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.