NSW cut wagering tax: Industry wins, but numbers are hard to grasp

The NSW Government has confirmed that it will cut wagering tax rates to Victorian levels to return more money back to racing.

The current NSW tax rate stands at $3.22 per $100 wagered, but it will be cut to bring it in line with the Victorian rate of $1.28 per $100, via the NSW state budget to be announced next week, with a statement from Deputy Premier and Minister for Racing, Troy Grant, released at 5am.

The NSW government will also write off the $10 million it loaned the racing industry for prizemoney for this year’s Championships event.

The NSW Government isn’t going to pass on the revenue straight away, with the cuts to be implemented on a staged basis.

It also isn’t yet fully understood how funds will be distributed between codes – via the inter-code agreement or other models.

All monies presented will be total to the industry, with the money split between thoroughbred racing, harness racing and greyhound racing – with money to be returned to the greyhound industry quarantined until there is an outcome of the special inquiry.

It also isn’t yet fully understood how funds will be distributed between codes – via the inter-code agreement or other models.

Each code’s strategic plan will play a role in determining their share of revenue. It’s expected that thoroughbred racing will receive some 75 per cent of the new revenue.

Breaking down the numbers
The tax rate will be cut to $2.83 per $100 wagered from January 1, 2016 – which immediately awards the industry as a whole $10 million.

From there, the figures get slippery and complicated.

Each cent of the tax cut is worth around $256,410 in annual revenue, based on current terms. A 39 cent reduction awards $10 million to the industry.

From there, for future years, both inflation and wagering growth are factored in by NSW Treasury, without a clear understanding as to how this is modelled.

Based on current terms, the tax rate will be cut to $2.83 per $100 wagered from January 1, 2016 (which awards the industry $10 million, as mentioned), then to $2.44 in 2017 ($20 million), to $2.05 in January 2018 ($30 million), to $1.66 in January 2019 ($40 million) with the final cut worth a total of $48 million to the industry to take place on January 1, 2020. The tax rate at $1.28 will be in place from then on.

Yet NSW Government figures indicate the final tax cut, by 2020, will be worth $85 million at that time including expected wagering uplift and inflation.

In essence, the NSW Government is saying their modelling suggests a 70 per cent uplift in betting in NSW including inflation over five years.

Separating inflation – taken as an average of 3 per cent per year – leaves a 54 per cent uplift in betting over 5 years, which equates to wagering uplift of 9.02 per cent per year.

Tabcorp’s annual wagering between 2013 and 2014 increased by just 1.1%, although reduced costs and fees led to an EBIT increase of 4.8%.

Therefore, ignoring growth of wagering on sports, interstate betting and Trackside, through these tax cuts, wagering on racing in NSW is therefore expected to significantly increase.

And if greyhound racing is limited following inquiries, or the tabling of Greens MP John Kaye’s bill to ban greyhound racing results in significant changes, total wagering may actually slip.

All-in-all – those numbers look very slippery indeed. What will the real returns be to racing in NSW?

Why not go further and match Queensland Racing?
The tax rate will match Victorian racing, although Queensland racing is better off again where the tax rate is at 82 cents per $100 bet.

The Lambert Report, headed by former Treasury secretary Michael Lambert, recommended matching Victorian racing’s tax rate.

It must be said that if reducing the tax rate results in an increasing in wagering, as modelled by the NSW Government above, then surely cutting it further, to the Queensland level, will result in further wagering turnover increases.

The strength of the argument for large, sustained increases in wagering based on additional revenues don’t appear to hold significant water.

Where the money will flow

How this new flow of money will be spent is a hot issue for the racing industry. Racing NSW CEO Peter V’Landys told The Roar in April:

“It’s unfair if Victoria gets – in thoroughbreds – $70-something million a year more than us… it makes it hard for us to compete.

“If we can get that extra $70 million, we’ll certainly be increasing all of our prize money. The Championships will be a certain regular feature. It gives it certainty.

“As we said from day one, we didn’t want a handout, we didn’t want a grant. We just want what’s rightfully ours, which is a greater share of the punter’s losses.”

Racing Minister Troy Grant had earlier discusses that any tax cut financial windfall for the racing industry may be delivered via a ‘future fund model‘ controlled by the government.

The Roar understands that future fund won’t be implemented, with each code to receive the money direct without conditions.

“Investments will be made in line with each code’s strategic plan which is developed and agreed to by both government and industry,” Grant told News Corp.

State vs state
Premier Mike Baird announced that money will flow into the Championships as a key initiative, and indicated the gloves were off.

“With this reform, The Championships will aim to overtake Melbourne’s Spring Carnival as the premier event on the Australian racing calendar,” Mr Baird said.

“The industry is worth $3.3 billion per year to NSW and employs almost 56,000 people – we want to secure its future for the economy and the race-going public,” Mr Grant said.

“Such an important industry needs to be able to compete on a level playing field, otherwise we’re sending jobs and investment interstate.”

While these comments are admirably political in nature, does the Premier and Minister realise the state vs state politics aren’t helpful when increased cooperation across integrity and numerous other areas would serve participants better?

How do the new Racing Australia board view these comments from a State racing minister when they are striving for unity?