gaming machines in
NSW.
The structure of the tax rates applying to the totalisator also established a precedent for subsequent treatment of government gambling revenues, in terms of the differential tax rates applied to the AJC and its affiliated clubs, and the proprietary clubs. A further feature of the tax structure was its potential for hypothecation of some proportion of the revenue generated for specific social welfare programs. It may be argued that the initial justification for the Act was such that the whole of the proceeds, if applied exclusively to the war effort, might be considered as being hypothecated. In the longer term, however, as with the federal assumption of income taxation in 1942, the remedy would long outlast the immediate problem. As has been illustrated with respect to the Gaming and Betting Act of 1906, hypothecation had long formed part of the justification for introduction of the totalisator, and would later form part of the justification for poker machine and EGM gambling. The issues around balancing the interests of different stakeholders, as observed in Section 3.3.4, are also recognisable in later EGM policy.
78
A contemporary perspective on this legislation may have been that it was merely a matter of following numerous earlier-adopting jurisdictions in Australia and abroad in legalising the totalisator. In retrospect, however, the Act can be considered groundbreaking in a number of respects. Like the totalisator technology itself, the policy approaches enacted in NSW may not have been novel per se, but they required a degree of political courage on the part of the government. Nevertheless, there was an opportunistic element to the government’s actions in seizing on the extraordinary prevailing circumstances to mitigate the introduction of a new tax.
In introducing the Act, the Government concurrently ran the gauntlet of some public opposition, primarily from the persistent moral opponents of gambling, but also from those who apprehended the measure as an affront to those either serving in the war, or otherwise directly affected by it. In this respect, the legislation was a test of the ambivalence of the community to this form of taxation, and the purposes for which it was being raised. This indifference of large proportions of the population to such tax imposts is a feature of the later literature on gambling taxation and tax “design”, which is discussed in Chapter 4. This “testing of the water” of public tolerance for such taxes, combined with the technological, structural and revenue-related taxation implications, marks the Totalisator Act as an example of public policy which would have profound consequences in the ensuing history of gambling regulation in NSW.
Many of the pluralist indicators, and indeed some recurrent influences, that were apparent a decade earlier in relation to the Gaming and Betting Act remained a feature of the policy debate in relation to the Totalisator Act. There were, however, subtle changes in the extent or level of engagement of those influences. Most saliently, the efforts of industry, including the race clubs, bookmakers and totalisator manufacturers were far more apparent in the policy environment in
1916. The opposed voices of temperance and liberalism were less strident in the presence of these activists. The participation of governments in the gambling enterprise took a step forward as a result of this legislation, due to the very much larger fiscal returns to government.
Although the pluralist element remained, this nascent partnership between the gambling
79 industries and government established some overtones of a developing corporatist approach to gambling policy in NSW.
Regardless of the opinions of the engaged interests in the totalisator debate, what is apparent is that ultimately, the government determined to act unilaterally to implement its desired policy. In so doing it relied heavily on the prevailing circumstances, particularly those relating to the war.
As such, among the political economy constructs canvassed in Chapter 2, perhaps the overriding principle is that of the ad hoc approach to policy-making (refer to Section 2.6), wherein the government seized on a favourable set of environmental circumstances, and in the process achieved a long-term “fix”, to an economic situation that was destined to be relatively short term.
There are a number of features of this legislation identified that have implications for the regulatory management of EGM gambling under the Carr Governments. The primacy of the government’s tax motivation, the increase in industry lobbying and the structuring of concessional tax arrangements for certain industry sectors are among the key features that subsequently informed policy development in the period 1995 to 2005.
3.4 The Gaming and Betting (Poker Machines) Act 1956 No. 17 3.4.1 Introduction NSW Parliamentary Debates – Legislative Assembly, Tuesday 19 June 195624. Questions without notice – Poker Machines
Mr. CONNOR ([Wollongong-Kembla], 1956): I ask the Chief Secretary whether it is a
fact that in a reserved decision announced to-day, the Metropolitan Licensing Court
refused an application by the NSW Leagues’ Club and The Journalists’ Club for
renewal of their club licences under the Liquor Act from 30th June, 1956, on the ground
that their premises were habitually used for a purpose deemed to be unlawful under the
24 38th Parliament, Second Session, 1956 No. 13, p. 537. 80 provisions of the Gaming and Betting Act? Is it a fact, also, that a substantial majority
of the 900-odd licensed non-proprietary clubs in this State that have not yet applied for
or obtained renewal of their licences will be automatically refused renewals on similar
grounds? Is it further a fact that licensed non-proprietary clubs in this State have a total
membership of more than 400,000, and that a representative deputation of these bodies
unanimously requested the Minister to make appropriate amendments to the Gaming
and Betting Act to protect their existing rights and privileges, as they have been
protected by successive governments over the past twenty years? If these are facts, will
the Minister take immediate action to make appropriate amendments to the Act to
permit the use of poker machines in these clubs? (p. 537).
Mr. C.A. KELLY ([Bathurst], 1956): I understand that the reserved decision was given
to-day and that, as the hon. member has said, the licences that were subject of the
decision were refused. I understand, also, that the decision is subject to appeal. It is true
that I interviewed a deputation about legalising the use of certain machines on the
premises of non-proprietary clubs. That matter is still receiving consideration
(p. 537).
The questions thus put to the Colonial Secretary, Christopher Augustus (Gus) Kelly, by
Reginald (Rex) Connor are of the benign nature that one would expect of a government backbencher addressing a prepared question to a member of the Ministry. Kelly and Connor were members of the Labor Government of John Joseph Cahill [Cook’s River]. Viewed in retrospect, Connor’s apparently scripted question, the apparently nonchalant response of the
Minister, and the absence in the record of any further discussion on the issue at that point all understate the moment of this first step in the evolution of a social and fiscal phenomenon, the impacts of which continue to be felt and debated in NSW to the current day. Nevertheless, the record of the subsequent parliamentary debates demonstrates that this introductory foray was likely to have been deliberately constructive in its circumspection. There in fact existed a quite
81 developed conception of the potential ramifications of the legislation. In the ensuing debate on the introduction of the poker machine Bill, Clive Evatt [Hurstville] provided a succinct statement of the true importance of the Bill, describing it as “this great and significant social change” (p. 1782).
The poker machine issue was to be the subject of prolonged and spirited debate in both chambers of the legislature. Once passed, the practical effects of the Bill would be most apparent for clubs and their patrons and beneficiaries across the State. In this context, it is informative to first undertake a brief examination of the development of the club industry in
NSW prior to 1956.
3.4.2 Egalitarianism in Practice – the Development of the NSW Club Industry
As was observed in relation to the 1906 legislation, in their early incarnation, clubs in NSW were bastions of exclusivity, reflecting all the class-based characteristics of the English clubs on which they were modelled. O’Hara (1988) noted that in such genteel clubs as the Australian
Club and the Union Club, “gaming for nominal stakes at cards” (pp. 31-32) was common place.
The prevailing mentality among the membership of these clubs is eloquently captured in
O’Hara’s (1988) more general depiction of the establishment view of gambling activity in pre- federation NSW as “a restatement of the dominant British culture’s dual morality, that practices and behaviour which were acceptable for the upper classes were not acceptable for those lower on the social hierarchy” (pp. 20-21). So it was that in the earliest years of what was to become the club industry, there were few venues, and these reserved for a very limited membership.
Among other provisions, the Liquor Act No.42, 1912 Section 134(b), required that clubs be established for “social, literary, political, sporting, athletic, or other lawful purpose”. The same principles were set down in almost identical terms in the Registered Clubs Act 1976 No. 3125.
25 Part 2, Division 1 10(e) (i). 82 Clearly, the commonality of purpose among members of clubs has been a guiding principle over the history of the industry. It was this principle on which the early gentlemen’s clubs were established, in order to “promote professional, intellectual, artistic and sporting interests” (Hing
2006, p. 7). It is also the foundation of the principle of mutuality under which clubs have operated, and which has historically bestowed certain advantages on clubs relating to the treatment of income taxes and the liability of members should the club fail. The application of the principle of commonality of purpose to these earliest of NSW clubs was intended to exclude the vast majority of the population.
Despite this early exclusive interpretation, the principle is of itself essentially egalitarian, which ensured that over time, people from all walks of life, who enjoyed common interests, would avail themselves of the opportunity to establish clubs under its ambit. The genesis of egalitarianism in the development of clubs is perhaps best characterised by AIGR (1999), which citing Caldwell (1983), pointed to the formation of clubs as “leisure cooperatives” being consistent with “the traditional Australian ethos of mateship and the national pursuit of pleasure” (Australian Institute of Gambling Research (AIGR), 1999, p. 165). Along with the
“organic” expansion of the industry described above, Hing (2006) described a combination of changes to liquor trading laws which negatively affected hotel patron amenity, and increasing economic prosperity, as providing additional stimuli for the rapid increase in the number of clubs and club patrons even prior to the introduction of the 1956 legislation.
3.4.3 Liquor, Gaming and the Government Response
The court decision referred to in the exchange between Connor and Kelly (Section 3.4.1) is of itself instructive on the history of liquor and gaming regulation in NSW, and the competitive forces which have continued to prevail into the present. The action against the two clubs
83 identified was instituted by the United Licensed Victuallers’ Association (ULVA), the forerunner to the modern Australian Hotels Association.
In debate on the legislation, the Attorney General noted that poker machines had first begun to appear in the State’s licensed clubs in the 1920’s (Kelly, (1956) p. 1694) 26. Operation and use of the machines was technically illegal under the Gaming and Betting Act. O’Hara (1988) observed that poker machines were in hotels in 1921, when they were declared illegal by the full bench of the Supreme Court, although “the ruling was sufficiently ambiguous to permit their continued operation in clubs” (p. 198). Despite these strictures, successive governments of both major political persuasions had tacitly permitted their use. In the early 1930s, the use of the machines was even legitimised to some extent, although not legalised, when for a brief period, the State’s hospitals gained financial benefit from machine profits through an arrangement with machine manufacturers (Wilcox, 1983).
O’Hara (1988) described the situation around this time thus:
The situation became somewhat confused in 1930 and 1931 when, in a series of
moves, machines appeared briefly in hotels, were then removed from both hotels and
clubs, and then reinstated in the clubs. In 1932 they reappeared in the hotels,
supposedly under the control of the New South Wales Hospitals Commission, as a
fund-raising venture, but the commission soon lost control of the scheme. After
examination of the situation by a royal commission late in 1932, the machines were
again removed from both hotels and clubs (p. 198).
O’Hara (1988) further noted that subsequent to this period, the machines began to return to clubs. By 1956, the use of the machines was so widespread, and so profitable, that the additional services and facilities offered by clubs, which were largely funded by poker machine revenues, were increasingly impacting on the market share of the hotel sector. The practice of clubs
26 NSW Parliamentary Debates, 38th Parliament Second Session No 34). 84 cross-subsidising other goods and services through gambling revenues was noted in the parliamentary debate by Frank Purdue ([Waratah], 1956, p. 1825): “Many of the clubs use the profits obtained from poker machines to make up for selling liquor to members at prices lower than those normally charged”. This argument remains valid present and ongoing debates over the equity of the taxation treatment of more diversified clubs in comparison to other businesses offering similar products and services in relevant localities.
In 1956, the practice was impacting so markedly on hotel trade that the situation precipitated the action taken by the ULVA, which was supported by the breweries. Adding impetus to the legal challenge was the fact that at the time, a significant proportion of hotels were owned by the breweries, and leased to the licensees. It was this ownership of the hotels that distinguished liquor sales through hotels from those through clubs, in terms of the impact on the breweries.
Thus, there were clearly significant businesses interests being negatively affected by the continuing development of the club industry and the advantages accruing to it relating to access to poker machines.
As Connor’s question (Section 3.4.1) implied, the determination of the Court in this matter set a precedent, the implications of which could not be ignored by the government, as had been past practice. The need for action was unequivocal. There were, however, options open to the government as to how the matter might be resolved. Legalisation and abolition were the absolute alternatives. Over the course of the ensuing parliamentary debate, further variations on these options were advanced. The most common of these involved the imposition of a moratorium, during which clubs would retain their current poker machines while restructuring their businesses to function viably on forfeiture of the machines at expiry of the moratorium (for example, Sir Michael Bruxner, [Tenterfield] 1956, p. 1698). Despite the possible alternatives,
Connor’s parliamentary question made the government’s thinking explicit: legalisation was the only option under serious consideration.
85 Other forces of political friction also contributed to the environment in which the legislation was brought forward. In its attempts to keep pace with population growth and economic expansion in the post-Second World War years, NSW had undertaken an ambitious program of public works, which had absorbed significant and increasingly scarce public funds. Discussing the political environment prior to the 1953 state election, Clune (2001, p. 307) stated that “the federal government was at this time pursuing a harsh deflationary line involving tax increases and credit restriction” which resulted in a “minor” recession.
Kingston (2006) described how the NSW Government was increasingly at loggerheads with the
Federal Government over the allocation of tax revenues in the aftermath of the
Commonwealth’s assumption of the income taxation power in 1942, and its subsequent permanent conferment in 1946. Premier Cahill in particular was cited as instituting the practice of incriminating the Menzies federal government in the fiscal difficulties of the State (e.g. Frost,
2001). Kingston (2006) suggested that this theme became a feature of electoral politics on the part of the Labor Governments which prevailed in NSW for the majority of Menzies’ federal tenure. Clune (2001) concurred, observing that Cahill’s criticisms of the Commonwealth’s management of public investment funds in the early fifties, although strongly politically motivated, had “much validity” (p. 307).
Frost (2001, p. 323), provided evidence of Cahill’s persistence with the federal-state fiscal imbalance argument. In the lead up to the 1956 state election, economic conditions were apparently better than those at the election three years prior, despite a “substantial deficit in
Australia’s overseas credits”, and inflationary pressures which precipitated a “minor setback” for the economy. Although NSW received its full entitlement of £190 million at the January
1956 session of the Loan Council, Cahill still had resort to the argument that the
Commonwealth’s “monopoly of taxation” (Frost, 2001, p. 330) was contrary to the interests of the NSW population, and that Labor sought from the electorate “a mandate for ensuring a fair financial deal” for the State (Frost, 2001, p. 330).
86
Putting aside the tremendous future implications of the Cahill Government’s resort to poker machines as a source of revenue through the Act, the taxation of the poker machines’ use in response to the constrained fiscal environment also had an interesting precursor which was a product of even more extreme budgetary pressures. The previously identified use of poker machines as a source of revenues for public hospitals (e.g. Pickett, 2004) coincided with the
Great Depression. This action likely represented a response to the extreme economic conditions of the time, and the associated impact on public revenues. This resort to gambling as a source of public revenues is another recurrent theme through the history of gambling regulation in NSW.
This is particularly the case in time of exacting economic circumstances, the precedent having been established with the Totalisator Act.
One firm conclusion invited by the primary-source evidence is that the poker machine issue was just as contentious and divisive in 1956 as it in the present. Perhaps the clearest indication of this is the presence of evidence that the conflict of views was not restricted to that between the
Government and the Opposition. The Liberal Opposition Leader P.H. (Pat) Morton ([Mosman],
1956, p.1697) and Colonial Secretary Kelly (1956, p. 1767) in turn suggested that dissent over the question also existed within their opponent’s party, indicating the level of divergence in opinion on the legislation. The ULVA’s action against the clubs, played out in the public arena of the Licensing Court, is concrete evidence of the contention that existed beyond the parliament.
3.4.4. The Parliamentary Debates
‘Whatever happens to the amendment, Government members to-night are starting something the result of which they cannot foresee’.
The portentous words of Evelyn Darby ([Manly], Assembly in Committee, 1956, p. 1912) captured the extent to which the parliamentary debates in relation to this Bill possessed some
87 degree of prescience in terms of the potential effects of the Bill’s passage into law. As gambling policy in NSW had now arrived at the point of legalising the form of gaming that would continue to dominate the gambling environment until the present day, it follows that many of the arguments which were relevant in 1956 remain so. The level of sophistication apparent in some elements of the debate is noteworthy. Despite the continued reliance by some of the parliamentarians on moral and religious objections, in the context of a society which was continually becoming more secular, some more evolved, academic bases for the arguments for and against legalisation were also presented in relation to this issue.
Like the Totalisator Act of 1916, the Poker Machines Act featured both regulatory and taxation components. However, when introducing the 1956 Bill, the Colonial Secretary appeared intent on underplaying the relative significance of both of these aspects of the policy, stating that: “No new custom is being adopted under the Bill, by which Government is endeavouring to control gambling, though as a result of it the Government may benefit a little financially” (Kelly, 1956, p. 1694). This approach is less direct than that taken in relation to the totalisator legislation, in which instance the Government was explicit on the principal revenue-raising purpose of the Act.
Although the prior existence of the machines provides support for the Government’s argument of no new custom, over the course of the second reading debate, the novelty of the legislation would be emphasised by a number of speakers, who for example described it as the first measure of its kind in Australia (Reginald Coady [Leichhardt], 1956, p. 1769) and indeed as a world first (Darby, 1956, p. 1894).
Time would prove Kelly’s assessment of a “little” financial windfall for the government to be an even greater understatement. Indeed, the Opposition’s Blake Pelly ([Wollondilly], 1956) astutely recognised the likely outcome in relation to this revenue source, observing that: “Once
[the legislation] is imposed poker machines will remain in clubs in perpetuity”, and that once reliant on the revenues derived from the machines, the government “will not be able to afford to
88 ban them and lose £1,000,000 a year” (p. 1839). In the Legislative Council, Ernest Sommerlad
(1956) expressed similar views, stating that;
The effect of all this legislation is to give the Government an interest in gambling that it
cannot afford to abandon. Its income depends so largely upon the various forms of
gambling that it could not afford to jettison its interest – even if it wanted to! (p.2112)
Further observing the participation of the aforementioned Coady and Darby in the debate over the taxation element of the legislation, from the Government benches, Coady (1956) lamented the inequities imposed by fiscal federalism:
While the tragic situation that this State receives only 5s. of every £1 [sic] collected in
taxation by the Commonwealth Government from the people of NSW is allowed to
continue, the Government must obtain revenue from other sources to maintain
reasonable services through State instrumentalities (p. 1770).
He was supported by Albert Sloss ([King], 1956), who described the return of federally-levied tax funds as “the miserable starvation five-bob-in-the-£ [sic] policy of the Menzies-Fadden government” (p. 1835). On the other hand, the Liberal Darby (1956) was paying no credence the government’s practice of blaming Canberra for the State’s financial predicament. He argued that the measure was being brought in because “the Government cannot administer the State’s affairs efficiently under a proper system of taxation” (First Reading Debate, p. 1699).
Charlton (1987) ironically observed that an omnipresent feature of debate over gambling regulation is hypocrisy. The Opposition berated the Government for the imposition of a
“vicious, indirect tax on a section of the community” in order to “rake in a few more shekels for this empty Treasury” (Eric Willis [Earlwood], (1956), p. 1702), and of “stooping” to reliance on
“a gambling device to balance its budget” (Walter Lawrence [Drummoyne], (1956), p. 1767). It is evident that the Opposition saw an opportunity to launch a concerted assault on the economic management performance of the government. However, the historical inaction of both Labor
89 and Liberal governments on the poker machine issue is suggestive of the presence of a sense of inevitability to the introduction of a tax on the machines upon their legalisation.
This bipartisan inaction also provided the Government with the means for deflecting the
Opposition’s attack. Thomas Murphy ([Concord], 1956) chided the Opposition for not only having tolerated the existence of the machines but, “after police action was taken to stop the use of the machines, prevented the prosecution of the clubs” (p. 1775). As might be expected on the basis of his portfolio, the Treasurer, William Sheahan ([Burrinjuck], 1956, p. 1700; p. 1766) queried the Opposition over its actions while in government under Sir Bertram Stevens.
Sheahan (1956) admonished the Opposition: “Let us stop this humbug and hypocrisy and get down to practicalities” (p. 1766). The substantive practicalities discussed thereafter encompassed a range of perspectives, many of which would be familiar to those observing similar debates over the ensuing decades, as these remain recurrent themes in gambling policy.
Some however, appear as curious artefacts of the times.
As noted above, religio-moral arguments continued to have bearing in questions of liquor and gambling regulation. In an indication of the increasing tolerance of NSW society however, the sectarian element that had tainted earlier debate on gambling legislation appears to have largely abated into a more inclusive concern for the welfare of the community at large. Nevertheless, old habits die hard, and in the Legislative Council, there was little subtlety in the complaint of
Arthur Bridges that the government of the devoutly Catholic Cahill (Clune, 2001) had “totally failed to recognise” (Arthur Bridges, 1956, p. 2031) the views of the Protestant churches in framing the legislation. Furthermore, in the relatively early Cold War environment of the time, there were implicit sectarian undertones as remnant hardline Protestantism rounded on a new foe. In a speech notable for the breadth of its polemical extremes, the Opposition’s Eric
Hearnshaw ([Eastwood], 1956), having previously relied on economics to discuss in great financial detail the growth in gambling, then invoked the Old Testament to support his position.
90 He attributed the Opposition’s stance to the Protestant work ethic, and the Government’s behaviour to socialist and collectivist tendencies;
I went back to the Old Testament, to the first cry relevant to social life; “Am I my
brother’s keeper?” I have no hesitation in replying “Yes”. We on this side of the
House assume that responsibility because the essence of our political and religious life
lies in personal and individual work. This philosophy means nothing to hon. [sic]
members on the Government side, with their totalitarian social conceptions, mass
organisations and, now, their indifference to the evil effects of gambling on some
members of society (pp. 1821-1822).
The remainder of Hearnshaw’s (1956) speech raised a number of more pertinent issues which illustrate the extent to which awareness of the broader social ramifications of gambling had developed in the forty years since passage of the Totalisator Act. Hearnshaw indicted the
Government for having introduced the Bill “without any social analysis of the problem first having been made” and of having produced no evidence in relation to the possible impacts of the legislation. He continued: “Much data is available from government departments, prisons, the churches, social workers and others on the effects of gambling in the community. This should be produced to enable hon. [sic] members to make a fair estimate of what is proposed”
(pp. 1790-1791).
The proposition that the Bill should be informed by the empirical evidence accumulated by agencies familiar with gambling and its associated impacts is indicative of more progressive thinking on this matter. Hearnshaw’s (1956) suggested approach is in contrast to the earlier legislation examined in this chapter. Much of the evidence in these instances was generated through government-instituted enquiries and commissions. The objectivity of such enquiries is clearly subject to limitations including the terms of reference for the particular enquiry, and the political objectives of the government, which may have the effect of filtering the information ultimately made available. Such an outcome is suggested by the Holman Government’s
91 handling of the findings of the 1912 Royal Commission into legalisation of the totalisator as it related to the introduction of the Totalisator Act of 1916. There is also some evidence of this phenomenon in relation to the Productivity Commission and IPART reports that coincide with gambling regulation during the Carr Governments’ tenures.
Hearnshaw (1956) was not the only participant whose analysis of the Bill demonstrated some comprehension of the need for better informed policy making. On the matter of community consultation, Clive Evatt (1956) explicitly asked the government to “consult the people” (p.
1782). Walter Lawrence (1956, p. 1768) also adopted a similar approach to quantifying social impacts. He detailed the impact of gambling on the incidence of the fraud-related crimes of false pretences, embezzlement and forge and utter27 in NSW over the first six months of 1956.
Lawrence (1956) claimed that “at least twelve” of the 35 relevant convictions (34 percent) involved gambling problems on the part of the offender. Four decades later in its report entitled Australia’s Gambling Industries, the Productivity Commission (1999) considered the extent to which social costs were attributable to problem gambling. The Commission (1999) reported one conclusion of researchers in the field as being that: “Where the adverse consequence was more directly financial – such as embezzlement or bankruptcy – the view was that gambling was invariably the principal cause” (pp. 9.8-9.9). Thus it can be concluded that the 1956 Act represents a significant advance toward more developed public policy concepts, if not practices.
Returning to the 1956 debate, Purdue (1956) cautioned that there was a “grave probability of considerable hardship being caused to the lower income group” (p. 1824). This too was to become a major theme of ongoing policy debate, and in some respects, contention, as will be subsequently observed.
27 Forge and utter is more commonly referred to as ‘forgery’. 92 The focus on the social impacts of poker machines also generated calls for ameliorating the effects of the problem gambling associated with the machines. In committee, Stanley Stephens
([Byron], 1956) noted that “some clubs have tried to lay down a code to prevent excessive gambling, and that is much to their credit” (p.1946). The Opposition (1956), in committee (pp.
1908-1909; pp. 1935-1937), unsuccessfully moved that a limitation of one shilling be placed on the stake for each wager, as a means of controlling the extent of gambling. Similar proposals would also feature in subsequent policy debates.
There was also recognition of the impact technology was likely to have on this form of gambling. The lever-operated machines of the day were described in the debates by the familiar pejorative “one armed bandit” (Morton, 1956, p. 1696) and the somewhat more creative
“mutilated pirates” (Bruxner, 1956, p. 1760). In the Council debate, Herbert FitzSimons (1956) forecasted that: “Very soon a button will be introduced to save one the trouble of pulling the handles” (p. 2045).
Along with its colourful description of the machines of the day, Bruxner’s (1956, p. 1760) speech also addressed an issue related to the functional operation of poker machines, noting that they of technology on the increase in machine gaming and the several aspects of the positioning of gaming machines in clubs, both from the perspective of the club attempting to maximise the machines’ use and the regulators attempting to minimise harms, are further matters which remain pertinent today. Leslie Jordan ([Oxley], 1956), in another reference to the technological aspects of the machines, cited the findings of a 1950-51 English investigation into gambling, which expressed concerns over the feature of poker machines that allowed “a rapidity of turnover which would render the element of gambling, even within the strict limits which we have set, no longer trivial” (pp. 1901-1902). As will be observed, this is a matter that was taken up by the Productivity Commission in 1999.
93 Stephens (1956, p.1946) coupled the issue of technology with the manner in which the tax might be levied. Advocating a tax based on machine turnover, Stephens (1956) argued that: “If men are ingenious enough to manufacture these machines it is not beyond their engineering skill to incorporate in each of them a sealed counter to register the number of times they are used”.
Taxation could then be levied on the turnover of each machine, rather than on a flat licence fee per machine based on each machine’s coin denomination as was proposed by the Government.
As is suggested by Stephens’ (1956) contributions, the debate over the taxation component of the legislation was also pre-emptive of poker machine regulation issues in the following decades. A number of speakers supported Stephens’ (1956) position on equity grounds, expressing concerns over the effects of the proposed tax structure on smaller clubs. William
Weiley ([Clarence], 1956) suggested that a turnover tax was the “fairest way” (p. 1907) to affect the tax as opposed to the government’s proposal. Harold Jackson ([Gosford], 1956) suggested that the proposed licence fees were excessively high and would force some clubs to dispose of the machines. David Hunter ([Croydon], 1956) also protested that smaller clubs would be taxed at the same level as larger, more profitable clubs. The general support for a turnover-based tax, although not bearing fruit in the immediate sense, would ultimately form the basis of later machine gaming taxation regimes, as would the enactment of concessions to assist smaller clubs. Much of the debate on equity revolved around the effect on the clubs, however there was also some recognition of the effects of the tax on individuals. Hearnshaw confronted the
“socialistic” (p. 1789) government over this aspect of the Bill. Rex Jackson ([Bulli], 1956) countered that the tax was not compulsory, adding that: “No one is compelled to play a poker machine” (p. 1789). This is a recurring argument in relation to the discretionary or selective nature of “excise” taxes, of which gambling taxes are considered to be a form. This is discussed in greater detail in Chapter 4.28
28 See for example Cnossen (2006), Chapter 1. 94 Bruxner (1956, p. 1760), the Country Party Leader, also raised another central theme of excise taxation as it relates to gambling taxes, urging the government that rather than using the taxation measure as a new revenue source, it should consider it as a means of limiting the use of the machines based on a punitive tax regime. The theoretical and practical effects of such a policy approach remain relevant and are discussed in Chapter 4.
Sydney Storey ([Hornsby], 1956, p. 1939) also ventured into taxation policy territory which has remained relevant over the ensuing decades. A number of speakers had noted the positive contributions that clubs already made to their communities, including Gus Kelly (1956, p. 1694-
1695), who described the non-proprietary clubs as “worthy organisations” and “an asset to the district” [sic] in which they individually operated. Storey (1956) however, saw a greater opportunity for localised benefit arising from the taxation proposal. He proposed that the clubs operating the machines, “should be given the opportunity to nominate the charities that should benefit from the money”, rather than it being “paid into consolidated revenue to reinforce the funds of the Government” (p. 1939). Storey’s (1956) advocacy for such a hypothecation approach had its precedents in the policy debates over the Gaming and Betting Act and the
Totalisator Act, and indeed the Government’s proposal was to direct the taxes from the machines to the Hospital Fund. Storey’s proposal would eventually form part of gaming machine tax policy more than forty years later, particularly through the Carr Government’s
Community Development and Support Expenditure scheme and its later iterations.
3.4.5 Summary
The introduction of the Poker Machines Act may in some respects be considered the zenith of gambling regulation in NSW, given that it legally established what may be reasonably considered as the subsequently dominant form of gambling in the State. However, as the evidence presented substantiates, this event also represents a paradigmatic shift in the formulation of public policy relating to gambling. From the perspective of economic policy, the generation of public revenues from gambling forms was already entrenched in NSW through the
95 passage of the Totalisator Act 1916. As such, the economic implications of the Poker Machines
Act may not have been novel in terms of policy substance. The same may be said of the redistributive hypothecation approaches debated by Stanley Stephens and Gus Kelly (see
Section 3.4.4), which were predated by inclusion of provision for contributions to hospital funding and war veteran’s families contained in the Totalisator Act.
Although considerations in formulating the 1956 Act are features of both the preceding and subsequent policy-making environments, the debate surrounding the passage of the Act did reflect a growing understanding of the issues of the mechanics, equity and incidence that continue to accompany debate on gambling taxation. Of particular note were; Stephens’ (1956) advocacy of a turnover-based tax; Harold Jackson (1956) and David Hunter’s (1956) contributions in relation to equity and the relative impacts of the proposed taxation mechanism on clubs of different scale; and Michael Bruxner’s (1956) support for an emphasis on the restrictive or “punitive” element of the taxes, are all matters of continuing academic and policy interest. The incidence-related issue of the role of personal choice and the discretionary nature of gambling taxes, as debated between Eric Hearnshaw (1956) and Rex Jackson (1956) also remain current. Each of these aspects of gambling taxation is discussed in Chapter 4.
The deployment of poker machine revenues to cross-subsidisation of other products and services provided by the clubs, as discussed by Frank Purdue (1956), is another continuing debate. It was largely the use of this approach in relation to reducing alcohol prices in clubs that provoked the actions of the ULVA. This aspect of club modus operandi and the related tax benefits derived from the mutual status of clubs subsequently remained matters of contention between the club and hotel industries.
Perhaps the greater economic policy ramifications of the Poker Machines Act lay in the relative quantum of the revenues generated over ensuing decades, and the extent to which subsequent
96 governments became more reliant on this revenue source. In the debate, Blake Pelly (1956) presaged the magnitude of subsequent Government reliance on poker machine tax revenues.
Another issue closely related to the extent of subsequent poker machine gambling was the predicted trajectory of machine technology development. In Council, Herbert FitzSimons
(1956) prognosticated on the likely demise of lever-operated machines, in favour of faster, button-actuated machines. In the Assembly, Leslie Jordan (1956) advanced a related position on the rate of play of the machines, which he characterised as the “rapidity of turnover” (Section
3.4.4, above). The insight of these contributions on the technological characteristics of gaming machines was later emphasised by the Productivity Commission (1999), which determined that gambling on “continuous” forms of gaming, with high turnover rates, such as gaming machines, was a “significant determinant” (p. 6.59) of gambling problems.
With respect to the negative aspects of poker machine use, it is in the arena of social policy thought that the Poker Machines Act is most markedly distinguished from the precedent legislation examined previously. As has been demonstrated, earlier social policy debate was contaminated by sectarianism, with the resultant partisan foci on “community” welfare, with the community of concern being dependent on one’s religious and associated class affiliations.
Although sectarianism remained a feature of NSW society, and the core social welfare issues surrounding gambling remained the same in 1956 as they had earlier been, the approaches taken to the expression and potential treatment of these issues were more evidently discipline-driven than had previously been the case and more inclusive in their consideration of the community as a whole.
Examination of the parliamentary record and other sources which provide relevant commentary suggests that this apparently greater reliance on sociological and economics-based knowledge than on faith as a reliable informant of social policy, paints NSW in 1956 as evolving into a more inclusive and enlightened society than existed at the times of the other prior Acts
97 examined. The remnant sources of historical social division, as discussed above, were still elements in the debate, but their potency was evidently becoming increasingly diluted by the pragmatism of political party ideology and the imperatives of governmental fiscal policy.
It is also evident, in a number of contributions to the debate examined above, that there was also a more prospective focus on the potential outcomes of policy development, although this focal shift was beneficially assisted by the illegal existence of the machines prior to the legislation, and the accumulation of such available supporting empirical evidence as this allowed. Eric
Hearnshaw’s (1956) advocacy for the direct collection of evidence from relevant agencies, and
Clive Evatt’s (1956) call for greater community consultation are pre-emptive of the greater community awareness which was to influence subsequent liquor and gambling policy. Walter
Lawrence’s (1956) chronicling of gambling-related crime, particularly financial dishonesty offences, is echoed in the findings of the Productivity Commission four decades later. Frank
Purdue’s (1956) focus on the greater impacts on lower income households was also addressed in the Commission’s report, (1999) which, citing the work of Alex Blaszczynski (1998), illustrated how the impacts of an equivalent outlay are proportionally greater for lower income gamblers than for those with greater financial resources. The issue of the regressivity of gambling taxation remains a subject of debate in relevant policy formation.
Considering all of this evidence, it is concluded that a major policy ramification of the Poker
Machines Act of 1956 is therefore that it beneficially redrew the parameters within which much of subsequent gambling policy debate would be conducted. Although it was inevitable that the question of poker machines must eventually be addressed by the legislature, the historical fact remains that the genesis of the 1956 Act lay in the competitive actions of the ULVA. The
ULVA had gambled and lost, handing to clubs an effective monopoly on unlimited machine gaming that would remain in place until the mid-nineties, when a further legislative episode would redress the imbalance, and effectively further expand the field of gambling in NSW.
98 From the perspective of public policy theory, the advent of the Poker Machines Act, and the circumstances surrounding it, resemble those that accompanied the Totalisator Act. This statement indicates that the more corporatist approach that had developed at the time of the totalisator legislation still applied to some extent at the time of the Poker Machines Act. Both featured clear indicators of the activities of interested sectors of the gambling industry. Indeed, in the latter instance the actions of the hotel sector ultimately precipitated the court decision which prompted the legislation. As with the war-related economic constraints that provided a trigger for the introduction of the totalisator, so this court decision provided the government with the catalyst for legalising poker machines, this being suggestive again of the opportunistic or ad hoc nature ascribed to gambling regulation. Perhaps a key difference between the two outcomes was that in 1956 the threat to the club industry posed by the Licensing Court decision meant that the need to legislate on regulatory grounds was arguably more immediate than was the stimulus for the prior matter. From the fiscal perspective however, there was greater immediacy surrounding the Totalisator Act as a result of wartime demands. It is posited that a major precedent established by the Poker Machines Act was that it elevated state-based gambling taxation to the status of a routine part of the State’s fiscal management approach, rather than as a response to specific and immediate financial constraints. The repeated arguments of the Cahill Government in relation to the tax policies of the Menzies federal government provide evidence of this change in focus. This policy outcome is highly relevant in the subsequent development of machine gaming tax policy.
3.5 Gambling Regulation and the Tenure of the Carr Labor Governments 1995 -2005
3.5.1 Overview
Bob Carr led the Australian Labor Party into government in the NSW election held on 25 March
1995. He was sworn in as Premier on 4 April 1995 and remained Premier until his resignation on 3 August 2005. Prior to Carr’s victory, the ALP had been out of power in NSW since the
99 defeat of Barrie Unsworth’s government in 1988. It returned to government following the premierships of the Liberal – National Coalition’s Nick Greiner (1988-1992) and John Fahey
(1992-1995).
The decade prior to Carr’s ascension to the premiership was not without significance in the development of machine gaming in NSW. Hing and Breen (2002) observed that subsequent to the 1956 legalisation of poker machines, registered clubs maintained their effective monopoly on this form of gambling in NSW until the opening of the State’s first casino in Sydney in 1995.
However, under the Wran Labor government, a seminal piece of legislation was passed. The
Liquor (Amusement Devices) Amendment Act 1984 No. 57 received the Royal Assent on 19
June 1984. The legislation permitted the installation of five “approved amusement devices”
(AADs) in each hotel.
AADs differed from the traditional poker machines available in clubs. AADs offered only one form of game, being draw poker (Explanatory note, Liquor and Registered Clubs Legislation
Further Amendment Bill, 1996, p. 3). AADs were slower to play, as they involved some level of judgement and greater participation on the part of the player. Hing and Breen (2002) noted that ceilings on the permissible number of these machines and their lower average profitability
“meant that they have never been a serious threat to club machine gambling” (p. 5). This is demonstrably the case from the perspective of the performance of AADs. The deficiencies of
AADs as revenue generating instruments may be perhaps best exemplified by the fact that the
1996 Act, which permitted hotels access to EGMs, also included the token gesture of permitting clubs access to AADs. The latter regulatory provision generated little or no interest on the part of clubs, and AADs effectively became obsolete. These limitations however do not acknowledge the longer-run implications of the initial introduction of AADs into the hotel sector.
100 Despite the constructive restrictions of this legislation, it was the beginning of an incrementalist expansion of machine gaming into hotels in NSW, which would eventually claw back part of the advantage won by the club movement as a result of the ULVA’s miscarried 1956 attempt to drive poker machines out of clubs. Hotel gaming was permitted further limited growth in 1988 when the Greiner government increased the maximum number of AADs available to each hotel from five to ten under the Liquor (Amusement Devices) Amendment Act 1988 No. 94. AAD limits for hotels remained at these levels for the remainder of the terms of the Greiner and Fahey governments.
3.5.2 Liquor and Registered Clubs Legislation Further Amendment Act 1996, No.103
3.5.2.1 Introduction
In 1996, the Carr Government, under the direction of the Minister for Gaming and Racing,
Richard Face, produced an ambitious legislative package which not only increased gaming availability in hotels, but also recast the State’s broader gambling environment. In order to ameliorate the commercial and social impacts of the legislation which were foreshadowed by the club industry, the Government proposed a revised progressive tax structure for clubs, which included relief for smaller clubs with limited gaming operations. Furthermore, the Bill provided for changes to maximum wagers and the introduction of linked machines in clubs. Each of these provisions was perceived as a counterweight to the principal purpose of the Act, being the controversial decision to allow hotels access to traditional “club-style” gaming machines.
The version of the Bill which eventually passed into law was represented by the Government as an attempt to balance the interests of all parties in the liquor and gaming industry. The parliamentary debates indicate that enough equivocation existed to suggest that the attempt was not entirely successful. The lack of conviction as to the equity of the legislation may be largely attributed to the influence of partisan lobbying in the lead up to the Labor Party’s 1995 election to Government. This issue was a recurrent feature of the debates over the legislation.
101
3.5.2.2 Contention in the Parliament
The Bill was guaranteed a comparatively swift passage through the parliament. The parliamentary record demonstrates that the Opposition explicitly acknowledged that it did not have sufficient parliamentary numbers to vote the Bill down, even if it wished to do so (for example, Ian Slack-Smith [Barwon], 1996, p. 5923), and that if a conscience vote was taken, the
Bill may have failed (Ron Phillips [Miranda], 1996, p. 5928). Despite these reservations, the
Opposition was largely accepting of much of the substantive content of the Bill, subject to acceptance by the Government of certain negotiated amendments. This acquiescence is particularly apparent in the contributions to the debate of the Opposition spokesperson for the
Gaming and Racing portfolio, Richard Bull (Council, 1996, pp. 6084-6087)29. The bipartisan agreement on the Bill effectively gagged debate in the Assembly. However, the vocal objections of the Legislative Council cross-benches provide the greatest insight into the contentiousness of the Bill, and its rapid progression to some extent masked the divisions within both Government and Opposition party rooms over the expansionary impacts of the legislation.
Minister Face ([Charlestown], 1996) introduced the Liquor and Registered Clubs Legislation
Further Amendment Bill in the Legislative Assembly on 12 November 1996. In his second reading speech, the Minister described the provisions of the Bill as “landmark reforms in the 40- year history of legalised machine gaming in NSW” (p. 5778). The Minister noted the exhaustive consultation and negotiation which informed the development of the Bill. However, it was the nature of this consultation which was the source of much consternation within the parliamentary chambers.
As distinct from the indirect insinuations of party division made in 1956, in this instance the parliamentary record makes it explicit that the extent of this consultation was considered unsatisfactory, not only to the cross benches, but also to members representing both major
29 Council in Committee, Legislative Council Hansard, 19 November 1996 102 parties. John Watkins (1996), the Labor member for Lane Cove and a future Deputy Premier, told the House that he had concerns with certain aspects of the legislation and that he had spoken “strongly in caucus about those provisions” (p. 5923). Robert Harrison ([Kiama], 1996, p. 5927) cited the lack of support for the legislation in party branches within his electorate. In a biography of Bob Carr, Marilyn Dodkin (2003) identified this event as an example of the sometimes fractious relationship between the Premier and the caucus, observing that:
From time to time Carr was faced with a rebellious caucus. An issue that caused
disquiet in the group, but which was passed, was legislation to allow hotels to have
poker machines on their premises (meaning that they could compete better with clubs)
(p150).
Ron Phillips (1996), Deputy Leader of the Opposition although acknowledging that “the majority of honourable members support this Bill”, also noted that “members from both sides of this Chamber have expressed deep concern about gambling and the direction that gambling is taking in this State” (p. 5928). Marie Ficarra ([Georges River], 1996) provided a succinct summation of the controversy, saying: “The coalition party room is as controversial as the
Government party room, and unfortunately some of us are on the losing side” (p5931).
The more open manner in which internal dissent within the parties was dealt with a generation after the passage of the Poker Machines Act is an interesting aspect of the debate. However, the dominant issues in the debate were the influences brought to bear in the advent of the Bill, and the impacts that its passage would have on the interests of those businesses represented by the two peak industry bodies, the Registered Clubs Association (RCA) and the NSW Branch of the
Australian Hotels Association (AHA).
The history of antipathy between these two bodies, which was detailed at length over the course of the debate, is well documented. The hostilities had been particularly intensified by the circumstances surrounding the 1956 Poker Machines Act. The 1996 Liquor Amendment Bill
103 brought this animus to a higher, and more public, plane. This is evident in the parliamentary record and press reports.
Members including Slack-Smith (1996, p. 5923) and Ficarra (1996, p. 5933) charged the
Government and the Minister with doing the bidding of the AHA, at the expense of registered clubs. As had been the case with the Totalisator Act eighty years prior, there appear to have been claims made that the Government’s actions had more sinister motivations behind them.
Although there is no other mention of the matter in the parliamentary record, the Minister
(1996, p. 5940) clearly felt compelled to refute claims originating within the club industry that he held an interest in a hotel. Certainly the club industry by this stage had become highly militant and was relying on certain parliamentarians to put their case. The independent member
Peter MacDonald ([Manly], 1996) cited correspondence he had received from the secretary manager of a metropolitan club which expressed the depth of the division in the liquor industry.
The club manager in question accused the Government of “giving in to the hotel lobby”
(MacDonald, 1996, p. 5926), questioned the extent to which the Government had considered the reduced tax yield it might expect due to the loss of clubs’ trade to hotels, and whether it realised the extent to which community services offered by clubs would be affected as a result.
MacDonald (1996) finally noted the correspondent’s vow to “do all in my power and the power of the club movement to bring the Government down” (MacDonald, 1996, p. 5926). Malcolm
Kerr ([Cronulla], 1996) made the simple non-partisan observation that “to a large extent the Bill is a tragedy because of the division it has created in the liquor industry” (p. 5935).
These two examples, while clearly illustrating the poor relations between the AHA and the
RCA, also suggest the extent to which the contentiousness of the Bill distorted perceptions, including those held within the parliament. Kerr’s (1996) lament that the Bill was the cause of the division between the AHA and the RCA failed to acknowledge the lengthy, fractious history between those two parties. The statements reported by MacDonald (1996) in relation to the potential for dire impacts on clubs, which were reiterated in the contributions of other speakers
104 in both chambers, did not ultimately eventuate to the extent portended, as will be demonstrated.
There was some recognition of the transparency of such arguments. Ron Phillips (1996, p.
5929) and Richard Face (1996, p. 5940) observed from opposite sides of the Assembly that hotels and clubs served different needs and catered to different clienteles, which was likely to reduce the effect on clubs. The Minister was strident in this respect, when he stated that his
“department has established beyond doubt that clubs and hotels have their own customer segments” (Face, 1996, p. 5940).
A number of aspects of the AHA and RCA confrontation over the Bill were canvassed in the parliament and are of relevance when examining gambling regulation in a more general sense.
Perhaps the most obvious of these is the politicisation of gambling law, and the extent to which industry participants were prepared to lobby the major political parties to advance their own interests.
Allegations and insinuations of favourable treatment of hotels connected to political donations and hotel industry lobbying activity prior to the 1995 election were rife in both chambers during the debates. In the Legislative Council, Richard Bull (1996) observed that:
In almost 13 years as a member of this house, I cannot remember legislation which has
attracted so much debate, comment and political arm twisting directed to all members
of Parliament. It has not been an easy issue to come to terms with. There has been a lot
of pressure from lobby groups which have put forward their respective viewpoints. I
hope that it will be a long time before members will have to put up with nonsense of
the type that has been put to them by both parties with a specific interest in this
legislation (p. 6084).
In the Assembly, Phillips (1996, p. 5928) characterised the advent of the legislation thus: “We all know that this Bill was introduced because of a grubby little deal that was done prior to the last election”. On this matter, Fred Nile (Council, 1996) cited an article from the 16 November
105 1996 edition of the Sydney Morning Herald (SMH) which; “states how the hotel association, led by David Charles, Chief Executive of the Australian Hotels Association, conducted a skilful campaign; he almost boasted how he put it over the Government, the coalition and the
Registered Clubs Association” (p. 6110). Pursuing this matter further, Nile (1996) referred to an advertisement placed by the RCA in that day’s SMH (16.11.96) which asked: “Is it because we donate to charities and not to a political party, that our concerns are not being heard?” Nile
(1996) told the House: “That raises an important question: are large donations being made to both major parties, or to one?” (p. 6110).
Nile’s (1996) contribution to this aspect of the debate makes it clear that the suggestions of political favour were not solely aired under the protection of parliamentary privilege. Over the course of the debates, several speakers referred to the degree of public interest in the legislation.
Ficarra (1996) described the legislation as “controversial and socially disruptive” (p. 5931).
Having illustrated the interest of the print media in the proposed legislation, Nile (1996, pp.
6108-09) also stated that he had “heard John Laws30 and others on radio speak critically of this
Bill”. Elisabeth Kirkby (Council, 1996) similarly complained of the “expensive full-page advertisements in every newspaper”, and the “bleating on every second radio station” (p. 6087) about the relative plights of hotels and clubs. Similarly, in the Assembly, Phillips (1996) commented that: “Advertisements in newspapers have gone to extremes as advertising campaigns tend to do, in publicising the respective contributions that clubs and hotels make to the community” (p. 5929).
In any event, senior figures on either side of the parliament gave short shrift in debate to arguments which raised self-serving questions of public interest to advance the commercial interests of the respective parties. The opposition of the RCA came in for particular criticism.
Face (1996) suggested that despite his attempts at bipartisan consultation: “the only time the major club peak body is ever satisfied with the consultative process is when it gets its own way”
30 John Laws was employed as a broadcaster by Sydney radio station 2UE at the time. 106 (p. 5937). Bull (1996) told the Assembly that he was “sick and tired of hearing registered clubs complain that they will be badly done by” as a result of hotels’ access to poker machines, adding that he was “sick of the continual whingeing about hotels getting limited access to poker machines” (p. 6087). Peter MacDonald (1996) in his defence of the club movement provided what may be considered an insight into that sector’s entrenched view on machine gaming, when he stated that clubs were “losing their rights to hotels” (p. 5926). The apparent reaction of the sector to the legislation suggests that clubs did indeed have a sense of incumbency and entitlement with respect to their historical monopoly on poker machine gambling.
3.5.2.3 The Media Perspective
Contemporary press reports are reflective of the same levels of consternation which were expressed in the parliament. The SMH flagged the imminent legislation on 23 October 1996.
The AHA argued that the legislation would remove a “demarcation line” which inhibited hotel profitability. Characteristic of its approach throughout the debate, the AHA shrewdly pronounced that the fifteen EGMs permitted for each hotel, along with fifteen AADs, was a compromise position, with the hotels’ initial claim having been for thirty EGMs. Thus the hotels portrayed themselves as being conciliatory in their demands.
On November 5, following Cabinet’s decision to approve the proposal, the SMH reported the
RCA’s reaction. The Clubs stood to lose $400 million, and would be forced to curtail community contributions by an estimated $100 million. The article also paraphrased Richard
Bull’s opinion on the proposal. Bull was said to have “supported the clubs claims” and had said that “the package made hotels the winners and community organisations which benefit from club grants the losers” (SMH 5.11.96). Bull, along with his colleagues, had apparently adopted a more moderate position by the time the Bill came before parliament, as his parliamentary contributions demonstrate. The SMH (16.11.96) also noted that when introduced into the
Assembly, there was “minimal complaint from the Opposition” regarding the Bill.
107 On November 13, the SMH reported that the $3.5 million campaign by the club industry “took the Labor Caucus to the brink of defying the authority of Cabinet and the Premier”, with the final vote being 37-25. Despite the implications for the State’s budgetary position and the prospect of social impacts resulting from the legislation, the bare political motivations of the some parties were apparent. John Watkins argued against the legislation, on the basis that he
“feared a backlash from club patrons in his marginal seat” (SMH, 13.11.1996). In expressing his own electoral apprehensions, Pat Rogan [East Hills] at least acknowledged the potential for broader impacts, when he described the proposal as “socially wrong and politically crazy”
(SMH 13.11.96).
The SMH reported that the RCA reaction to the decision was to redirect its lobbying efforts to
Opposition and Independent members in its attempts to have the legislation blocked. In this respect, there is evidence to suggest that the RCA may have been unaware of the strategy of the
AHA in keeping the Opposition apprised of its case throughout the process, which was reported in the SMH on November 16. These attempts may also suggest a degree of desperation inasmuch as its costly campaign was waged in ignorance of the reality of the government’s parliamentary majority.
In the November 16 SMH article, Ian Verrender wrote a detailed account of the manoeuvring, machinations and negotiations that characterised events prior to and immediately after approval of the Bill by the ALP Caucus. Observing that, “much of the debate had been clouded by exaggeration and hyperbole on both sides” Verrender (SMH, 16.11.96) highlighted the critical differences in strategy between the AHA and the RCA. According to Verrender (SMH,
16.11.96), the AHA undertook a prolonged strategy of engaging with the government and the
Labor party, providing information to support its claims for gaming law reforms. The article suggests that the RCA first became aware of how far the AHA had progressed its agenda when the proposed Bill was approved by Cabinet. Verrender contrasted the AHA approach, described by David Charles in the article as a “reasoned argument based on fact and computer modelling”,
108 with the Club’s reactive campaign “based more on rhetoric and threat”, and which culminated in a “bizarre scare campaign” of full-page press advertisements issued after Cabinet approval of the proposed Bill (SMH, 16.11.96).
The article also provides an interesting insight into the monopolistic behaviour of the RCA, and its apparently dismissive attitude toward the AHA’s proposals. Verrender (SMH, 16.11.96) reported that:
By June last year31, Face and his departmental director-general, Ken Brown, ordered
both sides to sit down and thrash out a compromise. But the Registered Clubs
Association president Jack Ball and his chief executive Keith Kerr, up against
Australian Hotels Association head Bob Bourne and (David) Charles, refused to budge
on any of the demands (SMH, 16.11.96).
The RCA’s reticence toward participation in the process was later alluded to by Minister Face in the parliamentary debate (Section 3.5.2.2, above). These observations indicate some level of complacency on the part of the club movement’s leadership, based on the political influence which the club industry evidently perceived itself as possessing at this time. The SMH editorial of 16 November described this influence and its source as: “The political influence of the club movement is fuelled by the huge profits made by many of these clubs”.
Although the issues of politically motivated largesse, lobbying and partisan positioning through the media were raised as part of the contemporaneous parliamentary and public debates, it appears that it was not until some years further into the Carr premiership that the full extent of the nexus between these elements of the controversy over the legislation was revealed. The
Australian of 27 November 1999 identified relationships between senior AHA and Labor Party figures as having a bearing on policy outcomes following the 1995 election. The AHA official subject of these assertions denied that there was any “deal”, however The Australian (27.11.99)
31 1995 109 reported that “Labor backbenchers admit a deal was done with the hotels before the election”.
The article went on to state that: “The AHA was involved in financial favours for the ALP before 1995, including pouring about $100,000 into the party coffers, and a huge fundraiser at
Parliament House that raised about $50,000” (The Australian, 27.11.99).
In its coverage of the 1999 enquiry of the Australian Broadcasting Authority (ABA) into the
“cash-for-comment” affair involving Sydney radio station 2UE, The SMH (16.07.99) reported that: “John Laws was paid to be the voice of the Registered Clubs Association of NSW during its bitter battle with pubs over poker machines and taxes”. Although the then chief executive of the RCA, Mark Fitzgibbon, would not reveal the amount paid to Laws, The Daily Telegraph
(08.02.00) reported that the ABA’s findings ultimately revealed that on 25 November 1996,
Laws executed an agreement with the RCA under which he was paid $200,000 a year, for an undisclosed period, for “embellishing radio commercials and providing editorial comment”
(Daily Telegraph, 08.02.00) on behalf of the RCA.
Based on these facts, it is apparent that the two protagonists used different approaches to advance their respective causes. These approaches can be considered as stratagem on the part of the AHA, and reaction on that of the RCA. It is apparent that the AHA approach was to lobby intensively before the election – what The Daily Telegraph (29.07.05) subsequently described as “a superlative lobbying effort and targeted political donations”. The AHA strategy was born of cumulative frustration within the organisation which was characterised by The SMH
(11.04.01) thus: “For years, the AHA had fought a losing battle with the Coalition, and relations with the then gaming minister, Anne Cohen, had hit rock bottom”. With the political fortunes of John Fahey’s Coalition government waning, the AHA anticipated the probability of a change of government, and went about ensuring that when it came, the change would be favourable to its interests. It was no coincidence that, as the SMH (11.04.01) also noted in the same article,
David Charles, who as its chief executive spearheaded the AHA lobbying effort, was a former
ALP federal MP who “knew his way around the halls of power” (SMH 11.04.01).
110
The AHA campaign was so effective that by the time the newly-elected Government put into effect the “grubby little deal”, as it was characterised by Ron Phillips (refer to Section 3.5.2.2), the RCA had little recourse other than to attempt to conduct an emotive public campaign, played out largely in the media. The intention was clearly to contrast the community-based image of the club industry against the “menace” of the privately-owned, profiteering hotel sector. Apart from the major handicap of having to “play catch-up”, the flaws in the RCA’s reactive approach were several.
Firstly, there was a general recognition that clubs and hotels served different market segments within the liquor industry. During the Assembly debate, Ron Phillips (1996) observed that compared with clubs, “Hotels are simply a different business, and they service a different part of the community with a different need” (p. 5929). The Minister, Richard Face (1996) added weight to this argument, stating that “My department has established beyond doubt that clubs and hotels have their own customer segments. It is not anticipated that there will be a significant flow of club patrons who would take their business to hotels to play the same machines” (p.
5940). Apart from the directors and management of profitable clubs, whose monopoly- maintenance interests require no elaboration, in practicality the preferences and activities of club patrons were not at all affected by the legislation. The SMH of 4 September 2003 provided substantive evidence for such a conclusion, reporting that although in April 1997 “the clubs forecast doom” for their industry as a result of the legislation, in the following year the club sector in fact recorded an increase in gross gaming profit of 5.28 percent, a result which the
SMH described as “a tidy little jump” (04.09.03). Thus it appears that en masse, regular club patrons could not be relied upon to participate in a sustained campaign of resistance to the hotel
“threat”. The observed continuation in club gaming growth suggests that patrons may not have even perceived the legislative change as an issue, much less a threat.
111 Secondly, the munificence of the hotel sector did not cease with the election of Labor and the subsequent passage of the favourable legislation. Rather, The Daily Telegraph (23.3.03) reported that between 1997 and 2002, “wealthy hoteliers” donated $319,790 to the ALP. So it appears that as the RCA focused on paying large service fees to a millionaire radio broadcaster and opinion-maker, the AHA continued its strategy of providing financial resources, and the associated electoral support, for the governing ALP. The ongoing efficacy of this approach is well demonstrated by the further enactment of the Liquor and Registered Clubs Legislation
Amendment 1998. This amendment relaxed the requirement for hotels to retain an equivalent number of AADs and EGMs, effectively resulting in the final phasing out of AADs. In his second reading speech in relation to the Amendment, Minister Face (NSW Legislative Assembly
Hansard, 29 April 1998) stated that this action was, “in response to concerns from hoteliers that card machines are unprofitable and unattractive to their customers in comparison with poker machines” (p. 4151) . As had been the case with the Totalisator Act and the 1956 Poker
Machines Act, the influence of technology on the direction of gambling policy is again apparent, although on this occasion it was coincident with the exploitation of cumulative political largesse and support.
Thirdly, in essence, the RCA’s approach of campaigning against the threat of poker machines in hotels, while refusing to surrender any of the clubs sector’s own entitlements, appears at the least self-serving. In essence the machines in both clubs and hotels provided the same function to their respective customers, as was observed by Richard Face (1996, p. 5940). The clubs’ defence of their reliance on poker machines was predicated on their mutual status and the indirect return of profits to their members through the provision of facilities and services, as opposed to the private profits derived by hoteliers from their gaming activities. This position failed to recognise that hotels also provided similar services and were contributors to the community.
112 As previously observed (Section 3.3.5 above) this represents a policy parallel with the 1916
Totalizator Act. The 1916 Act imposed higher rates of taxation on the privately owned ‘pony racing’ clubs than on the notionally mutual AJC. So, too, were higher rates of taxation to apply to hotels than to clubs under the 1996 Act. This was in practical terms another provision which in practice served to blunt the arguments of the club movement.
The evidence indicates that the RCA was outmanoeuvred in both strategic and tactical respects.
Strategically, the AHA’s proactive approach gave it commanding political and temporal advantages over the RCA as the debate played out. These pre-emptive actions permitted the
Government, bound to the extent that the political and financial support proffered by the AHA rendered it, to formulate policy which, while largely fulfilling the wishes of the hotel sector, also made ostensibly favourable, mitigating concessions in club EGM policy. Contemporary public reaction to the legislative package cannot be wholly gauged in retrospect, but the “trade- offs” for the club movement are likely to have largely ameliorated any effective public rejection of the legislation. It must also be recognised that, as is the case with any “special interest” legislation, and in this instance, that relating to consumers of electronic gaming machine
“services”, there is a large proportion of the community which is indifferent to such measures.
This aspect is of particular interest in that it is also demonstrative of the elective nature of taxes on gambling, which was also a factor in this legislation and also in the antecedent 1956 Act.
The tax aspects of this legislation and the role of broader community indifference are examined in greater detail in Chapter 4.
Tactically, the RCA’s subsequent responses were inadequate in redressing the advantage seized by the AHA. The primary basis on which its response was predicated, the effect on its customers, could not be made out, and ultimately was proven not to be significant. The means which it employed to make out its case were, in practice, ineffective, and eventually led to some degree of disrepute being brought on the RCA, as a result of its complicity in breaches of broadcast law in relation to the previously identified arrangements with John Laws.
113
From the perspective of the historical antipathy between the RCA and the AHA and their respective predecessors, there is some parallel between the origins of the 1956 and 1996 decisions. The aggressively inflexible protectionist 1996 stance of the RCA in relation to its perceived exclusive “rights” to machine gaming, and its unwillingness to negotiate, ultimately led to the loss of its monopoly position. Similarly, the abolitionist demands of the ULVA in
1956, although initially achieving judicial support for the banning of poker machines, ultimately provoked the legislative response that enshrined the privileges of the club industry for four decades. Both instances are suggestive of a misunderstanding of the political forces which predominated at the respective times on the part of the protagonist party. From a public policy perspective, it is reasonable to conclude that the adoption of an inflexible, absolutist position was not successful in either instance, and that a more politically astute approach of negotiation and engagement may have been more likely to have proved more productive.
3.5.2.4 Gaming Machine Proliferation and its Social Impacts
The nascent recognition of the social impacts of gambling expressed during the 1956 legalisation of club poker machines had by 1996 developed into a major consideration for parliamentarians. A number of members spoke to the potential for social detriment resulting from the passage of the legislation. Non-government speakers Ficarra, MacDonald, Nile,
Kirkby and John Tingle, in the Legislative Council (1996), expressed concerns that were stated as being supported by a significant body of empirical research. Ficarra (1996) told the house that: “The adverse economic and social consequences” would “only cause more individual and family social upheaval and heartache” (p. 5931). MacDonald (1996) suggested that “a social impact study should have been commissioned before the Bill was introduced” (p. 5926). John
Tingle (1996) described the Bill as “unnecessary, dangerous, counterproductive and morally wrong” (p. 6091). It can be concluded that the debate recognised that misuse of EGMs had severe negative social impacts. This recognition was apparent in its infancy during the debate over 1956 Act. It is also instructive to contrast these contributions to the 1996 debate with those
114 of 1906 (Section 3.2.3). Although the morality of the legislation was still in question (Tingle,
1996, p. 6091), the focus on broader social impacts and means for assessing these differed substantially from the religious and moral overtones of the general portrayal of gambling as an evil, nine decades earlier.
However, in 1996 at least one anachronistic view was expressed in the Council. Alan Corbett
(1996), founder of and, in the history of the NSW parliament, the sole elected representative of the A Better Future for Our Children Party, suggested that gambling behaviour “must surely be due to unmet needs in childhood” and that problem gamblers suffered from a “serious personal deficiency” (p. 6092). Although some contemporaneous research had suggested a link between early-life stage trauma and problem gambling (for example, Taber, McCormick and Ramirez,
1987), Corbett’s (1996) opinion remains highly contestable. The evidence rather suggests that problem gambling is distributed across Australian society, and defies exclusive categorisation as the product of one particular social, cultural or psychological characteristic. The Productivity
Commission (1999), for example, expressed concerns over “medicalised” models of problem gambling when it observed that: “The pattern of behaviours exhibited by problem gamblers do not [sic] consistently fit with typical conceptions of a genuine mental illness and ‘pathological’ gamblers do not appear to suffer a set of clearly defined mental symptoms which suggest a distinct mental illness” and further, that Australian approaches to problem gambling were such that they recognised the breadth of “aspects of problem gambling”, “without straightjacketing the concept into a single category of mental illness” (pp. 6.6 – 6.8), as Corbett (1996) had attempted.
There were also alarmist elements to the debate which sought to give prominence to the worst possible scenarios that might result from the legislation. Richard Jones (1996, p. 6089) and John
Tingle (1996, p. 6091) suggested that the legislation would result in an additional 40,000 EGMs being installed in hotels. Ultimately, the Carr Government’s 2001 Gaming Machines Act would introduce a statewide cap on total EGM numbers of 104,000, with strategies in place to
115 gradually reduce that number. However, immediately prior to the introduction of the 2001 Act, hotel machines had increased in number from 11,684 in 1996/1997 to 25,415. Clearly this represented a significant increase in EGM numbers, however it did not approach the forecasts made in the Council debate. It is apparent that the parliamentary speakers assumed that all hotels would behave in the same manner and install the maximum permissible number of
EGMs. Such reasoning ignored the vastly different commercial realities of individual businesses in the hotel sector.
Thus, despite the evidently greater awareness of parliamentarians of the regulatory impacts arising from their decisions, there remained members within the parliament who resorted to unsubstantiated arguments or hyperbole in order to record their dissent. Several of these arguments largely emanated from the cross-benches. The arguments of Jones (1996) and Tingle
(1996) may be considered as having some merit in highlighting the extent of potential harms associated with this legislation. Ultimately, however, these members’ status as representatives of very small and largely unrepresentative parliamentary rumps consigned their views, sustainable or otherwise, to being defeated by the intent and consent of the two major parties.
Although the 1996 Act did not ultimately result in the maximum possible number of additional machines being installed across the State, Chapters 5 and 6 will demonstrate the significant extent of the change and the associated impacts. There can be little question that the social impacts foreshadowed in the parliament became more apparent over the years immediately following the enactment of the legislation. In this respect, the 1996 legislation sowed the seeds for a program of mitigating legislation, including the next major overhaul of specific gaming machine law, which was to eventuate in 2001.
3.5.3 The Gaming Machines Act 2001 No. 127.
3.5.3.1 Introduction
The Carr Government introduced the Gaming Machines Bill into the Parliament in November
2001. The Bill passed into law on 19 December 2001. The primary objective of the Act was the
116 introduction of harm minimisation measures aimed at redressing the deleterious social impacts which had become increasingly apparent in the wake of the introduction of gaming machines into hotels. West and Morris (2003) suggested that the reliance of his government on EGM taxes, and the negative impacts on elements of the community, particularly those that might be considered key Labor constituencies, was not lost on Premier Carr.
This response to increasing community concern over gambling in NSW was not an isolated attempt to address these issues. In 1999, the parliament had passed the Gambling Legislation
Amendment (Responsible Gambling) Act 1999 No. 49. This Act took a broad approach to stipulating responsible gambling practices across a range of gambling activities. The breadth of the Act’s application is demonstrated by the fact that the amendment altered seven separate gambling-related Acts which were in force at the time: the Casino Control Act 1992 No 15;
Liquor Act 1982 No 147; Lotteries and Art Unions Act 1901 No 34; Public Lotteries Act 1996
No 86; Racing Administration Act 1995 No 114; Registered Clubs Act 1976 No 31; and the
Totalizator Act 1997 No 45. The effects of this Act are analysed in Chapters 5 and 6. The
Gaming Machines Act was a further, more focused instrument, intended to address the single gambling activity available in the State which was considered as highly accessible, to the point that the Productivity Commission (1999) concluded that it dominated gambling activity, and which, on the evidence available at the time, was most strongly associated with gambling- related social impacts.
A further influence on the timing of the Gaming Machines Act was the 1999 publication of the
Productivity Commission’s report, Australia’s Gambling Industries. The report sought to quantify the extent of problem gambling, the breadth and cost of its impacts, and canvassed a range of related matters including taxation of gambling. A detailed examination of gambling regulation cannot be conducted without consideration of taxation issues. Therefore the focus of parts of the report on taxation is an integral component of the document. The terms of reference for the report (Productivity Commission, 1999) issued by Federal Treasurer Peter Costello on
117 26 August 1998, specified that the Commission should in part examine and report on “the impact of gambling on Commonwealth, State and Territory Budgets” and on “the effects of regulatory structures”, including “differing taxation arrangements” (Productivity Commission,
1999, p. 1). Ultimately, the substantive content of the report was, of itself, sufficient to apply some varying degree of pressure on state governments to address social impacts and their reliance on tax revenues derived from gambling. As the most populous state, with the greatest reliance on gambling revenues, the NSW government may have felt this pressure most acutely.
Concurrently, from a political perspective, it cannot be ignored that Federal Treasury’s commissioning of the report, and the publication of its findings on taxation, coincided with the restructure of the federal taxation system which would be subsequently introduced in 200032.
As was identified in Chapter 2, in highlighting the detrimental effects of increases in state- regulated gambling activities, the report may be considered as a Commonwealth instrument for influencing state governments to adjust their taxation regimes in concert with the changes being made to the federal system. Publicity over the negative externalities generated by gambling provided scope for the federal government to make a case for those states that included gambling as a part of their tax base to reduce their reliance on this source of taxation. The reductions would occur in exchange for increases in distributions of federally generated taxes, particularly those relating to the introduction of the Goods and Services Tax (GST). Such an approach was discussed in a research note prepared by Richard Webb (2002) for the purposes of debate in the federal parliament, which in part states that “if the distribution of GST were based on actual spending and revenue, a State could (say)[sic] tax less to increase its share of GST revenue” (p. 1).
That the Productivity Commission’s report was considered by the Federal Government as something of a lever with respect to reform of Commonwealth and state financial relations was
32 The Federal Government’s ‘A New Tax System’ required the amendment of legislation in relation to various Acts and Regulations over the period 1999 to 2000. 118 apparent in a press conference held by Prime Minister John Howard, when releasing the
Commission’s report on 16 December 199933. In response to a journalist’s question34 in relation to the “proliferation of poker machines, particularly in NSW”, the Prime Minister responded in part:
We have now provided the States of Australia with a taxation system that removes
their major excuse for a continued reliance on gambling, and that is as a source of
taxation revenue. Now over time as the GST comes in and provides a growing source
of revenue for the States, we are answering that criticism that’s been made in the past.
And it’s not a criticism that I’ve necessarily accepted. But once the GST is up and
running, the States will have a growing source of tax revenue and therefore there’ll be
a greater capacity to reduce the dependence on gambling taxation (para. 12).
The increasing importance of the taxation motive in gambling regulation has been observed previously. The Prime Minister’s description of tax revenue as the states’ “major excuse” for gambling liberalisation provides evidence that this perception also existed at the federal governmental level.
In practice, the implementation of the GST clearly had an impact on gambling tax yields. In order to allow for the 10 percent GST impost, EGM tax rates for both clubs and hotels were reduced by 9.09 percent, with the exception being the rates applicable to clubs with profits of
$200,000 or less. The reduction, when “grossed up”, equated to the full 10 percent of the GST.
A further, state-level layer to the political aspects of the Bill’s timing was to be drawn out in the course of the parliamentary debates. A number of Opposition and cross-bench members35 implied that the legislation, and the staged introduction of certain of its key provisions, was
33 Howard Press Conference on Problem Gambling, December 16 1999, AustralianPolitics.com 34 The transcript of the interview does not identify the journalist. 35 For example Robert Oakeshott (Assembly, 2001) and Fred Nile (Council, 2001). 119 proposed with one eye on the following NSW election, which was due to take place in March
2003.
3.5.3.2 Parliamentary Debates - Legislative Assembly
From the NSW perspective, the Federal Coalition Government’s intervention did not only generate an expectation of action on the part of the Carr Government, but also effectively ensured compliance on the part of the State’s Coalition Opposition. Opposition to a legislative package which was intended to address a high-profile, detrimental social phenomenon would be electorally risky. Coupled with the support implied in the Federal Government’s intervention, the passage of the Bill through the parliament was virtually assured. Substantive debate over the Bill was therefore centred on its perceived inadequacies and the empirical bases for certain measures proposed by the Bill.
Richard Face ([ALP, Charlestown], 2001) the Minister for Gaming and Racing, introduced the
Gaming Machines Bill into the Legislative Assembly on Friday, 30 November 2001. Face’s
(2001) second reading speech amounted to a rote recital of the substantive provisions of the
Bill, as may be expected in the circumstances described above. In essence, the Bill proposed a range of measures aimed at curtailing increases in gaming machine numbers, imposing more onerous requirements on clubs and hotels seeking additional EGMs, and placing restrictions on the availability of machines to patrons, primarily through a mandatory daily shutdown period for all machines in the State, excepting those in the State’s sole casino.
Face’s (2001) speech did not address taxation matters in detail, as the Parliament had passed the accompanying Gaming Machine Tax Act 2001 No 72 the preceding month. The major provision of this taxation measure was to reallocate responsibility for assessment and collection of EGM taxes from the Department of Gaming and Racing to Treasury. In the course of his
120 speech, the Minister36 (2001) acknowledged the range of matters which had been raised by the
Productivity Commission, and which the legislation sought to address. A salient point made by the Minister was in relation to the need for regulatory policy to comply with the requirements of
National Competition Policy. Face (2001) stated that;
The guiding principle of the National Competition Policy is that legislation should not
restrict competition unless it can be demonstrated that the benefits of the restrictions to
the community as a whole outweigh the costs, and that the objectives of the legislation
can be achieved only by restricting competition (p. 19275, para. 45).
Face (2001) further stated that “the government is confident that there are substantial public benefits” (p. 19275, para. 46) associated with the Bill.
On the basis that the National Competition Policy was instituted in 1995, it is interesting that the public benefit test was not expressly raised as having had any influence in relation to the 1996 expansion of gaming machines into hotels. Had the public benefit principles referred to by the
Minister been applied at that time, the laws on introduction of EGMs into hotels in particular may have differed from those which were ultimately legislated.
In response to the introduction of the Bill, Robert Oakeshott ([Port Macquarie], 2001, p.
19441)37, leading the debate for the Opposition, was critical of the perceived lack of
“transparency” (p. 19441, para. 1) on the part of the Government. Oakeshott (2001) complained that despite two years of discussion about possible legislation and the size and complexity of the
Bill, at approximately two hundred pages, the Government had given the Opposition little advance information on the content of the Bill, and little time to consider it before its introduction into the House.
36 Relevant Legislative Assembly Hansard for 30 November 2001, as extracted from the NSW Parliament website, records only the page number for the commencement of the Minister’s speech, and the page number for the subsequent item of parliamentary business. The speech is recorded over pages 19275 to 19282. 37 The Assembly second reading debate continued on 4 December 2001 and is recorded on pages 19441 to 19457. However, the intervening pages are not individually numbered. 121
Referring to the substantive content of the Bill, in his opening statements Oakeshott (2001) favourably compared the Bill to the policy-related findings of the Productivity Commission and observed that “largely the legislation meets the standards set by the Productivity Commission”
(p. 19441, para. 7). Despite this endorsement, Oakeshott (2001) went on to state that although the Coalition would not oppose the Bill, “we do not support many aspects of this legislation” and that “whilst many aspects of the Bill are good, this legislation can be substantially improved” (p. 19441, para. 32). In a statement which to some extent contradicted his earlier positive comparison with the Commission’s findings, Oakeshott (2001) concluded that “this measure departs substantially from the broader principles espoused by the Productivity
Commission” (p. 19441, para. 33).
The tone of this somewhat confused assessment of the Bill may have been a product of the limited access to the Bill during its formulation, of which the Opposition complained. However, the obligatory suggestions that the Government could have done better were also an element in this response to the Bill, as evidenced by Oakeshott’s (2001) statement that the Coalition would
“keep our fight for another day in the near future” (p. 19441, para. 33) and provide “an alternative package over the six months leading into the next election and allow voters to decide” (p. 19441, para. 32). This comment also indicates that the previously observed practice of keeping the electoral cycle in mind was not restricted to the Government.
Despite his apparent equivocation over the merits of the Bill, Oakeshott (2001) did provide a succinct statement on the principles which should ideally be applied to legislation of this nature.
In discussing the balance between the Government’s social responsibilities and revenue-raising objectives, Oakeshott (2001) stated: “If this House is intent on delivering the best public policy possible, the structure of revenue collection in the gaming industry versus harm minimisation, the social issue at the heart of this legislation, must be examined” (p. 19441, para. 12). Whether by virtue of recognition that the legislation represented an attempt at such an altruistic approach
122 or through the previously discussed realpolitik (Section 3.5.3.1, above) that virtually eliminated the possibility of obstructing the passage of legislation of this nature, parliamentary consensus resulted in a relatively rapid passage of the Bill into law.
Also present in the debate were the ubiquitous insinuations of deal making on the part of the
Government, with the Premier’s office, and in particular the Premier’s Chief of Staff, Graeme
Wedderburn, being identified by Oakeshott as the originator of the legislation, to the exclusion of the portfolio Minister. Although Face denied this allegation, the contribution to the debate by
Paul Gibson ([Blacktown], 2001), which was particularly complimentary to the hotel sector, would merely have fuelled the Opposition’s allusions to deals having been done to assuage particular industry concerns. Andrew Fraser ([Coffs Harbour], 2001) claimed that it was the media which had applied pressure on the Government to act and that the publicity surrounding the Government’s management of gaming-related social impacts and its perceived failure to address these issues became a “political imperative” (p. 19441, para. 51) for the Premier. This claim was made in apparent ignorance of the nature of this process as being an example of democracy in practice. In the Legislative Council, the cross benches expressed concerns that both of the major parties were guilty of consorting with the liquor industry. Peter Wong
(Council, 2001, p. 19705, para. 35)38 charged that “all honourable members, the people of NSW and I know that the Government and Opposition members have been bought by hotels and clubs”. The insinuations of impropriety hearken back to the 1916 and 1956 Acts in particular.
Another familiar theme raised in the debate was the adequacy of the Government’s consultation process in formulating the Bill. Government members including Face (2001), Gibson (2001) and George Thompson ([Rockdale], 2001) emphasised the extent of consultation that underpinned the formulation of the Bill. Oakeshott, and in particular Malcolm Kerr ([Cronulla],
2001) were critical of the Government’s efforts in this respect. Kerr (2001) proposed that given
38 Hansard for the Legislative Council debate on 6 December 2001 is recorded on pages 19705 to 19770, however the intervening pages are not individually numbered. 123 the complexity of the legislation “one would expect that the knowledge and experience of people in the community would have been harvested and that such matters would have been the subject of a great deal of debate” (p. 19441, para. 71). Rather, Kerr (2001) accused the
Government of treating the Opposition with contempt and in doing so, treating the “whole community” (p. 19441, para. 72) with equal contempt. Kerr (2001) went onto observe that the substantive matters addressed in his speech “transcend party politics” (p. 19441, para. 72). This latter observation, however, did not discourage Kerr (2001) from using the consultation issue in such a partisan manner.
In his final remarks in the debate, Minister Face (2001) suggested that, in fact, representatives of both the hotel and club sectors had “made known their views to Opposition and Government members”, and that those representatives “do not play political games” (p. 19441, para. 121).
Although this may have been true of the individual representatives alluded to by Minister Face, the fact of their employment with, and the well-documented history of political activity on the part of, the organisations they represented, suggest that little credence could be placed in this statement.
This summary suggests that the Assembly debate featured little by way of substantive probing of the Bill. The expressed intention of the Opposition to pass the Bill was clearly a factor in this outcome. However, the subsequent, more rigorous tone of debate in the Legislative Council suggests that the complexity of the Bill and the short period of time available to the Opposition to consider and respond to it may also have been factors in curtailing substantive debate.
3.5.3.3 Parliamentary Debates - Legislative Council
Notwithstanding that the debate in the Council, most particularly in the Committee stage, was more focused on the substantive provisions of the Bill, the bipartisan support of the major parties once again ensured a relatively smooth passage. Despite this, the range of objections
124 which were canvassed in the Assembly over the Government’s methods was repeated in the
Council.
Greg Pearce (2001) was critical of the Government from a number of perspectives.
Procedurally, the Government had not allowed the Opposition or the community “an opportunity to scrutinise the Bill” (p. 19705, para. 102). The vesting of revenue collection responsibilities with Treasury, which had in fact been enacted under the Gaming Machine Tax
Act39, gave rise to a conflict in the roles of the Treasurer as “tax collector” and “social conscience” (p. 19705, para. 106).
The tension between the various roles of governments in the taxation of gambling was recognised by Adams (2008) who identified that various roles were played by governments in the various stages of the developmental and operational stages of gambling policy, ultimately observing that: “The opportunities for role conflict are widespread and significant” (p. 35).
Adams’ (2008) conclusion adds some support to those of Pearce (2001) in this respect.
In addition to these perceived conflicts, further allegations of conflicts of interest and acceptance of “double standards” (p. 19705, para. 114) were illustrated by Pearce (2001) through his reference to the hotel interests of “the former Minister for Police” (p. 19705, para.
115)40. Finally, Pearce (2001) accused the Government of having been “dominated by some individuals who have helped themselves to income from gambling” (p. 19705, para. 117) and that this rendered it unlikely that “this legislation will deal with the serious issues identified by the Productivity Commission” (p. 19705, para. 117). Despite such reservations, the Opposition supported the Bill, and in the Committee stage voted with the Government to defeat the majority of cross-bench amendment proposals.
39 This fact was subsequently pointed out to the Council by Ian MacDonald [ALP]. 40 The Daily Telegraph (November 21 2002) identified the former Police Minister as the Hon. Paul Whelan (Member for Ashfield). The report states that Mr Whelan had ‘significant family interest in three major Sydney hotels’. 125
Ian Cohen (2001) raised the issue of greatest contention in the legislation. This was the
Government’s decision to reduce the proposed mandatory daily shutdown of EGMs from six hours to three. A number of other speakers, including Peter Wong (2001), Fred Nile (2001) and
Richard Jones (2001) were also critical of aspects of the shutdown proposal, and the
Government’s action in “watering down” this element of the package. Cohen (2001) suggested that “Clubs NSW and the AHA have lobbied hard to ensure that the Government has backed away from its original position” (p. 19705, para. 119). As with the Coalition and all of the cross bench parties who addressed the Bill, however, these concerns were not sufficient to stop the
Greens from supporting its passage.
There were also some suspicions expressed, by Nile (2001) for example, that the timing of the introduction of certain provisions after the due date for the next election, were purposively set to limit any electoral impacts on the Government. Nile (2001) proposed an ultimately unsuccessful amendment to have enforcement of those provisions brought forward. A more pragmatic view would suggest that practical considerations, such as the likelihood that the regulations supporting the Act would not be completed for some time after its passage, would be likely to delay the enactment of provisions subject of the regulations. Such a conclusion is supported by the fact that the Gaming Machines Regulation 2002 was gazetted on 28 March 2002, some three months after the Act was given the Assent.
In Committee, more substantive debate took place in relation to forfeiture provisions associated with the transfer of gaming machine entitlements and the government’s attempts to reduce the total number of EGMs in the State. It was contended by Dr Arthur Chesterfield-Evans (2001) that advances in gaming machine technology would outstrip the marginal reductions in EGM numbers achieved under the Government’s strategies, with the net result being a continued increase in the level of gaming. Ultimately, the legislation passed with only one amendment from the cross benches. John Tingle (2001) proposed a relaxation of the forfeiture provisions in
126 relation to small non-metropolitan hotels, with limited numbers of EGMs, a proposal which received unanimous support.
As has been noted previously, the passage of the legislation was predictably straightforward.
Regardless of the expressed reservations of the Opposition and minority parties, the legislation represented an attempt to address social welfare issues. Its primary purpose rendered it unlikely to being strongly contested. The legislation may not have been without shortcomings, however it was the first specific step in addressing the issue of the burgeoning problem gambling associated with EGM use, and thus garnered bipartisan support.
3.5.3.4 Media Commentary
Media speculation on the form the Government’s response to gambling and its related impacts might take began well before the Minister announced plans to introduce legislation into the parliament. In the early months of 2001, the Liquor Administration Board (LAB) proposed reducing the size of maximum bets, reducing the rate of play of EGMs and reducing the maximum denomination for note acceptors on EGMs.
In the Sun Herald of February 4 2001, Alex Mitchell observed that the level of concern about the potential financial impacts of these proposals on clubs and hotels was such that the liquor and gaming industry grouped together to oppose their introduction. The urgency afforded to the matter by the EGM industry is perhaps emphasised by the fact that the alliance included the longstanding protagonists ClubsNSW41 and the NSW branch of the AHA, and represents the beginning of a rapprochement between the two organisations. This was clearly a product of their now joint-status as EGM gambling providers.
Less than two months later on 26 March 2001, in the Sydney Morning Herald, Cossima
Marinner reported that the Government had deferred its decision on the proposals, pending
41 Formerly the Registered Clubs Association (RCA) 127 further research. When the Government finally announced its intended laws in July, the LAB’s proposals were apparently off the table. Writing in the SMH, Robert Wainwright (27 July 2001) outlined the initiatives proposed by the Government. The LAB’s proposals were notably absent.
Although the activism of the gaming industry, as identified in parliament, may be perceived as having been persuasive in the Government’s policy making process, the ultimate rebuttal of the
Liquor Administration Board’s proposals bears some consideration.
In a Westminster-based system, featuring the separation of the powers of the executive, the legislature and the judiciary, the LAB filled a curious space. In legal terms, the LAB was a specialised branch of the NSW Local Court system. In a strict sense, as part of the magistracy, the LAB would generally be expected to apply existing statute and general law. However, its specialised nature, and its entrenchment within the Department of Gaming and Racing led to a situation where the LAB was in a position to make policy-based proposals, as opposed to judicial determinations, in relation to the formulation and administration of statute law.
Assuming a rigorous application of the separation of powers, it may be interpreted as being entirely proper that the Government did not wish to be seen to be influenced in such a way by the judiciary, without the full force of a court decision as support.
Wainwright’s (SMH, 27.7.01) report provides an illustration of the attitude of gaming industry participants to any initiative that might impinge on their revenue flows. The article recorded no expressions of satisfaction from “industry officials” on the Government’s decision not to implement the LAB’s proposals. Rather, club sector representatives turned their focus on the perceived threat to clubs’ profitability presented by the newly proposed daily shutdown of
EGMs. The Illawarra Mercury of 28 July 2001 also reported the dissatisfaction of the club sector, stating that: “Predictably the club industry has reacted angrily to the gaming reforms, predicting job losses and significant revenue falls would result”. These arguments were essentially the same as those that were discounted five years earlier by Richard Face and
Richard Bull in debate over the 1996 Liquor and Registered Clubs Further Amendment Act.
128
Ultimately, there was a change in proposed position between the July announcement and the introduction of the Bill into Parliament. In the Daily Telegraph of 17 October 2001, Kelvin
Bissett reported that by the time of the Bill’s introduction, the Government had reduced the shutdown to three hours on weekends and public holidays, but had maintained the six hour shutdown on week days. The article noted that “ClubsNSW Chairman Pat Rogan, welcomed the reduced weekend closure hours but said that the industry would fight for more concessions to help clubs survive financially” (Daily Telegraph, 17.10.01). The involvement of Rogan in this role provides an interesting insight into the influences on politicians. As was identified in
Section 3.5.2.3, in 1996, as the Labor Member for East Hills, Rogan was identified by the SMH as a caucus dissenter, bemoaning the Liquor and Registered Clubs Further Amendment Act as
“morally wrong and politically crazy”. Rogan’s comments at that time may have reflected his concerns over the Government’s re-election ambitions. However, his subsequent appointment as
Chairman of the club movement’s peak body suggests that Mr Rogan was intent on, and perhaps had good reason to, throw his weight behind the efforts of the club movement, to which he was apparently closely aligned, to resist the introduction of EGMs into hotels.
Reporting on 1 December 2001, following the introduction of the Bill, the SMH observed that:
“Sustained industry pressure led to a further softening of proposed gaming machine laws when they reached State Parliament yesterday” (SMH, 1.12.01). The article went on to state that the
Government had reduced the shutdown requirement to three hours per day, although its ultimate intention was to introduce the original six-hour closure in May 2003. The increase duly came into force at that time.
The parliamentary and public focus on the legislation centred on the more easily understood initiatives for addressing detrimental social impacts included in the legislation. These included the shutdown provisions, the prohibition of venue signage advertising gaming and statewide and
129 venue caps on EGM numbers. It is evident that the Government purposively directed attention to the ‘headline’ initiatives, both in the public and parliamentary arenas.
The extent to which controls on the number of EGMs would be effective was not examined in any great level of detail in the public debate. Provision for the transfer of EGM entitlements and hardship provisions allowing access to limited numbers of entitlements in certain circumstances would in practice limit the rate at which total EGM numbers were to be reduced.
Although these provisions were subject of some debate in the parliament, as has been observed previously, there was little political mileage to be obtained from obstructing passage of the Bill.
The manner of intended application of these provisions was such that they allowed the
Government to be seen to be taking positive action, without having a severe impact on its revenue-generating capability from EGMs. The pragmatism of this approach was matched with that of the decision to allow the State’s largest clubs, with their significant political influence, to achieve their stipulated reductions in EGM numbers over a five year period.
The statecraft of the Government is also apparent in the decision to separate the Gaming
Machine Tax Act from the principal Gaming Machines Act. The tax-related legislation passed through the legislature prior to the main Act. Its chiefly administrative provisions resulted in comparatively little parliamentary or public scrutiny. In this way, the Government was able to introduce mild reforms to EGM taxation away from the higher level of scrutiny to which the
Gaming Machines Act was subjected. Again, this strategy allowed the Government to largely ensure that its fiscal position was maintained in the context of the legislation it would subsequently introduce.
Examined from this perspective, through carefully crafted policy and tactically astute promotion of the legislation the Carr Government was able to achieve a consensus across the parliament and the broader community in terms of taking action on this social issue, while also limiting risk
130 to its governmental and electoral prospects. As has been discussed previously, a more politically cynical view may be that the Government opportunistically seized on the Federal Government’s emphasis on problem gambling as a justification for its own GST-related tax reform agenda, to also turn the state-level focus to problem gambling and the implementation of control measures that were least likely to impact on state revenues. In an applied policy sense as well, the introduction of the GST may in a sense have played into the Carr Government’s hands. As the analysis in Chapter 5 will demonstrate, the introduction of the GST resulted in a nominal reduction in EGM taxes equivalent to the GST impost. The effective outcome negotiated between Federal and state governments was on the basis of a neutral result, however the
“headline” reduction provided yet another opportunity for the NSW Government to largely maintain its fiscal position.
3.5.4 Summary
Over the remainder of the life of the Carr Governments, there were an additional eleven amendments made to the Gaming Machines Act 2001 No. 127, and five amendments made to the Gaming Machine Tax Act 2001 No. 72. The legislation of these two Acts, which were in effect an interdependent package, comprised the last major EGM gambling reforms of Carr’s governments.
The 1996 and 2001 Acts stand as the two major pieces of gambling regulation of the Carr premiership. Considering each Act individually, the broad policy objectives of the two were ostensibly different. The Liquor and Registered Clubs Further Amendment Act was chiefly an expansion of EGM accessibility in NSW, whereas the Gaming Machines Act was intended to reduce the level and impact of EGM gambling. From this perspective there is little substantive policy commonality between the two Acts. However, in the context of the ongoing development of gambling policy and indeed broader social policy in the State, the two are inextricably linked, the 2001 Act being to some substantial extent necessitated by the policy
131 outcomes generated by the 1996 Act. This outcome is consistent with a pattern of policy- making described by Colebatch (1993), which was discussed in Chapter 2.
This association by way of the continued development of gambling policy is not the only common feature of the advents of the two Acts. The formulation of both pieces of legislation was influenced by intense lobbying by the gambling industry. In the first instance, the hotel sector was clearly most assertive, although there was a belated but ultimately futile counteraction by the club sector. In the latter situation, the entire industry was forced to unite in order to win concessions in relation to the Government’s proposed policies. That the hotels and clubs should form an alliance for this purpose is an interesting, although largely tangential policy outcome. It reflects the change in the club sector’s status, from its monopolistic, and ultimately costly, assumption of exclusive access to EGM gaming, to its oligopolistic cooperation in order to ensure as great an opportunity to maintain its revenue streams as was possible in the face of legislative change driven to some extent by a paradigmatic shift in public opinion and the political environment.
Federalism also played a central part in the evolution of gambling policy during the Carr era.
The interposition of the federally-driven 1999 Productivity Commission report between the
1996 and 2001 Acts placed the gambling environment in NSW in the broader national context, and also permitted federal government pressure to be applied in respect of the State’s taxation and social policies in this area. The Productivity Commission’s national mandate also resulted in a ‘policy learning’ singularity, in which all State and Territory governments were simultaneously presented with policy guidance based on a review of their collective approaches to gambling regulation.
Subsequent to this intervention, the introduction of federal tax reforms, principally involving the introduction of the GST, coupled with the modestly contractive reforms of the Gaming
132 Machines Act, had practical effect on the fiscal circumstances of NSW. Figure 3.1 illustrates the impact of these factors on NSW budgetary planning.
Figure 3.1
Budgeted and actual tax revenues 1995-1996 to 2004-200542
Budgeted and Actual EGM Tax Revenues 1995/6 to 2004/5
1200
1000
800
600
400
$M tax revenue $M tax 200
0 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
Prior year budget Actual tax yield Rolling forward estimate
Source: NSW Treasury
NSW Treasury Budget Papers for the relevant period first provided rolling 3-year forward estimates commencing in the 1999/2000 papers. The years prior to this provided only one year forward budget estimates. These shorter range forecasts are clearly more accurate due to their temporal proximity to the period being estimated, and the more recent data on which to base the forward estimate. The forward estimates for the three years subsequent to 1999/2000 clearly did not adequately provide for the effects of the GST and the more modest impacts of the
Gaming Machines Act discussed previously, whereas the altered situation was provided for in subsequent forecasts. The disparity between these forward estimates, and the revised prior year budget and actual tax yields provide some indication of the unforeseen impacts arising from the ad hoc character of EGM regulatory and taxation policy during this period. The publication of
42 Forward estimates for years 2000/2001, 2001/2002 and 2002/2003 derived from Budget Paper 2, 1999/2000. Estimate for 2003/2004 derived from Budget Paper 2, 2000/2001. Estimate for 2004/2005 derived from Budget Paper 2, 2001/2002. 133 these projections provides conclusive evidence that NSW Treasury had not anticipated the introduction of the GST and its nominal effect on EGM tax yields.
The period of the Carr Labor Governments may be interpreted as a microcosm of the development of gambling policy since federation, with both expansionary legislation similar to that in 1916 and 1956, and contractive policy similar to that enacted in 1906, being instituted over the period. Many of the artefacts of EGM legislation of this period were similar to precedent and subsequent policy-making. The analysis of preceding legislation identified a number of these precedents. The following section will examine the key legislative developments observed in the preceding sections, in the context of public policy theory discussed in Chapter 2.
3.6 Summary - Public Policy Theory and Gambling Regulation in NSW
1906 to 2001
Public policy, the structure of the Australian political economy, and the status of NSW within that national structure were discussed in Chapter 2. Having now examined the practical development of gambling legislation in NSW, it is appropriate to identify and discuss the theoretical underpinnings of the resultant policy processes and outcomes.
In Chapter 2, a query was raised as to whether there is a distinction between “political deals in which economic favours are exchanged for political resources” resulting from a particularist approach to public policy, and the “bargaining” considered inherent in the alternative corporatist or pluralist systems, each posited by Stewart (1991, p365). It was observed that the implied conclusion of Stewart (1991) is that bargaining is the source of better policy outcomes and that from this perspective corporatism offered some advantages.
134 The absence in the Australian political economy of the “diverse competing interests” identified by Davis et al (1993) as being a source of benefit in the formation of policy, are to some extent applicable in relation to more recent NSW gambling policy. An examination of policy-making in one area of governmental responsibility must necessarily engender some features of particularism. This is because the “diversity” of interests may not be as great as would be envisaged by Davis et al (1993) and Stewart (1991) when discussing broader public policy formulation. The NSW experience may be considered to have demonstrated the practical validity of this observation. Gambling policy in NSW throughout the twentieth century has progressively moved toward the involvement of limited, but ardent, interests, as opposed to the participation of the broader public, which remained largely disengaged with respect to gambling. The relative influence of these interests, their level of engagement in the policy making process and the accumulated outcomes and experiences of preceding policy decisions have tended to marginalise certain of these interests over time, further narrowing the diversity of opinion idealised by Davis et al (1993).
The historical evidence also suggests that although substantive gambling policy has been generally expansive, from a procedural perspective, rather than NSW possessing a consistent, purposive approach to gambling regulation, the State’s development in this regard has been episodic, and has embraced different engagement processes over time. A précis of the major gambling developments examined in this chapter illustrates this conclusion.
The 1906 legislation involved the ideological confrontation between prohibitionist temperance and anti-gambling interests in the one part, and pro-gambling interests, which encompassed a number of interested groups, with varied motivations, in the other. The substantive arguments were amplified by the underlying class, racial and sectarian biases of each side. Also at issue were the competing interests and motives of the several racing industry groups. The policy outcome was influenced chiefly by ideological, rather than economic allegiances, but the
135 acknowledgement of the latter in the policy debate was a factor that would increasingly dominate gambling policy.
The 1916 Totalizator Act was the result of a confluence of two factors. The economic constraints relating to the First World War resulted in the Government’s need to embrace new revenue sources. In concert with this was the advance in technological development of the totalisator. The introduction of the automated machine presented the opportunity for government to access a more easily regulated and reliable source of tax revenue than had previously been available through taxes levied on wagering through bookmakers, or earlier, less dependable iterations of the totalisator.
The Act also represented one of the few occasions in Australian gambling policy development where NSW was a late adopter of a gambling technology. The State therefore had the opportunity to consider the policy experiences and learning of other jurisdictions which preceded it in legalising the machine. The context of the constraints of wartime economic conditions stands this piece of legislation apart in some respects, as it was almost unilaterally advanced by the government, with a focus on generating revenues, with the influence of external interest groups much less apparent. The Act established a template for subsequent legislation aimed at improving government finances, while also ostensibly regulating gambling activity. Once again, the need to achieve a sustainable balance between the interests of different industry sectors with different structures was an important aspect of this legislation, and one which has also been apparent in later policy.
The 1956 Act largely resulted from the legally contested confrontation between the club and hotel movements, with the hotels preferring, but not achieving, the equity of prohibition, rather than the inequity of clubs having exclusive access to poker machines. The approach to the 1956
Act comprised elements of both the 1906 and 1916 legislation. Fiscal pressures and political considerations appear to have been the major influences over the Government’s thinking in
136 proposing the Poker Machines Act. The distinction between the financial motives in 1956, as compared to 1916, is that these related to management of the ongoing fiscal environment, rather than to a specific budgetary emergency. This approach was to essentially become entrenched fiscal doctrine in NSW thereafter.
It must be acknowledged that circumstance allowed some level of opportunism on the part of the Cahill Government. It has been noted previously that the Metropolitan Licensing Court decision gave the Government scope to enact the policy on a basis approaching the unilateralism of the Holman Government of 1916. This similarity extends further, to the extent that in both instances, the actions of the government ultimately settled a long-standing and unresolved policy debate that may have been conclusively resolved at a number of prior junctures.
There was a notional social policy component to the 1956 Act, which centred on government recognition of the contribution of the club movement to the broader community, and the relief those contributions provided to the Government, in terms of provision of certain community services and facilities. Although this social welfare perspective harked back to the provisions of
1906 legislation, the manifestations of both social problem and regulatory remedy were somewhat different. An explicitly shared component of both the 1906 and 1956 Acts was that their enactment was purposively aimed at curbing illegal gambling activity. The 1906 Act sought to limit betting to certain environs, and to eradicate it in others, whereas the 1956 Act simply legalised an activity that had been previously tolerated, but the illegality of which had recently been established beyond question. In any event the environment in 1956 provided the
Government with an expedient opportunity to settle this matter, and simultaneously establish a fresh revenue stream.
The social welfare aspect of the 1956 legislation also brings into focus the third component of the federal structure discussed previously in Chapter 2. In some respects, the direct beneficiaries of the club movement’s social contributions which were in effect perpetuated by the 1956 Act
137 were likely to be local governments. This is perhaps best characterised by comparison to the construction of the Community Development and Support Expenditure Scheme (CDSE), which commenced operation in NSW in 1998 under the Liquor and Registered Clubs Legislation
Amendment (Community Partnership) Act 1998, No.12. The CDSE scheme provided tax relief to profitable clubs in exchange for increases in contributions to the local community by those clubs. In each instance, the relevant local council was a statutory member of the committee that determined the application of CDSE funding to local initiatives (CDSE Guidelines, OLGR
2009). The Productivity Commission (1999) also noted that in some instances: “local government by-laws require contributions to be made to the community as a condition of licence” (p. 21.17). The Commission (1999) also reported a submission by Penrith City Council to its enquiry that in part stated that “registered clubs fulfil many of the community service obligations that Council or other service providers are unable to deliver”, and that “Council’s strategic plan places substantial emphasis on our partnership with those clubs” (pp. 21.29-
21.30). The nature of fiscal federalism is such that these contributions and services provided by clubs relieve the demand on public financial resources that would otherwise necessarily be provided by councils or indirectly by the other levels of government.
The expedient and opportunistic nature of the government decision to legalise the machines is emphasised by the fact that prohibition was a feasible alternative option. For this reason, the
1956 legislation is interpreted as the pivotal moment in the history of NSW gambling regulation. The intervention of the Court rendered void the option of governmental inaction on poker machines. Given the range of policy alternatives available, some matter or influence had to take precedence over all others, in order to impel the Government to its decision. Based on the evidence, it is concluded that the determinant factor was government access to direct tax revenues and “tax expenditures” by clubs, which were evidently in part funded by the proceeds of poker machine gambling.
138 In the Carr government era, the 1996 Act saw the later iterations of the club and hotel industry protagonists again in confrontation over equitable access to gaming machines. In this instance, there is robust evidence of political activity on the part of the hotel industry, involving the exchange of economic and political largesse. There is conclusive evidence in this legislative episode also, of the primacy of the revenue imperative. Such an aggressive expansion of access to EGM gambling could only have resulted in concomitantly greater fiscal returns to government. The Government’s position that clubs and hotels had separate patrons must necessarily entail an anticipation that EGMs in hotels would draw in new activity and tax streams. This outcome is reminiscent of the Totalizator Act, and the recognition of the Holman
Government that gamblers who had previously avoided paying taxes would subsequently be subject of taxation in relation to totalisator betting.
The extent to which considerations other than tax revenues were secondary is illustrated in the public record. It is apparent that the legislation was enacted despite the expressed concerns of parliamentary and community representatives as to the potential social impacts of the policy.
What followed in 1999 and 2001 were legislative endeavours aimed at ameliorating the negative social impacts which became more prominent in the wake of the 1996 Act. Viewed as a sequence of related events, it can be interpreted that initially the Carr Governments’ focus was on harnessing increased revenues, by way of acknowledging the hotel industry’s support. Once this revenue source was secured, however, the challenge subsequently became remediation of the negative outcomes of the policy.
The 2001 Act saw the convergence of the two dominant competing interests of the preceding 50 years of gambling regulation. The club and hotel sectors, as fellow gambling proprietors, shared common concerns over the proposed legislation. The positive social aspects of the legislation also resulted in a qualified consensus on the part of interest groups and political organisations such as the Christian Democrats, with only the extent, rather than the intent, of the legislation being contested. As has been discussed previously however, the Government developed and
139 introduced its legislative package in a manner which minimised a number of risks to its continued rule, while ostensibly taking firm action to address a social problem which in part was a product of its own earlier policies.
This brief recapitulation reveals the progression of policy influences from the comparatively broader, pluralist engagement of 1906, the Government imposition of a taxation measure in
1916, which the community had little choice other than to accede to, and the influence in 1956 of a combination of opportunism relating to a court ruling and “business friends” exercising
“private interests”, as characterised by Bennett (1992, pp. 29-30), in the form of clubs leveraging their community contributions and political influence to obtain exclusive access to poker machines, at the cost to their industry of incurring a new, but bearable tax burden. The
1996 Act featured the political deals in return for economic favours proposed by Stewart (1991).
This conclusion necessarily entails that there is a distinction between the bargaining and political deal approaches. The partisan manner in which the 1996 Act was developed essentially precluded any practical opportunity for bargaining as time progressed. The AHA strategy excluded effective input from other interests, in particular the registered club industry, chiefly through a program of political donations to the ALP. The action of the Government to implement change favourable to the hotel sector early in its tenure may be interpreted as evidence of the effectiveness of this strategy. Interestingly, the Coalition government that succeeded Labor in 2011 was the recipient of significant support from the club sector prior to its election (Aston, 2012). It introduced reforms favourable to the club sector, including tax concessions, within its first year in office (OLGR, 2012). It would appear that both hotel and club sectors anticipated a relatively prompt return on their investments in each circumstance.
These observations support that a parallel conclusion is that policy development has also progressed from a more pluralist environment, toward particularist characteristics.
Taxation is an inherent feature of state-regulated gambling activity, which is discussed in greater detail in Chapter 4. However it is appropriate to acknowledge the relationships which
140 must necessarily develop between government and gambling providers as a result of taxation. In this respect, the government and the gambling industries are partners in the gambling enterprise
(for example Adams, 2008). Emphasising this interdependence is the practice, or requirement, for the gambling industry to provide goods, services and facilities that complement, and in some instances, substitute for, public provision of these necessities, as previously noted. This interdependence and engagement with interested businesses is suggestive of corporatism. Just as it was observed that a focus on one area of policy results in the likelihood of some features of particularism manifesting in policy outcomes, so too the close relationship between the government’s revenue generating capability and the gambling industries’ profit motives promotes corporatist characteristics.
From the theoretical perspective of the NSW political economy as it relates to gambling policy, it can be concluded that over time the State has not been readily identifiable as strictly aligning with any predetermined model. Instead, it has from time to time, and quite often simultaneously, exhibited features of a number of the typologies discussed in Chapter 2. Based on the evidence it is concluded that the fluidity of the political economy of gambling regulation is strongly influenced by the context dependency advanced by Bridgman and Davis (2004) as a determinant factor in policy development. Indeed, as society has changed, its institutions, including the legislature, and the relationships between institutions that form the basis of the political economy, have been required to adapt to these societal shifts.
The role of context and circumstance has also been identified in the process of academic analysis of policy. Marshall (1998), in conducting empirical research on socioeconomic impacts of gambling, identified such context dependency, observing that “the consequences of gambling proliferation will vary according to local circumstances” (p. 238). These consequences are examined in Chapter 5.
141 Reliance on context dependency to explain the policy environment is perhaps the only general framework which can account for the changing balance of political, social, economic and technological factors that have influenced NSW gambling policy development at any given point in time or over an extended period. With respect to the regulatory developments examined in this chapter, the contextual factors relevant to each have resulted in a pattern of regulatory activity that is analogous to the punctuated equilibrium construct proposed by
Krasner (1984), which was discussed in Chapter 2. That the development of gambling in NSW has involved occasional, major legislative events that have spurred the growth of gambling, and which have been interspersed with subsequent periods of lesser regulatory activity is substantiated in this chapter. Furthermore, a more temporally compact example of such behaviour is apparent during the rule of the Carr governments.
It has been observed that there is strong evidence of an ad hoc element to gambling regulation in
NSW, and that this of itself is well characterised by the conceptual framework of punctuated equilibrium. However, it must also be acknowledged that although the series of major legislative events examined herein have been ad hoc in the sense of their context dependency, it cannot be said that there has been no broad pattern to the direction in which regulation has taken gambling in the State. As such, there is one further public policy paradigm raised in Chapter 2 which is highly relevant in gambling regulation, particularly as it relates to poker machine or
EGM gambling.
The concept of incrementalism (Lindblom, 1959) is descriptive of the development of EGM policy, particularly over the last half of the century and into the Carr premiership. From legalisation in 1956, to the introduction of AADs into hotels in the 1980s and through to the full expansion of EGMs into hotels in 1996, gaming policy has been progressively expansive, each piece of legislation informed by` those preceding it.
142 To view incrementalism in EGM gambling policy simply from the perspective of increases in the number of EGMs available in the State is, however, an inadequate expression of the incrementalist nature of EGM policy. If this were the sole measure of incrementalism, the 2001
Gaming Machines Act might be considered as a decisive break in incrementalist regulatory endeavours in this area of policy in NSW. Focusing on policy objectives and policy outcomes, a different conclusion suggests itself. As the 2001 Act was a product of the legislation preceding it, to the extent of its intended purpose of ameliorating the effects of earlier legislation, its enactment became a political, social and perhaps an electoral necessity. In other words, the 2001 Act can be argued to have been a logical next step in the development of EGM policy. Therefore, despite its objective of modestly reducing the number of EGMs, from a purely public policy perspective, the Gaming Machines Act of 2001 forms part of the incrementalist policy continuum, which has developed over time in response to the contextual influences discussed above.
The Productivity Commission (1999) suggested a number of ways in which such a sequence of policy determinations might be interpreted. The Commission (1999) concluded that “policies for the gambling industries are fragmented, inconsistent, and even in conflict”. These outcomes were resultant of “poorly defined policy rationales” and the “ad hoc” (p. 12.17) manner in which policy is formulated. These conclusions take a critical view of regulatory outcomes in
Australian gambling as a litany of failure of public policy practice.
The Commission (1999) also made a further observation on this matter which may be material to the connection between the 1996 and 2001 Acts, when it concluded that inconsistent policy outcomes “often also reflect historical accident and the evolving nature of the industry” (p.
12.17). Historical accident may, to an extent, be illustrated by the relationship between the
1996 and 2001 Acts. The Government introduced the 1996 legislation despite widespread concerns over its potential impacts. Subsequently, the broad 1999 Act and the more specific
2001 Act were introduced to counter the impacts of the 1996 Act. Such influence of the
143 evolving nature of the industry is suggestive of context dependency and the broader interpretation of regulatory incrementalism posited previously, to the extent that regulatory policy is an environmental factor in industry evolution or development.
The incrementalist model also complements the interpretation of gambling legislation as a process of punctuated equilibrium, which is inevitably influenced by context dependency. Both incrementalism and punctuated equilibrium are suggestive of a process of adaptation to the circumstances prevailing at any given point. This apprehension of the history of NSW gambling policy as a series of singular yet ultimately related events driven by the contemporaneous context surrounding each event is supported by the historical events observed in this chapter. The tendency for policy to develop in this way was observed by Colebatch
(1993), who observed certain cumulative policy events as being “linked, but separate” (p. 42).
As has been observed, although each of the other Acts examined in this chapter exhibit some characteristics of the alternate methods for developing new policy, the Carr Government era in particular addresses the question raised at the beginning of this section as to which consultative approach to policy formulation is likely to result in the most sustainable policy outcomes. There is robust evidence to support a conclusion that the 1996 Act was a result of “deals” involving exchange of economic and associated political advantage. The result was legislation which exacerbated the negative social impacts of EGM gambling, due to the resultant rapid increase in accessibility. Notwithstanding the further narrowing of the interest base resulting from the joint actions of the united liquor and gaming industry, the 2001 Act, as finally submitted to parliament, was a negotiated outcome between the government and relevant industry participants, the provisions of which were aimed at reducing negative outcomes of earlier expansionary policies. The effectiveness of such negotiated outcomes and the legislation this process produced is analysed in Chapter 5.
144 It should be noted that the diminution in the breadth of interests in gambling policy development is consistent with a shift toward corporatist characteristics as observed by
Warhurst (1993). Davis (1993) reinforced these arguments, identifying the roles of “policy elites” and the tendency for “tight policy communities” (p. 19) to reduce opportunities for broader engagement. These developments are evident in the progressively concentrated interests that have influenced EGM gambling policy in particular.
Although the output of the policy development process was positive at face value, it must be recognised that the consultative participation of each of the major parties to the process, and the outcomes that were negotiated, were dependent on the parties’ desires to protect their respective positions, while being seen to be making some concessions as to the need for remedial action to address the industry’s externalities. The effective role of government as a partner in the gambling enterprise means that, like its partners, the Government considered the preservation of its tax revenues, no less than industry participants considered maintenance of their profits, as far as could be achieved in the context of the legislation.
The evidence gathered suggests that the bargained, “corporatist” approach to gambling legislation evident in the development of the 2001 Act produced better quality legislation than was the case in respect of the “deal-making” approach which characterised the 1996 Act. This having been said, changes in context and circumstance required a determination of the
Government to engage with the industry in a process of policy change. In this respect the
Government of 2001 benefitted from what was surely an unintended consequence of the 1996 legislation. By broadening access to EGMs into hotels, the Government indirectly encouraged an alliance of convenience between the club and hotel industries. This was certainly beneficial to the Government in negotiating the 2001 Act, as it allowed the Government to confine its theatre of negotiating operations to one front, rather than simultaneously needing to address equity issues between clubs and hotels, while trying to drive through socially acceptable policy.
Along with the broader, unfavourable impacts, this is an example of how the apparently
145 contrary, successive policy initiatives of the Carr Governments had cumulative and sometimes unanticipated effects on the policy environment. Davis (1993) attributed such unanticipated consequences to failure in understanding of the policy context. There is evidence to support a conclusion that the genesis of the 1996 legislation in the lobbying activities of the hotel industry, and the obligations on the new Government that that entailed, may have resulted in such a failure.
The ad hoc element of a number of these major legislative events when each is considered in isolation is perhaps best demonstrated by recalling the stimuli for certain Acts: the effects of war for the Totalisator Act, the outcome of legal action for the Poker Machines Act, an astutely targeted industry campaign which correctly anticipated a change of government for the Liquor and Registered Clubs Legislation Further Amendment Act, and a response to the negative externalities of preceding policy for the Gaming Machines Act. Alternatively viewed as a series of policy decisions in one area of government responsibility, there is an overarching pattern, and, as discussed above, it is incrementalist in nature. As noted throughout this chapter, there are thematic links and commonalities between the punctuated legislative events, enacted decades apart, which are the basis of this generally incrementalist pattern.
In conclusion, the history of NSW gambling policy may not be atypical of policy making in other fields. However, there are particular features of gambling policy that stimulate public and political interest. The influence of gambling taxation revenues on state budgets and the increasingly high level of public awareness of the negative externalities related to problem gambling place particular obligations on government to be seen to be “getting policy right”.
Although there is some evidence that this has not always been the outcome of gambling policy endeavours, the flexibility inherent in such fluid and ad hoc policy-making practices has permitted responsiveness to changes in the gambling environment that may not have been as manageable under the strictures of adherence to such a predetermined policy-making typology.
146
This chapter has focused on the long-term development of gambling regulation in NSW.
Features of earlier policy and legislation are evident in the Carr Governments’ approaches to
EGM gambling regulation. The three critical pieces of EGM-related legislation produced in the period 1995 to 2005 clearly impacted on the fiscal and social circumstances of communities across the State. The existence or likelihood of these impacts arising is in some respects a matter of the perception of the observer. Although over time the most persuasive of these influences at any point may have changed, the evidence presented in this chapter strongly indicates that a number of the influences that were abroad in 1906 still remained relevant in 2001. It is the weight of the influence of these various perspectives and influences that has altered most markedly over time.
This chapter has demonstrated that in general terms, the development of gambling policy in
NSW has been increasingly impelled by fiscal imperatives. Hogan and Clune (2001[c]) described the trajectory of NSW gambling regulation, and its apogee in the proliferation of
EGM gambling, in the following terms;
By the end of the century, as at the beginning, social commentators were pointing to
the evident social disasters caused by such widespread gambling facilities. Now,
however, government income had become so dependent on gambling taxes that no
major party could seriously contemplate anything but minor regulation of the
phenomenon (p. 417).
This increasing reliance on gambling tax revenues applies to much of NSW gambling history, from 1916 onwards, including the period 1995 to 2005. Chapter 4 examines relevant taxation theory in view of the increasing importance of taxation in NSW gambling regulation established in this chapter. This is then applied to the specific approaches adopted in relation to the poker machine and EGM gambling legislation examined in this chapter, and the intervening adjustments to gaming machine tax policy that were interspersed between these major policy
147 events. However, it is principally the effects of the 1996, 1999 and 2001 legislation and their influence on the fiscal and by association socioeconomic, circumstances of the State generally and of communities at LGA level within the State in the periods subsequent to these Acts that will be further analysed in Chapters 5 and 6.
Key Findings – Chapter 3
Commencing with the passage of the Totalisator Act of 1916, gambling
legislation has been increasingly driven by government revenue needs.
Gambling regulation in NSW has been generally expansionary, with the
exception of later legislation in the Carr Governments’ terms, which was aimed at
mitigating the effects of earlier legislation.
Expansionary legislation has commonly involved the legalisation of new or
previously available but illegal gambling technologies.
As expansionary legislation has often been coupled with new or increased
taxation measures, gambling regulation has in effect become an instrument of
fiscal policy.
Although individual episodes of gambling are unrelated, there are observed
commonalities and precedents established which link successive Acts. This is
most apparent in the accretive progression of EGM regulation.
148
Chapter 4
Gambling Taxation Theory and its Application to Gaming Machine Taxation Policy and Practice in New South Wales, 1956 to 2005
4.1 Overview
The historical review of gambling regulation in NSW undertaken in Chapter 3 demonstrated the progressively greater primacy of revenue-raising as a driver of government policy. This progression was identified by McMillen and Eadington (1986) and Smith (1999), who noted that the increasing role of state governments as “gambling entrepreneurs” resulted in “gambling policies aimed squarely at maximising public gambling revenues” (Smith, 1999, p. 4). Van Damme (2007) placed some structure around the entrepreneurialism proposed by
McMillen and Eadington (1986). Van Damme observed that through regulation, governments effectively establish artificial monopolies, which restrict competition, in order to control the level of gambling, while preserving access to public revenue streams. Such monopoly status was afforded to the registered clubs of NSW as a result of the 1956 Act. In the modern EGM environment, the industry remains oligopolistic, being largely concentrated in the club and hotel industries, with the State’s casino being the third EGM operator.
Dunstan (1997), Marshall (1998), McGowan (2007), Collins (2007) and Adams (2008) also nominated public revenues as the key motivation for the expansion of gambling, with these studies addressing a number of national jurisdictions. Productivity Commission Chairman Gary
Banks (2002) characterised the weighting of regulatory considerations in the following manner:
“regulation was found to be driven mainly by revenue-raising and probity considerations, rather than the more fundamental objectives of consumer protection and amelioration of social costs”
(p. 8).
149 Marshall (1998) observed with particular relevance for Australia and NSW, that “Cash-strapped regional governments perceive gambling revenue as a boost to their dwindling coffers” (p. 237).
It has been demonstrated that such a description is characteristic of several of the major gambling policy initiatives of twentieth century NSW governments. This was particularly the case with the 1916 and 1956 legislation, and given the scope of the expansion, an inherent consequence of the 1996 Act.
Given the importance of taxation in NSW gambling policy, an examination of EGM regulation in the context of relevant taxation theory is warranted. The ramifications of adopting taxation as a core policy objective and the manner in which that policy is enforced are relevant considerations in assessing actual policy outcomes. In order to achieve these objectives, this chapter examines three aspects of gambling taxation and its implications. Firstly, an examination of the political economy of gambling taxation is undertaken, which leads to a broader exposition of taxation theory and practice. Secondly, the chapter explains the approaches of NSW governments to regulation and taxation of poker machines, and subsequently EGMs in NSW, since their legalisation in 1956, and particularly in relation to the period 1995 to 2005. Thirdly, it discusses the distortive effects of EGM policy, and the manner in which this affects the nature and behaviour of the market for EGM gambling in the State.
This discussion provides a lead into the empirical analysis of these impacts and behaviours reported in Chapter 5.
4.2 Aspects of the Political Economy of Gambling Taxation
Chapter 3 reviewed almost a century of key political and public debate over gambling regulation in NSW. As was demonstrated, interest in this area of policy has historically been impelled by a number of motivations which were discussed in detail in that chapter. In terms of political motivations, revenue-raising, social welfare impacts and, to a progressively lesser extent, the
150 suppression of illegal gambling, were found to have been the major stimuli for regulatory action.
The progressively more dominant influence of revenue-raising in gambling policy implies that there should notionally be some basis in economic principles on which to establish policy positions. Similarly there are also attendant economic consequences that result from these decisions. Inevitably, these decisions also entail concurrent political considerations and consequences (for example, Toneguzzo, 1996).
Due to the discretionary nature of gambling participation and the associated exposure of certain consumers to what is considered as a ‘voluntary’ tax liability (for example, Smith 2000;
Worthington, 2007), these politico-economic consequences are the subject of some academic conjecture. As was observed in Section 1.1, gambling taxes are considered as “politically easy” to impose (Smith 2000, p. 128). This perception is reiterated by various sources, including the
Productivity Commission (1999), O’Neil and Whetton (2002) and Pickernell et al (2004).
Collins (2007) succinctly expressed this phenomenon, when he observed that gambling taxes are “comparatively unresented by those who pay them and approved of by those who do not” (p.
636). There are political ramifications of relying on this assumed ease of implementation to access a source of public revenue. A number of the more salient issues are discussed below.
Smith (1999) asserted that the continued reliance on gambling tax revenues by state governments provides them and their federal counterparts with the means for avoiding tax reform. The means by which this has been achieved in NSW were discussed in Chapter 3, particularly in relation to the 2001 legislation. Simmons (2006) proposed that: “Extra tax revenue is easier to capture from a new source than by raising existing taxes” (p. 372). It follows from this reasoning that the introduction of a new form of taxation, or even more so, the maintenance of an existing tax that is relatively narrowly based and therefore affects a lesser proportion of the public than may broad tax reform, is likely to cause even less consternation
151 among the electorate. It is clear that gambling taxes, with the added element of their elective nature, provide an attractive opportunity to increase government tax revenues without incurring widespread political and electoral risk.
The argument made by Adams (2008), for example, is essentially that, given the indifference to gambling taxes assumed to be prevalent among the majority of the electorate, it is politically less risky to maintain reliance on these taxes than to reduce them. For example, a consequence of a reduction in gambling taxes may be the need to substitute for the lost revenue that this action would engender. A government may need to impose other taxes, potentially affecting more taxpayers and also potentially negatively affecting a government’s electoral standing to a greater degree than would be the case if the status quo were maintained.
Notionally, an alternative source of compensatory tax revenues for the Australian states under the fiscal federalism model observed in Chapter 2 may be an increase in tax distributions from the Commonwealth. The relationships between the publication of the Productivity
Commission’s 1999 report and the negotiations surrounding the subsequent introduction and distribution of the GST were discussed in Chapter 3, and provide an example of such a compensatory approach. In that instance, the Commonwealth adopted an interventionist position toward the state-level policy area of gambling regulation, including suggesting the prospect of tax trade-offs for concessions made at state level. As was observed previously (see Section
3.5.3.1), the prospect of state governments reducing taxes on introduction of the GST was at least contemplated in the process of developing that policy. However, this example relates to a federally-driven initiative, with implications for all state jurisdictions. Within the confines of
Australian fiscal federalism, featuring a level of vertical fiscal imbalance which Garnaut and
Fitgerald (2002) described as having “no parallel in other federal systems in developed countries” (p. 291) 43 and thus with the majority of fiscal power concentrated with the
43 See also Henderson (1990, p. 92), who similarly described this imbalance as ‘extreme relative to other industrial country federations’. 152 Commonwealth, it is quite another thing for a state government to take unilateral action to reduce its own-source tax revenues, and then expect the Commonwealth to fill the fiscal void.
Another aspect of the Commonwealth’s interventions associated with the introduction of the
GST, and its subsequent gambling policy interventions, relates to problem gambling and the inequities of gambling taxation. Primarily at issue is the regressive nature of gambling taxes.
This regressivity is very broadly acknowledged in the literature (for example, Freebairn, 1997;
Livingstone, 2001; Worthington 2001; Doughney, 2002; Marshall and Baker, 2002; Pickernell et al, 2004; Collins, 2007; Adams, 2008; Meich, 2008). In effect, the same rates of tax apply to all EGM gamblers, but in proportional terms, the tax operates inversely to the income of the gambler, wherein the lower the gambler’s income, the higher the relative proportion of the tax impost to that income. It is this regressivity that is a major source of the perceived concentration of problem gambling among lower socioeconomic groups. Livingstone (2001), citing The Australian Council of Social Services (ACOSS) research (1999) proposed that in fact the GST may indirectly exacerbate regressivity, contending that the tax “provides substantially greater benefits to the affluent than it does to the poor” (p. 55), due to the manner of its redistribution. There may also be an additional unintended outcome of the Commonwealth’s actions, which provides a specific example of the avoidance of tax reform suggested by Drabsch
(2003). In Chapter 2 it was observed that despite the purported ameliorative intentions of the
Federal Government, the extension of its interventions into the area of problem gambling may have inadvertently provided state governments with the opportunity to amplify state-level activity in the social policy area, diverting attention from effective inaction on the taxation elements of gambling policy. The separation of the regulatory and tax components of the Carr
Government’s 2001 legislation was identified in Chapter 3 as an example of this behaviour.
As was observed in Section 1.1, in the course of its research, the Productivity Commission estimated that 82 percent of Australians participated in some form of gambling over a twelve month period. Furthermore, in respect of problem gambling, the Commission (1999) concluded
153 that there are “few clear socio-demographic factors that predispose people to a higher likelihood of developing problems” (p 6.59). It is evident on the basis of these findings that EGM and other gambling and the taxes associated with gambling participation are likely to be distributed across a broad cross-section of the NSW population. However, despite this distribution of participation and resultant impacts across the populace, the tax burden associated with gambling activity is proportionally more onerous for lower-income earning gamblers. The agglomeration of lower income households in geographic areas may thus further exacerbate these negative externalities.
It was noted previously that the “voluntary” nature of these taxes, as noted, for example, by
Clotfelter (2005), Pickernell et al (2004) and Pierce and Miller (2007), is considered as a source of comfort to legislators on the basis of the perceived indifference of much of the population to these taxes. Contrarily, however, Meich (2008) argued that the regressivity of gambling taxes is such that caution is required in determining the structure and level of taxes, lest they become
“so regressive that it is politically unpalatable” (p. 465). Henriksson and Lipsey (1999) in discussing the expansion of gambling in the Canadian provinces, observed such a political backlash, noting that due to “public resistance”, the “prospects for using gambling as a substitute for modest increases in taxes or modest reductions in expenditures are waning” (p.
260). This observed outcome is contrary to the positions enunciated by Smith (1999), Simmons
(2006) and Adams (2008), which essentially emphasised the ease of imposition of gambling taxes. The cases cited by Henriksson and Lipsey (1999) suggested that the public resistance was based on negative perceptions of the impacts of casinos on local communities and economies. What these findings do emphasise in common with the dissenting sources is the power of a mobilised electorate to influence policy development, as should be anticipated in a functional democracy.
Thus, the issues related to the discretionary nature of participation in EGM gambling and the regressivity of the related tax imposts are potentially sources of some political risk for
154 governments, dependent on the level of taxes imposed and the extent to which the distribution of EGM gambling access or opportunity exacerbates the outcomes of regressivity. This dichotomous aspect of gambling taxation policy design is mirrored in the options available to governments for correcting these impacts. As observed by O’Neil and Whetton (2002), a reduction in taxes may act as an incentive to further gambling, nullifying any equity benefit. An increase in taxes intended to deter or inhibit gambling may worsen the impacts on problem gamblers unable to adjust their expenditure to allow for such a change. The likelihood of the latter outcome may be increased as a result of the reported difficulty in establishing the “price” of gambling (for example Productivity Commission, 1999; Clotfelter, 2005). This is because the consumer may be unable to discriminate changes in the tax impost due to the ambiguity surrounding price (Clotfelter, 1999). Paradoxically, this same issue of lack of clarity in respect of price may have the opposite effect in the instance of the reduction in tax rates. Consumers may be unresponsive to such a change due to the lack of a discernible change in price. It is concluded that both scenarios are indicative of the inelastic nature of gambling demand.
Freebairn (1997) characterised the general challenges of determining politically appropriate taxation policy settings thus; “the tyranny of the status quo places a large burden on political acceptability of reform options which adversely affect people in the lower and middle socioeconomic groups” (p. 60). Although Freebairn (1997) was discussing tax reform in general, the description is apt in relation to gambling taxation. Forrest (2007) implied that in any event, such breadth of reasoning is absent in the policy development process, the key determinant being what a government can enact without harming its electoral prospects.
Eadington (1999), and Forrest (2007) suggested that “users of gambling services are treated as
‘second class citizens’ when public policy is constructed and debated” (Forrest, 2007, p. 103), concluding that the key gambling policy issues, including tax structures, are “routinely evaluated with no consideration at all of impacts on consumers” (Forrest, 2007, p. 103). The 1996 expansion of EGMs into hotels may be considered to represent an example of such a policy oversight.
155
Despite this suggested lack of insight regarding the consumer perspective, as was previously posited, the political and economic objectives and consequences of governments’ approaches to gambling taxation are such that some basis in economic theory suggests itself as a necessity for ensuring something approaching sound policy development. The following sections examine relevant taxation principles, and the extent to which their application has been practiced or, conversely, eschewed in NSW EGM gambling regulation.
4.3 General Tax Design Criteria
The literature on gambling taxation frequently places the determination of appropriate tax design within the context of what is described by Clotfelter (2005) as “conventional tax analysis” (p101). Central to this analytical framework are three criteria identified by the
Productivity Commission (1999, p. 19.14), Clotfelter (2006, p. 101) and Potter (2005, p. 22):
Economic efficiency. This entails that taxes do not affect the operation of the relevant
market or the decisions made by market participants;
Equity, which requires that taxes are levied with regard to the ability of an economic
entity to pay the tax; and
Administrative simplicity, which describes the cost to government of imposing and
collecting the tax.
There are variations and expansions on these three criteria within the literature. Paton, Siegel and Vaughan Williams (2001) identified the criteria as “equity, social costs, government revenue and economic efficiency” (p. 437). It is considered that the expanded criteria of Paton et al (2001) are primarily semantic in nature. Social costs are likely to be captured within equity considerations, whereas government revenue has both administrative simplicity and economic efficiency aspects to it.
156 Potter (2005), while noting that “most state taxes do not meet these criteria”, also postulated a fourth consideration, which he described as “ad hoc exemptions” (p. 22). According to Potter
(2005), such exemptions are a tax design issue to the extent that they may be employed on occasion to stimulate specific business activity in a state. There is some historical evidence of this phenomenon in the field of Australian gambling regulation. For example, the gambling operator Tattersalls has at various times in its history been legally based in NSW, Queensland,
Tasmania and Victoria, dependent on the extent to which each state’s regulatory environment permitted its operations at the relevant time. In particular, Tattersalls’ final move from
Tasmania to Victoria in 1954 entailed negotiations with the Victorian Government, which were apparently productive enough to induce its relocation (O’Hara, 1988). The additional tax concessions afforded to the club sector in relation to the Liquor and Registered Clubs Further
Amendment Act 1996 might also be considered as a variation on Potter’s (2005) ad hoc exemptions, inasmuch as they were essentially enacted in order to marginally augment club industry revenue streams as compensation for any impacts of the hotel expansion entailed in the legislation.
Such approaches have also been acknowledged in other jurisdictions, where the legalisation or liberalisation of gambling is seen as an economic development strategy (for example,
Lindaman, 2007; McGowan, 2007; Adams, 2008). As discussed in Chapter 2, there is an acknowledged tendency toward ad hoc regulation in NSW gambling history, which equates to punctuated equilibrium or disjointed incrementalism. From this perspective, Potter’s criterion has some influence, especially given the historical propensity for occasional expansionary legislation to be coupled with tax legislation. Nevertheless, the ad hoc facilitative criterion proposed by Potter (2005) is specific to certain limited circumstances, and due to its occasional nature, it is posited that its role as a general consideration in gambling tax design is not conclusively established.
157 Freebairn (1997) also proposed four criteria, being: “revenue raising, neutrality and efficiency, equity and fairness and simplicity and continuity” (p. 60). Although these four criteria are thematically similar to the three proposed by the Productivity Commission, two of Freebairn’s
(1997) additional measures are pertinent. As explained by Freebairn (1997), the aim of neutrality in taxation design is to promote economic efficiency, by designing tax policy that has
“neutral effect on economic choices of households and businesses” (p. 60) (or, in the present context, gamblers and gambling providers). Given the evidence considered previously in relation to the perceived indifference to gambling taxation of the majority of the population and indeed gambling consumers, neutrality may be considered to have been achieved in respect of the majority. This however conceals the fact that in the case of the small minority of the population dealing with problematic levels of gambling, consistently assessed by the
Productivity Commission (1999; 2010) as being around three percent of the adult population nationally, such neutrality is, contrarily, very difficult to achieve. This difficulty is perhaps best illustrated by the examples provided by O’Neil and Whetton (2002), as previously cited.
The issue of continuity also warrants consideration. Freebairn (1997) described the joint criteria of simplicity and continuity in these terms: “Ceteris paribus, the simpler, more robust and more stable the tax system, the better” (p. 60). There is some thought that gambling taxes are not among the most stable or sustainable forms of taxation. Clotfelter (2005) stated that variability in demand for products subject to excise taxation, such as EGM gambling, which constitute a
“narrow source of revenue”, are “subject to greater instability than a broad based tax” (p. 111).
For example, EGM taxes, which are levied only on EGM gamblers, are less broadly based than income taxes, which are levied against all persons earning incomes above a mandated threshold.
As a result this reasoning concludes that EGM taxes are to be considered a less reliable source of revenue. Smith (1999) cited a number of authorities who concurred with this position44. The narrow base of the tax is once again identified as being likely to introduce volatility and cause
44 Szakmary and Szakmary (1995); Clotfelter and Cook (1989); Collins, Hunt et al (1988); Mikesell and Zorn (1986); Weinstein and Deitch (1974). 158 “uncertainty and difficulties for budget management and planning” for government (Smith,
1999, p. 12). Examples of this variability were identified in Section 1.1, with some variance evident despite an environment of continual expansion.
Adams (2008) proposed four stages in the development of expansionary gambling policy, which may be considered as representing a regulatory parallel to the product life-cycle for a gambling product such as EGMs. The four stages are emergence, regulation, liberalisation and normalisation. In the third of these stages, liberalisation, Adams suggested that one of the foci of government is “to plan management of the resource in such a way that the income is protected in a long-term sustainable fashion” (Adams, 2008, p. 33). It is evident that this work of government is associated with addressing the budgetary instability which is reported as being inherent in gambling taxation. The level of academic interest in the issues of neutrality and continuity identified by Freebairn (1997) render these policy aspects worthy of consideration.
However, these may also be subsumed into the three major criteria. Neutrality has both equity and efficiency implications. Continuity has clear implications for efficient tax design.
Returning to the three overarching tax design criteria, these provide a framework in which the various models of gambling-specific taxation may be assessed. The following sections identify gambling taxation from two perspectives;
1. the nature and objectives of gambling taxation; and
2. taxation approaches appropriate to gambling, and specifically EGM gambling.
These two aspects are then assessed in the context of the tax criteria discussed above.
4.4 Taxation Theory: The Nature of Gambling Taxes
Relevant literature on taxation generally includes gambling within what Eadington (2007) described as the “morality industries” (p. 72), or which Lindaman (2007) considered as those areas of public policy which are the subject of “morality politics” (p. 275). Evidence was
159 presented in Chapter 3 which substantiates the inclusion of gambling, and specifically EGM gambling as an example of such an industry. There are commonly two policy objectives addressed by the implementation of taxes on these industries, which, along with gambling, include most prominently tobacco, alcohol, pollution and driving, among others (Scutella, 1999;
Cnossen, 2006).
The generation of public revenues is one of these objectives. The other objective which may be addressed by such taxation policy relates to the propensity for the activities described above to generate externalities. These externalities may impact on uninvolved parties, calling into the question the propriety of social acceptance of these activities or products. A result of this is the nomenclature of morality industries and morality politics (Eadington, 2007; Lindaman, 2007).
Tobacco, alcohol and pollution may result in public health costs, for example. Alcohol and gambling may result in various social costs. Driving may result in costs relating to road maintenance, pollution and accident-related casualties. The influence of this second objective on policy in NSW gambling regulation is also illustrated in the previous review of regulatory policy, to the extent that certain policy initiatives, such as the Acts of 1906, 1999 and 2001 in particular, purposively sought to address social impacts and/or costs. The status of gambling as such an industry was described by Quiggin (1985), who observed that “Gambling is one of an interesting class of activities which, having initially been regulated on moral grounds, are treated by less puritanical governments as sources of revenue” (p. 96). The description is apt in view of the history observed in Chapter 3, notwithstanding that the stated shift from puritanism to fiscal pragmatism was also a reflection of broader societal change.
The taxation of these industries is terminologically defined in a number of ways in the relevant literature. Cnossen (2005) and Clotfelter (2005) defined gambling taxes as a form of excise taxation. Cnossen (2005) described the features of excise taxation as being “selectivity in coverage, discrimination in intent, and often some form of quantitative measurement in determining the tax liability” (p. 1). Scutella (1999) classified gambling taxes as a form of
160 indirect taxation, referring to the fact that the tax is not exacted directly on the party with whom ultimate responsibility for its payment resides. Rather, the tax is levied through secondary means. Alternatively, Albon (1997) described gambling taxes as a direct tax on consumption.
Each of these broad descriptions may in part be supported by the practice of EGM taxation policy in NSW. EGM taxes are selectively applied inasmuch as they are levied only against users of EGMs, rather than against the broad community as is the case with income taxation, as previously described. This selectivity is analogous to Albon’s (1997) description of a consumption-based taxation, whereby the tax is levied only against consumers of EGM gambling. The discriminatory nature of such taxes referred to by Cnossen (2006) is similarly bound up with their application to EGM gambling, and the incidence of the tax on specific consumers. There is a quantitative element in calculating the EGM tax liability, as the tax is imposed ad valorem, as a function of the extent of player losses (alternatively defined as gambling providers’ gross profits). As observed by Scutella (1999), although the tax is ultimately paid for by the gambling consumer, it is levied against the gambling provider. This indirect collection mechanism is defined as the statutory incidence of the tax. As Scutella (1999) explained, this “shows who actually writes the cheques to the government” (p. 350), as opposed to with whom ultimate responsibility for its payment resides.
In Australia, the issue of the conflicting definitions of excise taxes and their effects may have been exacerbated by the High Court. Mathews and Grewal (1997) stated that the Court had displayed “a rudimentary ignorance of the economic significance of different kinds of economic activity”, and had “continued to decree that taxes on consumption were taxes on production and were therefore excise taxes” (p. 18). It appears that the classification of gambling taxes may be a matter of the perspective taken by the observer.
The consistent theme of selective application of the taxes was succinctly encapsulated by
Freebairn (1997), who concluded that indirect taxes are in one part “crude forms of user pays
161 charges” and in the second part “charges for externality effects” (p. 59). Combining these two observations, the rationale for the taxes is that the user pays for the negative impacts of their activities. This explanation, at least superficially, demonstrates the ease of implementation of gambling taxes, particularly from the perspective of the large proportion of the population that does not gamble regularly.
The modern economic rationales for these two taxation approaches are generally attributed to two contemporaneous English scholars, Frank Plumpton Ramsey (1903-1930) and Arthur Cecil
Pigou (1877-1959). The contributions of Ramsey and Pigou are outlined in the following sections.
4.5 The Ramsey Rule
The ‘Ramsey Rule’ for optimal commodity taxation stipulates that the rate of taxation should be determined inversely to the elasticity of demand of a given commodity. Cnossen (2006) describes the rule in this way: “as long as goods are unrelated in consumption, tax rates should be higher on the good with the lower elasticity” (p. 3).
That overall demand for gambling products is inelastic is generally recognised in the literature on gambling taxation (see, for example Smith, 2000; Clotfelter, 2005; Productivity
Commission, 1999; Paton, Siegel and Vaughan Williams, 2001). In particular, the Productivity
Commission (1999) stated that demand for EGM gambling “appears to be insensitive” (p.
19.16), but conceded that quantification of such elasticities for various modes of gambling is difficult due to the lack of reliable information (Productivity Commission, 1999). Smith (2000) expressed the prevailing position thus: “empirical research on the elasticity of gambling demand has provided little practical guidance along these lines for taxation policy and design”
(p.134). However, such inelasticity as has been assessed or inferred may be considered as
162 providing some justification for the imposition of higher specific taxation on EGM gambling in
NSW under a Ramseyian approach.
The extent to which EGM gambling can be considered to be ‘unrelated in consumption’ is an area of conjecture. There is considerable variance in the range of gambling activities which are legally available in NSW, and there are a number of factors which affect the extent to which these forms can be considered as substitutes for each other. Firstly, gambling activities vary in the manner in which the activity is undertaken. For example, wagering on racing and sports betting may involve a certain amount of effort, skill or knowledge on the part of the gambler
(for example, Productivity Commission, 1999). Conversely, for example, the purchase and
“playing” of an instant lottery ticket or the playing of an EGM can be considered to be significantly less sophisticated gambling activities. O’Hara (1988) was blunter in describing this feature, noting that the poker machine “offered no intellectual challenge” (p. 199). Furthermore, physical accessibility to other forms may also affect the extent to which different modes are substitutable. For example, in NSW, certain gambling activities, such as table games, can only legally take place in the State’s sole casino, in Sydney. This geographically-based restriction of access acts to reduce the extent of participation in these forms of gambling.
On these bases, there is support for a position that some gambling forms are not substitutes for other forms, and may thus be seen as “unrelated in consumption”. Supporting such a conclusion, the Productivity Commission (1999) observed that “there appears to be only limited substitution of one gambling form for another by consumers” (p. 19.17)45.
Conversely however, the Commission (1999) also noted that “people often gamble on many different forms of gambling” (p. 6.52). This suggests that there may in fact be some level of substitution. However, the Commission’s (1999) consideration of this latter phenomenon chiefly revolves around the difficulties this introduces to the attribution of the problematic
45 This position is also reiterated in Appendix C, p. C.5 of the Productivity Commission report. 163 gambling behaviours of individuals who participate in more than one form of gambling.
Despite this confounding factor, the evidence presented by the Commission (1999) supporting a conclusion that individual gamblers tend to prefer their favoured mode of gambling, thus limiting the extent of substitution, is more robust than that presented in support of the counter- argument on the use of multiple modes, due to its broader applicability to the total market of gambling consumers rather than problem gamblers specifically46. Despite the presence of such preconditions, which may support the imposition of taxes based on the Ramseyian approach, their application in the context of the taxation criteria described above is problematic.
The Productivity Commission (1999) observed that a Ramseyian approach is “sound in principle” (p. 19.15). This observation is made on the basis that, as observed above, the relatively inelastic demand for gambling renders it suitable for such a taxation structure on efficiency grounds. However, the issue of ambiguities surrounding price and elasticities remain major impediments to the adoption of such an approach (e.g. Smith, 2000; Productivity
Commission, 1999).
The extent to which Ramseyian taxation would promote equitable outcomes may also be questioned. Although it is possible to argue that equity is served by levying the tax only on
EGM users who implicitly accept the tax burden, the effects on this group, and in particular on those with problematic behaviours, may exacerbate inequity. This potential for more inequitable outcomes is emphasised by the previous discussion on the regressive nature of gambling taxes.
Considering these constraints, and the complexity of determining and applying different tax rates to different gambling products based on their respective elasticities, such an approach would generate significant administrative costs and reduce administrative manageability, to the
46 The Productivity Commission’s (1999 Chapter 6) argument on the prevalence of substitution of forms related to the attribution of the source of a gambler’s problematic behaviours in circumstances where the gambler participates in more than one form of gambling, not in terms of general gambling behaviour (p. 6.52). The Productivity Commission’s (1999, p. 19.17) commentary in relation to the limited extent of substitution of forms was made in the context of the broader gambling market, and was not restricted to the behaviours of problem gamblers. In a general consideration of gambling and its taxation, the latter argument is considered more applicable. 164 extent that the Productivity Commission (1999) concluded that “Ramsey pricing is impractical for general application to a tax regime”
(p. 19.18).
4.6 The Pigouvian Prescription
Pigou’s 1920 postulate was that for goods which generate externalities and the associated costs, the level of taxation should be determined on the basis of “correcting” such costs. The taxation of morality industries has been discussed previously. The Pigouvian prescription may be considered as having evolved from the related concept of “sin taxes”, which have historically been imposed on goods which entail some identifiable external costs (for example, Smith 2000), or some level of community disapproval (for example, Clotfelter 2005). As has been illustrated in Chapter 3, there is robust evidence to suggest that the latter has been progressively less influential as a policy-making consideration in NSW gambling regulation, whereas the former has increased in importance. This is particularly more evident in the latter half of the period of the Carr governments.
There are various external costs imposed on the broader community as a result of gambling problems encountered by individuals in general and in particular in relation to EGM use. The
Productivity Commission (1999) identified a number of such externalities, based on a comprehensive review of the available evidence. In broad terms these costs are associated with a range of impacts including financial difficulties, mental and physical health problems, family breakdown and crime related to problem gambling. The existence of these costs may be interpreted as providing some justification for a Pigouvian approach to taxation.
As is the case with Ramseyian theory, there are practical problems with the application of
Pigouvian taxation. Issues with respect to the taxation of different forms of gambling and administrative complexity also apply in respect of Pigouvian theory, to the extent that Meich
165 (2008) observed that the Pigouvian approach is “so far impractical, if not impossible, in the gaming context” (p. 463). With specific reference to Australian practice, Smith (2000) cited
Chapman et al (1997), in concluding that Pigouvian approaches “are not predominant in the design of gambling taxes” (Smith, 2000, p. 135). Similarly, Freebairn (1997) found that “there is no strong supporting analysis that the high levels of current indirect taxes on these products47 reflect the net externality effect” (p. 63). Freebairn (1997) identified alcohol, tobacco, petroleum products and “perhaps” gambling as being among these products (p. 63).
In the context of the tax design criteria, Pigouvian taxation is, as has been previously observed, administratively complex, requiring determination of appropriate levels of taxation for various forms of gambling. The Productivity Commission’s (1999) commentary on the tendency for problem gamblers to participate in more than one form of gambling was previously noted. In the gambling context, Pigouvian taxation would purposively address negative externalities relating to problem gambling. Structuring taxes to accurately apportion corrective levels of taxation, in such a confounded environment, is notionally problematic.
The issues surrounding the administrative complexity of this approach may also be considered to have equity implications. If, for example, the tax on EGM gambling was increased in order to correct associated negative externalities, this may serve to exacerbate the extent of problems encountered by certain EGM gamblers, as has been previously observed (refer to Section 4.2).
With respect to efficiency, the extent to which Pigouvian taxation affects markets may vary, depending on the perspectives of market participants. The inelastic nature of gambling demand indicates that from the direct perspective of the EGM gambler, a change to taxes based on this approach would not affect the operation of the market. However, from the perspective of the gambling provider, such a change may negatively affect profitability, and may, for example,
47 Among which Freebairn (1997, p63) identified alcohol, tobacco, petroleum products and ‘perhaps’ gambling. 166 result in lower levels of community support expenditure as a compensatory reaction. This, in turn, may have indirect negative impacts on the community through reductions in supported facilities and services.
4.7 Application of Ramseyian and Pigouvian Theory to EGM Taxation in
NSW
The foregoing discussion indicates that some preconditions for application of Ramsey’s and
Pigou’s respective theories have historically existed in the NSW EGM gambling environment.
Nevertheless, the exposition of the regulatory history of gambling in NSW undertaken in
Chapter 3 does not provide any explicit reference to such thought being influential in the actual development and application of policy. Despite this absence of formalised Pigouvian tax structures in the legislation ultimately passed, there is some limited evidence that analogous approaches were at the least a consideration in policy debate. For example, it was noted in
Chapter 3 that Michael Bruxner, in the 1956 Poker Machines Act debate, advocated for some punitive element within the proposed tax structure, aimed at discouraging misuse of the machines. Support for such a conclusion is identified in Section 4.4. Given the limitations described with respect to both Ramseyian and Pigouvian approaches, it is concluded that, although elements of each may have been implicit in tax design, the development of a tax regime based on either concept is essentially impractical and has not been practiced in NSW.
Critically, the particular component of tax policy which is the intended focus of Ramseyian or
Pigouvian thought is the determination of the level of taxation to be applied to a particular commodity. The historical information examined relating to policy formulation and debates over this aspect of policy in NSW are essentially silent on the factors upon which levels of taxation are based. Thus the direct influence of these theories cannot be established. The
Productivity Commission (1999) reached a similar conclusion, finding that governments “send unclear signals about the underlying objectives” of gambling policies and have “generally not
167 revealed why there are variations in tax rates among gambling forms and venues” (p. 12.7).
Eadington (2007), when discussing gambling policy among European Union member states, concurred, concluding that “it is not unusual for governments to be unclear in stating their explicit objectives for legalisation or liberalisation” (p. 86). This lack of clarity has from time to time extended to the methods adopted for imposition of taxes on EGM gambling.
4.8 Methods Applied to Taxation of Gambling
4.8.1 Introduction
In addition to the objectives and imposed rates of gambling taxes, the various practical methods or approaches to taxation of gambling activities also warrant consideration. Different tax approaches or models may be employed for different forms of gambling, or, as has been the case in NSW, for the same or similar forms of gambling from time to time. In the observed history of gambling in NSW, this is perhaps best exemplified in the concurrent, different tax methods applied to hotel and club machine gaming in the period prior to the Carr Government’s first term, which are detailed subsequently. The common forms of taxation applied to regulated gambling activity are discussed below.
4.8.2 Licence Fees
Fundamentally, licence fees are a fixed impost on gambling operators, allowing them to conduct gambling activities. The role of such fees as a tax in establishing and maintaining “monopoly” rights to provision of gambling services has been discussed previously. The manner in which fees are applied varies, dependent on the relevant mode of gambling. For example, the licence to operate the casino in Sydney involved payment of an initial licence fee of $376 million
(Productivity Commission, 1999).
As is identified in the subsequent examination of NSW EGM taxation practice (Figure 4.1), licence fees were the initial method for taxation of poker machines upon legalisation in 1956.
168 Licence fees also applied to AADs on their introduction into hotels in 1984. Licence fees were also imposed simultaneously with additional taxes on the level of gambling activity at various stages during the development of the poker machine and EGM industry.
4.8.3 Turnover-based Taxes
Turnover taxes are levied on the total value of stakes laid, or “gross wager” as it was described by Clotfelter (2005, p. 92). Like profit-based taxes, this form of taxation is typically levied as a proportion of total activity. However, the incidence of the tax resides more with the gambling provider than is the case with profit-based taxes. The absence of provision for returns to players in the assessment of tax liability demonstrates that turnover taxes are an impost on the provider, as much as on the gambling consumer. Adopting a simplified example, if a consumer were to stake a total of $100 on a single bet, with an applicable turnover tax rate of five percent, the gambling provider would remit $5.00 to government in taxes. If this gambler ‘won’ back $50 of his total amount wagered and did not “reinvest” the amount “won”, the effective tax rate paid by the provider is ten percent, because the turnover tax is still levied on the $100 staked and remains at $5.00. Assuming the same tax rate of five percent and return to player circumstances under a profit-based tax, in respect of a consumer under the same assumptions, the proprietor would be obliged to remit to government five percent of $50, or $2.50 in taxes, on the residual player loss. In a sense, a turnover tax is levied on the number of transactions or bets, rather than the revenue remaining after outgoings. This is the key point of differentiation from profit-based taxation.
It should be noted that in practice in NSW, the rate of turnover tax which was applied to AADs in hotels prior to 1996 was significantly lower than the rate for profit-based taxes levied simultaneously on club EGMs. This relatively large differential in tax rates was simply an artefact of the different tax bases employed. Once taxation of profit became standard practice for both industry sectors under the first Carr Government, equivalence between the previous turnover tax and the newly-introduced profit-based tax rates for hotels was the basis for
169 establishing the revised tax schedules. The simplified example above provides some indication of the different effects of the two methodologies, and why, in order to derive equivalent tax yields, governments are compelled to impose higher rates of profit-based tax.
The illustrative example provided above emphasises some of the most important issues in the relative treatment of hotel and club machine gaming prior to the introduction of EGMs into hotels. The concessional treatment of club gaming revenues becomes apparent in such an analysis. The application of a turnover tax to privately operated hotel gambling activity is suggestive of an otherwise implicit determination to impose more onerous tax obligations on hoteliers, as compared to clubs. Although the concessional structure afforded to clubs in the form of taxation thresholds is a supplementary source of relative advantage, the simple comparison above demonstrates that if applied on the same basis, profit-based taxes are a priori, less onerous on the gambling provider than are those based on turnover.
The inequity that existed between the approaches to hotels (turnover-based tax) and clubs
(profit-based tax) was emphasised by Richard Face, the then Shadow Minister (NSW
Parliament Legislative Assembly Hansard, 9 September 1993, during the second reading debate on the Liquor Taxation (Amendment) Bill and the Registered Clubs (Taxation) Amendment Bill, when he stated:
To this day the hotel industry is far from happy with turnover tax. Under a previous
Minister, the tax was to apply to both the hotel and the club industry. The club
industry rebelled against turnover tax as against tax on profit, which is an Opposition
policy. It has been made plain to the Australian Hotels Association and to hoteliers
that it would be changed to profit tax but be revenue neutral in any subsequent
government. It is inappropriate to tax people on turnover. One industry is taxed on
turnover while another industry lobbied against the tax and is now taxed on profit
rather than on turnover (Face, p. 3004).
170 The respective further speeches of the Minister, Anne Cohen (Chief Secretary) and the Shadow
Minister in relation to this Bill provide no additional substantive information on the reasons for this policy duality. Importantly though, the Shadow Minister’s point in respect of the revenue neutrality of any subsequent change to profit-based taxation for hotels provides implicit support for the position that a change to a profit-based tax would equate to a shift in the incidence of the tax from the provider to the consumer. The effective rate of taxation was not to change, but the manner in which it was levied would transfer the actual incidence to the consumer as opposed to the provider. This was the source of the dissatisfaction of the hotel sector with, and the resistance of the club sector to, turnover-based taxation.
There is much evidentiary and practical support for the imposition of higher rates of tax on privately-operated gambling in NSW EGM taxation. Even after the introduction of EGMs to hotels and the attendant change from turnover to profit-based taxation, concessions and tax rates applied to clubs have remained relatively favourable as compared to those for hotels, as is subsequently demonstrated. As was discussed in Chapter 3, historically the mutual status of clubs has buttressed their claims for favourable tax treatment when compared to the large profits available to hoteliers as private gambling operators.
4.8.4 Profit-based Taxes
Taxes levied on profit may be based on various measures of ‘profit’. In relation to NSW EGM taxes, profit is defined as the residual of total turnover, less outgoings, the latter being the proportion of turnover returned to EGM user, the regulatory minimum return to player (RTP) in
NSW being 85 percent. Therefore, profit is equivalent to player losses. Clotfelter (2005) stated that this form of taxation most closely approximates excise taxes on other relevant goods, as its base effectively represents consumer expenditure. This implies that the incidence of this form of taxation lies with the consumer, despite the fact that the mechanism for collection of the tax, or its statutory incidence, may be via indirect means, as it is recovered from the gambling provider.
171 The commentary above on the parliamentary debates in relation to the 1993 Acts provides further supporting evidence for the position expressed by Clotfelter (2005).
4.8.5 Other Implicit Taxes
The introduction of the Gaming Machines Act 2001 introduced a competitive market for EGM operators, which permitted the trading of EGM entitlements between venues, rather than the continued issue of entitlements from DGR/OLGR. This functioned as a means for redistributing the pool of existing entitlements, rather than increasing it. A key feature of the system was a “forfeiture” provision (for example, Productivity Commission, 2010). In practical terms, EGMs were to be traded in blocks of two or three. For each block, one EGM was to be forfeited to the State (the revised Gaming Machines Act and Regulation, which came into force on 31 January 2009, now includes concessional forfeiture provisions in certain circumstances.
OLGR, 2009). For example, if a venue was to purchase three entitlements for $30,000 each (or
$90,000 in total) one of these entitlements would be forfeited to the State. As the venue did not receive the benefit of operating the machine associated with the third entitlement, the surrender of that entitlement represents a $30,000 regulatory (tax-equivalent) impost on the venue. This provision represents a further implicit tax of the nature of a licence fee, the incidence of which resides with the gambling provider as opposed to the consumer, as had earlier been the case with actual licence fees. Of course, it remains the case that ultimately, the source of the revenues generating all EGM-related taxes is the consumer. However, it is in the relativities of the accretion and distribution of profits, that such an impost represents a reduction in the profits of the gambling provider.
4.9 Club EGM Gambling Taxation in NSW 1956 to 1996
4.9.1 Comment on Tax Methods Applied
A number of the methods discussed above have been used in the taxation of machine gaming in
NSW since the legalisation of poker machines in 1956. The Gaming and Betting (Poker
172 Machines) Taxation Act No.18 1956 initially established a system of annual licence fees levied on each poker machine operated in clubs. The licence fees were progressively structured based on the coin denomination required to operate the machine. The fee structure as originally legislated is tabulated below.
Table 4.1
Poker machine licence fees – as legislated 1956
Machine (coin) Licence fee denomination One sixpence £50 One shilling £100 Two shillings £250 Each two shilling machine £350 in excess of five machines Coin/s equalling less than Proportion of £50 equivalent to sixpence or aggregating the proportion of coins to one less than sixpence sixpence
The subsequent development of poker machine taxation is set out in the following timeline of tax policy legislation prior to the election of the first Carr Government in 1995 (Figure 4.1).
Among the significant events recorded is the initial expansion into hotel machine gaming, in the form of approved amusement devices (AADs). However, the majority of regulatory activity post-legalisation involves changes to taxation methods and rates relating to club poker machines.
173 Figure 4.1: Timeline of significant poker machine & AAD tax legislation 1956-1993
Machine (coin) denomination Licence fee per machine Comments One sixpence £50 Gaming and Betting One shilling £100 (Poker Machines) Two shillings £250 Taxation Act No 18 Graduated licence fee per Each two shilling machine in 1956 £350 machine based on coin excess of five machines denomination of machine. Coin/s equalling less than Proportion of £50 equivalent to sixpence or aggregating less the proportion of coins to one than sixpence sixpence Number of machines/ coin Licence fee per machine Comments denomination Gaming and Betting 48 (Poker Machines) Five or less £125 Taxation In excess of five £175 Graduated licence fee based on Amendment Act Five or less two shilling (1) two-tiered coin denomination 49 £500 No 34 machines and (2) two-tiered size of Each two shilling machine in machine holding. 1959 £700 excess of five machines
Gaming and Betting Number of machines/coin Licence Fee per machine/ tax Comments (Poker Machines) denomination/ rate Taxation tax rate application Licence fees As per 1959 Amendment Act Licence fees maintained, with No 26 Supplementary licence tax 2s/1d per pound [£] [2 shillings & sixpence] introduction of tax on ‘net 1962 revenue’ (profit).
Licence Fee/ tax rate/ Licence fee per machine/ tax Comments Gaming and Betting concessional provision rate (Poker Machines) Licence fees As per 1962 Taxation Supplementary licence tax As per 1962 Concession for clubs earning Amendment Act 50% Licence fees maintained, ≤ £15,000 No 60 graduated tax on total ‘net Concession for clubs earning 50% less £1 for every £1 in 1964 takings’ (profit), concessions for >£15,000 excess of £15,000 smaller clubs. Supplementary licence tax 1d per pound [£] for clubs (sixpence) earning >£50,000
Gaming and Betting Number of Machines/ coin Licence fee per machine Comments (Poker Machines) denomination Taxation Amendment One sixpence or five cents $100 + $500 per machine for Act clubs operating multiple No 23 machines & One shilling or ten cents or $200 + $1,000 per machine for Gaming and Betting equivalent in other coins multiple machines (Poker Machines) ≤ Two machines of two $1,100 + $5,500 per machine for Introduction of decimal Taxation Further shillings or twenty cents or multiple machines currency. Graduated system of Amendment Act equivalent in other coins licence fees based on coin No 50 > Two but not in excess of five $1,200 denomination and number of 1966 >Five but not in excess of ten $1,800 machines. > Ten but not in excess of $2,400 Further Amendment Act twenty provided for updated > Twenty $3,000 supplementary taxes on net Coin/s equalling less than Proportion of $100 equivalent to revenues, including revised sixpence or five cents or the proportion of coins to one concessions for clubs with low aggregating less than sixpence sixpence + proportion of $500 net revenues. or five cents for multiple machines Supplementary licence tax 15% + 2.5% of revenues >$100,000 to $200,000 + 5% on proportion of revenue > $200,000
48 Applied to poker machines of all coin denominations other than two shillings 49 Effective 1 July 1960. Transitional provisions also applied which allowed for a 50 percent reduction in the licence fee for cessation (between 15 September and 31 December 1959) or commencement (between 1 January 1960 and 30 June 1960) of operation of such machines. In the case of all subsequent amending legislation, relevant transitional provisions also applied. 174 Various amendments to the Gaming and Betting (Poker Machines) Act Comments & Gaming & Betting Taxes on net revenues increased, (Poker Machines) with existing structure retained. Taxation Act Concession rate thresholds increased
1970 -1975
Gaming and Betting (Poker Machines) Further Amendment Act Comments No 130 Supplementary licence tax on 1977 net revenues reduced, existing & structure retained. Gaming and Betting (Poker Machines) Amendment Act No 109 1978
Gaming and Betting Provision for tax refund Comments (Poker Machines) One third refund on a minimum Introduction of tax relief for Amendment Act amount being 5% of net poker ‘community welfare’ No 17 machine revenues disbursed for expenditure by clubs. 1979 community welfare.
Gaming and Betting Comments (Poker Machines) Reduction in licence tax levels Taxation and adjustment of concessional Amendment Act provisions. Existing structure No 61 retained. 1979
Gaming and Betting Comments (Poker Machines) Removed additional tax on Taxation ‘multiple’ machines (i.e. poker Amendment Act machines that allow for No 70 multiplication of each wager). 1983
Liquor (Amusement Devices) Amendment Act Number of AADs Licence fee Comments No 57 Maximum of 5 Graduated licence fee tied to Introduction of AADs into & liquor licence fee. Concessional hotels. Gaming and Betting fee for first AAD, $4,000 per (Amusement AAD for each additional Devices) machine. Amendment Act No 58 1984
\1984 175 Various amendments to the Gaming and Betting (Poker Machines) Comments Act, Relating to various matters, The Gaming and including reduction of certain Betting (Poker taxes, and vesting of certain Machines) Taxation functions in the Registered Act Clubs Act (1976). & the Registered Clubs Act 1985-1986
Registered Clubs (Amendment) Act Comments No. 93 Gaming and Betting (Poker & Machines) Tax Act suspended. Gaming and Betting Provision for imposition of duty (Poker Machines) (profit-based tax) instituted under Taxation Registered Clubs Act. Effective Amendment Act abolition of annual/licence fee No 95 taxes on club machines. Linked 1988 machines between clubs introduced.
Liquor (Amusement Devices) Number of AADs Comments Amendment Act Maximum of 10 Licence fees nominally No 94 discontinued. Provision made 1988 for duty to be paid, with default to existing licence fee if no duty rate stipulated.
Liquor (Taxation) Tax rate Comments Amendment Act Turnover up to $2,000,000 taxed Duty levied on AAD turnover No 55 at 3%. Turnover >$2,000,000 1993 taxed at $60,000 + 4% on proportion above $2,000,000. Registered Clubs Tax rate Comments (Taxation) Amendment Act Profit up to $100,000 taxed Duty levied on poker machine No 56 at 1%. Profit in excess of profit $100,000 taxed at $1,000 + 1993 22.5% on proportion above $100,000.
Notes: 1. Under the 1959 legislation, the provision for a licence fee of £125 (one to five poker machines), applied to poker machines of all coin denominations other than two shillings. 2. Under the 1959 legislation, the higher licence fee for two shilling poker machines became effective 1 July 1960. Transitional provisions also applied which allowed for a 50 percent reduction in the licence fee for cessation (between 15 September and 31 December 1959) or commencement (between 1 January 1960 and 30 June 1960) of operation of such machines. In the case of all subsequent amending legislation, relevant transitional provisions also applied.
This final rate structure remained in force until the enactment of the Liquor and Registered
Clubs Further Amendment Act 1996, under the first Carr Government. The development of
poker machine and subsequently EGM gambling taxation demonstrates the variety of
approaches that have prevailed at different times since legalisation. In relation to the level of
176 taxation initially established by the 1956 Act, there is no evidence in relevant parliamentary reporting which clarifies the method used for determining the level of licence fees which comprised the taxation component of the legislation. Evidence has previously been presented in relation to the general lack of clarity on this aspect of policy (e.g. Productivity Commission,
1999). Similarly, in relation to the major episodes of expansionary legislation examined in
Chapter 3, this lack of clear reasons and objectives has been an endemic feature of decisions on the level of gambling taxes. There is also little evidence of the economic reasoning for the tax levels imposed at any point in the development of poker machine and EGM gambling in NSW identified in Figure 4.1. One historical exception is the previously noted purposive neutrality of tax rates associated with the change from turnover to profit-based taxes for hotels.
A further concern with the lack of clarity associated with determination of tax levels is the previously identified issue of price. The complexity of the progressive tax scales imposed in a number of the Acts observed above is likely to further conceal the effective tax component of the price of each wager as the successive thresholds become applicable. So, for example, as the tax rates increase as provided for in the 1993 Acts, the nominal price of a wager would not change, despite the increasing tax impost on the consumer. Thus there is no price signal to the consumer with respect to the greater tax component.
The Productivity Commission (1999) identified the lack of meaningful price information as an area of regulation that warranted improvement. From the perspective of transparency, it may be that the initial, licence-fee based structure of 1956 may have provided the greatest clarity on the price/tax relationship. This is because of the fixed nature of the tax for machines of each denomination. However, as a fixed impost per machine, notionally the opposite effect results.
For each wager on a machine, the effective or average tax rate becomes progressively lower.
In practice, it seems likely that very few consumers would be aware of the manner in which machine gaming is taxed. Historically there has been little information provided in this respect
177 and the evidence suggests that this knowledge would not necessarily result in behavioural change. The Australian Institute for Primary Care [AIPC] (2006), in discussing this matter in the context of EGM technology, summarised this issue thus:
The basic structure of EGM technology is not clearly portrayed in public information
about machine outcomes, nor is it understood by gamblers, particularly in relation to
‘common sense’ ideas about ‘the law of averages’ and the average return to player
ratio provided by EGMs (p. ix).
That is, the cost to the gambler in relation to each wager is not made explicit.
It should be recognised that provision of greater information to consumers was one of the matters addressed in the Gaming Machines Act. This requirement has continued into subsequent policy application. The evidence of continued growth in EGM gaming revenues that will be demonstrated in the analysis of EGM taxation under the Carr governments in Chapter 5 will substantiate the fact that in spite of the level of consumer knowledge in the EGM gambling market, consumers remain largely insensitive to implicit price changes resulting from tax legislation, and demand remains inelastic.
A consistent theme in the progression illustrated in the Figure 4.1 is that the method and scales adopted have generally been incremental in the magnitude and sources of tax revenues.
Therefore, along with continuing increases in tax rates and the number of machines available in clubs, there has been legislation to expand machine-based gaming into hotels and to ultimately increase this source of revenue by permitting access to machines that could be considered as operating more efficiently as revenue collection instruments. As has been discussed previously, the AAD-style of video-poker machine initially permitted in hotels did not allow for the speed of play offered by the EGMs offered in clubs.
The expansion of EGMs into hotels was entirely driven by the hotel sector, which by virtue of its actions was implicitly prepared to accept the higher tax imposts associated with the
178 opportunity to increase revenues. Clearly the aforementioned change in tax incidence was a factor in this willingness. It is noted that the club sector acted in the same manner in respect of the 1956 Act. The industry’s preparedness to accede to larger tax liabilities has historically been a crucial driver of the expansion of gambling forms, and particularly of EGM regulation.
However, this has also been accompanied by efforts to shift the incidence of those taxes to the consumer as much as possible.
The advance towards more “efficient” EGMs also provides evidence of the influence of technology on the expansion of gambling. Historical developments such as the introduction of the totalisator, and indeed, the initial legalisation of poker machines, have been in part technology-driven. In addition to the introduction and ultimate superseding of hotel AADs, changes to tax schedules relating to advancing gaming machine technologies, such as the introduction of “multiple” machines allowing larger wagers on individual bets, and multi- terminal gaming machines (MTGMs or ‘linked’ machines) have also played a role in the expansion of machine gaming, and its associated tax yields.
The ongoing development of gaming machine technology has also had a continuing expansionary impact on EGM tax yields during and subsequent to this period. The Productivity
Commission (1999) noted the continual development of EGM “graphics, feature games and linked jackpots” intended to “maintain consumer interest” (p. 2.21) and thus sustain or increase intensity of use.
This effect was further investigated by Livingstone, Woolley, Zazryn, Bakacs and Shami (2008) who described the results of such developments as “intensification”, which may be produced by
“improved operational efficiency of EGMs” (p. 43). Livingstone et al (2008) went on to nominate “EGM game/platform characteristics, configuration and features (including such features as bank note acceptors, game characteristics, and parameter settings)” (p. 43) as technological characteristics of EGMs which may increase the yield from such machines. Three
179 specific game characteristics identified by Livingstone et al (2008) were identified as being likely to increase rates of play and induce associated increases in expenditure and tax yields.
These were “high credit value games”, “multiple or maximum line betting” and “reel betting”
(p. 18). Advances in relation to each of these features have served to increase average bet sizes, with the concomitant increase in the tax yield. The logic of these impacts is apparent, as each feature effectively increases the rate at which stakes are consumed.
Another salient feature of the progression through the various legislative changes illustrated in
Figure 4.1 is the complexity of the tax structures over the period. This complexity has already been discussed in the context of its contribution to concealing effective tax rates from the consumer. Regardless of the basis of the tax, whether licence fees, turnover-based or profit- based taxes, tiered or progressive structures have been a consistent element of tax design. There are several justifications for imposing these tax structures. In the legislative examples that have involved more significant change than simple adjustment of tax rates, these justifications can be examined in the context of the three tax design criteria discussed previously (Section 4.3).
As a preliminary acknowledgement, any assessment of EGM gambling tax policy must necessarily recognise the previously demonstrated nexus between changes to gambling policy relating to access and regulation, and associated tax changes. For example, Cnossen (2006) observed that, “This legalisation is invariably accompanied by both regulation and taxation” (p.
10). Similarly, Clotfelter (2005) stated that: “taxation and legalisation are bound together as a package deal” (p. 101). There exists in the literature a significant level of support for the coupling of regulatory aims with governmental revenue ambitions. The Productivity
Commission (1999); Smith (2000); Adams (2008); McGowan (2007) and Meich (2008) provide a sample of further observations of the broad recognition that gambling legislation is strongly influenced by revenue-raising motivations and as such, episodes of expansionary gambling regulation are often also instruments of taxation policy.
180 Evidence of expansionary legislative activity, such as the Totalisator Act 1916, the Gaming and
Betting (Poker Machines) Act 1956 and the Liquor and Registered Clubs Legislation Further
Amendment Act 1996 (see Chapter 3) further supports this position. In introducing the bill for the Totalisator Act, The Minister of Public Instruction, Augustus James stated that the first of that Government’s two justifications for the legislation “is that it will return to the Government a considerable amount of revenue” (Section 3.3.2). Similarly, although with greater circumspection with respect to the Poker Machines Act, the Colonial Secretary, C.A. Kelly, observed that: “the Government is endeavouring to control gambling, though as a result of it the
Government may benefit a little financially” (Section 3.4.4). In relation to the first major change to EGM legislation following the period examined in Figure 4.1, the Liquor and Registered
Clubs Legislation Further Amendment Act 1996, Minister for Gaming and Racing, Richard Face
(NSW Parliament Legislative Assembly Hansard, 12 November 1996), in his opening remarks to the Second Reading of the bill, noted the significance of the coupled “tax arrangements and gaming machine enhancements contained in this Bill” (p. 5778).
As has been demonstrated, historically the various Ministers responsible for relevant legislation, including the original Poker Machines Act, have been explicit on the objective of the legislation as a source of tax revenues. To the extent that gambling legislation is generally indivisible from its accompanying taxation component, there is justification for considering jointly the compliance of both aspects of the pattern of poker machine and EGM legislation with the three tax design criteria, as this progression of legislation has so often been a form of tax policy.
4.9.2 Economic Efficiency
The economic efficiency consideration requires that taxes do not affect market function or market participants’ decisions. If a strictly literal interpretation of this criterion is applied, the relatively rapid and continuous expansion of machine gaming in NSW which ultimately resulted in the Gaming Machines Act 2001 suggests that the tax regimes imposed over time may not have achieved economic efficiency. Such an interpretation must be approached with some
181 caution. The reasons for this are discussed subsequently. Figure 4.2 demonstrates change in the
State’s machine gaming market from the perspective of the growth of EGM numbers, profits and duty over the period 1995 to 2005.
Figure 4.2
Summary EGM data FY1994-1995 to FY2004-2005
Summary EGM Data FY1994/95 - FY2004/5
$6,000,000,000 120,000
$5,000,000,000 100,000
$4,000,000,000 80,000
$3,000,000,000 60,000 Profit/Tax $2,000,000,000 40,000 TotalEGMs
$1,000,000,000 20,000
$0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Profit Tax EGMs
Source: NSW Office of Liquor, Gaming and Racing, 2006.
The period examined in this figure coincides with that of the Carr governments’ three terms.
The relationship between expansionary EGM policies is most apparent in the period between
1996-1997 and 2000-2001. This is the period immediately following the introduction of EGMs into hotels under the 1996 Act. All three indicators increased markedly over this period. To place the magnitude of these changes in context, the relative scale of the impacts associated with this Act, compared with preceding legislation, are demonstrated in Diagram 4.3, which observes longer-run tax yields.
Subsequent to the Gaming Machines Act of 2001, which, as was also observed in Chapter 3, provided for the gradual, marginal reduction of EGM numbers and also maintained tax rates at their existing levels, there were minor declines in tax revenues and EGM numbers, while profits continued to increase. In addition to the 2001 legislation, the Productivity Commission (2005)
182 also noted the role of the tax rate adjustments relating to the introduction of the GST in these outcomes. This effect is apparent in Figure 4.2. The relative effects of these two factors are investigated in Chapters 5 and 6. It is evident that tax revenues began to recover promptly from the GST-related change, reflecting the continued, though somewhat less rapid, growth of profit.
This recovery suggests that there was lesser impact on EGM gambling associated with either of these regulatory interventions, particularly when compared with those relating to the 1996 legislation. The evidence suggests that there was a change in the operation of the market, which at face value may be interpreted as suggesting a failure in economic efficiency.
Figure 4.2 also illustrates the impacts of EGM legislation on expenditure and tax yields, indicating the effect on consumers of changes to access, and the related alterations to taxation policy. The data provide robust support for a hypothesis that consumer behaviour in this industry is impacted by the commonly combined regulatory and fiscal elements of gambling legislation.
In contrast, as was observed in Section 3.5.4, there were a number of minor legislative adjustments made between the 2001 Acts and the resignation of Premier Carr in 2005. Five of the sixteen pieces of amending legislation were in relation to the Gaming Machine Tax Act.
Similarly, in the information presented in Figure 4.2, there were eleven legislative adjustments that related specifically to taxation, with no associated change to regulation on access or other relevant factors. Based on the state-level data presented in Figure 4.2, there is little evidence of any apparent influence on behaviour resulting from periodic adjustments solely relating to taxation provisions.
There is no corresponding data for all three variables for the period 1956 to 1993, chiefly due to the lack of the central monitoring system (CMS) which subsequently collated all state EGM
183 data. However, tax revenue data is available for this period. These data, combined with the corresponding tax data for the period 2004-2005 are represented in Figure 4.350.
Figure 4.3
Gaming machine tax revenues FY1956-1957 to FY2004-2005
Tax revenue FY1956/57 - FY2004/05
1100.0
1000.0
900.0
800.0
700.0
600.0
500.0
400.0
Tax revenue $ million $ revenue Tax 300.0
200.0
100.0
0.0 56/57 60/61 64/65 68/69 72/73 76/77 80/81 84/85 88/89 92/93 96/97 00/01 04/05
Tax revenue
Data sources: Official Year Book of NSW; Taxation Revenue Australia, (ABS Cat No. 5506.0); OLGR Gaming Statistics; Wilkinson J (1997, pp. 29-30).
As is the case with the data for the Carr governments’ tenures, the longer-run growth trend in tax revenues is apparent. The introduction of the ‘supplementary’ tax on net revenues (1962) is demonstrated as being the first point at which tax revenues began to increase with greater rapidity. There is a discernible increase in the rate of growth after the introduction of AADs into hotels (1984-85). However, the majority of the growth resides in the Carr Government period. The changes in relation to the 1996 and 2001 Acts, and in respect of the latter, the contemporaneous adjustment for the introduction of the GST, are emphasised in this figure, as growth increased rapidly after the 1996 legislation, fell away sharply in the immediate aftermath
50 All revenue estimates are standardised on the basis described in the Official Year Book of New South Wales, 1966, which is stated as: ‘In the Australian decimal currency system, which was introduced on 14th February 1966, the monetary unit is the dollar ($), divided into 100 cents. Two dollars are equal in value to £1, the monetary unit in the former currency system. All values in this publication have been converted to the equivalent amounts in decimal currency’. 184 of the 2000 Commonwealth and 2001 State Acts respectively, and then began relatively rapid recovery. Given the differences in magnitude of tax revenues ($1.5 million in 1956/1957, $971 million in 1999/2000), this figure emphasises the impacts of the Carr governments’ legislative changes. Figure 4.4 provides an alternative view of these data, illustrating the year-on-year proportional change in tax revenue.
Figure 4.4
Annual proportional change in tax revenues FY1956-1957 to FY 2004-2005
Annual percentage change in tax revenue FY1956/7 to FY2004/5
100 80 60 40
20 0 -20 -40 56/57 60/61 64/65 68/69 72/73 76/77 80/81 84/85 88/89 92/93 96/97 00/01
% Change
Data sources: Official Year Book of NSW; Taxation Revenue Australia, (ABS Cat No. 5506.0); OLGR Gaming Statistics; Wilkinson J (1997, pp. 29-30).
The absence of corresponding profit data for the entire period inhibits more detailed analysis of a number of the changes in tax revenue over time. However, several reasons explaining significant changes have been discussed previously. These include the introduction of the supplementary tax (1961-1962) and the expansionary and contractive policy adjustments of the
Carr governments. 2000-2001 was the only year of perceptibly negative growth in the data to
2004-200551. That result is strongly suggestive of the impacts of the introduction of the GST.
Wilkinson (1997) drew together additional data that provides some greater detail on changes that are not explained by these major events. For example, the large change in the 1974-1975
51 It is noted that the 1981/82 year shows a year on year decline of -0.25%. 185 tax year amounted to an increase from $220 million to $312 million in profit. Figure 4.5 compares the tax data with the number of poker machines over the period.
Figure 4.5
Tax and poker machine data FY1956-1957 to FY2004-2005
Taxation & Poker Machine Data 1956/57 to 2004/05
120000 1200.0
100000 1000.0
80000 800.0 Tax$m
60000 600.0
Machines 40000 400.0
20000 200.0
0 0.0 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
Number of machines Tax Revenue $m
Data source: Wilkinson (1997; pp8-9)52
The change referred to above (1974-1975) coincided with the sole year for which the number of poker machines is not available. However, there is apparent continuity in the growth of both poker machine numbers and tax revenues immediately prior to and after this year, suggesting that this data point may represent an anomaly. This is supported by the tax revenue data, which continued on with no major impact associated with this year.
Machine numbers declined moderately over the period 1981-1982 to 1985-1986. Information on the number of venues (Wilkinson 1997) indicates that toward the latter part of this period, commencing 1983-1984, the number of venues (clubs) began to decline. This period also coincides with an economic recession, generally referred to as having been most severe in 1982-
1983 (see for example; Stutchbury, 1991; Tingle, 1994). Figure 4.6 compares the trends in registered clubs and machine numbers.
52 Wilkinson (1997, p. 8) noted that data for 1974 was not available. 186 Figure 4.6
Comparison of club and poker machine counts FY 1956/57 to FY 1997/98
Club and Poker Machine/EGM numbers FY1956/1957 to FY1997/1998
100000 1800
90000 1600
80000 1400 70000 1200
60000 Clubs 1000 50000 800
40000 Machines 600 30000 20000 400 10000 200 0 0 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996
Number of machines Number of clubs
Data sources: Official Year Book of NSW; Taxation Revenue Australia, (ABS Cat No. 5506.0); OLGR Gaming Statistics; Wilkinson J (1997, pp. 29-30).
Figure 4.6 indicates the decline in the number of clubs discussed above. Despite an initial decline in the number of machines around 1981-1982, which appears to correspond with the fall in venue numbers, overall, the number of poker machines continued to increase over time.
There may be a number of explanations for this outcome. With respect to the falling number of clubs, the sustainability of small club venues is a recurrent theme in parliamentary and policy debate and regulatory initiatives. Figure 4.1 provides one source of evidence, demonstrating that as early as 1964 concessional provisions were put in place in the form of tax thresholds for small clubs, in order to promote their ongoing viability. It would appear on the basis of the data represented in Figure 4.6 that legislative endeavours aimed at addressing attrition among smaller clubs may not have succeeded. There is no direct evidence in relation to the circumstances of the closure of individual venues, however a coincidence of macroeconomic conditions (the 1982-1983 recession previously referred to) and regulatory change (the introduction in 1984 and subsequent expansion in 1988 of AADs in hotels), may have contributed to this attrition. Contemporaneously, the increased concentration of machines in
187 larger clubs, particularly in metropolitan areas, is likely to have accounted for the contrary trend in the overall number of poker machines/EGMs.
Considered collectively, the data suggest that of itself, tax-specific legislation, in isolation from accompanying expansionary policy may be neutral in its effect on consumer behaviours and therefore to some extent, efficient. However, the conclusion remains that as part of a broader scheme or pattern of legislative activity, or in the words of Minister Face (Second Reading
Speech, 12 November 1996,) in describing the 1996 Act, as a “package of reform measures” (p.
5778), the implementation of combined regulatory and fiscal policy appears to have had an effect on consumer behaviour over time.
With respect to the supply-side of the market, the active pursuit of expanded access to EGM gambling provision on the part of the club and hotel industries evidenced in Chapter 3 strongly indicates change in market function and in the behaviour of market participants. On the evidence presented, this is perhaps most apparent in the expansion of EGMs into hotels, and the exhaustive campaign undertaken by that sector to secure access to EGMs (detailed in Chapter
3). Upon securing access, the hotel sector rapidly adopted this form of gaming, rendering obsolete their former AAD machines and significantly increasing their machine gaming revenues. There are no hotel EGM data prior to 1995, however Figure, 4.6 provides a comparison of the relative changes in club and hotel gaming indicators over the period 1995 to
2005.
188 Figure 4.7
Club and hotel EGM gambling measures FY1994/1995 to FY 2004/2005
Club and Hotel EGM Measures FY1994/1995- FY2004/2005
3,500,000,000 90,000 80,000 3,000,000,000 70,000 2,500,000,000 60,000
EGMs
2,000,000,000 50,000 $ 1,500,000,000 40,000 30,000 1,000,000,000 20,000 500,000,000 10,000 0 0 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
Club Profit Club Tax Hotel Profit Hotel Tax Club EGM Hotel EGM
Source: NSW Office of Liquor, Gaming and Racing
The greater magnitude of change in hotel EGM activity is strongly indicative of the change in behaviour of the hotel sector as market participants. Growth in club profits approached linearity, indicating that it continued relatively unabated, whereas all of the hotel measures were affected by the changes associated with the introduction of the 1996 Act. This is strongly suggestive of the change of behaviour of both the supply side and the consumer side of the market for EGM gambling. As identified in Chapter 3, in the parliamentary debate over the
1996 Act, both Opposition member Ron Phillips and Minister Richard Face conceded that clubs and hotels served different customers. It is evident that the expansion of EGMs into hotels, with its intention of accessing an additional source of tax revenue, had a clear impact on operation of the EGM gambling market, stimulating greater gambling activity in a market segment that had not been exposed to the more intensive level of gaming made available by EGMs as compared to AADs.
189 Despite the bipartisan assertions that hotels and clubs were distinct markets, the 1996 legislation included concessions to the club industry, which evidence suggests were purposively introduced to assuage that sector’s concerns about a potential decline in clubs’ competitiveness associated with the hotel sector’s expansion. These concessions provided for tax relief to clubs in certain circumstances and extended the concessionary tax structure existing up to that point.
The further provisions associated with the CDSE program instituted in 1998 may also be considered to have changed behaviour within the club sector, as relevant clubs may have adjusted their EGM gambling provision approaches in order to qualify for the new sources of tax relief associated with CDSE programs. The outcomes of these provisions are to be considered at least notionally positive, given that clubs, communities and the government stood to benefit, each in different ways, from the additional community services and facilities maintained by the funding made available under these provisions, as was identified in Section
3.6. There is some evidence apparent in Figure 4.6 to suggest that club EGMs began a relatively aggressive increase just prior to the introduction of the 1996 Act. This effect is analysed in greater detail in Chapters 5 and 6, however, it suffices to observe that this too appears to represent a change in the behaviour of the market that was more or less directly related to the legislation.
The differential tax treatment of hotels and clubs is also apparent in the convergence of the two segments’ tax measures over the period, apparent in Figure 4.6. This indicates that the privately- operated hotel gaming sector, with its significantly more constrained access levels and resultant lower aggregate number of EGMs, was prepared to accept an increase in taxes that was higher than that imposed on the sector’s competitor, but which was the acceptable cost of accessing the large revenue streams generated by EGM gambling. Adopting a hypothetical scenario to place this in perspective, it is questionable as to whether the hotel sector would be prepared to accept an equivalent increase in taxes on liquor relative to clubs, in exchange for expanded trading hours in which to sell more liquor. Considered holistically, in circumstances where
190 expansionary gambling legislation and tax initiatives have been proposed in concert, the behaviour of EGM proprietors has evidently changed in response to such altered environments.
In this respect, the efficiency of such tax measures cannot be considered to be optimal. Such a conclusion is based, however, on the literal interpretation of economic efficiency, being that a tax impost should not affect the operation of a market or the decisions of market participants (as discussed in Section 4.3). This point introduces a key paradox which acts as a counterbalance to the perceived impacts under this literal interpretation. If it is accepted that the packaging of
EGM regulation with associated tax legislation is appropriately considered as tax regulation assessable under these criteria, then it must be recognised that changes in market operation and the decisions of market participants are purposively contemplated by such legislation, which may be considered as a Pigouvian outcome. As such, these altered behaviours cannot be considered as contributing to economic inefficiency. Rather, the unintended consequences of the regulatory interventions, such as the externalities associated with problem gambling, are the factors which are indicative of economic inefficiency.
Such inefficiencies are not restricted to the consumer side of the EGM market. One example of an externality on the provider or supply side of the EGM industry originating with regulatory activity is the reported practice of certain hotel leaseholders selling the EGM entitlements included with the hotel licence, without the knowledge or permission of the freehold owner of the relevant hotel (see, for example Sydney Morning Herald, 25.11.06). In such cases, this severely devalued the investment of the hotel owner (lessor) at cessation of the relevant lease term and provided windfall profits to the lessee.
Although these two examples provide evidence of some measure of economic inefficiency in the structure of EGM taxes, the success of the various Acts in stimulating behaviour which at least in part achieved successive governments’ regulatory objectives, suggests that in overall terms, economic efficiency should be assessed as having been served by the progression of machine gaming legislation. Such a conclusion is afforded some level of support by the
191 Productivity Commission (1999) which found that “there is not a strong case for reducing gaming machine taxes on efficiency grounds” (p. 19.23). Despite the contractive provisions of the 1999, and particularly the 2001 Acts, neither involved the reduction of taxes. This may be interpreted as an indicator of the perceived efficiency of EGM taxes.
4.9.3 Equity
Equity relates to the structuring of taxes so as to account for entities’ ability to pay the tax.
With respect to the major expansionary legislation, the tax imposts on clubs and hotels were known elements of the regulatory environment in which these venues chose to operate. Equity as between venues of different scale has historically been promoted by the various concessions granted to smaller clubs in particular, in attempts to maintain their competitiveness. The review of the parliamentary debates over the 2001 Act also identified certain concessions made to hotels in low-population areas. The behaviour of clubs, and subsequently hotels, indicates that their assessment was that the tax burdens related to provision of machine gaming was sustainable. The continued expansion in the number of venues and machines over a long period, as illustrated in Figure 4.5 and the active pursuit of additional opportunities for expansion of activity over time, examined in Chapter 3, provide ample evidence for such a conclusion. This conclusion is particularly relevant in the context of the early taxation methods applied to machine gaming.
Licence fees and, as discussed previously, turnover-based taxes53, are in part an impost on the gambling provider. It stands to reason that the ultimate source of these forms of taxation is the revenues generated from poker machine users. However, with the evolution of poker machine/EGM tax policy toward profit-based taxation, the issue of incidence raises an additional perspective on the equity issue. As discussed elsewhere in this chapter, statutory incidence, or responsibility for actual payment of the tax, lies with the club or hotel. However, the practical incidence of this form of taxation lies largely with the consumer. It is at this level
53 Explanations of these tax structures are included in Section 4.8 192 that equity questions arise. Information presented previously (Section 1.1; Section 4.3) indicates that the majority of the population which uses EGMs behaves in a manner which implies that the tax component of their expenditure is affordable. Conversely, the comparatively much smaller proportion of EGM consumers who are problem gamblers may have difficulty with affording the financial cost of their behaviour, part of which is attributable to the tax component of their EGM gambling activities. A defence to this failure of equity may be the much cited
‘voluntary’ nature of gambling taxation (Section 4.2, above), but this does not fully recognise the broadly acknowledged inability of severe problem gamblers to control their behaviour (for example, Productivity Commission, 1999).
Johnson (1985) and Clotfelter (2005) discussed two aspects of equity as they relate to gambling taxes. The first of these, horizontal equity, is described by Clotfelter (2005) as “the equal treatment of equals” in which “those who consume the taxed good are subject to the same taxes and tax rates” (p. 105). Clotfelter (2005,) described the second, vertical equity, as “the differential taxation of individuals with different abilities to pay” (p. 105). Once again, these definitions emphasise the dichotomous nature of gambling taxation. Venues of different scale within the club sector have generally been taxed at different rates for much of the history of legalised machine gaming in NSW, suggesting that at this level, both vertical and horizontal equity have been factors. This is because the chiefly progressive tax methods adopted have treated venues of equivalent scale similarly, but have simultaneously differentiated between venues on the basis of scale. The exception to this observation is in the initial structure of licence fees. In that situation, different tax rates applied to poker machines on the basis of coin denomination. Therefore clubs of significantly different scale and turnover would be expected to have paid the same level of tax on similar machines.
With respect to the ability of venues to ‘pay’, this is clearly an issue relating to the commerciality and management of EGM gambling venues. It is evident that, historically, both clubs and hotels have been amenable to obtaining and operating gaming machines. Despite the
193 generally positive impact of EGMs on venue profitability, Figure 4.5 demonstrates that this additional revenue does not guarantee the survival of all venues. As such, this is a matter which, in a competitive environment, is ultimately determined by market forces.
Clotfelter’s (2005) references to consumers and individuals suggest that this is perhaps the more critical level for analysis. Participants in machine gaming are generally subject to the same nominal tax impost depending on their choice of gambling provider. However, determining the level of equity is confounded by several factors. The price signal provided by the stake per play does not make the cost or tax components explicit. There is also no practical recognition of the ability of individual participants to pay the tax. The ‘voluntarism’ ascribed to gambling activity has historically assumed that participation equates to implicit acknowledgement of the ability to pay. It is apparent that this assumption does not always hold true. The regressive nature of the tax makes equity very difficult to achieve, because in practical terms, the variance in incomes of participants can result in significantly different effective imposts. Therefore, it may be argued that for consumers, horizontal equity exists, but vertical equity cannot be achieved as a result of regressive tax structures. Whereas provider-level impacts were certainly considered in legislation such as the 1996 Act, given the ad hoc nature of gambling legislation as demonstrated in Chapter 3, these consumer-level outcomes are unlikely to have been purposively considered in the regulatory process, and there is no evidence in contemporaneous records to suggest that this was the case. This is consistent with Eadington (1999) and Forrest
(2007) who were critical of the exclusion of consumer interests in the policy development process. These outcomes may be considered as distortions resulting from EGM policy.
The “elective” nature of gambling participation and thus taxation also raises a more general question of how achievable equity is in the context of imposing such a narrowly based tax.
Clotfelter (2005) addressed an additional equity consideration which relates to this aspect, which he called the ‘benefit principle’ (p. 106). This principle is essentially that “those who benefit from the tax ought to pay the tax” (Clotfelter, 2005, p. 106). In the earliest iterations of
194 post-legalisation machine gaming in NSW, poker machine taxes were earmarked or hypothecated, and directed toward the funding of public hospitals (C.A. Kelly, Second Reading speech, 21 August 1956). Over time however, poker machine and subsequently EGM taxes were absorbed into consolidated revenue (for example, O’Hara, 1988). In either circumstance, there is some notional benefit that may accrue to individuals who pay the tax (i.e. machine gaming consumers), in the form of the services provided by government that are funded by these taxes. However, a significantly larger proportion of the community which does not participate in this form of gambling, also notionally enjoys the benefit from these taxes. In this context, there may be some legitimate contention over the equity of such an outcome.
A further aspect of equity is the socioeconomic impact that the expansion of machine gaming has had on communities in which gambling venues operate. The entities affected in this respect may not be directly associated with gambling and thus may not be considered as active market participants. Gambling taxes draw money out of communities that might otherwise have been spent on alternative economic activity within those communities. This can impact on businesses and employment, although the extent of this remains a subject of debate54.
The gambling industry strives to emphasise the positive benefits of gambling activity (for example Kindt, 1994). In contrast, there is a broad recognition within the extant research that the positive impacts of gambling may not be as significant as may be promoted by gambling proponents (for example, SACES, 2008; Productivity Commission, 1999; Doughney, 2002).
This position is primarily based on the conclusion that gambling redirects expenditure that may otherwise have directly flowed to other, often more productive, local industries. Kindt (1994) described this as “the migration of consumer dollars away from pre-existing… businesses” (p.
54). The Productivity Commission (1999), citing research conducted on behalf of several
Victorian LGAs, noted the conclusion that “gambling is a substitute for alternative consumption
54 For example, Stubbs and Storer (1999) argued that employment created in EGM venues was “at best a substitution” for other employment in localised economies (p. 4). 195 – consumption is diverted to gambling and away from (other) [sic] local consumption spending”
(p. 10.46). It must be recognised that there is notionally some return of these transferred funds to such communities, as discussed above (Section 3.6), in the form of redistribution of tax revenue through state and local government expenditure, and through direct distributions by
EGM venues to community organisations, in both cash and kind. Again, the net economic impact on communities remains contentious. Despite notional difficulties in quantifying such impacts, Davis (1993) arrived at the unavoidable conclusion that the consequences of government policy decisions cannot be separated from other activity in the economy. The empirical examination of the behaviour of EGM taxation as it relates to communities and economies at the Local Government Area (LGA) level is undertaken in Chapter 5.
4.9.4 Administrative Simplicity
The variety of tax approaches and the multiplicity of tax rates applied to machine gaming over the period under examination suggest that there is a history of complexity regarding tax policy.
This situation has developed in spite of the apparent attempts of legislators and their advisors to design manageable policy mechanisms. The fact that policy makers have in practice eschewed methods such as the theories of Ramsey and Pigou (Section 4.7) indicates that administrative simplicity has been a consideration. However, some level of complexity has clearly been unavoidable.
Initially, the imposition of a licence fee per machine represented at least notionally, an administratively efficient means of imposing and collecting the tax. Despite this notional simplicity, there was some measure of complexity relating to the imposition of different tax rates for poker machines of different coin denominations. Subsequently however, the introduction of scaled licence fees was imposed in combination with progressive
‘supplementary’ taxes. Thus began an incremental evolution in complexity which coincided with the growth of the industry.
196 Despite the increase in structural complexity of gaming machine taxation, there is some evidence to support a position that over time, the administrative complexity of poker machine/EGM taxation has been reduced. As with a number of the key expansionary gambling policies examined in Chapter 3, this improvement has been significantly influenced by advances in technology, such as the Central Monitoring System (CMS) introduced in December 2001
(OLGR, 2010). Such advances allowed government to more accurately assess the level of EGM use and the associated tax liability for venues statewide. This has allowed much greater efficiency in the process of monitoring, assessment and collection of tax liabilities.
A pragmatic view on governmental perspectives on administrability may be simply to observe the extent to which governments in NSW have been prepared to persist with, and in fact increase, this mode of gambling and its associated layers of regulation and governance, despite the administrative burden. This corresponds with the observed preparedness of clubs and hotels to accept their respective tax obligations, and the acceptance of the tax burden by EGM users.
The conclusion invited by such a simple practical observation is that the administrative burden was not as onerous as to inhibit continued government recourse to machine gaming regulation and associated taxation opportunities.
4.10 The Structure of EGM Gambling Taxation in NSW 1996 to 2005
4.10.1 EGM Tax Structure and Rates
The Liquor and Registered Clubs Further Amendment Act 1996 entailed changes in the thresholds for the existing tax rates, and introduced an additional, higher tax rate for clubs with higher profits, along with the initial rate schedule for hotels. The structure is displayed in
Tables 4.2 and 4.3
197 Table 4.2
Club EGM tax rates – imposed under 1996 legislation
Profit Tax rate Up to $200,000 1% $201,000 - $2,500,000 $2,000 (1% of first $200,000) + 22.5% on profit above $200,000 More than $2,500,000 $519,500 [$2,000 + $517,500 (22.5% of $2,300,000)] + 24.75% on profit above $2,500,000.
Table 4.3
Hotel EGM tax rates – imposed under 1996 legislation
Profit Tax rate
Up to $25,000 15% $25,000 to $400,000 $3,750 + 25% on profit over $25,000. $400,000 - $1,000,000 $97,500 + 35% on profit over $400,000 Greater than $1,000,000 $307,500 + 40% on profit over $1,000,000
The Gaming Machine Tax Act 2001 No 72 is the relevant piece of tax-specific legislation which remains in force. The Act provides for taxation to be levied on the “profits from gaming machines kept in a hotel or on the premises of a registered club” (Part 2 (6) [1]). The Act defines profits as “the excess of revenue from the machine over outgoings in relation to the machine”
(Part 1 (3) [1]). Outgoings are defined as comprising the several forms of returns to players.
Therefore, profit is equivalent to total player losses, as has previously been observed.
The primary driver of the different tax approaches for clubs and hotels is the mutual status of clubs. The implications of mutuality are considered in more detail subsequently. The comparative tax rates at the time of legislation and at March 2012, and the thresholds at which they become operative, are displayed in Tables 4.4 to 4.7.
198 Table 4.4
EGM tax rates – registered clubs – as legislated 2001
Profit Tax rate Up to $200,000 Nil $200,000 - $1,000,000 10.91% Greater than $1,000,000 $87,280 + 17.16% on profit over $1,000,000
Table 4.5
EGM tax rates—registered clubs – March 2012
Tax year Column 1 Column 2 Column 3 Column 4 Column 5 Tax rate 1 Tax rate 2 Tax rate 3 Tax rate 4 Tax rate 5 (%) (%) (exceeds (%) (exceeds (%) (exceeds (%) (exceeds (exceeds $20M) $200K but $1M but not $5M but not $10M) not $1M $5M) $10M) 2006 10.0 21.0 25.5 27.7 27.7 Tax rate 1 Tax rate 2 Tax rate 3 Tax rate 4 Tax rate 5 (%) (%) (%) (%) (%) 2007 -2010 10.0 21.0 26.0 29.0 30.9 tax years
2011 and 10.0 19.9 24.4 26.4 28.4 subsequent tax years Sources: Gaming Machine Tax Act No 72 2001, Part 3, Division 2, 15A, (versions current 1 January 2005 55 – 31 August 2006 and current 1 March 2012 to date accessed, 12 March 2012).
55 Application of club tax rates in the 2012 version of the Act is explained in the Act as follows:
(4) For the purposes of subsection (3), the taxable component of the first $1,000,000 of the profits of a registered club from gaming machines kept on the premises of the club is $1 for every $1 by which profits from all gaming machines kept on the premises of the registered club in the tax year exceeds $1,000,000. Note. The taxable component of the first $1,000,000 of the profits of the registered club from gaming machines will vary from $1 (for a club that has profits of $1,000,001) to $800,000 (for a club that has profits of $1,800,000). The first $200,000 of profits is always tax free.
Example. If the profit of a club from all gaming machines kept on the premises is $1,200,000, the taxable component of the first $1,000,000 of the profits is $200,000. Accordingly tax is payable on $200,000 of the first $1,000,000 of those profits at tax rate 1 and on the profits that exceed $1,000,000 (i.e. $200,000) at tax rate 2. (5) If the profits from all gaming machines kept on the premises of a registered club in a tax year exceed $1,800,000, but do not exceed $5,000,000, tax is payable: (a) on $800,000 of those profits at the rate of tax rate 1 for the tax year, and (b) on so much of those profits as exceeds $1,000,000 at the rate of tax rate 2 for the tax year. (6) If the profits from all gaming machines kept on the premises of a registered club in a tax year exceed $5,000,000, but do not exceed $10,000,000, tax is payable: (a) on $800,000 of those profits at the rate of tax rate 1 for the tax year, and (b) on $4,000,000 of those profits at the rate of tax rate 2 for the tax year, and (c) on so much of those profits as exceeds $5,000,000 at the rate of tax rate 3 for the tax year. (7) If the profits from all gaming machines kept on the premises of a registered club in a tax year exceed $10,000,000, but do not exceed $20,000,000, tax is payable: (a) on $800,000 of those profits at the rate of tax rate 1 for the tax year, and (b) on $4,000,000 of those profits at the rate of tax rate 2 for the tax year, and 199 In addition to this progressive tax structure, clubs with profits exceeding $1,000,000 during a tax year, and which make approved contributions to CDSE, are entitled to a tax rebate of 1.5 percent on the amount applied to CDSE.
Table 4.6
EGM tax rates – hoteliers – as legislated 2001
Profit Tax rate
Up to $25,000 5.91%
$25,000 to $400,000 $1,477.50 + 15.91% on profit over $25,000
$400,000 to $1,000,000 $61,140 + 25.91% on profit over $400,000
Greater than $1,000,000 $216,000 + 30.91% on profit over $1,000,000
Table 4.7
EGM tax rates – hoteliers - March 2012
Tax year Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Tax rate 1 Tax rate 2 Tax rate 3 Tax rate 4 Tax rate 5 Tax rate 6 (%) (%) ($0– (%) (%) (%) (%) (exceeds $5M) $25K) (exceeds (exceeds (exceeds (exceeds $25K but $200K but $400K but $1M but not not not $1M) not $5M) $200K) $400K) 2004 5.8 15.8 17.2 26.5 31.5 33.6 2005 5.7 15.7 18.5 27.1 32.1 36.4 2006 5.5 15.5 19.8 27.7 32.7 39.1 2007 5.4 15.4 21.1 28.2 33.2 41.8 2008 5.3 15.3 22.4 28.8 33.8 44.5 2009 5.1 15.1 23.7 29.4 34.4 47.3 2010 and subsequent 5.0 15.0 25.0 30.0 35.0 50.0 tax years Source: Gaming Machine Tax Act No 72 2001 Part 3, Division 1, 13A (version current 1 March 2012 to date accessed 12 March 2012.
(c) on $5,000,000 of those profits at the rate of tax rate 3 for the tax year, and (d) on so much of those profits as exceeds $10,000,000 at the rate of tax rate 4 for the tax year. (8) If the profits from all gaming machines kept on the premises of a registered club in a tax year exceed $20,000,000, tax is payable: (a) on $800,000 of those profits at the rate of tax rate 1 for the tax year, and (b) on $4,000,000 of those profits at the rate of tax rate 2 for the tax year, and (c) on $5,000,000 of those profits at the rate of tax rate 3 for the tax year, and (d) on $10,000,000 of those profits at the rate of tax rate 4 for the tax year, and (e) on so much of those profits as exceeds $20,000,000 at the rate of tax rate 5 for the tax year.
200 These tables illustrate the significantly higher tax rates applicable to hotels. In addition to lower tax rates, the thresholds at which those rates become applicable are also advantageous to clubs.
In particular, under the 1996 Act as enacted, the first $100,000 of club profits was initially tax- free, whereas hotel EGM profits attracted a tax liability from the first unit of profit earned.
4.10.2 Goods and Services Tax Provisions
As was discussed in Chapter 2 and also previously in this chapter, a key development in NSW
EGM taxation policy was the enactment of the A New Tax System (Goods and Services Tax) Act
1999 (Cth). As provided for in the NSW Intergovernmental Agreement Implementation Act
2000, No 44, tax rates were reduced to allow for the imposition of the GST. The reductions for clubs and hotels are included in the Table 4.8.
Table 4.8
EGM tax rate adjustments for GST - July 2000
Profit ($) Current marginal rates (%) Proposed marginal rates (%) HOTELS Up to 25,000 15.0 5.91 25,001 – 400,000 25.0 15.91 400,001 – 1 35.0 25.91 million In excess of 1 40.0 30.91 million CLUBS Up to 100,000 0.00 0.00 100,001 – 1.00 0.00 200,000 200,001 – 1 20.00 10.91 million In excess of 1 26.25 17.16 million Source: Intergovernmental Agreement Implementation Act, 2000 No 44.
Although it is not explicitly stated in later versions of the Gaming Machine Tax Act, it is apparent that the rates displayed in Tables 4.5 and 4.7 are inclusive of GST. The adjustments in
Table 4.8 relate to recalibration of the tax regime to allow for GST equivalence. The major implication of this change in taxation arrangements was that, as is discussed previously, GST is
201 levied by the Commonwealth, and redistributed to the states under the dictates of horizontal fiscal equalisation. Notionally, the impacts relating to the imposition of the GST were intended to be offset to some extent by adjustments to other pre-existing taxes. However, the extent and effectiveness of these strategies and the equity issues around origination of taxes are general issues relating to fiscal imbalance and are thus beyond the scope of this thesis.
4.11 Observed Outcomes of NSW EGM Policy
A preliminary examination of the EGM data obtained for this research suggests that in many
LGAs, the State government’s revenue-raising objectives may be better served by encouraging the concentration of EGM entitlements in a limited number of venues. This observation is particularly relevant to the club sector of the industry, as it is this sector to which the system of tax concessions applies, and which has had greater flexibility in terms of the number of machines which may be operated by individual venues. Although clearly requiring more rigorous testing and analysis, which are undertaken in Chapters 5 and 6, this observation may be more relevant to smaller LGAs. Under the current legislation, clubs with EGM revenue below a certain annual threshold, presently $1,000,00056, do not pay EGM tax. Assuming a theoretical, small LGA, if all the clubs in that LGA do not earn revenue above this threshold, the government draws no EGM tax revenue from the LGA. However, if at least one of the club venues is permitted to expand to the point that its operations generate profit levels subject to tax, government revenues would increase. In this example, it is evident that the greater concentration of EGMs in a limited number of venues is likely to increase government revenues. By association, such an increase in the relative concentration of EGMs may be expected to result in the leakage of these tax revenues from the local economy, with the potential for a concomitant decrease in alternative forms of economic activity within the LGA.
56 Gaming Machine Tax Act 2001 No 72, Division 2 14(2)(b), current as at 25 March 2012. 202 Extending this reasoning further, it is possible that two LGAs of similar size and EGM expenditure profiles, for example with an identical number of venues and machines and similar profit levels, may have significantly different outcomes in terms of tax outflows, based solely on the distribution or concentration of EGMs among venues within the LGA.
This differential element of taxation outcomes has variable effects for clubs and their patrons, dependent on each venue’s particular circumstances. From the club’s tax liability perspective, if the club is below the mandated threshold, there is no requirement for it to pay tax, and therefore it retains all of its EGM pre-income tax profits. However, from the EGM consumer’s perspective, there is no differentiation in price (i.e. stake per play) regardless of whether the consumer’s activity forms part of a club’s $1,000,000 tax-free provision, or part of a club’s assessable income above the threshold. It is posited that this further example of the absence of price differentiation is illustrative of the “implicit taxation” (Clotfelter, 2005, p. 85) or “implicit finance” (Worthington, 2001, p. 326). Freebairn (2002) addressed the lack of price differentiation in gambling taxation, describing such imposts as a “special taxation” used to
“redistribute the scarcity rents from supply restrictions earned by the licence holders, and their shareholders, to the state, without affecting efficiency or the price of gambling to gamblers” (p.
420). In the latter interpretation, there is an implication that the lack of signals with respect to the tax component of price may be a constructively conceived element of tax design. This may provide a structural justification for such taxes, but it does not address the practical outcomes of the progressive system of EGM taxes in NSW.
The lack of differentiation in price for taxed or untaxed components of EGM activity demonstrates three points. Firstly, it emphasises the broadly-reported difficulty in determining the true price of EGM gambling, as there is no adjustment in price to recognise the tax component as it becomes assessable (e.g.; Albon, 1997; Productivity Commission, 1999;
Clotfelter, 2005). Secondly, the tax structure as it presently stands has implications for the final incidence of EGM tax. Although the tax is levied against each venue on its assessable profit, the
203 absence of price differentiation with respect to the progressively structured tax liability of the club demonstrates that final incidence of the tax falls on the consumer. This is because regardless of the taxation liability status of the club in respect of its level of revenue, again there is no recognition of that status through the price mechanism. Consequently, the tax concessions enjoyed by the club sector relating to both EGM tax structure and mutuality, are not necessarily passed on to the EGM consumer. Thirdly, the observations in relevant literature (for example;
Quiggin, 1999; Smith, 2000; Clotfelter, 2005) on the inelastic nature of demand for gambling are emphasised by the EGM tax structure in NSW. This aligns with the observation of the
Productivity Commission (1999) noted earlier, which also found that EGM gambling demand
“appears to be insensitive” (p. 19.16).
Conversely, Forrest (2007) stated that “the bulk of empirical research has evaluated demand as elastic” (p. 111). Forrest (2007) further observed that: “This is to be expected. In most jurisdictions, regulation ensures that operators have considerable monopoly power. To profit maximise, they will push up price (take-out) into the elastic range of the demand curve”
(p. 111). The structure of NSW EGM taxation suggests that such an outcome does not appear to have occurred. The EGM market in NSW cannot be considered an orthodox monopolistic structure, as may be the United States’ casino industry contemplated by Forrest (2007). The
NSW EGM market structure, from a high level perspective, is essentially oligopolistic; but, due to the delivery of machine gaming principally through the club and hotel sectors, there are hundreds of venues at the disposal of consumers.
While the comparative regulatory environments of the various jurisdictions referred to by
Forrest (2007) are not explicit, EGM operators do not have the regulatory scope to materially increase price, as the mandatory minimum return-to-player (RTP) level of 85 percent applies.
As such only the legislatively fixed maximum of 15 percent of turnover can be taken as profit, with taxes derived from this component. The Productivity Commission (1999) noted this formula, “(1 – RTP)”, as the price of gaming machine use (p. U.4).
204
As was identified by IPART (2004), the facility exists for clubs to set machine RTP at a range of predetermined alternative rates above 85 percent. This, in effect, may reduce the price of
EGM gambling by increasing the proportion of turnover returned to the player and reducing that which is excised as tax. However, in a further illustration of the lack of price signals, IPART
(2004) observed that: “Usually, it is not possible for the player to tell which RTP percentage is operating on a specific machine” (p. 11). It may also be inferred from this statement that clubs may operate EGMs offering the same ‘game’ or external appearance, within the same venue, which may have different RTP settings (for example, Productivity Commission, 1999, pp16.13
– 16.14; IPART, 2004, p11). This may further exacerbate the effects of the lack of price information.
In addition to these machine-specific price control considerations, mandated limits on the number of EGMs available have been applied as a result of more recent legislative episodes.
These provisions effectively inhibit the ability of providers to expand access by making more
EGMs available as a proxy for price increases, with the associated increases in turnover and profit. It is posited that the absence of price differentiation as discussed above, and the demonstrated indifference of consumers to this phenomenon, provide robust evidence of the inelasticity of demand for EGM gambling in NSW.
There are some moderating assumptions on which policy is based that should be acknowledged.
Principally, the status of clubs as mutual organisations which distribute benefits, as distinct from profits, to members, allows justification of the favourable income taxation treatment of clubs, and the further regulatory concessions extended to the sector. The underlying assumption is that clubs make contributions to their communities, which may be considered as tax-equivalent, to the extent that these contributions may substitute for government expenditures community facilities and services. These returns to the community form part of what are classified by Smith
(2000) as “tax expenditures” (p. 125) and Worthington (2001) as ‘tax spending’ (p. 340).
205
There is ongoing debate regarding the extent to which this assumption can be sustained in relation to clubs. This issue has featured prominently in the history of antipathy between the club and hotel industries in NSW which was discussed in Chapter 3. Some of the ‘benefits’ which are purportedly returned to club members are in the form of ‘subsidies’ on other club offerings, such as meals and liquor, which encourage continued patronage of a club. The extent to which these ‘subsidies’ represent genuine tax expenditures remains contentious, particularly as the subsidised services may also indirectly act as an inducement to further EGM expenditure by patrons. For example, Hing (2006) identified the provision of complimentary refreshments57 as a means for keeping EGM patrons playing the machines longer. The Productivity
Commission, (1999, citing submission number 178,) also emphasised the provision of incentives to gamblers, including “free food and drinks” (Submission number 178, p. 12).
Furthermore, except for in the case of larger, more profitable clubs which make quantified contributions to the community under the CDSE scheme (subsequently renamed
‘ClubGRANTS’ under the Gaming Machine Tax Amendment Act 2011, No. 31) (OLGR, 2012) in exchange for concessions on assessable tax, there is no formal method employed by OLGR or its predecessor (DGR) for quantifying the extent of community and member contributions for the majority of clubs. There is no corresponding system in force with respect to hotels, notwithstanding that hotels may also be considerable contributors to their communities
(Productivity Commission, 2010).
The tax benefits of mutuality relating to income taxation levied on clubs by the federal government are also material. Despite the EGM tax-exempt component of a club’s EGM revenues remaining subject to income tax, this component is also taxed at concessional rates which apply due to the mutual status of the club. Once again, there is a lack of clarity as to whether this discounted tax rate is reflected in the unit price of a wager for the consumer. Given
57 Such refreshments exclude alcohol, the free provision of which is prohibited (see, for example, IPART, 2004, p. 201). 206 that the nominal stake and percentage return to player are likely to be similar for clubs and hotels despite the latter being subject to the full rate of income taxation and EGM tax on all gaming revenues, it follows that the lower tax impost on clubs is not passed onto the EGM consumer in those establishments.
This point is also indicative of how, theoretically, distortions of policy may also be further emphasised in small, commonly rural, LGAs, which have hotels but no clubs, or which may have a preponderance of hotels compared to clubs. Returning to a hypothetical small LGA with such an EGM environment, all or the majority of EGM activity may be subject to the all- inclusive, higher rates of taxation applicable to hotels58. In this example, a comparable LGA with a similar EGM gaming profile in terms of expenditure and number of venues, but having only hotels and no clubs, may contribute considerably more tax than an LGA which does have clubs, as all or most EGM gambling in the former will take place on hotel-based EGMs. Such an outcome may be apparent to differing degrees, regardless of whether the comparator LGA has a concentration of club EGMs which renders it subject to tax, or a dispersal of club EGMs which results in no tax being extracted from the club segment within the LGA. It is posited that the range of such outcomes considered in this and the preceding comparative example are strongly indicative of the distortive effects of EGM policy. Such policy, as it has developed in
NSW, has evidently resulted in an ad hoc distribution of EGMs, guided principally by maximising machine incomes, with the attendant irregular and inequitable distribution of impacts on communities.
These distortions may be further exacerbated by certain characteristics of the communities that may have more acutely experienced these impacts. An additional perceived source of inequity which may be associated with distributional outcomes is the widely propagated position that
EGMs are often concentrated in areas of comparatively lower socioeconomic status. For
58 Tax rates for both hotels and clubs are levied on a graduated scale, dependent on the existing level of profit for the particular venue. There is no tax-free threshold for hotels. Duty is paid on all EGM earnings, however at a lower rate for the first $25,000 profit. 207 example, Marshall (1998), the Productivity Commission (1999), SACES (2001) and Marshall and Baker (2002) each considered this aspect of EGM concentration. The Productivity
Commission (1999) concluded that “in two of the four states studied, gaming machine densities are higher in economically disadvantaged areas” (p. 10.42). It is noted that NSW was one of the states included in this research.
The occurrence of any of the exemplary circumstances proposed above may result in unanticipated impacts on communities. In a situation where more than one of these circumstances coincides, the distortive impacts on the operation of the particular local economy may be relatively more severe. Taking these implications into consideration, it follows that bureaucratic decisions on the distribution of EGMs can have widely disparate effects on taxation of consumers and on the local economies in different LGAs. Since 2001, the practice of the New South Wales Office of Liquor, Gaming and Racing regarding EGM distribution has been to assess applications for EGM entitlements on the basis of the number of adults for each
EGM in the relevant local area, often assessed on the basis of the relevant LGA. This measure is known as EGM density. There are two other key decision criteria, being the level of EGM expenditure and the Australian Bureau of Statistics Socio-Economic Indexes for Areas (SEIFA)
Index of Disadvantage score for the LGA (OLGR, 2009). Although these criteria for application of policy emphasise the contemporary focus on attempts to ameliorate the negative social impacts of EGM gambling, the distributional inequalities associated with fiscal extraction that may result from the geographic distribution of EGMs are not explicitly considered. The existing research in this area and its relationship to the present study are further examined in
Chapter 5.
4.12 Summary
This chapter frames the bases and methodological underpinnings of gambling taxation. With respect to EGM taxation policy in NSW, it has been observed that this form of taxation,
208 although to some extent meeting the broad criteria of a functionally effective tax structure, does not explicitly comply with notionally relevant tax theories, such as Ramseyian optimal taxation, or Pigouvian corrective taxation. What has been observed is the incremental nature of the coupled liberalisation of EGM access, and the evolution of applied taxation methodologies that have progressively increased tax yields over time.
The incremental nature of the development of the NSW EGM access and tax regimes may also be considered to have resulted in increased distortion of regulatory outcomes. This is perhaps best illustrated by the effectively ad hoc operation of the market apparatus for distribution of
EGMs. The relative concentration of EGMs in areas across the State may have resulted in inequitable distribution of the economic benefits and costs to communities. These distributional inequities are such that a key notional benefit, the increases in public revenues available to develop and sustain communities, may in practice not have materialised under the regime of assimilating EGM tax income into the State’s consolidated revenues and the approach to subsequent redistribution of those revenues.
Although the analysis in Chapter 5 is conducted at the level of LGA communities, the lack of clarity surrounding the determination of price for EGM gambling and its impacts on the decisions of individual market participants (consumers) also warrants mention. It may be concluded that consumption of this gambling product is also likely to exacerbate the policy distortions at LGA level, by altering the economic behaviour of households, and by association the local area economies of which these form part.
Gary Banks, Chairman of the Productivity Commission (2002) perhaps most succinctly summarised the deficiencies in gambling legislation when he stated that: “Decision-making was generally poorly informed about the social impacts, ad hoc and piecemeal, with poorly specified or conflicting objectives and no systematic monitoring and evaluation of outcomes” (pp. 31-32).
209 The regulatory histories recounted in this chapter and in Chapter 3 provide robust evidence in support of Banks’ (2002) summation.
Overall, it may be concluded that the practical impact of EGM policy has been to distort the behaviours of market participants at several levels. Such a conclusion must, of course, recognise that some effects are likely to have been anticipated in the development of the relevant policies.
Some of these intended and unintended impacts, both positive and negative, have also extended to parties that are not directly involved in EGM gambling activity. The nature of the regulation of gambling and its related taxation component, as expressions of public policy, means that the effects of the behaviours of these market participants have inexorably impacted on local economies and economic entities that may play no direct part in the operation of the EGM gambling market.
The focus on the period 1995 to 2005 is discussed in greater detail in Chapter 5, however this is founded on a number of considerations. Firstly, the Carr Governments’ tenures allow the opportunity to compare and contrast examples of legislation with features that may be interpreted as equating to the ‘conflicting objectives’ asserted by Banks (2002). Secondly, access to the authoritative government data for this period, which has not been available for similar previous research, allows a highly detailed analysis of these events to be conducted.
Chapter 5 reports the empirical analysis conducted in relation to these questions and Chapter 6 discusses these analyses.
210 Key Findings – Chapter 4
Gaming machine taxation has progressively shifted from chiefly provider-focused
methods towards consumer-focused structures.
Many of the perceived inconsistencies in gambling tax regulation relate to the
determination of tax rates.
Although EGM tax legislation has clearly contemplated changes in market structure
and behaviour, there have also been external impacts which represent distortive
policy outcomes.
Addressing these externalities is problematic due to the lack of clarity on the true
price of gambling and the inelasticity of demand for EGM gambling, which may
render corrective tax rate adjustments ineffective.
The relationship between distribution of EGMs and the resultant tax outcomes may
further exacerbate policy distortions affecting certain communities.
211
CHAPTER 5
An Examination of the New South Wales Electronic Gaming Machine Industry 1995 to 2005
5.1 Context, Description and Methods
5.1.1 Overview
The preceding chapters have provided the historical and policy contexts for the empirical component of the research. This chapter describes in detail the parameters within which the empirical research was framed and the various data sources used in the subsequent analysis. The chapter also provides an account of the acquisition of the data. With respect to the data procured from OLGR, this description of the acquisition of the data is important as it establishes that the relatively limited degree of access to these data granted by OLGR over time has restricted the level and depth of independent research undertaken to this point in respect of the actual outcomes of EGM policy in NSW. The quality and quantity of the data have not generally been available to earlier researchers. As a result this study augments previous research and makes a further contribution to the understanding of EGM policy, activity and taxation in
NSW.
In assessing the impacts of policy change on the EGM gambling environment, this research focuses on three measures of EGM gambling activity. These relate to the distribution of EGMs, and the associated patterns of profit and tax yields that result from such distribution.
Furthermore, the research compares assessment measures that take into account policy outcomes from the perspectives of distribution within both populations and defined physical areas.
212
5.1.2 Precedent research
5.1.2. (a) EGM distribution and its socioeconomic implications
A significant proportion of the extant research on outcomes associated with gambling is focused on those impacts related to problem gambling. From the Australian perspective, this focus is evidenced by the comprehensive Productivity Commission reports of 1999 and 2010, both of which devoted much attention to the problem gambling-related aspects of the gambling industries. Despite this strong focus, the literature also recognises the broader socioeconomic impacts of gambling as they relate to various levels of Australian society. Also, although some of the broader impacts are specifically associated with problem gambling, others, such as the implications for public finance, are related more generally to the availability of, and participation in, gambling across the country. The literature observed in Chapter 3 also substantiates the relationship between this issue of generally increasing accessibility or availability of gambling and the expansion of EGM gambling, both in NSW and other states.
There are both positive and negative socioeconomic impacts connected with gambling that are identified in the literature. As a result there is also a focus in some research on the ‘net’ impacts of gambling, both in general and in respect of particular forms of gambling (for example
Productivity Commission, 1999). The Commission (1999) emphasised the difficulties associated with estimating net impacts, and critically in the context of the present research, observed that aggregate estimation “hides differences in the distribution of benefits and costs between different gambling modes (as well as between different regions) [sic]” (p. 11.1). In order to ensure the validity of the analyses conducted in this research, attempts to estimate net impacts for each LGA have been avoided. Consistent with the observations of the Productivity
Commission, it would not be possible to comprehensively assess such net impacts, as any estimate would involve certain assumptions and as such may not capture all relevant impacts.
213 In terms of estimating the impacts on communities, there is a need to ensure comparability between geographic areas which often display large variances in demographic and socioeconomic measures relevant to gambling. The most commonly-used metric for standardising comparative analysis between areas is EGM density. The focus on machine density, expressed as a relationship between a measure of the population (customarily persons aged 18 years and over) and the number of EGMs available to the population, is reflected in a reliance on such measures in a significant proportion of empirical studies into this form of gambling. For example, Brown, Crawford, Worthington and Pickernell (2003) and Pickernell,
Brown, Worthington and Crawford (2004) adopted approved EGMs per 10,000 adults as a variable. In its own research, the Productivity Commission (1999) also adopted this measure.
Marshall and Baker (2002) and Marshall (2003) analysed EGM concentration in “per 1000 person terms to account for the variation in LGA size” (Marshall and Baker 2002, p. 278).
Delfabbro (2008) also cited a number of other studies in which a parallel measure of density was employed (for example, Livingstone, 2001; Delfabbro, 2002).
In the NSW context, perhaps the most robust support for the reliance on a density measure was its adoption by OLGR in determination of social impact assessments (SIA) under the Gaming
Machines Act 2001. This policy position was strongly based on the adoption of work by Stubbs and Storer (Productivity Commission, 2009), which is discussed subsequently.
5.1.2. (b) Limitations of precedent research
The adoption of adults per EGM in a geographic area as a measure of density is logical in the context of attempting to determine and compare certain key characteristics of a community in which EGM activity takes place, and on which it may impact, be that as a result of problem gambling, taxation incidence or other outcome. Each of the studies mentioned above identified relationships between EGM density and the impacts under investigation in each instance.
Despite some recognition of its role as an explanatory factor, there has been a comparatively much lesser emphasis on the influence of the physical distribution of EGMs amongst venues
214 within geographical areas, and the ramifications and outcomes for those areas that result from such distribution.
O’Neil and Whetton (2002) suggested that the concentration of EGMs among venues may be an alternative policy formulation input, based on their finding that the number of venues in a defined area (i.e., per square kilometre), along with EGM density, were “influential factors in explaining differences in net gaming revenue between councils” (i.e. LGAs) (p.19). Marshall
(1998) proposed that the “spatial proliferation of poker machines” (p. 238) results in altered patterns of gambling activity, costs and benefits. Although such approaches represent efforts to incorporate physical distribution into analysis, each considers only two variables. The former assesses the number of venues and the physical area across which these are distributed. The latter relates to the number of EGMs in a physical area. These approaches do not specifically extend to consideration of how the distribution of EGMs among venues within an LGA affects revenue and taxation imposts on the particular LGA and the relativities of these distributions between different LGAs.
More recently, there has been a movement in Australasian EGM research toward analysis of spatial and physical distributional aspects of EGM proliferation. The majority of this research has centred on the application of ‘mapping’ techniques, and in particular, geographic information systems (GIS). McMillen, Marshall and Doran (2004), and Young (2010), proposed such approaches to considering the geographic distribution of EGMs to their relative impacts. Wheeler, Rigby and Huriwai (2004) applied geographically weighted regression
(GWR) to test the concentration of EGMs among lower-SES communities. These examples indicate that the issue of geographic distribution has gathered some momentum in more recent
EGM research. As is the case with other relevant research, each of these studies was based in sampling methods such as surveys, and each related to problem gambling indicators and outcomes, whereas the present research does not attempt to infer more general behaviours on the basis of population samples.
215
The present approach builds on the existing research by assessing the impacts on LGAs on the basis of their socioeconomic status, using the taxes exacted as the principal measure, from both the conventional density-based approach and an alternative, comparative concentration-based approach. This additional methodology for examining EGM gambling impacts allows the testing of two particular hypotheses. In Section 4.11, several comparative hypothetical examples of the effect of variances in distribution of EGMs on LGAs were posited. Collectively these addressed situations in which different patterns of distribution of EGMs in one type of venue, most specifically clubs, and in both venue types within an LGA, may notionally result in significantly different taxation outcomes to a comparable LGA with an otherwise similarly- scaled EGM gambling environment. It was proposed that such impacts might be most readily observable in relation to small, typically rural LGAs.
Contrary to these hypotheses, the Productivity Commission (1999), as a result of its own analysis, determined that it “was unable to identify any substantial differences in the impacts of liberalised gambling in country areas relative to those in metropolitan areas” (p. 10.52). The
Commission’s conclusions were based on a qualitative sample of limited scope based on
‘roundtable’ discussions and a cross-sectional analysis of ABS and industry-sourced data in four states including NSW for the year 1997-1998. These inconclusive results are relevant to the current research because an area of concern identified in this research was the leakage of economic activity and gambling taxes from local areas. The analyses in this and the subsequent chapter focus on similar impacts.
The relevant research questions for testing these theories were posited in Chapter 1. The current research is an opportunity to re-examine the Productivity Commission’s (1999) findings and test and compare the validity of these. For the purposes of such a comparative approach, it is proposed that the chief advantages of the present research are the authoritative data available,
216 the longitudinal nature of the data, and the use of both density and concentration approaches to test the data.
In addition to the limited consideration given to aspects of relative distribution of EGMs within
LGAs, there are also acknowledged issues with respect to the data used in the conduct of earlier work. Layton and Worthington (1999), Worthington (2001), Access Economics (2002) and
Worthington et al (2007) principally relied on data from the ABS Household Expenditure
Survey (HES), in analysing various aspects of the socioeconomic and demographic incidence of gambling taxes (Worthington et al, 2007). Worthington (2001) acknowledged certain weaknesses in this approach, which were also identified in the Productivity Commission’s 1999 report. These inherent weaknesses relate to the survey-based methodology of the HES, and the tendency for biases and inaccuracies to result from reliance on data generated under such a methodology. For example, Access Economics (2002) noted that HES “estimates of gambling expenditure are, in general, lower than the industry benchmark” (p. 9), with EGMs being one of the gambling forms to which this observation applied. In a submission to the Productivity
Commission’s 1999 inquiry, Doughney and Kelleher (1999) compiled a detailed critique on the use of HES, which included evidence that the ABS itself counselled against the use of the data in gambling-related analysis, due to the limitations resulting from its methodological basis as a small-sample survey and the implied assumptions required to extrapolate the results to larger populations. A number of these factors were also acknowledged by Worthington et al (2007).
A further inferred inadequacy also exists within this related body of work. Worthington et al
(2007) discussed the use of an ABS “index” which is “a measure of relative socio-economic disadvantage” (p.215) as a key variable. The paper is not explicit on which census year the particular index is based on, but it is clearly analogous to the SEIFA Index of Disadvantage adopted in this thesis, or the “Index of Economic Resources” adopted by Marshall and Baker
(2002, p. 278) in their work. With respect to their use of this index in conjunction with HES data, Worthington et al (2001) conceded that the socioeconomic index adopted in their study
217 “refers to the area in which a person lives, not to the socio-economic situation of the particular individual” (p. 15). Conversely, HES is focused on household-level data. This is a key distinction in respect of the current research. The present study is not impeded by such an inconsistency in the level of source data, as LGA-level SEIFA and EGM data are used.
Furthermore, the data obtained for the present study represents an authoritative account of EGM gambling activity over the relevant period. Doughney and Kelleher (1999,) described such data as “supply-side” generated and as being “highly regarded for their accuracy and reliability” (p.
18). In these respects, the present approach, although drawing on certain aspects of earlier research, represents a superior and more comprehensive basis on which to conduct analyses.
The present study seeks to address the identified gaps in existing research by focusing specifically on EGM taxation as the measure of outcomes for LGAs. In the present approach, the role of the physical area variable is expressed59 through two key relationships. The first of these is the established metric of population per EGM. The second is the relationship between the number of venues and the EGM distribution among those venues, or the physical concentration of EGMs in LGAs. These relationships are examined to assess the extent to which the practical results of policy application have shaped EGM taxation impacts.
The population metric is a logical component of research into expenditure levels and by association, tax imposed by the State, as it addresses the relative size of the affected communities and the extent of their exposure to EGM taxation. The manner in which EGMs are physically distributed in an area is of particular interest in this research, as it is posited that such distribution is a determinant of the level of tax extraction, and may provide some insight into the relative outcomes for different communities associated with regulatory changes to the EGM gambling environment.
59 The measure of physical area is each of 140 of the LGAs in the State. As the data obtained for the research are divided in this manner, reliance on this measure is a matter of practicality. Furthermore this approach imposes some logical order on the process of comparison. 218
As was demonstrated in Chapter 3, the terms of the Carr Labor Governments in NSW (1995 to
2005) involved policy approaches initially resulting in expansion and subsequently attempts at marginal reduction of EGM numbers in the State. The motivations for these ostensibly conflicting approaches have bearing on the current analysis, as was also discussed previously in
Chapters 3 and 4. The crucial aspect of these legislative events in the present context is that they permit an opportunity to conduct a detailed examination of the taxation impacts on the majority of LGAs in the State, from the perspective of EGM distribution, assuming a concentration or density measure focused on the structure of the EGM gaming market in each LGA. It is proposed that attempting to defining each LGA as a distinct ‘market’ and then making comparisons on this basis of groups of LGAs with similar market characteristics, is a defining characteristic of the present research. The mechanics of this approach and the application of the comprehensive database to this examination are discussed below.
5.1.3 Acquisition and description of principal data set
5.1.3(a) Data acquisition
In order to examine the behaviour of EGM use and its effects over the period 1995 to 2005, it was perceived as being critical to the project to obtain the most comprehensive raw data available, with which to conduct analyses. Prior to the introduction of the Gaming Machines
Amendment Regulation 2008, EGM data were available for purchase for each LGA in NSW through DGR, or its successor OLGR. These smaller-area data were extracted from a statewide database maintained for each tax year commencing 1994-1995.
At the time of acquisition, commercial access to LGA-level parcels of these data most often related to the preparation of social impact assessments which were required to be submitted in support of EGM entitlement60 applications. The gaming data were a key input in establishing
60 An EGM entitlement refers to the licence required to keep and operate each EGM in New South Wales. 219 the relationships between EGM availability and the demographic and socioeconomic standing of communities in which applications were to have effect.
Application was made to NSW Treasury and the Ministerial office of the Treasurer to obtain access to the entire database for the purposes of the study. Access to the database was approved in December 2006. The data included the most recent complete year (2004-2005) of data available at the time of approval, which meant that the data were of significant commercial value. As this most recent material was also the most valuable in the context of its principal use in the compilation of SIAs, access was conditional on ensuring that the data remained confidential. Due to the potential sensitivity of the information contained in the database and its significant commercial value, custody of the database was vested at the University of
Newcastle.
5.1.3(b) Primary database characteristics
The full data set was comprised of four separate databases, containing approximately 400,000 individual data points. The hotel data set contained data for the period commencing with the
1994/1995 tax year through to the end of the 1997/1998 tax year. The club EGM data commenced at the same point as that for hotels, but terminated at the end of the second quarter of 1997/1998. The third database contained data for both clubs and hotels, commencing at the second half of the 1997/1998 tax year for clubs, and at the beginning of the 1998/1999 tax year for hotels. The fourth database comprised a quarterly enumeration of EGM numbers which aligned with the data commencing in the 1998/1999 tax year. This fourth data set is not critical to the study, as EGM numbers are also included with the profit and taxation data sets.
The material components of each of the three main databases are the venue type (club or hotel) and counts, EGM counts, metered profit and taxation (also described as duty) for each venue in
NSW during the study period. The databases also include information on spatial classifications
(based on the Australian Bureau of Statistics Australian Standard Geographical Classifications).
220 Among these identified spatial classifications, the LGA in which each venue is located is material to the research.
The longitudinal characteristic of the data provides for inter-temporal comparisons within and between local government areas, particularly with respect to the effect of the regulatory changes introduced by the NSW government over the study period, and other material influences such as the introduction of the GST, which are discussed in detail in Chapters 3 and 4. This element of the data was a factor in the determination of the appropriate methodology to be adopted for the study.
5.1.3(c) Database limitations
The databases essentially represent a census of the relevant EGM gambling statistics described above for NSW over the study period. Despite this, the databases as acquired had a number of physical and compositional limitations which required consideration in consolidating and preparing them for the purposes of the research. These limitations are briefly described below:
The data were disaggregated to venue (club and hotel level). As the research was to be
conducted at LGA level, a process of consolidating the data to that level was necessary.
Data for 1994/1995 to 1997/1998 required consolidation, as club and hotel data were
separate.
During the study period, a number of local government areas were amalgamated, and a
smaller number of LGAs were created and then disbanded and redistributed by the
NSW Department of Local Government (DLG). The recording of the effective dates for
these changes to LGA structures appears to differ from agency to agency across
government. For example, DGR/OLGR data recognises certain amalgamations from the
commencement of the 1998/1999 tax year, whereas in supplementary data, such as that
from the ABS, the same amalgamations are not recognised until the 2001/2002 tax year.
The major implication of this anomaly relates to the 1997/1998 tax year, in which club
221 data were recorded for individual LGAs facing amalgamation for the first and second
quarters of the year, and for amalgamated LGAs for the third and fourth quarters.
In addition to changes in LGA structure, individual venues commenced, ceased or
suspended and resumed trading at various stages during the study period. However, the
impacts of these differences are captured within the data for each year, as these are
aggregated to LGA level and the analysis is conducted at that level.
5.1.4 Supplementary data and its sources
There were other supplementary data sources that were used in conducting the research. These are briefly detailed below.
5.1.4(a) Australian Bureau of Statistics – Census and Regional Population Growth Data.
These data sources are comprised of Census population counts in relevant years61 and estimated resident population (ERP) assessments in intervening years. The ABS data comprise the primary source of population data required for comparison between conventional population- based distribution or density measures, and the additional market structure-focused concentration approach adopted in this research. Limitations in relation to the timing of data recording are apparent in these data, as is the case for the primary database. These limitations chiefly relate to changes in estimates which are apparent in later versions of each year’s ERP data. In order to control for this variation, the most recent version for each year was identified, and used for each relevant year. This approach is consistent with ABS recommendations in relation to use of ERP data62.
61 Census years within the study period are 1996 and 2001. 62 ABS Cat. No 3101.0 Australian Demographic Statistics, June 2009, < http://www.abs.gov.au/Ausstats/[email protected]/0/EB22D67B4B28D7CCCA25765100098E72?OpenDocument >. The catalogue advises that ‘a user can access more accurate data by using the revised or final ERP data’ (para. 8). 222 There were also some issues with the timing of the recognition of changes to a number of
LGAs’ status in the population data (similar to those relating to amalgamations as observed in respect of the OLGR data). In addition to these temporal issues, in certain circumstances, the amalgamations of some LGAs also involved the partitioning and redistribution of previously discrete LGAs. While acknowledging that these were chiefly boundary changes, there is no reliable mechanism for assessing any effective change in populations which may have resulted from these redistributions.
ABS Socioeconomic Indexes for Areas (SEIFA) derived from 2001 Census data at LGA level were also obtained. 2001 SEIFA was employed as this Census year approximates the temporal midpoint of the study period, and is therefore assumed as representative of the overall socioeconomic status of the LGAs during the study period. Each of the four indices
(Disadvantage, Relative Advantage/Disadvantage, Economic Resources and
Education/Occupation) was acquired. These were ordered into terciles, nominally low, medium and high SES, to facilitate comparison of LGAs on the basis of their socioeconomic status and specific aspects of that status. Further discussion on the selection and treatment of SEIFA indices for this analysis is included in Section 5.1.7.
5.1.5 Approach to preparation of data sets and composition of functional data sets
The raw data were presented in Excel spreadsheets. As is discussed above, the data sets were presented in different formats. From a process perspective, the data required consolidation into a consistent format for export to Statistical Package for the Social Sciences statistical software
(SPSS 16/PASW 18, SPSS Inc. Chicago, Ill. USA). As noted above, from a substantive perspective, the changes to LGAs over the period also necessitated some adjustments to the content in order to ensure consistency of analysis.
223 The differences in recording formats in the data sets appeared to be arbitrary. The primary data set was that obtained from DGR/OLGR. Differences in recording of certain features in the various sets were therefore resolved consistent with the DGR/OLGR data set. The variations in the data set related to the changes in status of specific LGAs were ultimately resolved by excluding the LGAs identified in Table 5.1.1. The decision to exclude the nominated LGAs was made on the basis that these were either amalgamated or dissolved during the period being examined. As such these LGAs ceased to exit in their prior form, and the resultant changes may have affected comparability of data between observation points had these LGAs been included in the analysis.
Table 5.1.1
Excluded LGAs
LGA Name LGA Name Barraba Mudgee Bingara Mulwaree Clarence Valley Murrurundi Conargo Nundle Concord Palerang Coolah Parry Coonabarabran Pristine Waters Copmanhurst Quirindi Crookwell Rylstone Culcairn Scone Drummoyne Severn Evans South Sydney Grafton Sydney Gunning Tallaganda Gwydir Upper Hunter Holbrook Upper Lachlan Liverpool Plains Warrumbungle Maclean Windouran Manilla Yallaroi Merriwa Yarrowlumla Mid Western Regional
It is noted that in a number of relevant studies in both NSW and Victoria, the nominal capital city LGA, Sydney or Melbourne respectively, were excluded from analysis due to the relatively large concentration of venues, EGMs and comparatively low resident population. Although the current research excludes the Sydney LGA on the basis of its amalgamation with the South
224 Sydney LGA, the exclusion is consistent with precedent research (for example, Marshall and
Baker, 2002; Productivity Commission, 1999).
The primary data were then merged with the SEIFA, population and DLG data detailed previously. The variables extracted are identified in Table 5.1.2. These include the derived variables which are critical to the analysis.
Table 5.1.2: Base and derived variables for analysis
Variable (by LGA) Number of EGMs Number of venues (total) Number of clubs Number of hotels Total profit Total tax Population SEIFA disadvantage SEIFA occupation/education EGM density (population per EGM) Profit per capita Tax per capita Herfindahl index score – EGMs Herfindahl index score – profit Herfindahl index score - tax
As is suggested by Table 5.1.2, additional compound variables derived from the base variables
(such as the conventional density measure, population per EGM, and the per capita activity measures for profit and tax) were calculated using the base variables. Explanatory material on the structure and application of the Herfindahl-Hirschman Index and the two ABS SEIFA indices in included in Sections 5.1.6 and 5.1.7 respectively.
5.1.6 Selection of concentration measure
5.1.6(a) Methodological considerations
As was observed in Section 5.1.2(a), the most commonly-used measures of EGM distribution are generally referred to as density measures. It is observed that although these measures may
225 differ in base unit value, all are population-based and fundamentally describe the ratio of the number of adults or persons to the number of EGMs in a given area.
The focus on such measures is explained by the increasing emphasis on gambling harm minimisation, in both regulation and research. As an individual must be an adult at law to obtain access to EGMs, the adult component of the population is the obvious choice in any examination of gambling-related harms and consequent harm minimisation approaches. It is posited that this emphasis may be considered as a sociological focus, to the extent that its intentions are to address social impacts or related negative externalities arising from the activity.
This position is supported by the use of EGM density as a decision input in social impact assessments relating to EGM applications, as noted above (Section 5.1.[a]).
Approaching the concentration of EGMs from a more rigidly economic focus, the distribution of the tax burden relating to EGM activity does not exclusively need to be considered as a function of the adult per machine relationship. Tax outflows and revenue inflows such as grant income from the state and Federal governments have impacts on households and entire communities. Therefore, it is appropriate when focusing on these economic phenomena to consider the total population of an area, rather than a specific component of the population.
Such an approach to total population as it relates to each LGA is considered in relevant parts of this study. However measures based on population density are a secondary focus of the present research. In order to assess the effects of the distributional structure of EGMs in particular areas, the approach taken herein is to consider each LGA as an individual market. A central characteristic of each of these markets is the manner in which the total number of EGMs is dispersed throughout the venues in the relevant LGA.
In order to describe this distribution, identification of a method of measuring the concentration of EGMs across and within venues was undertaken. Initially, a methodology was considered
226 which functionally equated to the use of a concentration ratio. Sleuwaegen and Dehandschutter
(1986) described such a concentration ratio as the ‘k-firm ratio’ (p. 193), the function of which is to determine the proportion of an industry’s output which is accounted for by the k largest firms, commonly four or eight firms (Black, 2002). Kwoka (1985) referred to the “conventional concentration ratio” (pp. 919-920), as CR4, being the four-firm ratio.
An alternative method was then considered63. This alternative was the Herfindahl – Hirschman index, or more commonly, the Herfindahl index, developed by Herfindahl and Hirschman.
Rhoades (1993) described the Herfindahl index as a statistical measure of concentration, expressed as the sum of squares of the market shares of all firms in the market. There is a considerable body of literature on the various applications of the Herfindahl index. Rhoades
(1993) for example, noted that the index has applications in analysing concentration of household income, assessing market concentration in sectors such as banking and industrial markets, and in analysis of horizontal mergers to the extent that its use allows estimation of increases or decreases in market power associated with such mergers. Rhoades further noted that in 1982 this latter application was adopted as the basis for “formal numerical guidelines for horizontal mergers” (p. 188) under the United States of America Justice Department’s antitrust laws, which are the USA’s equivalent of the competition laws administered in Australia by the
Australian Competition and Consumer Commission.
Such prominent application of the Herfindahl index is supported by positive comparisons of the index with other concentration measures. Kwoka (1985) cited Schmalensee (1977) and Areeda and Turner (1980) who respectively characterised the index as “the standard against which others are judged” and as “superior in most respects” (Kwoka, 1985, p. 195).
63 I acknowledge the assistance of Dr Kathryn Holmes in determining the appropriate model for use in this research. 227 The literature also discusses a number of perceived advantages with respect to the Herfindahl index. Kwoka (1985) identified a key advantage as the fact that the index assesses all firms in a market, rather than only the leading or largest firms. As a result, this inclusive aspect avoids the
“arbitrary cut-offs” and “insensitivity to share distribution” (Kwoka, 1985, p. 921) associated with, for example, a four-firm concentration ratio.
Kelly (1985) identified a number of limitations of the index. These include the fact that questions remain as to the “link between concentration and monopoly power” (p. 50), which reduces the efficacy of use of concentration measures in general. Kelly (1985) subsequently conceded that the relationship between the index and “numbers of firms and size dispersion” is
“well known” (p. 51). A second limitation identified relates to the “intuitive meaning” (Kelly
1985, p. 50) of the index in any particular circumstance. That is, that the output, as a proportion of the total market, is not considered to be as clear as, for example the observation that the four largest firms in a market control a certain combined proportion of that market. Given the contextual nature of the present application, this is not considered to be a material limitation.
An additional limitation of the Herfindahl index, and in fact that first identified by Kelly (1985) is that “for empirical work, its use requires data on the market shares of each firm, and this data is frequently unavailable” (p. 50). Given the nature of the primary data set obtained for this study, this limitation does not apply to the present study.
Additionally, as has been previously noted, Marshall and Baker (2002) observed that methodologically, the use of a population-to-EGM density ratio has a normative effect with respect to the disparity between the relative sizes of LGAs. Based on the commentary identified above in relation to the ability of the Herfindahl index to account for distribution as defined by size and number of market participants, it is posited that the use of the index features similar methodological validity. As each LGA is a discrete market to which the same mathematical function is applied, the result is a comparable index. Therefore, the variations considered by
Marshall and Baker (2002) to be valid considerations are addressed by the methods adopted in
228 this study. Considering these issues collectively, it is posited that the use of the Herfindahl index is methodologically appropriate in the context of the research.
5.1.6(b) Application of the Herfindahl Index
The Herfindahl index values were used as additional derived variables supplementing the base variables for the analysis as identified in Table 5.1.2. Herfindahl values were calculated for the following base variables:
a) EGM count;
b) Profit;
c) Tax.
The Herfindahl Index values for each of these variables were calculated from the relevant primary data subset. As the Herfindahl Index value represents the level of concentration of all venues in a nominated ‘market’, a value was generated for each LGA included in the analysis.
This then allowed for statistical comparison between LGAs within terciles defined on the basis of two measures of socioeconomic status. Having determined the Herfindahl Index as the preferred method for assessing concentration, the final list variables to be analysed and a brief explanation of their construction is included in Table 5.1.3.
229 Table 5.1.3
Description of EGM gambling variables used in analysis
Variable Description Ratio of the population to the number of EGMs in a defined physical EGM Density area. The physical area for these analyses is the relevant LGA.
Profit per capita EGM profit (as defined in Section 4.8.4) per person in the LGA.
Tax per Capita Tax per person in the LGA. EGM Concentration of EGMs in each LGA calculated as the sum of squares concentration of the share of each venue of total EGMs in the LGA. (Herfindahl index) Profit Concentration of EGM profit in each LGA calculated as the sum of concentration squares of the share of each venue of total EGM profit in the LGA. (Herfindahl index) Concentration of EGM tax in each LGA calculated as the sum of Tax concentration squares of the share of each venue of total EGM tax derived from the (Herfindahl index) LGA.
5.1.7 Selection of measures of socioeconomic status (SES) - ABS
Socioeconomic Indexes for Areas (SEIFA).
5.1.7(a) SEIFA Indices
As is discussed in Section 5.1.4(a), based on data from the 2001 Census, the ABS derived four indexes which measure aspects of SES. These indexes are those of:
Relative disadvantage;
Relative advantage/disadvantage;
Economic resources; and
Education and occupation.
Exploratory analysis was undertaken to assess the comparative relationship between each of the four indexes and the principal LGA data. These relationships were further subjected to Analysis of Variance (ANOVA) testing. It was found that three of the four indexes (i.e.
230 advantage/disadvantage, disadvantage and economic resources) returned similar results. The principle source of difference between the index of education and occupation and the other three variables is that each of the other three variables includes a number of income and associated variables. The construction of the education/occupation index consists entirely of specific educational and occupational factors. This structural feature distinguishes this index from the others, chiefly due to the reliance on income and related variables in those three indexes (ABS,
2003).
As a result of the findings of this initial analysis, two of the four SEIFA indices were adopted for use in the main analytical tasks. These two indices were respectively those of disadvantage
(hereinafter referred to as SEIFA D) and education/occupation (hereinafter referred to as SEIFA
EO). Further comment on this methodological determination is included in Section 5.1.7(b) below.
5.1.7(b) Selection of SEIFA Indices for Application in Analysis
The decision to adopt SEIFA D and SEIFA EO as the comparative measures of SES was based on a number of assumptions. Importantly, these assumptions addressed the general question of the validity of these indices.
ABS published supporting material in the form of an Information Paper (ABS, 2003) and a
Technical Paper (ABS, 2004) in relation to 2001 SEIFA. These documents were taken into consideration in the selection of SEIFA indices for use in the analysis. The Technical Paper states that the indices are ordinal. In the present analysis, each index was categorised into deciles, and then ultimately into terciles, with both steps assuming an ordinal basis. The only consideration given to actual scores was in the initial formulation of the deciles. This consideration related to minor adjustments to the decile cut-offs, where the initial cut-off resulted in LGAs with the same SEIFA score being represented in two deciles. Where this occurred, the LGAs were allocated to the decile in which the greater number of the same-score
231 LGAs fell. In circumstances where only two LGAs of the same score fell into two successive deciles, these were allocated to the lower decile, except in circumstances where the lower decile had been expanded to accommodate a change in respect of the preceding decile. The resulting tercile groups are listed in Table 5.1.4.
232 Table 5.1.4 Comparison of SEIFA of disadvantage (D) and SEIFA of education and occupation (EO) terciles
SEIFA D low SEIFA EO low SEIFA D SEIFA EO SEIFA D high SEIFA EO high medium medium Auburn Blayney Albury Auburn Armidale Byron Dumaresq Bankstown Bogan Ballina Bankstown Ashfield Lismore Bellingen Brewarrina Balranald Bellingen Baulkham Hills Ballina Blacktown Broken Hill Bathurst Blacktown Bland Bathurst Blayney Central Darling Bega Valley Botany Bay Blue Mountains Marrickville Bogan Cessnock Berrigan Bourke Boorowa Newcastle Botany Bay Cobar Bombala Campbelltown Burwood Parramatta Bourke Coonamble Carrathool Canterbury Cabonne Rockdale Brewarrina Fairfield Coffs Harbour Gunnedah Camden Wollongong Broken Hill Guyra Coolamon Lachlan Cooma-Monaro Armidale Dumaresq Byron Inverell Cootamundra Liverpool Gosford Ashfield Campbelltown Junee Corowa Maitland Hawkesbury Baulkham Hills Canterbury Kempsey Cowra Taree Hornsby Blue Mountains Central Darling Kyogle Deniliquin Tweed Hume Burwood Cessnock Lithgow Dubbo Wellington Hunters Hill Camden Cobar Moree Plains Dungog Wyong Hurstville Cooma-Monaro Coonamble Muswellbrook Eurobodalla Albury Jerilderie Gosford Fairfield Nambucca Forbes Bega Valley Kiama Hornsby Gunnedah Narromine Gilgandra Berrigan Kogarah Hunters Hill Guyra Richmond Valley Gloucester Coffs Harbour Ku-ring-gai Hurstville Inverell Shellharbour Great Lakes Coolamon Lane Cove Kiama Junee Tenterfield Griffith Cootamundra Leichhardt Kogarah Kempsey Tumut Gundagai Deniliquin Lockhart Ku-ring-gai Kyogle Walgett Harden Dubbo Manly Lane Cove Lachlan Warren Hay Dungog Mosman Leichhardt Lismore Balranald Holroyd Eurobodalla Murray Manly Lithgow Bombala Lake Macquarie Forbes North Sydney Mosman Liverpool Carrathool Leeton Gilgandra Pittwater North Sydney Maitland Corowa Marrickville Great Lakes Queanbeyan Pittwater Moree Plains Cowra Murrumbidgee Holroyd Randwick Queanbeyan Muswellbrook Gloucester Narrabri Lake Macquarie Ryde Randwick Nambucca Griffith Narrandera Narrabri Snowy River Ryde Narromine Gundagai Newcastle Orange Strathfield Snowy River Richmond Valley Harden Oberon Parkes Sutherland Strathfield Shellharbour Hay Orange Penrith Wakool Sutherland Taree Leeton Parkes Port Macquarie – Warringah Warringah Hastings Tenterfield Murrumbidgee Parramatta Port Stephens Waverley Waverley Tumut Narrandera Penrith Shoalhaven Willoughby Willoughby Tweed Oberon Port Macquarie – Singleton Wingecarribee Wingecarribee Hastings Walgett Tumbarumba Port Stephens Tamworth Wollondilly Woollarah Warren Urana Rockdale Temora Woollarah Yass Valley Wellington Shoalhaven Unincorporated Yass Valley Wyong Singleton Uralla Tamworth Wagga Wagga Temora Walcha Tumbarumba Weddin Unincorporated Wentworth Uralla Young Urana Bland Wagga Wagga Boorowa Walcha Cabonne Weddin Hawkesbury Wentworth Hume Wollongong Jerilderie Young Lockhart Murray Wakool Wollondilly
233 The use of SEIFA D by the relevant government and judicial agencies in the determination of
SIA applications for EGM entitlements relating to the Gaming Machines Act provides further validation for this approach. As has been previously observed, OLGR and the Liquor
Administration Board assessed such applications on the basis of otherwise unpublished work by
Stubbs and Storer (Refer to Submission No. 73, Productivity Commission, 2009)64. Stubbs’ and
Storer’s (Productivity Commission, 2009) recommendations with respect to application assessment criteria were based on use of SEIFA D. Adoption of SEIFA D is consistent with this approach. As all of the indices derived from income-related factors returned similar results in initial testing, with the exception of SEIFA EO, SEIFA D was also preferred amongst these on the basis that the ABS Technical Paper (2004) identified it as the “best general measure of disadvantage” (p.72).
The adoption of SEIFA EO as the second comparative measure of SES is also consistent with the recommendations of Stubbs and Storer (Productivity Commission, 2009) who proposed that certain elements of occupational and educational status should be considered in decisions on increases in EGM numbers at LGA level. The exploratory descriptive and ANOVA analysis suggested that the specific aspects of SES represented by SEIFA EO warranted investigation in the context of assessing the moderating influence of SES on EGM taxation outcomes. Once applied to the analysis of the OLGR and supporting data, the differences observed in the exploratory analysis resulted in changes in the grouping of LGAs which are apparent in Table
5.1.4.
Comparing the composition of the low, medium and high tercile groups for both indices, there are a number of high-population metropolitan or urban LGAs, with high EGM counts, which fall into the lowest group in the general disadvantage index. Therefore these are among the more disadvantaged LGAs as measured by SEIFA D. Conversely, these LGAs migrate to the
64 For example, Stubbs J and Storer J, Submission to Productivity Commission Gambling Inquiry, Submission No. 73, Productivity Commission 2009, (p. 5). 234 medium SES group when SEIFA EO is employed. These LGAs include Auburn, Bankstown,
Blacktown, Botany Bay, Campbelltown, Canterbury, Liverpool, Maitland and Wyong.
Adopting 1998 ABS data, these nine LGAs accounted for a population of 1,113,578
(approximately 19 percent of the NSW population at that time) and 13,358 EGMs
(approximately 16 percent of the State total).
The counter-effect of the movement of these LGAs from low (SEIFA D) to medium (SEIFA
EO) is that a number of principally rural LGAs which were in the medium range for SEIFA D, fell into the low group for SEIFA EO. These LGAs were: Balranald, Bombala, Carrathool,
Corowa, Cowra, Gloucester, Griffith, Gundagai, Harden, Hay, Leeton, Murrumbidgee,
Narrandera, Oberon, Tumbarumba and Urana. As would be expected, these LGAs have comparatively much lower populations and total EGM counts.
As is demonstrated by Table 5.1.4, there were a limited number of other migrations between tercile levels on the basis of the SES characteristics being observed. For example, Lismore and
Byron LGAs were in the low SEIFA D group, but in the high SEIFA EO group. In the context of the larger bloc movements of LGAs identified above, this outcome is less significant, however it does indicate that the socioeconomic characteristics of LGAs are variable, and in some respects socioeconomic resilience may be better explained by a comparison of more than one measure of SES than through reliance on one index only. The impacts of these changes and the associated advantage of comparison between two SES measures are further illustrated in
Figure 5.1.1.
235 Figure 5.1.1
Population and EGM totals by SEIFA Index Terciles 1998
SEIFA Group Comparison - 1998 Data
3000000 45000 40000 2500000 35000 2000000 30000 25000 1500000
20000 Population 1000000 15000 Total EGMs 10000 500000 5000 0 0 Dis1 EO1 Dis2 EO2 Dis3 EO3
Population Total EGMs
Sources: ABS; OLGR
Figure 5.1.1 provides a graphical representation of the EGM density means for the 1998 data.
The 1998 data are of interest in the broader analysis of the three Acts, as it was a component in the testing for both the 1996 and 1999 policy interventions which are subsequently reported.
The relative positions of the population and EGM count observations for each SES tercile in the figure are shown to correspond with descriptive findings for 1998 in Table 5.2.1 (Section
5.2.1.1[a]). These results indicate the SEIFA EO low group have the highest density of EGMs
(54.2), followed successively by SEIFA D medium (58.2), SEIFA D low and SEIFA EO medium (62.5 and 64.7 respectively), SEIFA D high (113.4) and SEIFA EO high (114.1).
These data and Figure 5.1.1 illustrate how different aspects of SES can influence a key decision criterion such as EGM density, on the basis of the SES measure selected.
236 5.1.8 Statistical Methods
5.1.8(a) Principal Analysis – Repeated Measures ANOVA65
Mixed factorial repeated measures analysis of variance (RM ANOVA) was applied for testing the research questions relating to the impact of each of the three legislative interventions on the selected variables. The benefit of this methodology is that it allowed iterative testing of the data at several time points. For each Act, each variable was tested;
For the year prior to nominal passage of the relevant Act66;
For the year, one year after the nominal passage of the relevant Act. And;
For the year, two years after the nominal passage of the relevant Act.
In the analysis for the Gaming Machines Act and the Gaming Machine Taxation Act of 2001, data were also tested for the year 2005, in order to compare the situation at the final year of the observation period. All testing was conducted to the five percent significance level.
The RM ANOVA output described the overall impact over each relevant period. The data for each of the variables were found to violate tests of sphericity. As a result, the F values derived were corrected using the Greenhouse-Geisser method. Comparative post hoc intra-period output was also generated, allowing observation of changes between each of the time points examined for each Act.
The mixed factor component of the analysis involved the application of the two SEIFA indices described in Section 5.1.7 as between-subjects factors. This allowed testing of the proposition that SES is a moderating factor on tax impacts on LGA-level communities.
The raw data were initially tested for normality, using tests of skewness and kurtosis. As a result of this testing, it became apparent that these data were not normally distributed. This was
65 The ensuing methodological discussion draws on the work of Field A. (2003): Discovering Statistics using SPSS for Windows, Sage Publications London, UK. 66 It is noted that in a number of the relevant Acts, there is a lag between the date of passage and the effective commencement of each Act. Generally this relates to time required to develop the regulations supporting the Act. 237 particularly the case in relation to the population-based variables, EGM density, profit per capita and tax per capita, given the differences in underlying scale of the component variables. The data were log-transformed prior to analysis to correct for these differences. It is noted that the means reported in sections 5.2.1.1, 5.2.2.1 and 5.2.3.1 are actual, and the p values reported are those from the log-transformed data. The actual means for each variable over the study period are illustrated in Figure 5.1.2
Figure 5.1.2
EGM gambling variable means 1995-2005
EGM Gambling Variable Means 1995-2005
4000 700 3500 600 3000 500 2500 400 2000 300 1500 measures 200
1000 Concentration Concentration
500 100 Per capita Per measures capita 0 0 1995 1997 1998 2000 2001 2002 2003 2005
EGM con. Profit con. Tax con. Pop/EGM Profit/cap. Tax/cap.
5.1.8(b) Description of RM ANOVA Output
The RM ANOVA analysis reported in the results section produced three principal results for each analysis, along with four categories of post hoc results which deconstruct the main effects to allow comparisons between the component observations.
Two ‘main effects’ results were generated for each analysis. These are:
‘Time effect’ – which describes the change in the independent variable (e.g. EGM
density) over the period observed;
‘Group effect’ – which describes changes between the covariate variable (i.e. SES
terciles) over the period observed;
238 The third and most crucial result is the ‘interaction effect’. This result describes the effect of the independent variable and the covariate on each other over the period observed.
The first two sets of post hoc tests allow examination of changes between successive observations. The second two sets of these results describe the overall relationship between the means for each observation. These results indicate the relative magnitude of the compared means, allowing for an assessment of the increase or decrease of the mean for the variable across the observations.
5.1.8(c) Additional Analyses
As a further descriptive indicator of the magnitude of change in the variables over each of the relevant periods, percentage changes were also calculated as part of the descriptive analysis.
The percentage calculated relates to the entire period in each instance. For example, in relation to the 1996 Act, the percentage change is for the period 1995 to 1998.
5.1.9 Approach
The analysis described above was applied separately to data surrounding the passage of the three Acts under examination from the Carr government period, on the basis of the research questions proposed in Section 1.3 and the method described in Section 5.1.8(a). The findings in respect of each Act were then considered in the broader context of their cumulative effect on the
EGM gambling environment. The three Acts principally examined in the following analysis, and the other significant regulatory events that influenced the EGM gambling environment over the period are illustrated in Figure 5.1
239 Legislative Timeline; Carr Governments 1995-2005
$6,000,000,000 120,000 1998 CDSE Legislation $5,000,000,000 100,000
Total EGMs $ $4,000,000,000 80,000 1996 Act EGMs into 1999 $3,000,000,000 hotels Responsible 60,000 Gambling Act 40,000 $2,000,000,000 2000 GST introduced $1,000,000,000 20,000
2001 Gaming Machines Act $0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Profit Tax EGMs
Figure 5.1.3: Timeline of key EGM legislative events: Carr Governments 1995-2005 (Source: OLGR)
240 5.2. Results
5.2.1 Liquor and Registered Clubs Further Amendment Act 1996, No. 103.
The results of this testing address the following research questions:
Research question 1(a): What were the effects of the Liquor and Registered Clubs Further
Amendment Act 1996, No.103 and its associated policies?
Research question 1(b): Did the policy result in a change in EGM taxation?
Research question 1(c): Were any effects of policy contained in the Act moderated by socioeconomic status (SES)?
5.2.1.1 Descriptive Statistics
5.2.1.1(a) Population per EGM (EGM density)
The lower mean density of EGMs in high SES group LGAs for both indexes in comparison to the two corresponding lower SES groups (Figure 5.2.1 and Table 5.2.1) is the most apparent feature of these data. Density for the SEIFA EO low-SES group is higher when compared to the low and medium SEIFA D groups and the medium SEIFA EO group.
Table 5.2.1
Population per EGM – means and related data 1995-1998
Population per EGM (n) LY -1 (1995) LY + 1 (1997) LY + 2 (1998) % Change
Mean SD +/- Mean SD +/- Mean SD +/- 1995-1998 SEIFA D Group 1 43 79.1 31.6 71.4 25.5 62.5 21.2 -21.0 SEIFA D Group 2 55 74.3 41.5 67.9 38.8 58.2 23.8 -21.7 SEIFA D Group 3 42 140.4 122.5 127.2 128.2 113.4 112.4 -19.2 SEIFA D All Groups 140 95.6 79.2 86.8 79.6 76.1 68.5 -20.4
SEIFA EO Group 1 41 66.6 21.9 62.9 21.2 54.2 17.5 -18.6 SEIFA EO Group 2 58 82.5 49.2 73.9 43.3 64.7 30.2 -21.6 SEIFA EO Group 3 41 143.1 120.2 128.8 127.6 114.1 111.9 -20.3 SEIFA EO All Groups 140 95.6 79.2 86.8 79.6 76.1 68.5 -20.4 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
241 Figure 5.2.1
Population per EGM by SES 1995 – 1998
Population per EGM x SES 1995-1998
160
140
120
100
80 PopulationEGM per
60
40 1995 1997 1998
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
5.2.1.1(b) EGM concentration
Table 5.2.2 and Figure 5.2.2 show that the alternative distribution measure, EGM concentration
(Herfindahl Index-based), is generally more variable across the terciles within the two indices than is EGM density. The change in EGM density over the period for each SEIFA group is largely linear, whereas with EGM concentration, Table 5.2.2 and Figure 5.2.2 show that that there was discernable change in the period after the legislation was passed for the lower tercile groups. The highest SEIFA D and SEIFA EO groups experienced a lower rate of increase, as is evidenced by the comparatively low proportional change for these groups (12.5 and 5.9 percent respectively).
242 Table 5.2.2
EGM concentration (Herfindahl index) – means and related data 1995-1998
EGM concentration (n) LY -1 (1995) LY + 1 (1997) LY + 2 (1998) % Change (H Index) Mean SD +/- Mean SD +/- Mean SD +/- 1995-1998 SEIFA D Group 1 43 1509.7 604.8 1470.8 611.4 1275.4 458.5 -15.5 SEIFA D Group 2 55 2004.8 1168.9 1891.5 1056.8 1629.8 912.5 -18.7 SEIFA D Group 3 42 1948.0 1110.9 1874.1 1061.2 1703.6 973.4 -12.5 SEIFA D All Groups 140 1835.7 1026.3 1757.1 956.9 1543.1 836.3 -15.9
SEIFA EO Group 1 41 2131.6 1082.5 2029.0 913.7 1711.7 720.9 -19.7 SEIFA EO Group 2 58 1801.1 1088.4 1718.5 1066.1 1457.7 840.3 -19.1 SEIFA EO Group 3 41 1588.8 804.3 1539.7 775.2 1495.2 928.7 -5.9 SEIFA EO All Groups 140 1835.7 1026.3 1757.1 956.9 1543.1 836.3 -15.9 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
Figure 5.2.2
EGM concentration by SES 1995 – 1998
EGM concentration x SES 1995-1998
2200
2000
1800
1600
1400
HerfindahlIndex score 1200
1000 1995 1997 1998
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
5.2.1.1(c) Profit per capita
The effect on levels of profit per capita associated with the introduction of the Act is evident for the higher SES groups, with a discernible increase coinciding with the effective commencement
243 of the Act’s provisions during 1997. Although this indicates a lower specific impact of the legislation on these LGAs, the data in Table 5.2.3 demonstrate that overall growth in the lowest
SES group for either index, was relatively large. The value for the highest SEIFA EO group was also comparatively large.
Table 5.2.3
Profit per capita – means and related data 1995-1998
Profit per capita (n) LY -1 (1995) LY + 1 (1997) LY + 2 (1998) % Change
Mean SD +/- Mean SD +/- Mean SD +/- 1995-1998 SEIFA D Group 1 43 302.9 189.9 348.1 171.5 401.6 180.1 32.6 SEIFA D Group 2 55 375.6 415.8 399.2 362.2 456.3 382.2 21.5 SEIFA D Group 3 42 373.3 653.8 386.6 555.3 443.3 541.7 18.8 SEIFA D All Groups 140 352.6 453.0 379.8 388.9 435.6 392.0 23.5
SEIFA EO Group 1 41 323.1 406.3 360.6 359.3 415.7 396.1 28.7 SEIFA EO Group 2 58 427.1 598.7 436.7 501.5 480.1 481.0 12.4 SEIFA EO Group 3 41 276.6 150.1 318.5 171.1 392.6 205.6 41.9 SEIFA EO All Groups 140 352.6 453.0 379.8 388.9 435.6 392.0 23.5 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
Figure 5.2.3
Profit per Capita by SES 1995 – 1998
Profit per capita x SES 1995 - 1998
500
450
400
350
Profit per capitaProfit per 300
250
200 1995 1997 1998
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
244 5.2.1.1(d) Profit concentration
The decrease in profit concentration was relatively consistent across groups. This is also consistent with the impacts observed for profit per capita. Lower rates of change were observed for the two high-SES groups.
Table 5.2.4
Profit concentration (Herfindahl index) – means and related data 1995 – 1998
Profit concentration (n) LY -1 (1995) LY + 1 (1997) LY + 2 (1998) % Change (H Index) Mean SD +/- Mean SD +/- Mean SD +/- 1995-1998 SEIFA D Group 1 43 2877.2 1378.4 3025.8 1387.8 2351.4 1017.0 -18.3 SEIFA D Group 2 55 3465.3 1856.4 3680.3 1918.8 2809.0 1419.4 -23.4 SEIFA D Group 3 42 3253.8 1801.5 3606.8 1962.2 2862.1 1713.0 -12.0 SEIFA D All Groups 140 3221.2 1711.9 3457.2 1797.8 2684.4 1418.0 -16.7
SEIFA EO Group 1 41 3751.3 1704.2 3965.2 1717.2 3020.6 1249.8 -19.5 SEIFA EO Group 2 58 3085.7 1695.9 3324.3 1846.4 2536.4 1322.7 -17.8 SEIFA EO Group 3 41 2882.9 1658.1 3137.3 1740.5 2557.5 1663.7 -11.3 SEIFA EO All Groups 140 3221.2 1711.9 3457.2 1797.8 2684.4 1418.0 -16.7 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
Figure 5.2.4
Profit concentration by SES 1995 – 1998
Profit concentration x SES 1995-1998
4500
4000
3500
3000
2500 HerfindahlIndex score
2000 1995 1997 1998
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
245 5.2.1.1(e) Tax per capita
Figure 5.2.5 and the percentage changes for tax per capita indicate that this variable behaved quite consistently in the SEIFA D analysis, but with greater volatility using SEIFA EO. Mean tax per capita was initially slightly lower for the SEIFA D low group than for the corresponding group in SEIFA EO, however the greater rate of growth, as indicated by the higher proportional change, resulted in the SEIFA D value being higher by the end of the observation period.
Table 5.2.5
Tax per capita – means and related data 1995-1998
Tax per capita (n) LY -1 (1995) LY + 1 (1997) LY + 2 (1998) % Change
Mean SD +/- Mean SD +/- Mean SD +/- 1995-1998 SEIFA D Group 1 43 65.1 44.4 71.3 41.2 80.4 50.6 23.5 SEIFA D Group 2 55 79.1 92.4 81.9 81.5 92.6 92.7 17.1 SEIFA D Group 3 42 81.5 144.6 82.9 123.6 103.8 135.0 27.4 SEIFA D All Groups 140 75.5 100.7 78.9 87.3 92.2 97.8 22.1
SEIFA EO Group 1 41 66.1 90.9 70.4 81.4 75.3 93.8 13.9 SEIFA EO Group 2 58 91.7 132.6 91.5 112.1 102.1 112.8 11.3 SEIFA EO Group 3 41 62.0 35.2 69.6 39.8 95.1 76.7 53.4 SEIFA EO All Groups 140 75.5 100.7 78.9 87.3 92.2 97.8 22.1 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
246 Figure 5.2.5
Tax per capita x SES 1995 – 1998
Tax per capita x SES 1995-1998
110
100
90
80
70 $ tax per capita per tax $
60
50 1995 1997 1998
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
5.2.1.1(f) Tax concentration
EGM tax concentration increased over the initial period examined. Compared to the changes in tax per capita, the behaviour of tax concentration was considerably more uniform. The percentage change for each variable was a uniformly modest decrease, indicating a redistribution of taxes which corresponds with the broader distribution of EGMs most clearly illustrated in Figure 5.2.2.
247 Table 5.2.6
Tax concentration (Herfindahl index) – means and related data 1995-1998
Tax concentration (n) LY -1 (1995) LY + 1 (1997) LY + 2 (1998) % Change (H Index) Mean SD +/- Mean SD +/- Mean SD +/- 1995-1998 SEIFA D Group 1 43 2937.7 1497.0 3339.5 1599.6 2663.3 1234.8 -9.3 SEIFA D Group 2 55 3524.0 1939.7 3952.7 2127.1 3113.0 1509.9 -11.7 SEIFA D Group 3 42 3400.4 1957.0 3929.2 2139.6 3278.2 2074.0 -3.6 SEIFA D All Groups 140 3306.9 1825.4 3757.3 1989.8 3024.4 1636.5 -8.5
SEIFA EO Group 1 41 3875.4 1803.2 4362.0 1919.1 3418.1 1327.2 -11.8 SEIFA EO Group 2 58 3114.9 1769.1 3594.4 2016.2 2802.5 1470.0 -10.0 SEIFA EO Group 3 41 3009.9 1841.7 3383.0 1930.2 2944.6 2074.0 -2.2 SEIFA EO All Groups 140 3306.9 1825.4 3757.3 1989.8 3024.4 1636.5 -8.5 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
Figure 5.2.6
Tax concentration by SES 1995 – 1998
Tax concentration x SES 1995-1998
4500
4000
3500
3000
2500 Herfindahl- tax Index score
2000 1995 1997 1998
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
248 5.2.1.2 Results 5.2.1.2(a) Repeated measures ANOVA Table 5.2.7
Main effect test results – 1995-1998
SEIFA D SEIFA EO Variable Time effects Group main Group x time Time effects Group main Group x time effects effects effects effects F p F p F p F p F p F p Population per 146.5 0.000* 7.90 0.01* 0.42 0.76 153.4 0.000* 13.4 0.000* 2.72 0.041* EGM EGM 60.90 0.000* 1.93 0.15 0.78 0.51 61.2 0.000* 3.39 0.037* 3.44 0.016* concentration Profit per 177.1 0.000* 1.63 0.20 0.40 0.73 186.6 0.000* 0.81 0.45 2.18 0.098 capita Profit 126.7 0.000* 0.68 0.51 0.57 0.64 125.3 0.000* 3.62 0.029* 0.54 0.66 concentration Tax per capita 18.8 0.000* 0.77 0.46 0.31 0.77 19.5 0.000* 0.76 0.47 1.7 0.18 Tax 64.96 0.000* 0.65 0.52 0.19 0.91 63.0 0.000* 3.83 0.024* 0.24 0.88 concentration * (p <0.05)
Results for RM ANOVA testing are presented in Table 5.2.7. The time effects for each of the
EGM activity measures were statistically significant (all p < 0.05). The result confirms that
significant changes in the levels of these variables occurred over the period encompassing the
1996 Act. The other crucial significant results generated in the analysis were group by time
interactions between SEIFA EO and EGM density, or population per EGM, (F (3.2, 221.7) =
2.7, p = 0.041), and EGM concentration (F (3.1, 212.7) = 3.44, p = 0.016). It is noted that the
corresponding SEIFA D interactions were not statistically significant.
Table 5.2.8(a)
Post hoc test results – interaction effects - 1995-199867
INTERACTION EFFECT SEIFA D SEIFA EO 1995 v 1997 1997 v 1998 1995 v 1997 1997 v 1998 F p F p F p F p Population 0.70 0.50 0.33 0.72 4.31 0.015* 1.77 0.18 per EGM EGM 0.32 0.73 0.72 0.49 0.64 0.53 3.76 0.026* concentration Profit per 1.10 0.34 0.60 0.55 1.28 0.28 2.21 0.11 capita Profit 1.67 0.19 0.05 0.95 0.44 0.64 0.31 0.74 concentration Tax per 0.73 0.49 0.29 0.75 0.32 0.73 1.6 0.21 capita Tax 0.49 0.61 0.02 0.98 0.04 0.96 0.34 0.71 concentration * (p <0.05)
67 Results for post hoc test time effects (Table 5.2.8 [b]) and mean differences (Table 5.2. 9) are included in the Appendix. 249 Viewed jointly with the main effects results, these outcomes further emphasise the stronger association of these EGM gambling measures with the educational and occupational aspects of
SES represented by SEIFA EO, within which the significant interaction effects are concentrated.
These interaction results are evidence of the changes in the availability of EGMs associated with the expansionary environment. The changes are demonstrated by the significant results under
SEIFA EO for both EGM density between the 1995 and 1997 observations (F (2, 137) = 4.3, p
= 0.015) and EGM concentration (F (2, 137) = 3.8, p = 0.026) between the 1997 and 1998 observations. These findings also emphasise differences in assessment of changes in the EGM gambling environment on the basis of the use of alternative measures of SES as a covariate.
Analysis of the mean differences between the various observation points provided further evidence of the stronger association between the EGM gambling measures and the educational and occupational SES index. There was some variance in the magnitude and direction of the changes in the time effect differences between the variables, however all were statistically significant. It appears that the principal source of this difference is that between the highest
SES group when compared to the low and medium groups. Such a result is consistent with the differences suggested in the descriptive data for these variables.
The overall conclusion arising from these analyses is that the components of SES relating to educational and occupational status, as captured by SEIFA EO, appear to be more strongly related to certain measures of change in the EGM gambling environment which coincided with the period around the introduction of the 1996 Act, than does a more general measure of disadvantage, represented by SEIFA D.
250 5.2.2 Gambling Legislation Amendment (Responsible
Gambling) Act 1999 No. 49.
The results of this testing address the following research questions:
Research question 2(a): What were the effects of the Gambling Legislation Amendment
(Responsible Gambling) Act 1999 No. 49 and its associated policies?
Research question 2(b): Did the policy result in a change in EGM taxation?
Research question 2(c): Were any effects of policy contained in the Act moderated by socioeconomic status (SES)?
5.2.2.1 Descriptive Statistics
5.2.2.1(a) Population per EGM (EGM Density)
The descriptive statistics indicate a continued increase in EGM density between 1998 and 2000, followed by a discernable decrease for the 2001 observation. The high-SES terciles have substantially lower levels of density than the medium and lower terciles, however the standard deviations indicate a much greater level of variability for observations in the high SES groups.
The reversal of the density trend in medium tercile LGAs was more substantial than was apparent in higher and lower SES terciles. There was little overall change in the situation for each of the SES groups, despite some variation in the intervening observations. Despite this, the apparent reversal in the trend of EGM density growth is of interest in the context of the research.
251 Table 5.2.10
Population per EGM – means and related data 1998-2001
Population per EGM (n) LY -1 (1998) LY + 1 (2000) LY + 2 (2001) % Change
Mean SD +/- Mean SD +/- Mean SD +/- 1998-2001 SEIFA D Group 1 43 62.5 21.3 59.7 19.6 62.8 20.7 0.5 SEIFA D Group 2 55 58.2 23.8 55.0 20.2 64.4 61.9 10.7 SEIFA D Group 3 42 113.4 112.4 107.9 109.2 114.0 123.7 0.5 SEIFA D All Groups 140 76.1 68.5 72.3 65.9 78.8 81.7 3.5
SEIFA EO Group 1 41 54.2 17.5 51.3 17.0 55.3 19.3 2.0 SEIFA EO Group 2 58 64.7 30.2 60.9 26.3 70.4 62.2 8.8 SEIFA EO Group 3 41 114.1 111.9 109.4 108.5 114.1 123.9 0.0 SEIFA EO All Groups 140 76.1 68.5 72.3 65.9 78.8 81.7 3.5 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
Figure 5.2.7
EGM Density by SES - 1998-2001
EGM Density x SES 1998 - 2001
120
110
100
90
80
70
PopulationEGM per 60
50
40 1998 2000 2001
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
5.2.2.1(b) EGM concentration
EGM concentration was more volatile than its density-based counterpart. For the SEIFA D terciles, concentration increased within the low-SES group, remained relatively steady for the medium group, and decreased for the high group. For SEIFA EO groups, both the low and high
252 groups declined, although the decline for the low group was of greater magnitude. The medium group increased sharply between the 2000 and 2001 observations. The variability in these outcomes is also clearly illustrated by the differing magnitudes and direction of the percentage changes (Table 5.2.11).
Table 5.2.11: EGM concentration (Herfindahl index) – means and related data
1998-2001
EGM concentration (n) LY -1 (1998) LY + 1 (2000) LY + 2 (2001) % Change (H Index) Mean SD +/- Mean SD +/- Mean SD +/- 1998-2001 SEIFA D Group 1 43 1275.4 458.5 1351.4 532.9 1668.2 936.7 30.8 SEIFA D Group 2 55 1629.8 912.5 1640.9 1023.2 1621.4 745.5 -0.5 SEIFA D Group 3 42 1703.6 973.4 1717.7 830.5 1449.2 822.0 -14.9 SEIFA D All Groups 140 1543.1 836.3 1575.0 848.1 1584.1 829.8 2.7
SEIFA EO Group 1 41 1711.7 720.9 1797.9 908.8 1506.7 814.6 -12.0 SEIFA EO Group 2 58 1457.7 840.3 1433.5 760.9 1731.3 813.5 18.8 SEIFA EO Group 3 41 1495.2 928.7 1552.3 876.5 1453.2 855.1 -2.8 SEIFA EO All Groups 140 1543.1 836.3 1575.0 848.1 1584.1 829.8 2.7 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
Figure 5.2.8
EGM concentration by SES 1998 – 2001
EGM concentration x SES 1998 - 2001
1900
1800
1700
1600
1500
1400
1300
1200
Herfindahl- EGMs Index score 1100
1000 1998 2000 2001
SEIFA D G1 SEIFA D G2 SIEFA D G3 SIEFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
253 5.2.2.1(c) Profit per capita
EGM profit growth was relatively consistent over the period. Each group appears to have experienced a reduction in the rate of growth between the 2000 and 2001 observations. The consistency of the behaviour of profit per capita is apparent for the two SEIFA indices overall, and also for the comparable groups within each index.
Table 5.2.12
Profit per capita – means and related data 1998-2001
Profit per capita (n) LY -1 (1998) LY + 1 (2000) LY + 2 (2001) % Change
Mean SD +/- Mean SD +/- Mean SD +/- 1998-2001 SEIFA D Group 1 43 401.6 180.1 495.8 221.5 514.0 240.5 28.0 SEIFA D Group 2 55 456.3 382.2 555.6 438.0 564.7 448.1 23.8 SEIFA D Group 3 42 443.3 541.7 554.9 649.0 575.5 665.0 29.8 SEIFA D All Groups 140 435.6 392.0 537.0 463.0 552.3 476.0 26.8
SEIFA EO Group 1 41 415.7 396.1 501.3 444.0 517.2 456.9 24.4 SEIFA EO Group 2 58 480.1 481.0 591.3 572.4 599.5 585.2 24.9 SEIFA EO Group 3 41 392.6 205.6 496.0 271.2 520.8 292.0 32.7 SEIFA EO All Groups 140 435.6 392.0 537.0 463.0 552.3 476.0 26.8 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation. Figure 5.2.9
Profit per capita by SES 1998-2001
Profit per capita x SES 1998 - 2001
650
600
550
500
450
Profit per capitaProfit per 400
350
300 1998 2000 2001
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
254 5.2.2.1(d) Profit concentration
As was the case with EGM concentration, profit concentration was more variable when compared to its population-based counterpart. There were initial declines across all groups, with subsequent increases for the low SEIFA D and medium SEIFA EO groups. The percentage movements indicate that the change in these groups resulted in very small net effects over the period. The continued declines in concentration for the low SEIFA EO and high SEIFA D groups are of larger magnitude. The declines for SEIFA EO high and SEIFA D medium groups were initially similar to those of the other groups, but subsequently became more modest in the second half of the period, as is evidenced by Figure 5.2.10.
Table 5.2.13
Profit concentration (Herfindahl index) – means and related data 1998-2001
Profit concentration (n) LY -1 (1998) LY + 1 (2000) LY + 2 (2001) % Change (H Index) Mean SD +/- Mean SD +/- Mean SD +/- 1998-2001 SEIFA D Group 1 43 2351.4 1017.0 1951.7 883.7 2251.3 1172.3 -4.3 SEIFA D Group 2 55 2809.0 1419.4 2371.6 1326.5 2270.2 1159.0 -19.2 SEIFA D Group 3 42 2862.1 1713.0 2370.1 1328.1 2088.7 1248.3 -27.0 SEIFA D All Groups 140 2684.4 1418.0 2242.2 1215.5 2209.9 1184.5 -17.7
SEIFA EO Group 1 41 3020.6 1249.8 2571.7 1247.5 2038.0 1149.3 -32.5 SEIFA EO Group 2 58 2530.4 1322.7 2079.4 1035.3 2443.3 1224.6 -3.4 SEIFA EO Group 3 41 2557.5 1663.7 2142.9 1375.1 2051.8 1132.6 -19.8 SEIFA EO All Groups 140 2684.4 1418.0 2242.2 1215.5 2209.9 1184.5 -17.7 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
255
Figure 5.2.10
Profit concentration by SES 1998-2001
Profit concentration x SES 1998 - 2001
3100
2900
2700
2500
2300
2100
1900 HerfindahlIndex score 1700
1500 1998 2000 2001
SEIFA D G1 SEIFA D G2 SIEFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
5.2.2.1(e) Tax per capita
The behaviour of tax per capita in this analysis is strongly influenced by the introduction of the
GST in mid-2000, as is illustrated in Figure 5.2.11. Although the net effect of the GST was intended to be revenue-neutral for the State in terms of tax yields, actual EGM tax rates were reduced to allow for the imposition of the tax, and were reported in the OLGR data in their raw form. As a result of this impact, comparison with the profit per capita data provides a more indicative illustration of how EGM revenues behaved during this period in terms of overall trend.
Tax per capita in all terciles across the two indices declined over the period, having initially increased prior to the adjustment for the GST. The overall declines were relatively consistent in magnitude across SES indices and terciles.
256
Table 5.2.14
Tax per capita – means and related data 1998-2001
Tax per capita (n) LY -1 (1998) LY + 1 (2000) LY + 2 (2001) % Change
Mean SD +/- Mean SD +/- Mean SD +/- 1998-2001 SEIFA D Group 1 43 80.4 50.6 106.5 65.6 72.8 50.2 -9.5 SEIFA D Group 2 55 92.6 92.7 129.0 129.7 78.1 70.2 -15.7 SEIFA D Group 3 42 103.8 135.0 201.3 569.1 93.8 104.2 -9.6 SEIFA D All Groups 140 92.2 97.8 143.8 323.9 81.1 77.1 -12.0
SEIFA EO Group 1 41 75.3 93.8 95.7 104.0 62.9 70.0 -16.5 SEIFA EO Group 2 58 102.1 112.8 191.0 489.8 87.0 91.1 -14.8 SEIFA EO Group 3 41 95.1 76.7 125.0 76.3 91.2 58.8 -4.1 SEIFA EO All Groups 140 92.2 97.8 143.8 323.9 81.1 77.1 -12.0 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
Figure 5.2.11
Tax per capita by SES 1998-2001
Tax per capita x SES 1998 - 2001
210
190
170
150
130
110 Tax per capita Taxper 90
70
50 1998 2000 2001
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
5.2.2.1(f) Tax concentration
Given the derivative relationship of tax with profit, tax concentration data closely resemble those for profit concentration. The low SEIFA EO group displayed the most uncharacteristic behaviour amongst the groups, declining in an almost linear manner over the period. The low
SEIFA D and medium SEIFA EO groups initially declined, then increased sharply in the latter
257 part of the period, with the low SEIFA D group remaining relatively stable over the entire period. These effects are evident in Figure 5.2.12.
Table 5.2.15
Tax concentration (Herfindahl index) – means and related data 1998-2001
Tax concentration (n) LY -1 (1998) LY + 1 (2000) LY + 2 (2001) % Change (H Index) Mean SD +/- Mean SD +/- Mean SD +/- 1998-2001 SEIFA D Group 1 43 2663.3 1234.8 2109.7 1019.5 2446.4 1312.4 -8.1 SEIFA D Group 2 55 3113.0 1509.9 2607.2 1424.6 2525.4 1412.5 -18.9 SEIFA D Group 3 42 3278.2 2074.0 2555.1 1504.6 2318.4 1448.0 -29.3 SEIFA D All Groups 140 3024.4 1636.5 2438.6 1348.7 2439.1 1386.1 -19.4
SEIFA EO Group 1 41 3418.1 1327.2 2829.4 1288.7 2126.3 1226.6 -37.8 SEIFA EO Group 2 58 2802.5 1470.0 2272.5 1192.0 2779.6 1498.7 -0.08 SEIFA EO Group 3 41 2944.6 2056.4 2283.3 1553.9 2270.0 1293.8 -22.9 SEIFA EO All Groups 140 3024.4 1636.5 2438.8 1348.7 2439.1 1386.1 -19.4 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
Figure 5.2.12
Tax concentration by SES 1998-2001
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
258 5.2.2.2 Results
5.2.2.2(a) Repeated Measures ANOVA
Table 5.2.16
Main effect test results 1998-2001
Variable SEIFA D SEIFA EO Time effects Group main Group x Time effects Group main Group x effects time effects effects time effects F p F p F p F p F p F p Population per 12.39 0.000* 9.21 0.000* 0.33 0.84 11.96 0.000* 14.4 0.000* 1.26 0.29 EGM. EGM 0.15 0.73 0.98 0.38 2.57 0.07 0.11 0.77 1.43 0.24 3.82 0.02* concentration. Profit per 241.4 0.000* 1.18 0.31 3.06 0.02* 235.1 0.000* 0.27 0.76 2.17 0.08 capita. Profit 8.75 0.003* 0.65 0.53 0.81 0.46 10.1 0.001* 1.88 0.16 3.94 0.02* concentration. Tax per capita. 83.5 0.000* 0.08 0.93 1.5 0.22 81.3 0.000* 2.0 0.14 1.8 0.14 Tax 10.14 0.001* 0.69 0.51 0.69 0.52 11.9 0.000* 1.94 0.15 4.98 0.006* concentration. * (p <0.05)
Time effects were significant for all variables tested, with the exception of EGM concentration.
This result was consistent for analyses using both SEIFA D and SEIFA EO. There was some
variation for interaction effects. Using SEIFA D, there was a statistically significant effect for
profit per capita (F (3.4, 233.9) = 3.1, p = 0.02). Under SEIFA EO analysis, there were
significant interactions for the EGM concentration, profit concentration (F (2.2, 153.6) = 3.9, p
= 0.02) and tax concentration (F (2.2, 153.2) = 4.98, p = 0.006).
Table 5.2.17(a)
Post hoc test results –interaction effects 1998 – 200168 INTERACTION EFFECT SEIFA D SEIFA EO 1998 v 2000 2000 v 2001 1998 v 2000 2000 v 2001 F p F p F p F p Population per 0.08 0.93 0.68 0.51 0.41 0.66 2.60 0.08 EGM. EGM 1.59 0.21 2.58 0.08 0.59 0.56 4.27 0.02* concentration. Profit per 3.07 0.05* 1.66 0.20 1.17 0.31 2.40 0.095 capita. Profit 0.02 0.99 0.83 0.44 0.43 0.96 4.10 0.019* concentration. Tax per capita. 0.96 0.39 1.6 0.21 0.13 0.88 4.9 0.009* Tax 0.48 0.62 0.67 0.52 0.48 0.62 5.11 0.007* concentration. * (p <0.05)
68 Results for post hoc test time effects (Table 5.2.17[b]) and mean differences (Table 5.2. 18) are included in the Appendix.
259 The interaction effects for the post hoc contrasts between observation points were consistent with the main effect results for both indexes. There was an additional significant interaction finding under SEIFA EO analysis, relating to tax per capita between the 2000 and 2001 observations (F (2, 137) = 4.9, p < 0.009), however this was clearly not sufficient to result in a significant effect in the corresponding overall interaction effect displayed in Table 5.2.16.
The mean differences generated in the analysis indicated that the majority of the significant effects observed in higher-level analysis were related to time-based effects. However, there are a number of variables in respect of which SES group effects were also influential in the overall outcomes.
5.2.3 Gaming Machines Act 2001, No. 127; Gaming Machine
Tax Act, 2001 No. 72.
The results of this testing address the following research questions:
Research question 3(a): What were the effects of the Gaming Machines Act 2001 No 127 and the Gaming Machine Tax Act 2001 No 72 and their associated policies?
Research question 3(b): Did the policy result in a change in EGM taxation?
Research question 3(c): Were any effects of the policy contained in the Act moderated by socioeconomic status (SES)?
5.2.3.1 Descriptive Statistics
5.2.3.1(a) Population per EGM (EGM Density)
Figure 5.2.13 indicates that there was a modest increase in population per EGM values coinciding with, and continuing subsequent to the introduction of the 2001 Act, although the onset of this trend appears to predate the Act. Although this observation is broadly true for each
260 of the SES groups, it is also apparent that the relative rates of growth differed slightly across groups post-legislation. Observing the proportional changes, each of the pairs of terciles between the two SES indices appears to have behaved relatively consistently. Due to the inverse relationship described previously, the increase in these values represents a reduction in EGM density, which, as has been demonstrated, was an expressed aim of the legislation.
Table 5.2.19
Population per EGM – means and related data 2000-2005
Population per (n) LY -1 (2000) LY + 1 (2002) LY + 2 (2003) LY + 4 (2005) % Change EGM Mean SD +/- Mean SD +/- Mean SD +/- Mean SD +/- 2000-2005 SEIFA D Group 1 43 59.7 19.6 63.5 21.4 63.7 21.6 65.7 21.7 10.1 SEIFA D Group 2 55 55.0 20.2 58.9 24.1 59.1 23.7 63.0 31.8 14.5 SEIFA D Group 3 42 107.9 109.2 115.7 128.0 118.6 130.9 120.9 139.6 12.0 SEIFA D All 140 72.3 65.9 77.3 76.4 78.4 78.2 81.2 83.5 12.3 Groups
SEIFA EO Group 1 41 51.3 17.0 55.4 19.3 55.6 19.5 57.1 19.4 11.3 SEIFA EO Group 2 58 60.9 26.3 65.5 29.7 66.5 30.6 69.7 35.7 14.4 SEIFA EO Group 3 41 109.4 108.5 116.1 128.1 118.0 131.2 121.6 139.9 11.2 SEIFA EO All 140 72.3 65.9 77.3 76.4 78.4 78.2 81.2 83.5 12.3 Groups Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
261 Figure 5.2.13
EGM density by SES 2000-2005
EGM Density x SES 2000 - 2005
130 120 110 100 90 80 70
PopulationEGM per 60 50 40 2000 2002 2003 2005
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
5.2.3.1(b) EGM concentration
Figure 5.2.14 indicates somewhat more variable behaviour for EGM concentration than was observed for EGM density. However, this variability is still contained within a relatively limited range. Percentage changes for the six groups range from - 0.4 percent to 9.4 percent. For both indexes, it is observed that the percentage changes reduce as SES increases, with the high-SES groups being notably lower than the two lower-SES groups in each instance. This appears to suggest that the mechanism for increased concentration of EGMs, specifically a decrease in the rate of dispersal of the machines, appears to have occurred in low-SES LGAs at an earlier stage than for other LGAs. This trend is most apparent in the observations between 2003 and 2005, for which the low-SES groups display markedly greater change than all four higher terciles.
262 Table 5.2.20
EGM concentration (Herfindahl index) – means and related data – 2000-2005
EGM (n) LY -1 (2000) LY + 1 (2002) LY + 2 (2003) LY + 4 (2005) % Change concentration (H Index) Mean SD +/- Mean SD +/- Mean SD +/- Mean SD +/- 2000 – 2005 SEIFA D 43 1351.4 532.9 1394.9 577.6 1393.3 567.1 1473.5 690.0 9.0 Group 1 SEIFA D 55 1640.9 1023.2 1683.9 1017.8 1706.2 1054.2 1743.5 1100.2 6.3 Group 2 SEIFA D 42 1717.7 830.5 1737.9 842.2 1757.5 861.6 1768.2 861.7 2.9 Group 3 SEIFA D All 140 1575.0 848.1 1611.4 856.7 1625.5 878.9 1667.9 922.0 5.9 Groups
SEIFA EO 41 1797.9 908.8 1831.8 888.4 1855.2 929.9 1966.1 1014.4 9.4 Group 1 SEIFA EO 58 1433.5 760.9 1492.3 789.1 1518.3 821.6 1543.6 853.3 7.7 Group 2 SEIFA EO 41 1552.3 876.5 1559.4 894.8 1547.4 883.5 1545.6 871.0 -0.4 Group 3 SEIFA EO All 140 1575.0 848.1 1611.4 856.7 1625.5 878.9 1667.9 922.0 5.9 Groups Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
Figure 5.2.14
EGM concentration by SES 2000 – 2005
EGM concentration x SES 2000 - 2005
2200
2000
1800
1600
1400
1200 Herfindahl Index score Index Herfindahl
1000 2000 2002 2003 2005
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
263 5.2.3.1(c) Profit per capita
Profit per capita continued to increase in this period, despite two successive legislative interventions aimed at curtailing the expansion of EGM gambling. The proportional changes are comparatively large compared to profit concentration (Table 5.2.22). Based on this measure, the variability between terciles is not markedly greater or lesser for any particular group.
Table 5.2.21
Profit per capita – means and related data 2000-2005
Profit per capita (n) LY -1 (2000) LY + 1 (2002) LY + 2 (2003) LY + 4 % Change (2005) Mean SD +/- Mean SD +/- Mean SD +/- Mean SD 2000-2005 +/- SEIFA D Group 1 43 495.8 221.5 535.7 246.0 553.6 254.9 623.9 278.8 25.8 SEIFA D Group 2 55 555.6 438.0 608.6 469.2 635.0 497.5 676.1 489.4 21.7 SEIFA D Group 3 42 554.9 649.0 601.3 689.1 618.9 724.1 675.1 811.0 21.7 SEIFA D All Groups 140 537.0 463.0 584.0 494.9 605.1 521.2 659.8 557.8 22.9
SEIFA EO Group 1 41 501.3 444.0 553.6 481.0 575.9 509.6 632.8 485.8 26.2 SEIFA EO Group 2 58 591.3 572.4 635.7 606.5 662.9 641.0 725.1 716.8 22.6 SEIFA EO Group 3 41 496.0 271.2 541.4 298.0 552.7 300.6 594.3 318.7 19.8 SEIFA EO All Groups 140 537.0 463.0 584.0 494.9 605.1 521.2 659.8 557.8 22.9 Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
264
Figure 5.2.15
Profit per capita by SES 2000 – 2005
Profit per capita x SES 2000 - 2005
750
700
650
600
550
Profit per capita Profitper 500
450
400 2000 2002 2003 2005
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
5.2.3.1(d) Profit concentration
There were small percentage variances for all groups in terms of the change in profit concentration. There was some variability in the direction of change for various terciles across both indexes. However, the magnitudes of these changes are such that the overall picture is one of relative stabilisation over this period.
265 Table 5.2.22 Profit concentration (Herfindahl index) – means and related data 2000-2005
Profit (n) LY -1 (2000) LY + 1 (2002) LY + 2 (2003) LY + 4 (2005) % Change concentration (H index) Mean SD +/- Mean SD +/- Mean SD +/- Mean SD +/- 2000-2005 SEIFA D 43 1951.7 883.7 1900.1 898.7 1962.0 983.0 1995.8 1032.3 2.3 Group 1 SEIFA D 55 2371.6 1326.5 2289.7 1360.7 2296.7 1381.6 2335.8 1403.8 -1.5 Group 2 SEIFA D 42 2370.1 1328.1 2340.7 1250.8 2360.9 1342.6 2337.6 1271.6 -1.4 Group 3 SEIFA D All 140 2242.2 1215.5 2185.6 1208.9 2213.2 1262.6 2243.9 1261.9 0.07 Groups
SEIFA EO 41 2571.7 1247.5 2452.7 1246.1 2505.4 1283.9 2565.7 1282.1 0.2 Group 1 SEIFA EO 58 2079.4 1035.3 2065.3 1117.6 2080.8 1142.5 2113.3 1211.5 1.6 Group 2 SEIFA EO 41 2142.9 1375.1 2088.8 1281.4 2108.2 1380.8 2106.9 1283.7 -1.7 Group 3 SEIFA EO All 140 2242.2 1215.5 2185.6 1208.9 2213.2 1262.6 2243.9 1261.9 0.07 Groups Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
Figure 5.2.16
Profit concentration by SES 2000 – 2005
Profit concentration x SES 2000 - 2005
2700
2500
2300
2100
1900 HerfindahlIndex score 1700
1500 2000 2002 2003 2005
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
266 5.2.3.1(e) Tax per capita
The tax per capita variable overall returned consistently negative percentage change results.
The decline is almost exclusively attributable to the introduction of the GST, and the reduction in nominal tax rates to accommodate the federally-imposed tax. Tax per capita subsequently increased over the remaining observations in this period, broadly in line with the profit metric, as may be expected. These two contrary effects are clearly demonstrated in Figure 5.2.17.
Table 5.2.23
Tax per capita – means and related data 2000-2005
Tax per capita (n) LY -1 (2000) LY + 1 (2002) LY + 2 (2003) LY + 4 % Change (2005) Mean SD +/- Mean SD +/- Mean SD +/- Mean SD 2000-2005 +/- SEIFA D Group 1 43 106.5 65.6 74.3 49.9 77.9 52.1 93.9 63.2 -11.8 SEIFA D Group 2 55 129.0 129.7 91.1 106.7 87.8 75.8 99.5 81.5 -22.9 SEIFA D Group 3 42 201.3 569.1 97.7 104.8 100.6 111.5 117.3 135.1 -41.7 SEIFA D All 140 143.8 323.9 87.9 92.2 88.6 82.5 103.2 96.2 -28.2 Groups
SEIFA EO Group 41 95.7 104.0 66.6 71.0 70.4 75.6 81.9 79.6 -14.4 1 SEIFA EO Group 58 191.0 489.8 98.2 119.3 95.9 98.0 112.7 119.6 -40.1 2 SEIFA EO Group 41 125.0 76.3 94.8 59.7 96.4 61.2 111.0 69.2 -11.2 3 SEIFA EO All 140 143.8 323.9 87.9 92.2 88.6 82.5 103.2 96.2 -28.2 Groups Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
267 Figure 5.2.17
Tax per capita by SES 2000-2005
Tax per capita x SES 2000 - 2005
250
200
150
100 Tax per capita per Tax
50
0 2000 2002 2003 2005
SEIFA D G1 SEIFA D G2 SEIFA D G3 SEIFA EO G1 SEIFA EO G2 SEIFA EO G3
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
5.2.3.1(f) Tax concentration
A comparison of Figures 5.2.18 and 5.2.16 appears to support the expectation that the tax and profit concentration variables should behave in a similar manner. The average percentage change for all groups (- 0.3 percent) emphasises the low level of change over this period. The more stable environment is also indicated by the standard deviations for each group, as compared to their respective means.
268
Table 5.2.24
Tax concentration (Herfindahl index) – means and related data 2000-2005
Tax (n) LY -1 (2000) LY + 1 (2002) LY + 2 (2003) LY + 4 (2005) % Change concentration (H index) Mean SD +/- Mean SD +/- Mean SD +/- Mean SD +/- 2000-2005 SEIFA D Group 43 2109.7 1019.5 1981.4 934.6 2025.7 1016.3 2094.3 1075.9 -0.7 1 SEIFA D Group 55 2607.2 1424.6 2500.1 1494.2 2501.0 1534.1 2534.4 1569.3 -2.8 2 SEIFA D Group 42 2555.1 1504.6 2565.3 1597.5 2570.6 1700.4 2638.9 1675.4 3.3 3 SEIFA D All 140 2438.8 1348.7 2360.5 1396.0 2375.9 1461.1 2430.5 1478.8 -0.3 Groups
SEIFA EO 41 2829.4 1288.7 2686.2 1299.9 2759.2 1373.8 2823.2 1370.7 -0.2 Group 1 SEIFA EO 58 2272.5 1192.0 2225.8 1315.8 2211.4 1329.8 2275.8 1448.9 0.1 Group 2 SEIFA EO 41 2283.3 1553.9 2225.4 1568.9 2225.3 1672.6 2256.8 1582.7 -1.2 Group 3 SEIFA EO All 140 2438.8 1348.7 2360.5 1396.0 2375.9 1461.1 2430.5 1478.8 -0.3 Groups Note: SEIFA D = SEIFA index of Disadvantage; SEIFA EO = SEIFA Index of Education/Occupation; Group 1 = lowest index scores; Group 2 = medium index scores; Group 3 = highest index scores; LY = Nominal year of legislation.
Figure 5.2.18
Tax concentration by SES 2000 – 2005
Group 1 = low SES; Group 2 = medium SES; Group 3 = High SES
269 5.2.3.2 Results
5.2.3.2(a) Repeated measures ANOVA
Table 5.2.25
Main effect test results 2000–2005
Variable SEIFA D SEIFA EO Time effects Group main Group x Time effects Group main Group x time effects time effects effects effects F p F p F p F p F p F p Population per 45.5 0.000* 9.97 0.000* 0.50 0.73 43.9 0.000* 14.8 0.000* 0.999 0.43 EGM EGM 13.1 0.000* 1.32 0.27 0.84 0.50 12.9 0.000* 3.0 0.053 4.32 0.002* concentration Profit per 149.2 0.000* 1.29 0.28 1.58 0.17 148.1 0.000* 0.30 0.74 1.37 0.24 capita Profit 2.7 0.07 0.82 0.44 1.20 0.30 3.13 0.048* 2.83 0.06 0.59 0.66 concentration Tax per capita 126.1 0.000* 0.02 0.98 0.60 0.65 121.5 0.000* 2.3 0.11 1.9 0.11 Tax 5.54 0.004* 1.04 0.36 1.28 0.28 5.54 0.004* 3.8 0.03* 0.54 0.71 concentration * (p <0.05)
Each of the time effects was statistically significant for the SEIFA EO testing. When SEIFA D
was used, profit concentration was the only variable that did not return a significant time effect
result. Significant group effects were identified for EGM density (both indexes
p < 0.05) and tax concentration (SEIFA EO, p < 0.05). There were no significant interaction
effects observed for the SEIFA D analysis. Using SEIFA EO, there was a significant group by
time interaction for EGM concentration (F (3.98, 272.5) = 4.3, p = 0.002).
Table 5.2.26(a)
Post hoc test results – interaction effects 2000-200569
INTERACTION EFFECTS SEIFA D SEIFA EO 2000 v 2002 2002 v 2003 2003 v 2005 2000 v 2002 2002 v 2003 2003 v 2005 F p F p F p F p F p F p Population per 0.15 0.86 4.45 0.013* 0.80 0.45 3.36 0.038* 1.40 0.25 0.05 0.95 EGM EGM 0.84 0.43 0.11 0.90 2.18 0.12 2.46 0.09 1.10 0.34 6.79 0.002* concentration Profit per 0.47 0.63 0.63 0.54 2.99 0.054 0.78 0.46 0.44 0.65 1.29 0.28 capita Profit 2.18 0.12 1.37 0.26 0.18 0.98 1.83 0.16 0.48 0.62 0.38 0.69 concentration Tax per capita 0.03 0.97 0.49 0.61 2.16 0.12 2.48 0.09 0.42 0.66 0.28 0.75 Tax 2.13 0.12 0.83 0.44 0.25 0.78 0.57 0.57 1.77 0.18 0.05 0.95 concentration * (p <0.05)
69 Results for post hoc test time effects (Table 5.2.26 [b]) and mean differences (Table 5.2. 27) are included in the Appendix.
270 The significant group by time interaction contrasts correspond with the significant interactions in the main effects analysis.
Mean differences for the time effects were relatively evenly distributed across the entire period for both SES measures. The exceptions to this are the distributions for profit concentration and tax concentration. There was a lesser degree of variability in the result for EGM concentration, which was the only variable among the concentration measures to generate a significant group by time interaction in the main analysis.
With respect to the statistically significant group effect contrasts, the majority of these related to
EGM density. These results suggest that a significant difference exists between the high SES group and the lower groups. The results are consistent for both SES indexes. There is also one significant difference between the SEIFA EO low and high groups in relation to tax concentration.
5.2.4 Summary
Chapter 6 undertakes discussion of the full empirical results reported in this Chapter, in the contexts of the broad research problem, and in the more specific research questions as they relate to each of the Acts. This discussion then leads to conclusive statements and recommendations on the opportunities for further research resulting from this study. The limitations of the research are also acknowledged.
271 Key Findings – Chapter 5
Changes in a number of key outcomes were moderated by the SEIFA index of
education and occupation. Similar interactions were not observed in the
analyses based on SEIFA disadvantage.
Only one statistically significant interaction effect for SEIFA disadvantage
was observed, being profit per capita for the 1999 Act. This indicates that
changes in this measure of profit differed between terciles over this time
period. The absence of a corresponding result in the education and occupation
analysis demonstrates the differences between SES indices.
Statistically significant changes in both EGM density and EGM concentration
following the 1996 Act were also moderated by SEIFA of education and
occupation. Differences in these two measures of EGM distribution illustrate
the expansionary impact of this Act.
Changes in all three concentration variables following the 1999 Act were also
moderated by SEIFA of education and occupation, when compared to the
corresponding results for the disadvantage index.
EGM concentration under SEIFA of education and occupation was the only
variable that returned statistically significant interaction results in analyses for
all three Acts. These interactions demonstrate consistently different outcomes
between terciles and also with the disadvantage index.
The larger number of interaction results for the Herfindahl Index-based
concentration variables suggests that these were more responsive to changes in
localised gambling environments than were orthodox population-based
variables. This indicates that a concentration measure may provide some
benefit in EGM policy analysis.
The results indicate how the adoption of different measures of SES may
produce different outcomes. The policy implications of these observations are
explored in the discussion in Chapter 6
272
CHAPTER 6
Discussion, Conclusions and Recommendations
6.1 Overview
This chapter principally discusses the findings of the statistical analyses reported in Chapter five, with reference to the contextual background developed in Chapters two, three and four.
Initially, a review of the methodological approach and broad discussion of the results of the empirical analyses is provided. The discussion provides an overall view of the findings in relation to the research questions. Briefly, these are the overall and tax-specific impacts of EGM legislation and the influence of SES in the analysis of policy outcomes in this period. The results for each of the three Acts are subsequently analysed in the context of the research questions as they apply to each Act. An acknowledgement of the strengths and limitations of the research is also presented. Finally conclusions and recommendations for further research arising from the methodological innovations and findings established in this thesis are proposed.
6.2 Discussion
6.2.1 General Discussion
A key postulate of the research questions addressed in this thesis is that SES has a moderating effect on how EGM taxes are imposed on and affect LGA communities. The relevance of SES has both academic and regulatory bases. From the academic perspective, sources such as the
Productivity Commission (1999) and others (e.g. O’Neil and Whetton, 2002; McMillen,
Marshall and Doran, 2004; Wheeler, Rigby and Huriwai, 2004; and Young, 2010; 2011) investigated gambling impacts in the context of SES measures. From the regulatory perspective, it has been established that through the work of Stubbs and Storer (Productivity Commission,
2009), OLGR applied a measure of SES in the determination of applications for EGM entitlements under the Gaming Machines Act 2001 (for example, IPART, 2004), making SES an instrument of applied EGM policy. From a methodological perspective, as SES is an
273 incontrovertible condition of any individual or household, or agglomeration of individuals or households, the collective SES of LGAs is an appropriate level for analysis. This is particularly so in the current research, as the EGM data could also be aggregated to this more meaningful level and thus be compared directly with the corresponding SES information.
As was proposed in the methodological commentary, ABS SEIFA indices were adopted for the analysis. Given its basis in Census data, SEIFA is a comprehensive general measure of SES
(ABS, 2003). Adoption of one SEIFA index allows a comparison between LGAs (or groups of
LGAs) on the basis of the SES characteristics on which the particular index is focused. The approach adopted in this study was to methodically divide the LGAs into terciles, which could then be compared with each other in the context of these characteristics. This approach allowed insights into differences in impacts on groups of LGAs of different SES, in the context of a fixed set of socioeconomic indicators. This methodology clearly allows for comparison between groups of different socioeconomic standing.
A defining feature of this study is that a second SES measure was also applied in examining the moderating effect of SES on EGM taxation. This allowed a comparison of the analytical effects of the two different measures of SES, each based on different factors. This approach has the advantage of providing an additional level of support to the SES moderation hypothesis. This is because if there are different results for two differently constructed SES measures when applied to the same data, it becomes evident that particular aspects of SES have a transformative influence on the outcome of the analysis. It is acknowledged that any individual factor or set of factors is merely one element in an environment in which all other potentially influential socioeconomic factors are simultaneously active. This means that in practical terms, the specific impact of the factors employed may not be conclusively described. Yet, from the critical perspective of policy development, the identification of SES characteristics that are more sensitive to changes in relevant EGM gambling metrics may be highly significant in formulating
274 regulatory interventions that more effectively address tax outcomes and also externalities associated with changes in policy.
6.2.2 Commentary on Group Effects
In terms of the overall impact over the period, the principal RM ANOVA testing for the three
Acts showed differences in the two SES measures adopted for this testing. These differences are indicated by the results for the group effects for each variable. The analysis for EGM density
(population per EGM) for both SEIFA D and SEIFA EO produced uniformly significant results between terciles for each Act. Tables 5.2.9, 5.2.18 and 5.2.27 demonstrate that in each instance the difference between the high-SES tercile and the two lower terciles was the source of these group effects. This indicates that the terciles in each index behaved in a similar manner.
The SEIFA D analysis did not produce significant group effect results for any other variable, whereas the SEIFA EO analysis returned a number of such effects for other variables. These were for the three concentration variables for the 1996 Act, and tax concentration for the 2001
Act. It should be noted that the two other concentration variables approached five percent-level significance in respect of this latter Act. The post hoc analysis of these group effects demonstrates that it is the conclusive disparity between the lowest SES group and the two higher SES groups that was the source of these significant differences under SEIFA EO. When compared with the SEIFA D results, the differences in analytical, and, potentially, regulatory outcomes, can be recognised: EGM-related policy decisions made using SEIFA D as an SES indicator may differ from those made were SEIFA EO employed.
Regarding the adoption of the Herfindahl Index as a concentration measure, the descriptive data for EGM density are characterised by the highest SES group having the lowest density, irrespective of SES indicator. The SEIFA EO group results for the three EGM concentration measures consistently indicated the lowest SEIFA EO group as having the highest concentration levels. With respect to these differences, the descriptive data for each variable
275 shows that there was a modest difference in the number of LGAs distributed across the three
SEIFA EO terciles when compared to SEIFA D. However, the simple numerical differences in these distributions do not conclusively explain the comparatively higher number of significant results in the SEIFA EO analysis. There are certain other characteristics that also contributed to this outcome. These include population size and the number of EGMs in the relevant LGAs. To maintain analytical validity, statistical methods were employed in the RM ANOVA tests to control for these differences. Yet, in practical terms these differences have been influential in how EGMs have been distributed in NSW. The terciles for each SEIFA index were established on an ordinal basis, consistent with the construction of SEIFA (ABS, 2003). An outcome of this ordering was that, as noted in Section 5.1.7(b), under SEIFA EO, the terciles were more homogenous than were those under SEIFA D.
The greater homogeneity of the LGAs within each SEIFA EO tercile resulted in significant differences between terciles that were not apparent in the SEIFA D analysis. Figure 5.1.1 also illustrates the effects of the redistribution of LGAs associated with the comparative use of the two indices. The most evident effects shown in the figure are that relative disadvantage as measured by SEIFA D is more broadly distributed across the population than are those aspects of SES related to education and occupation, supporting the observation that the SEIFA EO terciles are more distinct. For example, the low SEIFA EO group is chiefly comprised of rural
LGAs with generally smaller populations and EGM counts. On the basis of the two-way reallocations of LGAs between SEIFA D and SEIFA EO terciles, it appears that the lower educational and occupational status in those LGAs which migrated from SEIFA D medium to
SEIFA EO low, does not necessarily translate into any significantly greater level of general disadvantage. Nor does the relatively higher educational and occupational status of the identified large urban LGAs migrating to the higher SEIFA EO tercile necessarily translate into a lesser level of disadvantage when the results for the two indices are compared. The second apparent effect is the associated redistribution of EGMs between the corresponding SEIFA D
276 and SEIFA EO terciles. In particular, it is apparent that much of the difference between the two low SES groups was redistributed between the two high-SES groups.
In terms of empirical observations, this analysis identifies the proliferation of EGMs in metropolitan and urban LGAs, establishing the nexus between the location of EGMs in more densely populated areas, and the maximisation of EGM profits and, indirectly, government revenues (Productivity Commission, 1999). The propensity for EGMs to be deployed in areas of higher population is intuitively rational, and actually practiced, as was observed in Section
4.9.1. In the cited press article in that section, Burke (Sydney Morning Herald, 25/11/2006) noted the large scale transfer of EGM entitlements “out of the bush and into cities and larger regional towns, where the revenue from each machine is much higher” (p. 2). Clearly access to higher population is considered likely to increase the ‘productivity’ of EGMs.
Because the LGAs in the low SEIFA EO tercile featured small populations, there was less incentive to deploy large numbers of EGMs in these LGAs. As a result, actual concentrations remained consistently higher in this group of LGAs. It is noted, however that these LGAs demonstrated proportionally larger changes in concentration associated with the 1996 legislation. This is a result of their comparatively small initial or base numbers of EGMs. This is illustrated by the change in EGM density for this tercile being more in line with those for the other terciles than is the case for concentration.
6.2.3 Commentary on Time Effects
In contrast to the relatively complex results observed for the SES indices and their respective terciles, the time effects analysis results are more straightforward. There were commonly statistically significant changes in the RM ANOVA time effects for each variable, as illustrated in the main effects tables. The non-significant results were restricted to EGM concentration for both SEIFA indexes in the analysis of the 1999 Act, and profit concentration in the SEIFA D
277 analysis for the 2001 Act. The latter of these was significant at the ten percent level (p < .10).
The remaining analyses produced statistically significant results
(p < 0.05). Despite the exceptions, as the paired variables (concentration and population-based) deal with measures of EGMs, profits and tax. Overall the results clearly demonstrate the significantly changing EGM gambling environment in NSW over the period.
Figure 5.1.2 (Section 5.1.8 [a]) demonstrates the behaviour of the concentration means was relatively consistent over the entire period, with each of the values decreasing in the period following the 1996 legislation. This illustrates the fall in the concentration of EGMs associated with the expansion into the hotel sector, and the associated redistribution of profit and tax across the greater number of venues. The figure suggests that EGM concentration behaved as a lead indicator with respect to the other concentration measures, an effect which is to be expected, given the lag between the availability of additional EGMs, and reporting of the increased revenues and taxes generated as a result of their operation.
The population-based variables appear to be more volatile. However, on closer consideration, the behaviour of each is explicable. The values for EGM density initially fell modestly, with the reduction indicative of an increase in density. This is due to the inverse relationship of density with the other population-based variables. When this characteristic of EGM density is taken into account, the variable is seen to have generally behaved consistently with its counterpart profit and tax measures. That notwithstanding, the ostensible comparative inertia of EGM density should also be recognised as being the product of the converse behaviour of the two separate components of the measure. For approximately 66 percent of the LGAs examined, population increased over the period. Ceteris paribus, the effect of this population increase must necessarily be a decrease in density (that is, more people per EGM). Conversely, under the diametrically opposed assumption of holding population constant, the increase in the number of
EGMs occurring over the period would result in an increase in density (that is, the number of
EGMs per population unit would increase). The means for each period indicate that the increase
278 in EGMs was the more dominant of these forces over the period, which is to be expected in the environment created by the expansionary 1996 legislation. However, the overall growth in population in those areas where it occurred may have to some extent acted to mitigate this density increase.
The divergent tension between the two components of EGM density does not exist for the other population-based variables. This is because of the positive relationship in the behaviour of the two components of the other variables. This manifested in the general increases in profits and tax being accompanied by the general increase in population. With respect to the small minority of LGAs in which population declined slightly, but EGM gambling measures increased, this provides further evidence that the growth of EGM gambling occurred generally, and despite changes in population, irrespective of their magnitude and direction. These outcomes indicate a limitation of exclusive reliance on population-based measures. As concentration does not include population as a factor in its calculation, changes in the structure of the EGM environment and how EGMs are deployed and EGM gambling delivered, are reported. As there is less variability in the numbers of venues and EGMs than in population counts, the concentration measure is more responsive, and provides an additional perspective on development of the environment. As an example, two LGAs may have similar EGM counts and populations and thus similar density, but significantly different profit and tax outcomes. The concentration-based comparison of the two LGAs will produce information on how EGM market structure and distribution contributes to these differences.
In relation to the tax impacts addressed by research question (b), Figure 5.1.2 provides a graphical representation of the broad tax impact of the 1996 Act. In considering this evidence it is necessary to take into account the lag between legislation and practical commencement of the
Acts. If these temporal effects are allowed for, there is conclusive evidence that the 1996 Act impacted on how EGM taxes were imposed on LGAs. Although the descriptive findings indicate that tax impacts differed on the basis of the SES characteristics considered, these
279 differences were not statistically significant. As the time effects were significant, this substantiates that the tax impacts were broadly distributed across the State’s EGM industry.
Although the effect of the 1996 legislation is the most obvious feature of Figure 5.1.2, the change in all variables coinciding with the 2000 observation point observed in relation to the
1999 and 2001 Acts is also salient. As the change is apparent across all variables, it cannot solely relate to the impact of the GST, which would be notionally restricted to the tax variables.
There were also a number of significant interaction results in this period involving tax and profit variables, which support this conclusion.
With respect to tax per capita, this variable logically tracked with profit per capita, albeit at a somewhat slower rate, until the introduction of the GST in 2000. Once the immediate impact of this intervention had passed, the behaviour of the tax and profit variables promptly stabilised.
The evidence substantiates that the ultimate effect of the GST was simply that of a general recalibration of the tax base. From a methodological perspective, the derivative relationship of tax with profit means that the behaviour of the one may be reasonably considered as being strongly indicative of the behaviour of the other. In a situation which included the significant external impact on tax performance of the introduction of the GST, it can be seen that in order to infer the continuing trend in adjusted EGM tax behaviour, a valid approach is to observe profit per capita, as a closely-related proxy. To some extent the logic of this approach was demonstrated in Figure 5.1.2.
Although the continuity in profit growth was indicative of the ongoing increase of EGM gambling, the figure also illustrates that the rate of growth in tax per capita is generally lower than that of profit per capita. There are some structural factors underlying this difference, which are a direct product of the accumulated effect of successive legislation. In terms of the EGM gambling metrics observed, the registered club sector of the industry remained dominant over the period, holding the significant majority of EGMs (approximately 78 percent in 2001) and
280 thus producing the majority of profit and tax yields. The tax concessions available to clubs, as detailed in Chapter 4, are also a factor to be considered. These included a tax-free threshold for all clubs, and CDSE concessions for clubs earning high levels of profit. Although the latter may be considered as being tax-equivalent in practical terms, disbursements made by clubs under this arrangement are not recognised in the tax data, and thus effectively reduce reported tax totals. The regulatory outcomes of these concessions would be expected to reduce the growth in tax relative to that of profit.
Acting as a counterbalance to this moderating effect is the concurrent growth in hotel EGMs and the higher all-inclusive tax rates for hotels. These are also detailed in Chapter 4. This might be expected to substitute for some of the club-related tax concessions. However, the magnitude of this second structural feature is limited by the comparatively smaller size of the sector, and the legislative restrictions of a maximum fifteen initially, and subsequently thirty, EGMs available to each hotel. Overall, given the relative scale of the two industry sectors, it appears that the regulatory structures involving the club industry were responsible for producing the relatively lower growth of tax yields when compared to profit growth. It is concluded that although profit may be considered as a useful trend indicator in respect of the one-off impact of the introduction of the GST, in overall terms, there are structural elements of regulatory origin which ultimately dictate separate consideration of each variable.
From a policy development perspective, this ultimate distinction between profit and tax as measures of EGM activity within a defined area is of some relevance. The work of Stubbs and
Storer (Productivity Commission, 2009) relied on profit per capita as a decision criterion in relation to applications by venues for increases in EGM holdings. As profit effectively equates to player losses, this use is sustainable from the perspective of efforts at protection of individual consumers. From the perspective of the broader effects on the economy of a defined area, which is the focus of this study, tax is the more appropriate measure. This is because tax represents the outflow of economic resources from the area. As has been demonstrated, the same level of
281 profit may result in significantly different aggregate tax outflows for a community, based on the manner in which EGMs are distributed across the community. From this perspective, it is apparent that the adoption of EGM and tax concentration measures provides some analytical benefit, as previously observed.
Although the changes occurring around 2000 are less pronounced than the immediate effects of the 1996 Act, they do appear to be sustained over the remainder of the period observed. Tax outcomes associated with the 1998 CDSE scheme would not have been reported until 1999.
This scheme represents a long-run impact on the market that would be expected to have contributed to a reduction in nominal tax yields over subsequent years. Conversely, the 1999
Act included no specific tax provisions. As a result, the impact on tax behaviour of this legislation would be anticipated to be minimal. The analyses support this conclusion. Although the significant time effects in particular are indicative of ongoing change in the EGM environment, there is no strong evidence to support a position that the 1999 legislation was strongly associated with those changes.
As has been identified, the 2001 legislation comprised two Acts. Clearly the Gaming Machine
Tax Act had direct ramifications for taxation. This instrument established the tax rates to be applied and also tax threshold provisions which determined the quantum of taxes levied. The threshold provision increased the $100,000 tax-free threshold for clubs recommended in the rates shown in Table 4.8 (Section 4.10.2) to $200,000. Based on the application of this concession, the total reduction in tax revenues represented less than 0.05 percent of total club tax yields and less than 0.04 percent of total EGM tax yields in 2001 and as such was immaterial in the context of the quantum of NSW EGM taxation. Although this impact is of little practical effect, the tables also detail the reduction in the base rate of taxation associated with provision for the GST which permanently altered the nominal rate of taxation, if not the actual or ‘grossed up’ outcome.
282 The provisions of the accompanying principal legislation, the Gaming Machines Act, also included a range of policy interventions that would be expected to have had both direct and indirect effects on the magnitude of taxes levied. These included provisions for reducing the total number of EGMs in operation (forfeiture provisions) and limitations on the daily availability of EGMs (mandatory shutdown period provisions), as described in Chapter 3.
Evidence suggests that the latter of these were of little practical impact on EGM activity and associated tax yields. Thomas (2010) agreed with such an assessment, stating that the effect of shutdowns is liable to “be limited to the small minority of people who gamble during the recommended shutdown time periods” (p. 40). Discussing research into this aspect of the shutdown approach, the Productivity Commission (2010) observed that “analysis of profit data for venues in the local government areas where the interviews [in respect of the impacts of the shutdowns on venues] occurred did not suggest a negative impact on revenue other than in the
Sydney local government area” (p. 14.26). It is noted that the Sydney LGA is excluded from the current analysis. The Commission (2010) did also note, however, that the anecdotal evidence from the industry suggested more material impacts in terms of revenue and other effects, despite the lack of support afforded by the mandatorily reported data. There has also been continued doubt expressed over the efficacy of the both three-hour (for example, AC Neilsen, 2003;
IPART, 2004; Productivity Commission, 2010), and six-hour shutdowns (Productivity
Commission, 2010).
Conversely, the forfeiture provisions might notionally be expected to have had some greater impact, by actually reducing the number of EGMs in relevant areas. The provisions relating to tradeable EGM entitlements, in which one entitlement in each block of two or three entitlements traded was required to be surrendered to the State, may be considered to be a piecemeal system for reducing EGM numbers. Such a conclusion is supported by the fact that these forfeiture provisions generally applied in circumstances where venues were seeking to increase their EGM holdings. However, the requirement for clubs with large EGM holdings (defined in the Act as large-scale clubs) to reduce these holdings by ten percent, or by such a number as to reduce
283 holdings to a maximum of 450 EGMs, over a five year period subsequent to enactment of the legislation70 may have been expected to have had greater impact. Based on 2001 data, this stipulation related to only eighteen (18) clubs statewide (IPART, 2003), which were required to surrender 1,034 EGMs in total (OLGR data, 2006). It is the location of these clubs and the effects of withdrawal of a comparatively large number of EGMs from their specific locations which would notionally be expected to have had some larger impact on both local and aggregate taxation yields in the short and medium terms examined in this analysis.
The policy to require these clubs to reduce their EGM holdings may also provide an example of how, despite their generally ad hoc origins, successive EGM legislation in the period 1995 to
2005 was often precipitated by earlier policy. Each of these large clubs would have qualified for the tax relief made available through the 1998 CDSE legislation. Although there is no explicit acknowledgment of this in the parliamentary or public record, the 1998 legislation may have represented both a post facto concession with respect to the 1996 Act and hotel liberalisation, and, given the temporal proximity of the 1998 and 1999 policies, a pre-emptive amelioration of the impacts on clubs of a planned program of subsequent legislation including the progressively more severe and specific restraints of the 1999 and 2001 Acts. Were this the case, this would be a rare example of a planned approach to gambling regulation, quite distinguished from the reactive, ad hoc approach that characterised the earlier major policy initiatives examined in
Chapter 3.
There was potential for this policy to affect tax yields in certain LGAs, although the majority of the venues were located in high-population LGAs, with significant EGM numbers, which may have absorbed any displaced activity. At venue level, a reduction in EGM revenues may have occurred, as remaining holdings may not have been relatively large enough to sustain the same level of activity. The position that venue-based limits on the number of EGMs may be more effective in “moderating the accessibility drivers of problem gambling” (Productivity
70 Gaming Machines Act 2001, No. 127, Part 2, Sections 12 and 13. 284 Commission 2010, p. 14.2), to some extent supports this conclusion in respect of revenue, profit and tax outcomes for those venues with the greatest reductions.
Evidence suggests that clubs would have sought to minimise the impacts by surrendering underperforming EGMs, a tactic noted by the Productivity Commission (2010). Additionally, consumer actions such as increases in the intensity of play and other reactions of gamblers aimed toward sustaining their level of activity (for example, Productivity Commission, 2010;
Young, 2010) may have mitigated the effect of the forfeitures. Principally, however, the availability of significant numbers of accessible alternative EGMs in relatively close proximity may have reduced the efficacy of this policy at LGA level.
In practical terms, the effect of the provision relating to large clubs was a reduction of 1,034
EGMs. To place this in context, over the corresponding period, the aggregate change in statewide EGM numbers was a net reduction of 524 EGMs71. This clearly indicates that although these large-scale clubs generally made reductions, the other forfeiture provisions must necessarily be seen to have had no impact in reducing total EGM numbers, as the final net change in EGM numbers was lower than that for the large clubs. As was noted previously, the other forfeiture provisions related to marginal reductions in circumstances where venues were seeking to increase EGM numbers. As is demonstrated by this information, an aggregate reduction of 524 EGMs in the context of a statewide market of more than 70,000 club-based machines, although representing a change as anticipated by the legislation, was insufficient to mitigate the continuing growth in EGM gambling activity, along with growth in the associated profit and tax yields. The evidence does not support a position that the overall reduction in
EGMs resulted in a decrease in aggregate EGM activity, as measured by profit. Figure 4.6
(Section 4.10.1) demonstrates the lack of sensitivity of club profits to the achieved reductions in
EGM numbers at aggregate level. The figure also illustrates that the same conclusion can be drawn in respect of hotel EGMs and profits.
71 Based on OLGR club-level EGM data for the relevant years. 285
These conclusions substantiate the combined impact of this series of legislative interventions in influencing the EGM environment, albeit in relatively modest terms when compared to the impacts of the preceding 1996 Act. This being the case, a related conclusion is that the Acts were to some extent successful in achieving their intended, restrictive purposes in terms of
EGM proliferation. However, it cannot be conclusively stated that the policy changes entailed in this legislation are the sole sources of the change in the manner in which the EGM market behaved.
Productivity Commission Chairman Gary Banks (2002) attributed any slowing in expenditure on EGMs to the maturing of markets, rather than to the regulatory changes having taken place in any of the states subsequent to the release of the Productivity Commission’s 1999 report.
Subsequently, Banks (2007) conceded that the slower rate of increase of gambling expenditure was not a “natural” (p. 16) market outcome, and that regulatory interventions played a role in this change in the behaviour of the market.
In his earlier paper, Banks (2002) raised the issue of “emerging saturation” (p. 13) in EGM markets as a potential explanation for the lower rate of expenditure growth. The evidence suggests that this is exemplified by the practical exhaustion of the expansion of EGM numbers associated with the 1996 Act coinciding with the later Acts. The initial rapid rate of expansion of
EGM numbers associated with the uptake of EGMs in the newly-established hotel sector was not sustained over a longer period. This is principally because of the limit on the number of machines for each hotel. As has been demonstrated in the review of parliamentary debate on the legislation in Chapter 3 (Section 3.2.5.4), it is evident that not all hoteliers elected to install the maximum number of EGMs immediately the opportunity became available. This left some capacity for ongoing growth in hotel EGM numbers, however at a slower rate.
286 With respect to the component of the increase in EGMs that occurred prior to the Act coming into force, Figures 4.4 and 4.5 (Section 4.9.2) demonstrate that the registered club sector of the industry engaged in a discernible expansion in EGM numbers at that time. Between 1994 and
1995, club EGM numbers rose from 59,650 to 62,322, an increase of approximately 4.5 percent.
Relatively rapid growth in club EGM numbers continued over the period to 1998, with the total increase between 1995 and 1998 equating to an additional increase of 8.3 percent in total
EGMs. It is clear that both the hotel and club sectors were in expansionary phases during this period.
Figure 5.1.2 also emphasises the relationship between the behaviour of the two EGM distribution variables. Both variables decreased in value initially, before eventually increasing toward the end of the observation period. The behaviour of EGM concentration as a lead indicator for the other concentration variables was identified previously. There is evidence that over the entire period, as with its relationship with the other concentration measures, EGM concentration acted as a lead indicator for EGM density. Figure 5.1.2 indicates that the initial decrease in the two measures clearly predated the 1996 legislation, as evidenced above. Overall, there was rapid growth in density between the year before, and the year immediately after, passage of the legislation.
The more rapid stage of decline in the values for both measures appears to have ceased around
1998. Subsequently, concentration appears to have almost immediately commenced a modest increase in values, whereas density remained relatively stable at its lowest point for approximately two years, before these values began to increase. The underlying causes for this comparative effect are different to those relating to the relationship between EGM concentration and the other concentration variables.
The expansion into the hotel sector was counteracted by a continued consolidation of EGMs in clubs. In 1995 there were 9,581 approved amusement devices (AADs) in hotels in the State. By
287 1998 there were 20,906 EGMs in hotels72. The net increase of 11,325 EGMs compares with an increase in club EGMs of 5,186 EGMs over the same period. As the numbers of both EGMs and venues are factors in the calculation of EGM concentration, it follows that once the element of decreasing concentration associated with the uptake of EGMs in new venues (hotels) began to slow, the net increase in EGM numbers in clubs offset this influence in the overall concentration measure. This is highlighted further by the subsequent net increases in club and hotel EGM numbers between 1998 and 2001, which were 7,643 and 156 EGMs respectively across NSW.
These data clearly demonstrate that the increase in club sector EGMs is the key driver of the increase in overall concentration commencing around 1998.
The EGM density measure was not as responsive in this respect. Although the overall increase in EGMs at state level between 1998 and 2001 was approximately 8.4 percent, the NSW population also increased by four percent73. Such marginal net changes in density, being based on two factors featuring comparatively large differences in scale, amount to a lesser level of overall change than is apparent for concentration. These data provide some support for the adoption of a concentration measure such as the Herfindahl index in the analysis of changes in the EGM environment, as concentration may be more sensitive to lower magnitude changes in the distribution of EGMs.
Regarding the relationship between the changes in distribution and the SES of LGAs, it has been identified that the expansion of EGM access was broadly distributed and independent of
SES, both within and between indices. It is at this point of the analysis that the value of a comparison of indices based on different aspects of SES becomes apparent, as there is sufficient evidence to support a conclusion that different aspects of SES demonstrate different associations with EGM density. In particular, ABS SEIFA of education and occupation was
72 The OLGR data does not discriminate between AADs and EGMs subsequent to the 1996 legislation. It is assumed that given their greater profitability, all of the additional machines would be expected to be EGMs, and, as permitted, the majority of AADs would be expected to be converted to EGM entitlements. 73 Based on ABS Census/ERP NSW population counts of 5,979,187 (1998) and 6,218,908 (2001). 288 found to be more strongly statistically associated with changes in EGM density than were factors relating to general disadvantage. The estimated marginal means generated in the analysis identified that the relationship between SEIFA EO and population per EGM was positive. This manifests in such a manner that the successively higher SEIFA EO groups returned successively higher means. Given the inverse nature of EGM density, the higher means indicate lower EGM density as SEIFA EO increased. Such a consistent relationship was not evident between SEIFA
D and EGM density, for which the medium SES tercile consistently had the highest mean density. The differences in the distribution of LGAs for the two SES indices have been discussed previously. The critical feature of that analysis was the redistribution of certain large- population LGAs, with high EGM numbers. These LGAs are principally located in the outer suburban areas of greater Sydney, are the source of relatively large tax yields and also displayed significant disparity between levels of educational and occupational disadvantage, and general disadvantage.
6.2.4 Commentary on Interaction Effects
The key outcomes of the analysis are those related to the interaction effects. As has been briefly discussed in Chapter 4 in relation to the RM ANOVA results, the establishment of significant relationships between relevant measures of SES and EGM activity indicators over the period is crucial in identifying any moderating effects of the former. It is in examining these interaction effects that the most important differences between outcomes for the two SES indices become apparent.
Adopting SEIFA D, there was one statistically significant interaction detected in the entire analysis for all three Acts. This interaction was for profit per capita, in the analysis of the 1999 legislation. EGM concentration returned a result approaching significance (p = 0.07) in the same period. Conversely, the analysis produced a number of significant interactions when SEIFA EO was employed as a factor. In relation to the 1996 Act, EGM density and EGM concentration were found to be statistically significant. All three concentration variable interactions were
289 statistically significant in the 1999 analysis, and there was a statistically significant interaction for EGM concentration in the analysis relating to the 2001 legislation.
These results emphasise in general terms two key findings of this research. These are first that there are statistically significant differences in the EGM profiles of LGAs when these are examined using different SES measures. Second, in an environment of general change, concentration measures, particularly those relating to EGM concentration, produced significant results that indicate greater capability for detecting or predicting ‘micro’ level changes in EGM market structure. As the interaction results are most critical to the outcomes of the empirical analyses, these are further discussed below in relation to each Act and the research questions relevant to each Act.
6.2.5 Liquor and Registered Clubs Further Amendment Act 1996, No. 103.
The 1996 analysis resulted in significant interactions for both EGM distribution measures using
SEIFA EO. The most significant component of the interaction in EGM density was between the
1995 and 1997 time effect results. This demonstrates that there were differences between the densities of the SEIFA EO terciles between the two observation points. Conversely to density, the source of the interaction for EGM concentration in this period was focused on the 1997 and
1998 time effect observations.
The temporal difference between the significant results in these two distribution variables can be explained as an outcome of the operation of the provisions of the 1996 Act. As has been noted previously, an expansion in club EGM numbers commenced prior to the nominal introduction of the legislation. As a change in EGM density relies only on a change in the ratio between population and EGM numbers, theoretically any change in the balance between these elements will effect a change in density, irrespective of whether the additional EGMs are redistributed across existing or new venues. In practical terms, any such change would need to be of adequate scale relative to the pre-existing situation for the change to be material to the
290 EGM gambling environment. Figures 5.1.2 appears to indicate the changes in density relating to the 1996 legislation, and indeed over the entire period observed, were at best marginal. The tension between the two components of EGM density discussed previously, and the counteractive influence of each on the other, clearly operated to moderate the overall outcome.
With respect to concentration, this variable includes the number of venues across which EGMs are distributed as a component. Therefore, a change in EGM concentration would not have been identifiable until the point at which sufficient additional EGMs had been located in venues which previously had few or no EGMs, in order to produce a significant change. The time elapsed for this latter outcome to take effect explains the difference in behaviour between density and concentration. Given the scale of the hotel expansion, and the contemporaneous expansion in clubs, the RM ANOVA results and Figure 5.1.2 clearly demonstrate that the concentration measure was more reflective of the magnitude of change in the EGM gambling environment than was the density measure.
It has been previously proposed that the increase of EGMs in clubs may have been a pre- emptive reaction by the club industry in anticipation of the 1996 Act. Thus, this represents an indirect effect of the legislation on the EGM environment. The concentration change is a definite and direct result of the changes associated with the Act.
The mean percentage change values for EGM concentration (refer to Table 5.2.2) indicate that the medium and low SEIFA EO terciles experienced the greatest decline in concentration. This indicates that EGMs became more widely dispersed across venues in the LGAs included in these terciles. Changes in concentration were positively associated with SES, to the extent that the decrease in concentration was less as SES increased, albeit marginally between the low and medium groups. Despite this larger rate of change, overall concentration remained highest in the low SEIFA EO tercile. It is noted that the same positive relationship is not apparent for the
291 SEIFA D data. The greater change in the SEIFA D medium tercile emphasises the effect of the conglomeration of EGMs in the urban LGAs previously identified.
The implication of this finding is that the expansionary impact of the legislation, as expressed by the broader distribution of EGMs across venues, had greatest effect in the chiefly rural LGAs comprising the low SEIFA EO group, although the SEIFA EO medium group changed by only a slightly lesser proportion. Despite the comparatively similar overall effect, there were some differences in how these results manifested. There was a comparatively greater increase in the number of hotel EGMs in the low SES tercile. However, the associated change in tax was less than that for the two higher groups, which were very similar. The element in which SEIFA EO low LGAs increased tax yields at a relatively greater level than the other terciles was in regard to club-based EGMs.
Club EGM numbers in the low SEIFA EO tercile increased at 2.5 percent, a rate slightly greater than the mean increase for all three SEIFA EO terciles (2.2 percent). The aggregate club tax yield increased by approximately 8 percent for the SEIFA EO low tercile. In comparison, club taxes declined by around 19 percent and 3 percent for the medium and high SES terciles respectively. This appears to indicate that, although still a significant change to the EGM environment, the tax impact of the introduction of EGMs into hotels was not as great in the low
SEIFA EO LGAs in the short term.
These analyses returned dichotomous results, in terms of the previously postulated outcome for rural LGAs: the postulate was these LGAs would be more greatly affected by the hotel expansion. In terms of EGM numbers and concentration effects, the results support such a conclusion. However, from the perspective of tax effects, an overall consolidation of tax concentration in clubs occurred, rather than a redistribution to hotels. It appears that across the
SEIFA EO low tercile, the number of EGMs installed in hotels did not generate sufficient revenues to break the dominance of club profits. It is posited that this outcome is emphasised in
292 this tercile by the relativities between the comparatively large initial advantage held by the extant clubs, and the comparatively conservative expansion into hotels. This latter proposition may warrant further investigation, as the current research does not fully explore the relationships between the two EGM gambling sectors and their respective concentrations within
LGAs.
A further dichotomy is apparent despite the bipartisan recognition of differences in hotel and club patrons that was observed in the parliamentary debate on the legislation (Section 3.5.2.2).
This market feature was considered as potentially insulating the club sector from impacts, however it appears that clubs in the more densely populated LGAs comprising the two higher
SES groups did in fact suffer some negative impacts as a result of the Act. The figures on changes in tax yields for the SEIFA EO terciles noted above support this statement. Conversely, the behaviour in the chiefly rural group of LGAs contained in the low SEIFA EO group may be considered as providing some support for the contention of different market segments for hotel and club patrons. The continued concentration of EGM activity apparent in the club data suggests that in these LGAs at least, EGM gambling remained principally a club-based activity.
In terms of the three research questions posited in relation to the 1996 Act, the overall impact of the legislation (research question 1[a]) amounted to a number of purposive and unintended consequences. The legislation clearly anticipated a significant expansion in the distribution and availability of EGMs. This analysis confirms that the expansion duly occurred, and that this is the most apparent effect of the Act. This outcome naturally led to a number of derived effects of the legislation. Increases in expenditures, profits and tax yields resulted. In addition to these direct impacts, there were also a range of external economic and social impacts, including those relating to problem gambling, which are beyond the gamut of this research, but which represent distortive outcomes associated with the policies introduced.
293 The results of the testing are indicative of some of these direct and derived effects. The analysis confirms that there were significant increases in the availability of EGMs. The analyses conclude that EGM density increased, and as the legislation opened up a new sector for EGMs, concentration of the machines, which had formerly been confined to registered clubs, decreased, indicating the rapid expansion into hotels.
There were statistically significant increases in the profits generated by EGM gambling. The respective effects on profit per capita and profit concentration were inversely related to each other. This is consistent with the EGM measures, to the extent that the expansion into hotels increased the number of gaming venues generating profits, thus diluting the former concentration of profits in clubs.
In relation to research question 1(b), there were large increases in taxes as a result of the Act.
Profit and tax were on an increasing trend prior to the introduction of the legislation, however the analysis strongly indicates that the Act generally had an immediate impact on the rate of increase, compared to the pre-existing trend. This is also evidenced in the descriptive data. As these increases occurred across all SES terciles, there were no statistically significant differences identified between SES terciles.
Consistent with the concentration outcomes for the two other metrics, tax concentration decreased over the period, in keeping with the expansionary environment created by the legislation. Clearly, the number of venues through which EGM taxes were levied increased significantly. As is observed above, there was a related increase the quantum of EGM tax levied and collected. The geographical and distributional broadening of access associated with the expansion of the number of EGMs can be seen to have resulted in increases in access in certain areas where prior availability may have been considerably more constrained. As such, there is some likelihood that in opening up the new ‘market’ represented by the hotel sector, the legislation may also have drawn new consumers into EGM gambling, on the simple basis of the
294 machines being more physically accessible. This market shift was apparently broad, and to some extent unaffected by socioeconomic status.
Research question 1(c) addressed the moderating influences of SES on policy. In order to test for moderating effects, two different measures of SES were compared, as discussed in the explanation of the methodology. This comparative analysis revealed some differences in policy impacts on this basis, with analysis of the same LGA data using SEIFA EO and SEIFA D producing different results. SEIFA EO returned more significant results in the key interaction testing, suggesting that SEIFA EO demonstrated the stronger association with the EGM gambling variables of the two indices. In practice, the exclusive application of one of these indices in a methodology aimed at providing policy input would be likely to provide different conclusions than would application of the other index. Chapter 4 identified that OLGR applied
SEIFA D in EGM-related application processes. Had SEIFA EO been applied, different decisions on allocation of EGMs in relevant LGAs may have resulted. In turn, different, and potentially more positive, outcomes may have resulted in terms of the management of externalities such as those arising from excess expenditure and tax flows out of local economies.
As the outcomes of this legislation differed on the basis of the SES measure used in this analysis, it may be concluded that SES did have a moderating effect on the policy outcome.
6.2.6 Gambling Legislation Amendment (Responsible Gambling) Act 1999 No. 49
Profit per capita returned a significant interaction for this Act. Examination of the post hoc results indicates that this result was chiefly driven by the difference between the time effect for
1998 and those for 2000 and 2001. This is substantiated by Figure 5.1.2, in which the comparatively lesser rate of change between 2000 and 2001 compared to that between 1998 and
2000, and, it follows, 2001, is apparent. As the 1999 legislation contained no provisions directly relating to adjustment of either the numerical availability of EGMs or the taxation of
EGMs, there is little evidence to support a position that this intervention had any significant influence on this outcome. Rather, the evidence suggests that the ‘natural’ exhaustion of the
295 growth in EGM increases associated with the 1996 Act, as discussed by Banks (2002), was the principal source of this change.
The 1999 analysis for SEIFA EO yielded significant results for all three concentration measures. In each instance, disparities between the 2000 and 2001 observations were the source of the overall results. It is noted that in this testing, both profit and tax per capita produced outcomes that were significant at the ten percent level and, consistent with the significant interactions, a statistically significant result was identified for the 2000 and 2001 post hoc comparisons in both instances.
The consistency between outcomes for all concentration measures during this period provides evidence that the changes relating to the GST cannot be considered as being the sole definitive element in tax outcomes for this analysis. The result for profit per capita provide further, although qualified support for such a conclusion. As has been demonstrated in Table 4.8, the adjustment to tax rates relating to the GST was uniform. This change represented a proportionally identical alteration to the tax base applied to all venues in all LGAs, across all
SES terciles used in this analysis. As such, the identified significant differences must necessarily be associated with other environmental factors, the most obvious of these being the continuing impact of the 1996 legislation. The evidence previously presented on the reductions in EGM and tax levels in SEIFA EO terciles (Table 5.1.2) supports the conclusion that the ongoing direct and indirect impacts of the 1996 Act were material in these outcomes.
Figure 5.1.2 provides further evidence that the changes are related to the slowing of expansion related to the earlier legislation. The figure demonstrates that the point at which the lead indicator, EGM concentration, ceased to decline and began to revert toward increased concentration occurred around 1998. Clearly this predates the 1999 legislation and establishes that it was the progressive response of the market to the 1996 Act, in both its immediate
296 expansionary surge and subsequent abatement in demand for additional EGMs, which was most influential in the market behaviour illustrated by these data.
The first research question in relation to this Act, research question 2(a) relates to the general impacts of the legislation. This Act is the first, and lesser, of two major pieces of legislation which were aimed at mitigating the negative impacts of gambling which became more apparent in the wake of the 1996 legislation. This legislation was not limited to EGM regulation, but addressed gambling in the broader context, so its direct impact on EGM gambling may have been expected to be lesser. Despite this, although the Act was broad, evidence is presented in
Chapter 3 that substantiates a position that EGM gambling was the most significant form of gambling at which the legislation was targeted.
As is the case with the ensuing Gaming Machines Act of 2001, the Act is explicit in its intent of reducing the level of gambling and the harms associated with it. The results indicate that assessing whether the objective of reducing gambling was achieved is dependent on the measures examined. This is also a function of considering a number of other relevant environmental factors that may well have contributed to the observed outcomes. There is some evidence to support a conclusion that any impact relating to the 1999 Act was at best modest.
One element of this evidentiary material is the context provided by the impacts associated with the preceding 1996 Act, in respect of which there were quite distinctive ongoing effects, notwithstanding the simultaneous impacts of other factors in the EGM gaming environment.
A slowing in the rate of increase of EGM density is apparent. Profit per capita continued to grow, although also at a slower rate. The nature of the legislation is such that it may have had an influence on these outcomes. However, attribution of the causes of these impacts is problematic. This difficulty is emphasised by the tax and profit concentration measures, which continued to decrease. These continued decreases lagged behind the slowing in dispersal of
EGM concentration, suggesting that while increases in machine hotel numbers had peaked, the
297 uptake of use of the new EGMs in hotels was continuing. Overall, the evidence indicates that there were still expansionary influences abroad in the EGM market relating to the preceding legislation, despite the contractive intentions of the 1999 Act.
The tax impacts of the Act were addressed by research question 2(b). The conclusions that can be drawn in respect of tax impacts associated with the 1999 Act are limited. This is principally because the legislation included no specific tax provisions, and the period under examination included the introduction of the GST, which altered nominal tax rates and tax yields as a result.
The measure in this analysis that is notionally most sensitive to such a change is tax per capita.
The descriptive analysis indicates that there was a distinct and immediate response to the GST, as may have been anticipated. The RM ANOVA results produced significant time effects, with differences apparent between each observation. The second measure of change in taxation relates to the concentration measure. There was statistically significant change in relation to this variable, however the most evident change appears to be between the 1998 and 2000 observations.
Considering both tax variables in view of these observations, there appears to be limited evidence to support a conclusion of any major attributable change relating to this legislation.
As discussed previously, there is also persuasive contrary evidence to indicate that the Act did not generate a significant change in respect of taxation.
With regard to the moderating effects of SES posited in research question 2(c), the discussion above in respect of taxation effects has bearing on how this question is answered. Given that the environment in which the legislation came into force was subject to a number of pre-existing influences, and that there were a number of significant differences in the results on the basis of the two SES measures used in the analysis, it can be concluded that there were changes in the
EGM gambling environment that were moderated by SES. This is most robustly demonstrated
298 by the significant interaction for the SEIFA EO terciles, and the absence of a corresponding result for SEIFA D. However, the caveat remains as to the causative influence attributable to the policy interventions of the 1999 Act, in the context of a complex environment characterised by the effects of other state and Federal legislation.
6.2.7 Gaming Machines Act 2001, No. 127; Gaming Machine Tax Act, 2001 No. 72.
Analysis of the 2001 Acts produced one interaction within the SEIFA EO analysis, related to
EGM concentration. The conclusive element of this effect is identified in the 2003 and 2005 post hoc observations. The RM ANOVA results (Tables 5.2.25 to 5.2.27) indicate that this was largely due to increases in EGM numbers over time, although the group effect approached statistical significance. Comparing the terciles, the means data (Table 5.2.20) indicates that over the entire period, there was a difference in the behaviour of the SEIFA EO high tercile, for which concentration decreased marginally, and the two other counterpart lower terciles, in which increases occurred.
The particular relevance of this result is that EGM concentration was the only variable that returned statistically significant interaction results in each of the analyses of the three Acts. This indicates that this variable behaved more consistently than the other EGM activity indicators, and particularly EGM density, in terms of detecting significant change in the EGM environment. This consistency relates to significant differences between the SEIFA EO terciles for this variable relating to each Act. Although EGM concentration was most noteworthy in this respect, an overall assessment of the analyses indicates that the concentration measures generally behaved in a more responsive manner than did their population-based counterparts.
The implications of this outcome for policy making are discussed subsequently.
An additional consistent feature, which has been discussed previously, is also further emphasised by the result for the 2001 Act. This is the difference in outcomes on the basis of the
SES indicator selected for analysis. In its totality, an overarching theme of these analyses is that
299 SES as a function of educational and occupational characteristics of EGMs appears to be more strongly associated with changes in behaviour of EGM gambling variables than are factors related to general disadvantage.
Considering research question 3(a), unlike the 1999 Act, this legislation was specifically directed toward placing limitations on the continued expansion of the EGM industry. In this context a more distinguishable effect on the industry might be anticipated, which the analysis confirms.
The legislation included provisions that made the acquisition of additional EGMs more difficult.
Figure 5.2.13 illustrates the much reduced rate of growth in EGM density, which can to some extent be interpreted as being a result of these policy provisions. Adding further support to this observation is the marginal increase in EGM concentration. The result is not of sufficient magnitude to suggest a reversal of the prior trend of rapid expansion in EGM numbers and distribution attributable to this legislation. However, the increase does indicate that the dispersal of EGMs had largely ceased, suggesting that at aggregate level, hotels and clubs had in fact stopped acquiring additional EGMs at any collectively significant level.
Profit per capita continued to trend upwardly. To the extent that this is associated with the negative impacts of EGM gambling, the policy appears to have had no effect. Conversely, as is the case with EGM concentration, the rate of reduction in profit concentration slowed markedly, when compared with the observations for the preceding Acts. The marginal increase indicated by the overall percentage change for profit concentration suggests that the decrease in profit concentration had in fact been arrested in respect of the majority of the SES terciles. This suggests that the uptake of EGMs in more venues had largely ceased.
With regard to these variables, the expanded window for examination of the impacts of the 2001
Act allows an opportunity to examine the impacts, largely free of the influence of immediately
300 preceding legislation and externally-imposed influences. With this more stable environment in which to observe the behaviour of these variables, the legislation did have its intended effects on EGM gambling, although these were demonstrably modest in comparison to the preceding
EGM proliferation. The success of the policy with respect to activity levels is not convincingly established, given that profit growth continued, albeit at a lower rate.
Research question 3(b) asked whether the legislation resulted in a significant change in EGM taxation. The temporal window in which the two tax variables were examined still included the tail-end of the impacts of the introduction of the GST. This influence is highly apparent in
Figures 5.2.17 and 5.2.18. In the period subsequent to this, and to the legislation, there were distinct changes in the manner in which the taxation variables behaved when compared to the observations on the prior Acts.
As was observed with the other concentration variables, the rate of reduction in tax concentration slowed, and for some SES groups, marginally increased. This outcome appears to be a result of the tightening of regulation around expansion in EGM numbers.
With respect to tax per capita, subsequent to the one-off effect of the GST adjustment evident at the beginning of this period, the behaviour of tax per capita appears to have normalised. This return to a more stable trend is emphasised when compared with the behaviour of profit per capita, illustrated in Figure 5.2.15. The association between the policy provisions of the Act and this change in behaviour is difficult to establish, as comparison with the preceding period is of little instructive value.
Regarding the moderating effects of SES approached in research question 3(c), of the three Acts examined, the results of analysis on the 2001 legislation displayed the least significant effects.
A caveat in relation to the effects of the 1999 Act must be added in respect of this comment,
301 because, as is elucidated in previous and subsequent discussion, there were other strong environmental influences present at the time of the introduction of that legislation.
Nevertheless, there was one significant interaction between EGM concentration and SEIFA EO which was not present in the results for the SEIFA D analysis. There was also a significant time effect for profit concentration for SEIFA EO which was not repeated in the SEIFA D analysis.
These results indicate that outcomes of the policy were moderated to some extent by SES, when considered from the perspective of the comparative approach adopted in these analyses.
The significant EGM density interaction for the 1996 Act and those relating to EGM concentration across all three Acts are highly significant results in the context of the research questions. As has been noted previously, such a conclusion is not to suggest that the SES of
LGAs has historically been a practical consideration on the part of EGM operators when deciding where to locate EGMs, much less a comparison of various aspects of socioeconomic status. Chapters 3 and 4 established the absence of any such requirement relating to the 1996
Act, which was responsible for the majority of EGM market effects over this period. Rather, decisions by venue operators intuitively relate to the number of EGMs to be located in their venues and where those EGMs might be most profitable. However, in the wake of the series of legislative interventions examined in this thesis, it has been identified that over time, SES became a factor in the assessment of applications for additional EGM entitlements. To an extent, SES was imposed on EGM gambling providers as a consideration in the 2001 legislation. Although the present observations relate to a period predating the 2001 Act, in its administration of the provisions of that later legislation, OLGR relied on SEIFA D in defining the socioeconomic status of communities in which increases in EGM numbers were proposed74.
74 Stubbs J and Storer J, Submission to Productivity Commission Gambling Inquiry, Submission No. 73, Productivity Commission 2009, p5. 302 It may be posited that in a counterfactual situation, if SEIFA EO was relied upon as the measure of SES in preference to SEIFA D, it is conceivable that different decisions may have been made in some circumstances and these may have entailed different effects on the relevant LGAs. On this basis, it is established that in terms of policy formulation decisions, SES stands to impose a significant moderating effect on tax outcomes relating to the distribution of EGMs in LGA communities. Historically, the context in which SEIFA D was applied in the administration of the Gaming Machines Act was as a component of policy intended to moderate the negative externalities of gambling. Therefore in practice, SES has been applied as a moderating factor, as it was influential in decisions made at the venue and local community (generally LGA) level at which this research is focused. The present research adds support to this moderating influence by providing an additional proof to the hypothesis. This is because the current findings of differences between SES metrics are likely to produce different results, with the attendant different outcomes in terms of moderation of impacts.
The importance of effectively researching decisions on the location of EGMs warrants further emphasis. As noted above, EGM operators will locate machines where they are most likely to maximise returns. As Chapter 3 illustrates, over time it has been the prerogative of government to intervene in the process of these allocative decisions, in order to manage the behaviour of the operators on the supply-side of the market, or to protect consumer interests on the demand-side.
In either circumstance, consideration of the impacts on government tax revenues remains a constant. The quality of interventionist policies is a function of the information made available to support these decisions. The results achieved in these analyses indicate that in respect of
NSW Government policy as it was applied during the period under observation, more complete analysis of available data, such as consideration of concentration impacts, may have altered some decisions, and the impacts those decisions entailed.
303 6.3 Strengths and Limitations of the Research
As has been observed, one of the key strengths of this research is the data on which the empirical analysis is based. Access to the entire OLGR EGM database for the relevant period is one of the defining features of this thesis. A further advantage relating to these data is that they could be directly aggregated to LGA level without any loss of integrity of the data. This feature is crucial, as it permitted analysis with directly correspondent supplementary data for LGAs.
This allowed the extrapolation of different levels of data, such as at household and LGA level, to be avoided. This has been a limitation of earlier research.
The adoption of the Herfindahl-Hirschman Index is also a conspicuous strength of these analyses. The historical focus on density related measures in EGM research, and the emerging academic interest in the spatial dispersal of EGMs have been noted. The concentration measure, with its bases in the arithmetic relationship between the number of EGMs and the number of venues, was applied within defined spatial areas represented by LGAs. As such, the introduction of the concentration measure in this work may be interpreted as establishing a methodological link between these density- and spatially-based perspectives on EGM distribution. Although this link has been established in this thesis, there remains very considerable scope for further investigation of the application of these relationships in assessing gambling policy development, management and outcomes.
The analysis has also collated and interpreted a significant body of data on the history of gambling regulation in NSW and the interpretation of that history in the context of the construct of the political economy. The precedents established in earlier legislation have been identified as having paved the way for the introduction, expansion and ultimate domination of the gambling environment by EGMs. This historical context is particularly salient from the perspective of gambling taxation. Over time, it is clear that the imposition of taxes on gambling activity has not inhibited such activity. As the introduction of taxes relating to earlier
304 expansions of gambling were met with indifference on the part of much of the populace, so the opportunity to further exploit that indifference has been both illuminated and acted upon by succeeding governments. This exploitation has often occurred without due regard to the consequences of these actions. This thesis presents an additional tool for interpreting and analysing the consequences of gambling regulation, both retrospectively and prospectively.
There are also a number of limitations in relation to this research. Importantly, the methods employed in conducting the present study provide opportunities for further analysis, which would largely address these acknowledged limitations. A number of methodological assumptions, which may be considered as resulting in limitations, are identified and discussed in
Chapter 5. These assumptions, such as the measure of population employed, and the exclusion of certain LGAs from the analysis, are explained in the contexts of data constraints and previous practice. The assumptions applied in the present research are comparable with earlier research
(for example, Marshall and Baker, 2002; Productivity Commission, 1999).
A limitation with respect to the decisions taken on the aggregation of data was the division of individual LGAs into low, medium and high terciles for each of the two SEIFA indices. The
LGAs may also have validly been apportioned into deciles, as are SEIFA indices, or some other level of agglomeration. Given the size of the database and the RM ANOVA methodology applied, the use of terciles allowed for a more manageable and comprehensible exposition of the data. On the assumption that the appropriate permissions with respect to access and use of the database were obtained, there is the prospect of further analysis, in order to test the methodology at less aggregated levels, which may provide further insights.
A related matter in respect of access to the data available for this study is the effective application of the Herfindahl-Hirschman Index (Herfindahl Index). As was noted in Chapter 5, one of the limitations of the use of the index is that it requires information on each participant in a market. This complete information was available for the present study. If, however,
305 incomplete data were available, similar methodologies could be developed along with the application of one of the alternate concentration measures, such as the k-firm concentration ratio, in lieu of the Herfindahl Index.
The size of the database and the estimated amount of output were considerations in the methodological design adopted for these analyses. There may also be opportunities to further test these or related data using alternative methodologies. This is particularly the case in relation to the concentration approach, as it represents a novel method in assessing EGM accessibility, and as such, should be subjected to additional analyses to further assess its robustness.
6.4 Conclusions and Recommendations
Following on from the historical material examined in Chapter 3, this thesis provides further evidence of the progression of gambling policy in NSW from a focus on controlling gambling proliferation, to a focus on managing the activity within the context of its primary role as a source of public revenue. This progression has been traced through major twentieth-century developments, and into the early years of the twenty-first century.
As is the case with many aspects of gambling regulation, there is a dichotomous element to assessment of which aspect of the historical development of policy has been most influential over time. It may be argued with some robust evidentiary support that governmental intent to extract tax revenues from gambling activity has been the higher order policy outcome. This precedent was most firmly established in the passage of the Totalisator Act of 1916. In addition to the progression of NSW gambling legislation toward taxation as the principal motive demonstrated in this thesis, there is a significant body of literature that provides supporting evidence of such general patterns of regulatory development.
306 It might be alternatively concluded that the liberalisation of gambling forms and accessibility have had the greatest cumulative impact. Although the 1956 and 1996 Acts in relation to poker machines and EGMs both included significantly greater taxation opportunities, both were precipitated by other events or actions that led to policies directed toward liberalisation.
Alternative policy options were available in either instance. These alternatives were discussed in
Chapter 3.
The evidence presented in Chapter 3 indicates that the relative weightings of the regulatory and tax policy factors differed in relation to the individual Acts. Although the 1916 legislation was chiefly motivated by the pursuit of public revenues, the liberalisation and taxation components of the 1956 and 1996 Acts were perhaps more evenly weighted. The 1999 and 2001 Acts provide an exception, as these did not involve liberalisation provisions, yet were demonstrably constructed with some awareness of the need to maintain government revenues. Despite these varied outcomes, the sequence of legislative events examined herein supports the position substantiated in Chapter 4 that gambling regulatory interventions and tax policies are generally coincident. This coincidence of purpose introduces a further dichotomy, which relates to governments’ intentions in introducing gambling policy. Evidence was presented in Section
4.9.1 of the consistent lack of clarity surrounding the establishment of tax regimes associated with gambling expansion. Some argument was also presented (see Section 4.7) that suggested that this lack of clarity has extended beyond the fiscal aspects, to the regulatory elements of gambling policy. This was perhaps most clearly stated by Eadington (2007), who observed that;
“it is not unusual for governments to be unclear in stating their explicit objectives for legalisation or liberalisation” (p. 86). Eadington’s comments related to European contexts. In the observed history of gambling and gaming machine liberalisation in NSW (see Chapter 3), a claim of a lack of clarity surrounding regulatory policy objectives cannot be sustained. As has been established in this thesis, NSW governments have historically been quite explicit in the reasons for their gambling policy decisions.
307 The duality of purpose endemic in gambling policy has been a definitive feature of the political economy of gambling in NSW, as discussed in Chapter 2. Once again, there are two perspectives on this evolution; that which considers each of the major legislative developments as a stand-alone policy event, and the alternative, although not mutually exclusive, view, which seeks to identify the existence of consistent themes within successive, although not necessarily directly precedent, policy decisions, as proposed by Colebatch (1993). In relation to the first, rather more simplistic perspective, there is some intuitive appeal in the broad conceptualisation of punctuated equilibrium equating to the brief burst of decisive policy making, followed by the ensuing period of adjustment and consolidation. In terms of the latter, classical and contemporary theories of political economy both provide constructs which to some extent apply to gambling, and specifically EGM regulation.
Particularist, corporatist and capitalist imperialist models discussed in Chapter 2 all provide plausible explanations of the form and substance of gambling policy generally and EGM policy in the tenures of the three Carr Governments. Features of each are also passed on from the earlier legislative endeavours examined in Chapter 3. However, the post hoc adaptation of such theories to the development of the discrete political economy examined herein is an exercise in hindsight, and, the evidence suggests, played no practical role in decisions on how policy prescriptions ought to proceed. Rather, it is possible to retrospectively ascribe order to what was in many respects more akin to a succession of ad hoc policy initiatives.
As the development of gambling regulation has become more intricately linked with fiscal policy, so too have the impacts resulting from the enactment of policy become more apparent. It is only in the three terms of the Carr Governments’ rule that the technology to gather comprehensive information to allow a more complete assessment of gambling policy outcomes has been adopted. Given the consistent nature of the influences on historical policy development observed, analysis of the period 1995 to 2005 allows some insight into policy outcomes that may well also have had similar enduring validity over the longer-run history of
308 NSW gambling regulation, were better data collected at the relevant times. This may particularly be the case in the context of the growth patterns apparent in the aggregate data presented in Figures 4.4 and 4.5.
There are several findings within this research that may form the basis of such insights. The analyses employed two additional EGM policy assessment mechanisms that have not formed part of previous practice, and which may add to the depth of understanding of potential impacts of policy during the critical development stage. These are the comparison of more than one measure of socioeconomic status and the use of a market concentration measure that takes into account aspects of the distribution of EGMs across venues within defined geographic areas to assess impacts.
As early as the 1956 parliamentary debate, the consideration of socioeconomic factors was urged in machine gaming policy formulation. Formal inclusion of SES as a factor in implementation of EGM policy became established practice as a result of the 2001 Act. This involved the assessment of applications for changes in localised EGM environments, using
SEIFA D. That approach was valid to the extent that those aspects of general disadvantage that are associated with gambling externalities were considered in practice. However, the analyses undertaken in this study substantiate a conclusion that reliance on a single indicator, based on one set of socioeconomic characteristics, may result in the exclusion from consideration of other relevant SES factors. By employing both the general disadvantage index and the additional education and occupation index, it has been demonstrated that different policy implementation outcomes might be prescribed were this additional layer of information considered. This conclusion is intuitively valid, regardless of the particular gambling policy circumstances to which it may be applied. This is because, as previously observed, the use of one SEIFA index has been applied as a moderating factor in EGM regulation previously. The use of an additional measure that addresses a different, yet relevant, group of SES factors may be an input in a process of triangulation in terms of considering all relevant SES factors.
309
The second additional analytical construct introduced in this research is the application of the concentration measure, in this instance the Herfindahl-Hirschman Index. The additional power that this adds to the analysis is to bring into quantified perspective, the effect that distribution of
EGMs across venues has had on taxation outcomes. The analysis undertaken in this study produced evidence that the population-based measures, particularly EGM density, on which previous policy has been applied, are inherently less responsive to changes in the EGM environment than concentration measures. Perhaps the most apparent underlying causes of this instability are the fluidity of population itself, and the negative relationship between the component factors of EGM density. The reliance on EGM density and per capita expenditure at localised levels is by definition cognisant of the relative differences between LGAs. However, the methodological limitation of this approach is demonstrated by the established research practice of excluding capital city LGAs, such as the Sydney LGA, from analysis on the basis of their large transient or non-resident population at any point in time (Section 5.1.5). The same can be said of those NSW LGAs contiguous to the Queensland and Victorian state borders, prior to the introduction of EGMs into those states, as venues in these LGAs attracted significant gambling-related visitation from those neighbouring states.
In a study which is focussed on taxation impacts as a proxy or indicator of further, less accurately quantifiable impacts, the limitation presented by population-based measures also applies to concentration based-measures, although to a lesser degree. In the regulatory provisions which resulted from the 2001 legislation, EGM density and per capita expenditure
(LAB, 2006) were used with certain other assumptions as predictors of how many problem gamblers might be resident in an area, and might be created by the introduction of additional
EGMs. The main limitation of such an approach is that in the circumstances such as those described above, EGM density would only capture the relationship between EGMs and the resident population, whereas the expenditure per capita variable would capture global expenditure associated with all EGM gambling undertaken in the LGA. Under the regulations
310 associated with the Gaming Machines Act, this expenditure may have been consequentially attributed to the resident population, resulting in corrupted assessments of impacts. The outcome of such a process is that an accurate picture of the localised EGM environment may be concealed.
Conducting the same analysis using the corresponding concentration measures (for tax and profit respectively), these effects are less methodologically constrained. Because of the construction of the Herfindahl index, the global expenditure data can be used to identify the level of concentration amongst venues. These results could inform analysis at venue level, to determine the type and scale of the venues in which expenditure is concentrated, and then to formulate management strategies in respect of those specific venues. Critically, the Productivity
Commission (1999) commented on the impacts of different concentrations, noting in its conclusion that “this aspect of accessibility is largely ignored in current regulatory approaches”
(p. 15.1). This research represents an original contribution toward greater understanding of
EGM concentration and the potential for practical policy application of that understanding.
As is discussed in Chapter 4, there has been a developing academic focus on the geographical distribution of EGMs, particularly in the area of spatial analysis. This current research is cognate with such approaches. The analysis of distribution and its outcomes on the basis of both venue and EGM numbers within defined physical areas, with the benefit of the comprehensive data available for this study, opens up an additional perspective on this area of research.
Analysis of the concentration measures produced statistical results that are supportive of its validity in examining the impacts of the distribution of EGMs. Furthermore, the introduction of this approach to the analytical toolkit of gambling research provides opportunities for its application to assessment of both broad policy development and localised implementation decisions. The applicability of this approach is only limited by the availability of corresponding, current data at the relevant time.
311
The focus on taxation outcomes adopted in this study is central to the assessment of gambling outcomes more generally, and EGM gambling specifically. Clearly, taxation yields have developed into the key metric from the governmental perspective. Additionally, as the majority of gambling-related externalities are at the least initially financial in origin, then the relationship between government tax policy and a broad range of negative and also positive outcomes, which result from the implementation of such policies, is firmly established. The approach of examining both the supply and demand-side impacts on the basis of the same measure which is achievable using a concentration measure is also a methodological advantage of this research.
The extent of impacts of gambling regulation under the Carr Governments varied. These empirical analyses strongly identify the Liquor and Gaming Further Amendment Act of 1996 as the defining piece of legislation of the period. As a sequence of policy interventions over the ensuing life of this Premier’s governments, all else was largely a product of, or a response to, this legislation. There were impacts associated with the subsequent policy interventions, but these were variously negated or at the least obscured by the magnitude of change wrought in the liberalisation of EGMs in 1996. The parallels between this phenomenon and earlier legislation are apparent. Although only a brief exemplary comparison of the results of the legalisation of the totalisator was undertaken in Chapter 3, its continued use on the State’s racecourses, and its eventual further liberalisation under the Totalizator (Off-Course Betting) Act No 1, 1964 and later legislation, illustrate the ongoing influence of the 1916 Act. Similarly, the subsequent progression of policy flowing from the 1956 Poker Machines Act into Carr Government legislation is substantiated in Figure 4.1. Both policies entailed initial, restricted access to a form of gambling that led to later proliferation, greater accessibility and broader impacts.
Similar conclusions are drawn in respect of the impact of the three pieces of legislation on taxation outcomes. The impacts associated with the 1996 legislation dominated the EGM taxation landscape for some time after, and indeed, as the evidence suggests, even precipitated
312 effects before their introduction into hotels. The subsequent Acts of 1999 and 2001 resulted in impacts of lower magnitude. However, those associated with the 2001 legislation in combination with the ongoing influence of the 1996 Act appear to have had some lasting impact on the taxation environment, despite the dislocation associated with the 2000 introduction of the
GST. The nature of these impacts was to establish a longer-term sustainable level of taxation that resembles the equilibrium postulated by Adams (2008) in his conception of a gambling product life-cycle.
The methodological initiatives proposed in this research are intended to augment, rather than supersede, existing analytical practice in the area of EGM gambling. The comparative application of a second set of SES characteristics is proposed in order to enrich the level of analysis of available data and contribute to more detailed policy analysis. Similarly, there is potentially more detailed understanding of how EGM gambling impacts manifest to be obtained through a methodological approach that considers both orthodox population-based gambling measures and the alternate concentration approach employed in this study. The later legislative agenda of the Carr Governments and the interventions of recent federal governments may be considered as indicative of a genuine shift in policy focus, toward managing external impacts.
In this circumstance it is incumbent on these governments to apply the most comprehensive methods for analysis and assessment in understanding the nature and origins of the problems gambling policy may seek to address. The methodologies introduced in this thesis compliment, augment and strengthen the existing suite of methodological tools and techniques.
In considering these novel analytical tools, if EGM gambling density metrics and spatial methods such as GIS are considered as established analytical methodologies for assessing EGM distribution and impacts, a concentration-based approach, such as the Herfindahl - Hirschman
Index or an alternative concentration ratio, provides an additional element of analytical power to the understanding and assessment of those impacts. Density measures assess accessibility through the relationship between EGM numbers and population. Spatial distribution methods
313 observe the distribution of EGM venues across a defined physical area, and their relationship to impacts on the population in such a relevant physical area. Concentration can be used to assess how the distribution of EGMs across venues affects expenditure and tax levels, which, in their equation with player losses, are the root cause of the majority of gambling externalities
(Productivity Commission, 1999). This is a critical distinction of the present approach. It brings into focus an aspect of accessibility not previously exposed to detailed empirical analysis. This thesis has introduced assessment of the effects of how EGMs are distributed across venues within LGAs, into the process of understanding the link between accessibility and the management of its impacts.
The adoption of the Herfindahl-Hirschman Index, and by association the underlying assumption of each LGA as an EGM gambling ‘market’ may also provide further opportunities for examining the impacts of EGM taxation. As the EGM ‘market’ in each LGA represents one aspect of each local economy, comparison of EGM market concentration in the context of the structure of the local economy may provide further evidence on the manner in which EGM taxes extracted from such LGAs impact on other industries in the relevant local economy. In the development of the approach to this research, an assessment of the relative leakages and returns to LGA economies in terms of taxes and government grants was also considered. Extending the methods employed in this thesis as a basis, such methods may be developed in future research to enhance understanding of these impacts at the level of LGAs.
The acknowledged limitations of the research also identify opportunities for further research using these methodologies, in order to investigate these data at different levels of aggregation.
Contingent on access to the data, it is recommended that these additional analyses be considered. For example, in Chapter 4, the work of Young et al (2010) and other researchers in the area of spatial distribution of EGMs, chiefly using GIS technology, was acknowledged.
There may also be some opportunity to investigate the incorporation of a concentration measure
314 with this analysis, in order to add further richness to the ‘vulnerability surface’ developed by
Young et al (2010).
In summarising the overall impacts of the Carr Government’s legislative record on EGM gambling, the modest ameliorative results achieved by the 1999 and 2001 Acts indicate: (1) how dominant were the effects of the initial 1996 Act, which these pieces of legislation were intended to address; and (2) the historical importance of earlier governments’ forays into coupled regulatory and tax policy. The earlier policies, particularly the 1916 and 1956 Acts, established the public policy precedents perpetuated in the 1996 Act. These three policies, in retrospect, were principally taxation policies, the passages of which were facilitated by the pairing of the tax policy with gambling regulation that to greater or lesser degrees simultaneously addressed the interests of those who wished to see restrictions placed around gambling, those interested in the propagation of gambling, including industry operatives and consumers, and the majority of the population which was largely unaffected by, and thus generally indifferent to, gambling. As has been demonstrated in Chapters 2, 3 and 4, in their own way, either actively or passively, the industry, consumers and the broader disengaged populace has significantly influenced the evolution of gambling toward its principal role as a taxation source.
In the analysis of the parliamentary debates over precedent Acts conducted in Chapter 3, three contributions in particular stand out in relation to the subsequent development of EGM policy in the period 1995 to 2005. These observations relate to the Poker Machines Act of 1956, and are reproduced below:
Whatever happens to the amendment, Government members to-night are starting something the
result of which they cannot foresee.
Evelyn Darby, Legislative Assembly in Committee, 28 August 1956, (p. 1912).
315 Irrespective of the Government’s opinion about the wisdom or otherwise of retaining poker
machines, it will not be able to afford to ban them and lose £1,000,000 a year;
if the machines are taxed, they will be with us in perpetuity.
Blake Pelly, Legislative Assembly, 23 August 1956, (p. 1839).
The effect of all this legislation is to give the Government an interest in gambling that it cannot
afford to abandon. Its income depends so largely upon the various forms of gambling
that it could not afford to jettison its interest – even if it wanted to!
Ernest Sommerlad, Legislative Council, 5 September, 1956 (p.2112)
The relevance of these statements in the context of the Carr Governments’ gambling policies is clear. The 1996 legislation precipitated an expansion in EGM gambling that rapidly increased the potential for negative externalities to occur. The Government’s subsequent responses indicate that it did not fully apprehend the impacts of its earlier actions. These impacts precipitated the mitigating 1999 and 2001 Acts. However, these were constrained by, and developed in recognition of, the need to temper the remedial actions in the context of the entrenched fiscal reality foreshadowed by Pelly and Sommerlad four decades earlier. In the public policy arena of machine gaming, history had repeated itself, as has been the general pattern of gambling regulation in NSW.
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Retrieved from < http://www.austlii.edu.au/au/cases/cth/HCA/1942/14.html > 339 Additional RM ANOVA Post Hoc Testing Results 1. Additional Post Hoc Analyses Results Section 5.2.1 Liquor and Registered Clubs Further Amendment Act 1996, No. 103. Table 5.2.8(b) Post hoc test results - time effects - 1995-1998 TIME EFFECT SEIFA D SEIFA EO 1995 v 1997 1997 v 1998 1995 v 1997 1997 v 1998 F p F p F p F p Population per 65.94 0.000* 132.09 0.000* 67.81 0.000* 140.00 0.000* EGM. EGM 14.14 0.000* 55.90 0.000* 13.37 0.000* 56.86 0.000* concentration. Profit per 163.03 0.000* 115.10 0.000* 164.84 0.000* 122.59 0.000* capita. Profit 46.04 0.000* 204.03 0.000* 44.54 0.000* 202.38 0.000* concentration. Tax per capita 39.22 0.000* 9.5 0.002* 38.4 0.000* 10.1 0.002* Tax 99.18 0.000* 104.39 0.000* 94.29 0.000* 101.79 0.000* concentration. * (p <0.05) Table 5.2.9 Post hoc test results 1995-1998 Variable SEIFA D – Time effects SEIFA EO – Time effects 1995 (1) – 1997 (2) – 1995 (1) – 1995 (1) – 1997 (2) – 1995 (1) – 1997 (2) 1998 (3) 1998 (3) 1997 (2) 1998 (3) 1998 (3) ∆ p ∆ p ∆ p ∆ p ∆ p ∆ p Population per 1 > 2 0.000* 2 > 3 0.000* 1 > 3 0.000* 1 > 2 0.000* 2 > 3 0.000* 1 > 3 0.000* EGM EGM 1 > 2 0.001* 2 > 3 0.000* 1 > 3 0.000* 1 > 2 0.001* 2 > 3 0.000* 1 > 3 0.000* concentration Profit per 1 < 2 0.000* 2 < 3 0.000* 1 < 3 0.000* 1 < 2 0.000* 2 < 3 0.000* 1 < 3 0.000* capita Profit 1 > 2 0.000* 2 > 3 0.000* 1 > 3 0.000* 1 > 2 0.000* 2 > 3 0.000* 1 > 3 0.000* concentration Tax per capita 1 < 2 0.000* 2 < 3 0.007* 1 < 3 0.000* 1 < 2 0.000* 2 < 3 0.006* 1 < 3 0.000* Tax 1 < 2 0.000* 2 > 3 0.000* 1 > 3 0.001* 1 < 2 0.000* 2 > 3 0.000* 1 > 3 0.001* concentration Variable SEIFA D – Group Effects SEIFA EO – Group effects Low (1) – Medium (2) – Low (1) – Low (1) – Medium (2) – Low (1) – Medium (2) High (3) High (3) Medium (2) High (3) High (3) ∆ p ∆ p ∆ p ∆ p ∆ p ∆ p Population per 1 > 2 0.89 2 < 3 0.000* 1 < 3 0.023* 1 < 2 1.000 2 < 3 0.000* 1 < 3 0.000* EGM EGM 1 < 2 0.30 2 < 3 1.000 1 < 3 0.23 1 > 2 0.13 2 > 3 1.000 1 > 3 0.045* concentration Profit per 1 < 2 1.000 2 > 3 0.30 1 > 3 0.42 1 < 2 1.000 2 > 3 0.65 1 > 3 1.000 capita Profit 1 < 2 0.89 2 ≈ 3 1.000 1 < 3 0.98 1 > 2 0.10 2 > 3 1.000 1 > 3 0.039* concentration Tax per capita 1 > 2 1.000 2 > 3 1.000 1 > 3 0.71 1 < 2 0.68 2 < 3 1.000 1 < 3 1.000 Tax 1 < 2 1.000 2 < 3 1.000 1 < 3 0.89 1 > 2 0.07 2 > 3 1.000 1 > 3 0.035* concentration * (p <0.05) 340 2. Additional Post Hoc Analyses Results Section 5.2.2 Gambling Legislation Amendment (Responsible Gambling) Act 1999 No. 49. Table 5.2.17(b) Post hoc test results – time effects 1998-2001 TIME EFFECT SEIFA D SEIFA EO 1998 v 2000 2000 v 2001 1998 v 2000 2000 v 2001 F p F p F p F p Population 16.9 0.000* 24.5 0.000* 16.6 0.000* 23.8 0.000* per EGM. EGM 1.88 0.17 0.001 0.98 1.76 0.19 0.08 0.78 concentration Profit per 334.8 0.000* 3.09 0.08 319.4 0.000* 3.51 0.063 capita. Profit 108.7 0.000* 0.06 0.81 106.6 0.000* 0.31 0.58 concentration Tax per 70.2 0.000* 288.5 0.000* 67.7 0.000* 292.1 0.000* capita. Tax 147.0 0.000* 0.01 0.93 144.5 0.000* 0.20 0.65 concentration * (p <0.05) Table 5.2.18 Post hoc test results 1998-2001 Variable SEIFA D – Time effects SEIFA EO – Time effects 1998 (1) – 2000 (2) – 1998 (1) – 1998 (1) – 2000 (2) – 1998 (1) – 2000 (2) 2001 (3) 2001 (3) 2000 (2) 2001 (3) 2001 (3) ∆ p ∆ p ∆ p ∆ p ∆ p ∆ p Population per 1 > 2 0.000* 2 < 3 0.000* 1 < 3 0.94 1 < 2 0.000* 2 < 3 0.000* 1 < 3 1.000 EGM EGM 1 < 2 0.52 2 < 3 1.000 1 < 3 1.000 1 < 2 0.56 2 > 3 1.000 1 < 3 1.000 concentration Profit per 1 < 2 0.000* 2 < 3 0.24 1 < 3 0.000* 1 < 2 0.000* 2 < 3 0.19 1 < 3 0.000* capita Profit 1 > 2 0.000* 2 > 3 1.000 1 > 3 0.006* 1 > 2 0.000* 2 > 3 1.000 1 > 3 0.002* concentration Tax per capita 1 < 2 0.000* 2 > 3 0.000* 1 > 3 0.11 1 < 2 0.000* 2 > 3 0.000* 1 > 3 0.13 Tax 1 > 2 0.000* 2 > 3 1.000 1 > 3 0.004* 1 > 2 0.000* 2 > 3 1.000 1 > 3 0.001* concentration Variable SEIFA D – Group Effects SEIFA EO – Group effects Low (1) – Medium (2) – Low (1) - High Low (1) – Medium (2) – Low (1) – High Medium (2) High (3) (3) Medium (2) High (3) (3) ∆ p ∆ p ∆ p ∆ p ∆ p ∆ p Population per 1 > 2 0.97 2 < 3 0.000* 1 < 3 0.009* 1 < 2 0.72 2 < 3 0.000* 1 < 3 0.000* EGM EGM 1 < 2 0.65 2 < 3 1.000 1 < 3 0.70 1 > 2 0.73 2 > 3 1.000 1 > 3 0.30 concentration Profit per 1 > 2 1.000 2 > 3 0.51 1 > 3 0.58 1 < 2 1.000 2 > 3 1.000 1 > 3 1.000 capita Profit 1 < 2 0.78 2 > 3 1.000 1 < 3 1.000 1 > 2 0.82 2 > 3 0.96 1 > 3 0.17 concentration Tax per capita 1 > 2 1.000 2 > 3 1.000 1 > 3 1.000 1 < 2 0.49 2 < 3 1.00 1 < 3 0.16 Tax 1 < 2 0.75 2 > 3 1.000 1 < 3 1.000 1 > 2 0.97 2 > 3 0.77 1 > 3 0.15 concentration * (p <0.05) 341 3. Additional Post Hoc Analyses Results Section 5.2.3 Gaming Machines Act 2001, No. 127; Gaming Machine Tax Act, 2001 No. 72. Table 5.2.26(b) Post hoc test results – time effects 2000-2005 TIME EFFECTS SEIFA D SEIFA EO 2000 v 2002 2002 v 2003 2003 v 2005 2000 v 2002 2002 v 2003 2003 v 2005 F p F p F p F p F p F p Population per 70.7 0.000* 10.8 0.001* 8.58 0.004* 69.8 0.000* 8.4 0.004* 9.09 0.003* EGM EGM 12.47 0.001* 0.91 0.34 11.50 0.001* 11.49 0.001* 0.62 0.43 13.3 0.000* concentration Profit per 78.3 0.000* 32.6 0.000* 92.2 0.000* 82.9 0.000* 32.2 0.000* 85.8 0.000* capita Profit 8.68 0.004* 1.96 0.16 1.86 0.18 10.28 0.002* 1.76 0.19 2.13 0.15 concentration Tax per capita 184.2 0.000* 8.93 0.003* 166.2 0.000* 180.7 0.000* 8.93 0.003* 153.9 0.000* Tax 12.87 0.000* 0.14 0.91 5.50 0.020* 12.97 0.000* 0.001 0.98 5.26 0.023* concentration * (p <0.05) 342 Table 5.2.27 Post hoc test results 2000 – 2005 Variable SEIFA D – Time Effects SEIFA EO – Time Effects 2000 (1) – 2002 (2) – 2003 (3) – 2001 (1) – 2000 (1) – 2002 2002 (2) – 2003 (3) – 2005 2001 (1) – 2002 (2) 2003 (3) 2005 (4) 2005 (4) (2) 2003 (3) (4) 2005 (4) ∆ p ∆ p ∆ p ∆ p ∆ p ∆ p ∆ p ∆ p Population per 3 < 4 1 < 4 EGM 1 < 2 0.000* 2 < 3 0.008* 3 < 4 0.024* 1 < 4 0.000* 1< 2 0.000* 2 < 3 0.026* 0.018* 0.000* EGM 1 < 4 3 < 4 1 < 4 concentration 1 < 2 0.003* 2 < 3 1.000 3 < 4 0.005* 0.000* 1 < 2 0.005* 2 < 3 1.000 0.002* 0.000* Profit per capita 1 < 2 0.000* 2 < 3 0.000* 3 < 4 0.000* 1 < 4 0.000* 1 < 2 0.000* 2 < 3 0.000* 3 < 4 0.000* 1 < 4 0.000* Profit 3 < 4 1 > 4 concentration 1 > 2 0.023* 2 < 3 0.98 3 < 4 1.000 1 > 4 1.000 1 > 2 0.01* 2 < 3 1.000* 0.89 1.000 Tax per capita 1 > 2 0.000* 2 < 3 0.02* 3 < 4 0.000* 1 > 4 0.000* 1 > 2 0.000* 2 < 3 0.02* 3 < 4 0.000* 1 > 4 0.000* Tax concentration 1 > 2 0.003* 2 ≈ 3 1.000 3 < 4 0.12 1 > 4 1.000 1 > 2 0.003* 2 ≈ 3 1.000 3 < 4 0.14 1 > 4 1.000 Variable SEIFA D – Group Effects SEIFA EO – Group Effects Low (1) v Medium (2) v Low (1) v High (3) Low (1) v Medium (2) v Low (1) v Medium (2) High (3) Medium (2) High (3) High (3) ∆ p ∆ p ∆ p ∆ p ∆ p ∆ p Population per EGM 1 > 2 0.88 2 < 3 0.000* 1 < 3 0.006* 1 < 2 0.66 2 < 3 0.000* 1 < 3 0.000* EGM concentration 1 < 2 1.000 2 < 3 1.000 1 < 3 0.32 1 > 2 0.08 2 < 3 1.000 1 > 3 0.13 Profit per capita 1 < 2 1.000 2 > 3 0.41 1 > 3 0.59 1 < 2 1.000 2 > 3 1.000 1 > 3 1.000 Profit concentration 1 < 2 1.000 2 < 3 1.000 1 < 3 0.64 1 > 2 0.13 2 > 3 1.000 1 > 3 0.11 Tax per capita 1 > 2 1.000 2 > 3 1.000 1 > 3 1.000 1 < 2 0.58 2 < 3 0.98 1 < 3 0.11 Tax concentration 1 < 2 0.80 2 < 3 1.000 1 < 3 0.53 1 > 2 0.07 2 > 3 1.000 1 > 3 0.04* * (p <0.05) 343