Thursday, September 13, 2007

Monopoly casino profits belong to governments disbursing monopoly power

Continuing the gambling posts of recent days it is interesting to observe the punch-up currently going on between Tabcorp and the government of the 'poker machine state', NSW.

Tabcorp has a licence to operate the Star City Casino as the only casino in the state. This licence expired last night.

The likelihood of the NSW government awarding a second casino licence is low but plans to extend the Star City lease have stalled because the NSW government wishes to increase the tax take on pokies from 24.5% to 30% which would strip $35 million from Tabcorp’s bottom line.

Currently NSW’s biggest clubs pay a tax of 39.99% on pokies.

Star City is claimed to be a big tourism drawcard and Tabcorp is threatening to take its gambling investments to Queensland where the pokie tax is the lowest in Australia at 21%.

Competition between the states for the tourist dollar is being used to limit the ability of the State governments to recoup as taxes the revenues they create in providing monopoly power by means of exclusive casino contracts. The state governments should get together and do a deal to provide uniform taxes across the industry to prevent this happening.

The huge profits the parasitic casinos generate are a product of the monopoly power assigned to them by the state. Casino operators should earn at most a normal rate of return on capital invested with all other profits going to the governments which provide this power. This having happened, additional charges should be levied on the casinos for the social damage they inflict as externalities on society through problem gambling.

Tabcorp has been hit in recent times by the horse flu virus which will impact on its gambling revenues from racing and over recent years has been hit by the effect of smoking bans in its casinos. I have no sympathy at all for these social parasites – they are feeding off government monopoly regulations and harming the community through their impacts on problem gambling primarily through the pokies.

The greed here is not only private sector greed. The greed of state governments in allowing themselves to be held over a barrel by firms like Tabcorp also deserve criticism.


yihfeng said...

Hi Harry,

I found your blog while googling about government sponsored monopolies for gambling businesses. Seeing as you are far more qualified than I am at such matters, I was wondering if you have a view on why the gambling industry seems to be the only non-essential service that still has state support when it comes to creating a favourable business condition? If a gambling industry must indeed exist, why must there only be one licensed casino per region? If the moral concious among us does not like casinos, why then lobby for there to be less casinos (thereby making existing casinos more profitable)?

Your ideas on this would be most appreciated :)

hc said...

I agree it is a bit of a puzzle. i think they want to restrict supply by creating monopolies and then tax away a fair slab of the monopoly profits.

yihfeng said...

I'll have to say that the theory you put forth is rather self defeating no? Competition will certainly increase revenues. A liberal market will also make Australia a much nicer destination for international gambling enthusiast (or addicts). As far as I can see, most casino owners in Australia has a far too cosy relationship with the government at present. That should change!