South Australia's gambling tax highlights the regulatory mess of online betting

The South Australian government will introduce from July a “point-of-consumption tax” to claw back some of the gambling tax revenue it is seeing disappear over the border.

The new tax is a reasonable response to a growing problem, and probably won’t send bookmakers to the wall. But it does highlight the current regulatory mess surrounding how we tax internet wagering in Australia.

Bookmakers flee north

In 2008, the High Court decided it was unlawful for a state government to protect local wagering operators from the emerging competition provided by online bookmaker Betfair.

The case turned on Section 92 of the Constitution, which provides for free trade between the states. What the decision meant was internet bookies licensed in one Australian jurisdiction (the Northern Territory, for example) could offer their wares to anyone living anywhere in Australia. It led to dramatic increases in the promotion and advertising of internet betting, and also to very rapid growth in that commodity.

One of the consequences of this has been a decline in racing revenue going to governments. In 1990-91, the SA government derived A$52.6 million in racing tax revenue. By 2012-13, this had declined to less than A$1 million (both numbers in real terms, at 2014-15 values).

Meanwhile, in the NT, growth in wagering revenue – for both racing and sports betting – has been exponential.

People in the NT have not taken to racing and sports betting like there’s no tomorrow. But the NT has become home to most of Australia’s internet bookies, thanks to a low-tax regime and relatively loose regulation.

There are 18 internet bookies registered in the NT, including William Hill, CrownBet, bet365 and Ladbrokes. They get most of their revenue from other states – including SA.

They also don’t pay a lot of tax. In 2014-15, with total wagering expenditure of A$937.6 million, the NT government collected taxes amounting to a little over A$10 million. That’s a bit less than 1.1% of the money gamblers lost. So, it’s easy to see why the bookies like the NT.

The SA government has decided to try to get a slice of that action, or to dissuade the bookies from marketing their wares into the state – or perhaps a bit of both.

State governments have to pick up the pieces when their residents suffer gambling harm and its effects. This includes domestic violence, job loss, suicide, mental and physical health problems, and so on. It’s pretty galling when another state takes all the benefits (at a discount rate) and doesn’t contribute to the costs involved.

What is South Australia’s tax designed to do?

The SA tax is intended to take 15% from net wagering revenue (that is, gambler losses).

All wagering operators will pay the tax – not just the internet bookies. So, it may not amount to a discriminatory or protectionist measure. This is important: if it is discriminatory, the High Court would probably find it unconstitutional, as the Western Australian government’s actions in the Betfair case were deemed to be.

It is abundantly clear that the federal government has the power to regulate internet gambling, via the Constitution’s telecommunication provision. It has adopted legislation that does just that, although in a minimal way.

The federal legislation provides for bookmakers licensed in any Australian jurisdiction to be able to offer wagering services throughout Australia. Their actual regulation, however, is left to the state jurisdictions. This is how we’ve ended up in the current mess.

The federal government recently convened a ministerial meeting to propose new consumer protection regulations to the states. The government has sensibly realised that inadequate regulation at state level has to be tackled.

But this leaves at least two key issues unresolved.

The main concern of ordinary people when it comes to internet gambling is the continuing bombardment of bookies’ ads accompanying sports broadcasts. These are consumed by millions of children because there is an exemption for sport in the TV broadcast self-regulation code. This needs to be tackled, and the federal government is the only jurisdiction with the clear authority to do so.

Also, the tax regimes of the various states differ; the NT clearly leads the race to the bottom. The federal government can regulate and tax the bookies uniformly, if it wishes, and distribute the revenue according to a GST-style formula – or some variation thereof.

That might diminish the NT revenues a little. But it would at least regularise the industry, enable uniform regulation and stop the states trying to pinch each other’s revenue base.

Earlier this week, online bookmaker CrownBet announced a deal with ClubsNSW to provide internet wagering with the co-operation of clubs, which would recruit their members to the cause. In return, the deal would allow the clubs to get a slice of the action. If this works, club-based TABs will see their revenue decline.

In effect, this means a transfer of revenue from the New South Wales government to the NT government. No state wants to see its revenue base decline – particularly when the jurisdiction benefiting doesn’t even tax (or regulate) its bookies as well as it might.

Maybe it’s too much to ask for a sensible national gambling policy with uniform tax rates and reasonable consumer protection and harm-prevention measures in place. But allowing state governments to regulate internet-based services seems like a fairly 19th-century approach to regulation. We can probably do better than that.