Monday, April 24, 2006

Problem gambling 1

Gambling has been a popular activity for thousands of years and was popular among Australian Aborigines, American Indians and ancient Chinese societies. While widely practiced, gambling has also long been condemned as irrational and a social evil. Thomas Moore in 1516 proposed, in Utopia, a society where the irrational was abolished - this included the eradication of gambling. While often criticized gambling has also been seen as socially desirable. Universities, charities and governments have long been attracted by its ability to yield revenues. Moreover, where the cost of gambling is recouped as a tax it is a ‘voluntary tax’ citizens can avoid by not gambling.

In Australia, gambling re-emerged as an important leisure industry in the early 1970s, after a 50-year interval where strict controls had been enforced. Now gambling is a major global industry. In Australia, 82% of people gamble in any year. In 2002/03 they spent $15.3 billion on gambling. Of this about 60% was spent on poker machines with the remainder split between casino, racing and lottery products. In the 10 years to 2003/04 gambling expenditures grew at 8% annually, much faster than growth in total spending. Thus gambling has grown in relative importance. In 1977/78 it was 1.7% of total household income, in 2002/03, 3.4%. Most growth resulted from legalized poker machines and from having more casinos.

Along with growth in economic importance have emerged social problems linked to excessive gambling. The Productivity Commission, in 1999, estimated, using a standard screen for assessing the intensity of gambling, that 300,000 Australians have significant problems with gambling in the sense of chasing losses, experiencing guilt and depression, concealing their gambling and gambling excessively. Of these 130,000 had severe problems, experiencing depression, serious suicide thoughts, divorce, debt, poverty and becoming involved in crime. (The terms 'significant' and 'severe' here correspond to what therapists label Level 2 and Level 3 behavioural pathologies respectively). Moreover, there are indirect costs of gambling on non-gamblers with 5-10 individuals, often family members, adversely impacted for every problem gambler. Level 2 and level 3 gambling provide around 1/3 of the gambling industry’s total revenue, and are highest for poker machines and racing and lowest for lotteries. These seem to be high figures but, if anything, the surveys on which they rely understate the problem since evidence shows people do have a propensity to understate such problems.

The widespread social disapproval of gambling is, partly based on the illusion that it is only tangible goods that yield economic gains. But while there are few production-side benefits from gambling, since resources expended can be spent elsewhere, there are consumption benefits. For most people gambling provides excitement and relaxation without significant negative effects. Indeed the PC estimate consumer benefits, measured as consumer surpluses from gambling, exceed costs. This implies a weak efficiency-based case for gambling. The measure of surplus used was adjusted down to 'normal' gambling levels to account for ‘excessive’ expenditure by problem gamblers. This efficiency argument can be strongly qualified - the PC recognised that that major social problems were associated with gambling noting that ‘existing policies and practices were inadequate to deal with it’.

The psychic and emotional costs to problem gamblers and their families are substantial. They include adverse impacts on productivity, criminal involvements, relationship break-ups, depression and serious thoughts of suicide. While some of these problems are precipitated by prior conditions they usually be traced to gambling itself. When these costs are accounted for, the net benefits of gambling liberalisation, in Australia, were estimated to range from losses of $1.2 billion to net gains of $4.3 billion. The wide range here reflects difficulties in assessing costs.
Even this mixed overall conclusion has deficiencies. It masks an association between forms of gambling such as lotteries where a net social gain is probable, to gambling where net social losses are likely, such as poker machines. There are also disadvantageous regional impacts and impacts on particular income groups. Efficiency-based measures of advantage ignore distribution and many forms of gambling are predominantly ‘blue collar’ activities and concentrated in low SES areas where the ability to sustain gambling losses is low.

The introduction of poker machines in clubs and hotels in Victoria in 1992/93 illustrates specific impacts of gambling. There are now 30,000 poker machines with 2,500 allocated to Crown Casino and the remainder split 50% between metropolitan Melbourne and non-metropolitan areas. Estimated losses from these machines amount to $2.4 billion in 2004/05, a figure that would have been higher were it not for a smoking ban that has stemmed rapid growth. These losses accrued to the State Government, which takes more than 1/3, Tattersals and Tabcorp (the duopoly owning the machines) who take 1/3 and the hotels and clubs which take something less than 1/3.

Victoria, like all other Australian states except Western Australia, is heavily dependent on gambling for revenues. It gained 14.3% of its 'own-source' revenues in 2002/03 from gambling taxes with 8.9% coming from poker machines. This understates the dependence of Victoria on gambling losses since it neglects the GST paid on them to the Commonwealth which is refunded as a grant to the State. Pressures by the Commonwealth Government on the States to reduce business or other taxes will, if successful, increase the pressure for the States to remain dependent on gaming revenues.

In Victoria annual losses per adult are positively related to the number of machines per person in different local government areas. Losses are also negatively related to ABS Socioeconomic Indexes for areas. Areas with lowest socioeconomic status (Greater Dandenong, Maribyrnong) have the highest concentrations of machines while areas of high socio-economic status (Boroondara, Nullumbik, Bayside) have lowest concentrations. This suggests operators see poker machine use as a blue-collar activity and target such areas intensively.

The dependence of losses on supply suggests demand is partly supply-determined on the basis of access costs. Reducing the supply of machines should reduce losses particularly if such reductions occur in areas of low socio-economic status. Capping numbers of machines in such areas, as the Victorian Government now does, will reduce usage if there is no excess supply of machines in such areas.

The PC estimates that Australia-wide 80% of losses come from the 20% of heaviest gamblers with 42.3% of losses coming from problem gamblers. These are supported by internal documents from Tattersals suggesting that 57% of their revenues came from the 15% of customers who lose $100 or more per visit and with the 34% of members who lose more than $50 per visit contributing over 82%. This suggests that 225,000 Victorians are each losing on average $5,800 per year. But, in high gambling areas such as Maribyrnong, 6% of adults are losing $11,000 per year. This scale of losses causes huge individual and social harm because such poorer communities can least afford them. It also shows that taxes levied on the losses to poker machines are sharply regressive in their impact.

This is the first of a series of posts on gambling. It is a draft - comments very welcome.


Yobbo said...

How much money is "lost" each year by women who purchase unnecessary extra pairs of shoes? How many of these women spend beyond their means in acquiring new accessories like this?

To single out gambling is ridiculous. Gambling is simply entertainment, just like going to footy is. There are likewise plenty of people who are struggling to make ends meet but still find $50 to go and watch Collingwood play each week.

Opposition to gambling is nothing more than thinly-veiled religious puritanism. Just make it illegal for Christians then, I am an atheist, I don't care.

conrad said...

I think you don't mean "psychic" harm do you, unless you want the low frequency harm to psyche, which is a bit of an odd thing to say.

I'm not sure what you are doing with this, but I doubt the average reader of a more general journal would know what level-2 and level-3 gambling problems are.

I might be ignorant on this one, but I'm also not clear why the taxes are regressive. Surely if there were no taxes, it would simply increase the owner's profits (which are presumably exceptionally easy to cheat with on tax), not the average low-income punters returns. Thus any tax is recouping some of the money lost indirectly by the government, presumably from the richer pokie-machine owner. That seems anything but regressive.

hc said...

Thanks Yobbo and Conrad for helpful comments.

Yobbo, You are relying on a rational choice model. If people didn't want to do it they wouldn't. But its more complicated than that because self-control issues arise. People hate their own decisions - in Victoria for example you can exclude yourself from a Casino voluntarily. And people do.

People do get behaviourally addicted to shopping and likewise -standing back - seek a constraint to prevent themselves hurting themselves.

BTW I am not presenting a moral argument for limiting gambling above - just surveying the field. More later.

Conrad, Pyychik costs to economists are cjust emotional pain. Gambling does cause these.

The Level 2, Level 3 stuff equivalernt to how cI define the categoories. I have to present this stuff to psychologists.

Most of the taxes contributed from gambling are provided by the less advantaged who, in aggregate, gamble more. That's why the taxes are regressive.

Yobbo said...

"People do get behaviourally addicted to shopping and likewise -standing back - seek a constraint to prevent themselves hurting themselves."

We don't ban shopping though, do we? Why is Gambling different.

I accept that there are some people who cannot control their impulse to gamble, just as there are some people who can't control their impulse to drink alcohol or whatever.

They are however a small minority of those who gamble. The way to deal with this problem isn't by banning gambling, it's by providing counselling for those who have the problem.

Banning an enjoyable, popular activity only leads to worse outcomes. See: Prohibition of alcohol.

"Yobbo, You are relying on a rational choice model. If people didn't want to do it they wouldn't. But its more complicated than that because self-control issues arise. People hate their own decisions - in Victoria for example you can exclude yourself from a Casino voluntarily. And people do."

So let them continue to do so. The entire population shouldn't be punished because the weak-willed few can not control themselves.

hc said...

I am not talking about prohibiting gambling Yobbo. In fact to read my policy ideas you will have to wait for further installments.

I support self-control policies though it is very difficult and expensive - to make them effective. So we agree on this.

Maybe you are not aware of it so much in WA (no pokies right?) the pokies have proved a social disaster for a lot of low-income Victorians.

I am still trying to work out if your last sentence is right. I think so but not sure.

civitas said...

Harry has an important point. Gambling, and addiction to it, would be a more serious problem for the low income types than it would be for the wealthy. But Yobbo's right, so would shoe shopping (how he happened to pick my particular addiction, I have no idea).

hc said...

Shopping can be a behavioural addiction and is analysed in texts on such. But from a practical viewpoint gambling has proven to have catastrophic implications for many of the low income poor. Yobbo's valid question - do we want to punish the majority for the failings of a smaller group? It is this I am undecided on - the harm is large.