Volume 5, Issue 2
By Senator Bridget McKenzie, Nationals Senator for Victoria
The Internet has transformed society, making it easier to buy goods and access services from around the world.
It has also increased the opportunities for companies to minimise or avoid paying tax.
The growth of online sports gambling and the increase of off-shore betting operators in Australia is a classic example of this.
Gambling at the racetrack or TAB is no longer the norm, with half of all sports betting now conducted online.
Punters can use their smartphone to place a bet on a soccer game in Sydney from anywhere in Australia via a bookie in Thailand.
Yet there is currently no national approach to taxing international wagering. The challenge for Australia is to set a policy agenda that keeps pace with these rapid changes.
In August last year, Australia’s largest online sports betting agency tomwaterhouse.com, was sold to British gambling enterprise William Hill.
This purchase reflects a growing trend of foreign operators who have entered the local market in the past two years including Betfred, Unibet and bet365.
These overseas sites have no regulatory oversight by Australian authorities meaning we miss out on the tax revenue; revenue that could be reinvested locally.
The loss of taxation revenue is a problem that is only going to get bigger with expenditure on sports betting doubling between 2005-6 and 2011-12.
The number of punters wagering online is expected to grow exponentially over the coming five years as well as the number of punters placing multiple bets on a wide variety of sports also set to grow.
The revolution in online sports betting has led to an outdated gaming licensing system in need of reform.
The need to respond to the impact of online gambling provides the catalyst for a more detailed review of Australia’s gambling industry.
Previous reviews have highlighted significant inconsistencies in the level of taxation paid by online wagering companies across the states and territories.
Tax rates in the Northern Territory are 0.33 per cent as compared to 1.5 per cent in New South Wales.
Corporate entities can offer national coverage from any state or territory, resulting in jurisdictional competition for revenue.
State governments no longer have the power to require extra royalties or fees for transactions relating to their state.
The High Court’s decision in Betfair v Western Australia (2008) 234 CLR 418 highlighted that this is a constitutional issue, which must be rectified in our legislation.
State and Territory governments must take a united approach through the Coalition of Australian Governments (COAG), to set uniform licensing conditions across the country.
Beyond that, they have limited tools to address wagering reform, as it impacts on foreign operators, treaties and taxation, all of which are federal issues.
What is needed is a National Gambling Licence Scheme that will:
– ensure equal access to the wagering market to exclude illegal operators;
– ensure the consistent application of terms and conditions across all license operators in Australia;
– ensure consumer protection in terms of licensee conduct and licensee default safeguards, and;
- prevent the bypass of existing tax and levy collections imposed by states and territories.
The introduction of a National Gambling Licence Scheme will provide greater equity and improved consistency for consumers, industry and government.
The states will likely support these changes provided there are assurances their current revenues are protected and the administration of the industry remains in state hands.
Other nations have moved or are moving to implement wagering reform and capture revenue from online bets.
In the UK, new laws include a 15 per cent tax on online winnings from bets made by domestic customers, while in the US citizens are required to pay tax on all income including gambling income earned worldwide, from whatever source.
The online gambling industry is also subject to a variety of state-based fees.
The Dutch, Portugese and Brazilian governments are also moving towards taxation in an effort to regulate online gambling, with Portugal planning on directing tax revenue back into sports and cultural projects.
Here in Australia we must look at reforms that will ensure Australians bet with licensed operators; all operators are made to pay Australian product taxes for wagering on Australian events; and, sports betting operators are made to pay reasonable taxes.
By applying a product levy or transaction tax uniformly across all operators, taking into account the current volume and projected increase in online sports betting, informed estimates indicate that there is the potential for up to $1 billion cumulative over the initial five years in additional taxation revenue.
Currently a portion of tax revenue raised from betting on horse racing is reinvested by our states back into racing infrastructure, which in my home state of Victoria is through the Victorian Racing Industry Fund, which provides $30 million worth of funding over four years to support to the Victorian racing industry.
This funds improvements to racing and training venues and for selected programmes designed to further stimulate industry growth and development.
These types of investments have worked successfully in racing and it makes sense that a portion of any online wagering tax revenue raised is reinvested back into regional sporting infrastructure.
The emergence of online sports betting has allowed punters to bet on country football leagues, iconic regional events such as the Stawell Gift, country golf tournaments such as the Traralgon Pro-Am, regional cycling events and more.
During my travels across regional Victoria I have seen countless football and cricket clubrooms in a state of disrepair, netball and tennis courts in desperate need of resurfacing, cracked and ageing cycling veledromes, outdated athletics tracks and dilapidated basketball stadiums.
The lack of investment in our regional sporting infrastructure is a clear market failure.
Expanding the MCG, Etihad Stadium or the Melbourne Tennis Centre makes financial sense, with these facilities able to attract countless national and world-class events to see a significant return on investment.
In regional communities the ability to see a return on investment from sporting infrastructure investments cannot be matched, meaning our country communities miss out on the facilities they need to support their local sportspeople to reach the next level or compete to attract top level events.
The state of our regional sporting infrastructure is also a significant impediment to encouraging more people to play sport.
We know that if more people get more active more often it builds healthier and happier communities.
At the present time, there is no federal government scheme in place which invests in regional sporting infrastructure which means our country communities continue to fall further and further behind.
With over 30 per cent of Australia’s population living in rural areas, we need to reverse the lack of investment in regional infrastructure, particularly sporting infrastructure.
A 2012 Infrastructure Australia report found that Australia’s current infrastructure deficit was around $800 billion.
This is clear evidence governments of all persuasions need to look at new ways of generating revenue to invest in infrastructure.
When it comes to funding regional infrastructure, The Nationals, working as part of a Coalition Government, have led the way with initiatives such as the National Stronger Regions Fund, which has already committed $1 billion to regional infrastructure over five years, however this does not address the funding imbalance for regional sporting infrastructure.
Having a portion of the additional tax revenue raised from online wagering invested back into regional communities for sporting infrastructure would transform life outside of our capital cities.
Without wagering reform Australians will continue to miss out on taxation revenue as foreign buyers continue to enter Australia’s online gambling marketplace and take their ever growing profits back offshore.
It is unlikely that any of the reforms outlined would contradict any free trade obligations as the purpose of government intervention is clearly for the regulation of a legitimate public interest.
All OECD countries regulate the conduct of gaming promoters and most restrict the provision of gaming and wagering services by persons not licenced within their jurisdiction.
In the US, this includes criminal sanctions which are strictly enforced.
Equally, it cannot be claimed these proposals are an attempt to protect local industry at the expense of overseas competitors because the majority of the industry is owned and operated by foreign interests.
The failure of the Coalition Government to consider this proposal sensibly could well result in significant opportunity cost in revenue, and provide other political parties with a platform to harness this simple national regulatory proposal which would provide a sustainable boost to the Australian economy in the forward estimates, which could be used for significant investment in regional sporting infrastructure delivering essential economic and social outcomes for our communities.