Spending on gaming appears to have grown rapidly over recent years. Part of this may be due to the recording of previously illegal activity. However it has also been fuelled by the availability of new gambling forms, in particular casinos, electronic gaming machines (EGMs) and new forms of lottery.
The fundamental approach to assessing the benefits of gaming is to recognise that these represent the preferences that people express in their spending decisions. Where gambling is prevented, consumers' expenditures are redirected towards goods and services from which they would expect to enjoy less satisfaction.
The increased consumer benefits will not always be recorded in measured estimates of gross domestic product but are, nonetheless, significant. The benefits are substantial and potentially measurable in the attraction of tourists and the reduction in siphoning of expenditures to areas which enjoy more liberal gambling regulations. These benefits represent the equivalence of an increase in competitiveness of the area where gambling is liberalised.
Gaming also represents a relatively easy source of taxation revenue. Although such taxation represents a distortion to consumer choice, the relatively low response of demand to higher charges for gaming and the "guilt" felt by gamblers has meant governments have had little difficulty raising revenues from the sector. This matter has assumed considerable importance in Australia due to the State Governments' reduced access to certain forms of taxation. Gaming, which already accounts for up to 15% of the States' own revenue raising, is likely to amount to some one-fifth in future years. This is far in excess of that imposed on almost all other goods and services. The "sinful" characterisation of gambling activity facilitates government imposition of punitive taxation rates.
Yet, the freedom of the individual to spend his or her money as he or she sees fit is fundamental both to economic welfare and to individual liberty.
While there is a case for restraining activities that might cause social harm, gambling does not fall within that category. It is an activity that has long been firmly established in most cultures. Although small numbers of people are afflicted with pathological problems regarding gambling, these amount to only some one per cent of the adult population. Their affliction does not threaten the overall peace and security of the community. Moreover, similar, if not greater numbers are afflicted with eating or alcohol related disorders and a great many more engage in certain sports with what many would regard as recklessness. It would not be reasonable to curtail the enjoyment that the vast majority obtain from the activity because of a tiny minority.
As well as being very heavily taxed, gambling is and remains highly regulated. In addition, the tax rate varies considerably both between forms of gambling and between gambling venues. For example, in Victoria pubs pay an effective 33 per cent more tax than licensed clubs on EGM revenues. Even if gambling is to remain more heavily taxed than most other activities, there should be some consistency in taxation between the different forms and venues. Without this there is a distortion to spending patterns and a reduction in the value consumers obtain.
These principles are even more appropriate in the case of the regulatory structure. Limitations on numbers of gaming machines create shortages and monopoly profits for those operators who have machines. The high profits are extracted from the benefits that would otherwise accrue to the consumer.
Similarly, the exclusive licences granted to casinos reduce availability of this form of gambling and increase the profits of the operators at the expense of the consumer. In Victoria, those profits are, in part, required by government regulations or tendering processes to be redirected to other venues in the casino complex. As a result, they would tend to distort the competitive framework and disadvantage other retailers and activities vying for the consumer dollar.
What then is the appropriate approach of governments to gaming?
First, governments should remove regulations that prevent or impede gambling activity other than those regulations designed to protect minors. Secondly, taxation of gambling should be reviewed so that it is brought into line with taxation rates on other goods and services; or at least made consistent across different types of gambling and different venues. Thirdly, monopolies on the supply of gaming machines and requirements on market sharing for these machines should be abolished as soon as contractual arrangements permit. And fourthly, although the "property rights" in the form of exclusive contracts that have been extended to existing casinos should not be rescinded, new casinos that do not infringe on those rights should be readily permitted.
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