Australia's Future Tax System

Final Report: Detailed Analysis

Chapter E: Enhancing social and market outcomes

E7. Gambling taxation

Key points

Government restrictions on the supply of gambling services, implemented through licensing arrangements, mean that some gambling businesses earn economic rent. Economic rent is an efficient tax base and should be appropriated by the government, either through licence fees or taxation.

For the large majority of gamblers, gambling is simply consumption spending, comparable to spending on any other leisure activity. A small minority of gamblers experience self-control problems that lead to excessive losses. Problem gamblers impose costs on themselves and others.

It is not clear how problem gamblers react to higher taxes. In some forms of gambling, the price of gambling is not easily observable. Even if problem gamblers do observe changes in price, it is not clear that they respond by reducing the amount they lose. Gambling taxes that more than recoup economic rent earned by gambling businesses do, however, impose costs on responsible gamblers, who must pay higher prices for their entertainment.

Gambling taxes constitute an important revenue source for State governments. This means that they may have to make difficult choices in balancing revenue-raising with regulating gambling in a way that limits problem gambling. For this reason, the Australian government and State governments should together explore options for the regulation and taxation of gambling that would minimise conflicts in policy-making between revenue raising and addressing problem gambling.

The current tax burden on the gambling industry as a whole may be appropriate, but the way it is distributed across the industry may not be. The current rates of tax on different forms of gambling differ markedly from form to form though the reasons for these variations are not clear.

Gambling taxes should be focused on recouping economic rent generated by government restrictions on the supply of gambling services. If State governments retain gambling taxes, they should increase the focus on capturing rent.

Some gambling taxes and fees are used to provide common services to the industry — for example, some revenue from horse racing is used to support the racing industry.