Australian Productivity Commission finds that gambling is "beneficial"

By Stephen Griffiths

10 September 1999

With 21 percent of the world's gambling machines, Australia has one of the highest rates of gambling expenditure per head of population. This is one of the findings of the Productivity Commission Interim Report on Gambling, handed down in July this year. The statistics presented in the report amount to a damning indictment of the policies of both federal and state governments during the past 20 years.

Among the main findings were:

* Australians lost around $11 billion as a result of gambling in the last financial year

* 80 percent of the adult population participated in some form of gambling

* Gambling expenditure per capita (not per adult) is estimated at $400 per annum, significantly higher than in the United States ($170) or Hong Kong ($370).

* *There are more than 170,000 gaming machines in the country, to service a population of 19 million. This is triple the number in Europe (population 520 million), about fourteen times the number in Asia (population 3.6 billion) and twice that of South America (population 339 million). North America, with a population of 303 million, some 16 times higher than that of Australia, has just over double the number of gaming machines.

* Government income from the taxation of gambling profits has almost doubled in the last decade from $2 billion to $3.8 billion. One gets an even better indication of the dramatic rise by considering the growth in revenue from Electronic Gaming Machines (EGMs). In 1987, revenue was $377 million. In 1991-92 it had grown to $430 million, an increase of around 13 percent, while by 1999 it had grown to $1,786 million, an increase of some 400 percent. Although this was partly offset by a reduction in revenue from other forms of gambling, such as horse racing and lotteries, a vast amount was from newly recruited gamblers.

Despite these and many other similar statistics, the Commission determines that, on the whole, gambling provides an overall benefit to the country. It arrives at this conclusion by quantifying the “benefits” and the “losses”, and then weighing the former against the latter.

“Benefits” are defined as gamblers' “satisfaction” and government revenue raised, while “losses” include personal and social breakdown, bankruptcy, production loss and criminal proceedings arising from problem gambling. Taking all of this into account, the Commission calculates a net benefit to the tune of somewhere between $150 million and $5.2 billion. The absurdly vast difference between the upper and lower limits is justified by the difficulties associated with placing monetary values on “benefits” and “losses”.

The Commission views the enormous transfer of wealth from gamblers to gambling operators as simply the fee gamblers willingly pay to participate in a newly acquired form of entertainment.

“Indeed,” notes the report in one glib aside, “it is said that a key source of gambling problems arises when people (mistakenly) see gambling as a form of investment (one that can realistically increase their wealth) rather than as a form of entertainment or consumption that is, on average, going to cost them money.”

The extraordinary growth in the industry is viewed as the outcome of a decision, by large sections of the population, to engage in a new form of entertainment. That this just happens to concur with the deepest requirements of government and big business is supposedly coincidental.

But the findings actually point to a more elemental process. The report traces changes in government policy over the last 30 years, revealing the connection between world recessions, the decline of taxation income from traditional manufacturing industries and the promotion of gambling. This first emerged in the 1970s in the least industrialised states and territories such as Tasmania and the Northern Territory, where the first casinos were introduced.

During the 1980s, the recession, combined with the pressure from globalisation, led to the closure of further sections of manufacturing industry. Gambling was legalised, and casinos built in South Australia and Queensland. In Victoria, successive Labor and Liberal governments moved to cash in on the gambling dollar in the early 1990s. Between 1972-73 and 1997-98, total national taxation revenue grew from around $800 million to $3.8 billion.

Although the state governments impose this taxation, the federal Government has played a crucial role. During the 1980s the Hawke and Keating Labor governments cut back Commonwealth grants to the states, forcing them to rely increasingly on their own sources of revenue. Because the federal Government allocates funding on the basis of the states' capacity to raise funds, they are driven to continuously open up new gambling resources. Those governments that fail to raise taxes (including on gambling) at the benchmark rates established by other states can be penalised by the federal Government.

Another aspect of the report deals with the consequences of compulsive, or what is called “problem” gambling. Around 2.3 percent of the population or 330,000 people have significant problems resulting from gambling, with 140,000 experiencing severe problems. The report explains that while 2.3 percent of the overall population are “problem gamblers”, 15 percent of regular, non-lottery, gamblers can be classified as such. Thus, one in six regular gamblers is, to some degree, compulsive. These “problem gamblers” account for over $3 billion in losses annually, or around one third of the gambling industries' market. On average they lose almost $12,000 each per year, compared with $625 for other gamblers.

New South Wales (NSW) has the highest rate of problem gambling, reflecting the greater availability of EGMs. NSW and Victoria, which between them have the majority of EGMs, also have the highest problem gambling rate. NSW residents spent $963 per person over the age of 18 on gambling, or about 3.6 per cent of household disposable income. The very form of gambling most likely to create problems, the EGM, is exactly the one promoted most by rapacious governments during the past decade.

While the report declares that no one social group or type can be singled out as being more or less prone to gambling, its findings suggest that the poorer and less educated are most at risk.

The highest users of EGMs are men between the ages of 18 and 24, with an income between $24,000 and $35,000 and an incomplete high school education.

Interestingly enough, the Australian Capital Territory, home of the federal seat of government has a large number of EGMs. Its population, however, which has a relatively high per capita income and educational level, “under gambles,” according to the report.

Depression and suicide are further problems linked to gambling. Between 50 and 400 suicides each year are caused by gambling related problems. Nine percent of problem gamblers (and 60 percent of those in counselling) admit to having considered suicide. These statistics are inexact because current research insists that suicides be directly and incontrovertibly attributable to gambling, before being counted. Thus many deaths in which gambling may have been a contributing factor, or even the main cause, are not included in the figures.

Moreover, international studies demonstrate that problem gamblers suffer health problems at 2.2 times the rate of non-problem regular gamblers.

The report recommends the expansion of Internet gambling, on the grounds that it is unviable to try to stop it, that its harmful effects can minimised through regulation, and that substantial taxation revenue could be raised from the new industry. As a result of the latter “the Commission considers that there are major benefits for the States and Territories from pursuing a national approach to online gambling”.

Of all the findings of the Commission, this was the one considered by the Australian Financial Review to be the most significant. Obviously, it creates significant opportunities for AFR's readers.

The report estimated that Internet gaming turnover will grow from US$5 billion currently to US$25.4 billion by the year 2000, and that the online casino segment of this market will attract $7.9 billion by the year 2001. The commission calculated that if Australian consumers were to account for between 2 and 3 per cent of the global market projected for 2000, then they could be spending around $800 million to $1.1 billion in online gambling within the next few years.

One example of the growth of this form of gambling is the online company “Centrebet”, based in the Northern Territory. It was founded in 1992 and within 12 months had an annual turnover of $1 million. It now generates around $156 million per year. The Commissioners canvass various formulae concerning the rate of taxation that could be applied to this burgeoning industry.

Perhaps the most telling indication of the report's approach is its attitude to the results of its own survey. Seventy-five per cent of people surveyed believed that gambling did more harm than good and 92 per cent did not want to see an increase in the number of EGMs.

Since these statistics do not sit well with the picture the Commission tries to paint of a population willing and eager to pay a high price for this new form of “entertainment”, they are simply treated as an anomaly.

Yet in a nation where 80 percent of the adult population participates in one form of gambling or another, they surely indicate a great sense of disquiet, even if it is unable to find adequate public expression.