NSW residents missed out on an estimated $1 billion in tax revenue last financial year as a result of the gambling concession to registered clubs, a 25 per cent increase from the previous year.
State budget papers show that expenditure on the gambling tax concession was due to break through the billion barrier in 2022-23, and is predicted to increase again in 2023-24, more than a decade after the federal government’s top economic advisers warned there were “strong grounds” for it to be radically scaled back.
Clubs pay roughly half the gaming tax paid by hotels.Credit: Flavio Brancaleone
The figures form the backdrop to the NSW government’s release last week of a discussion paper into the effectiveness of the ClubGrants scheme, which allows clubs to claim an additional tax break of up to 2.25 per cent for handing grants to community groups.
NSW clubs pay 26.55 per cent tax on their gambling profits over $5 million and an incrementally lower rate on smaller profits. They do not pay any tax on gaming machine revenue up to $250,000. Hotels pay 33 per cent tax on gambling profits over $50,000 and 50 per cent tax on gambling revenue over $2.5 million.
The concession to NSW clubs is a recognition of the role they play in their communities, including the provision of sporting facilities and opportunities for volunteering.
But the Productivity Commission argued in 2010 that the concession should be significantly reduced, and the revenue spent on universal measures such as roads, rail and healthcare through accountable budgetary processes.
It was unlikely that community sport and volunteering would be affected, given that jurisdictions with fewer poker machines and a smaller club presence had at least as high a participation rate in those activities. Even in states with lots of machines, the smallest, least gambling-oriented clubs were more sports focused than those dependent on gambling revenue, the commission said.
“The large tax concessions on gaming revenue enjoyed by clubs in some jurisdictions (notably NSW) cannot be justified on the basis of realised community benefits,” the commission concluded.
“There are strong grounds for these concessions to be significantly reduced, though this would require phased implementation to facilitate adjustment by clubs.”
Ralph Lattimer, who led the research group for that inquiry, said the response to the commission’s findings was muted. The evidence that clubs were in a better position to support their local communities by making grants to sporting and other groups had never been clear, he said.
“They’re not really accountable to the community,” Lattimore said. “They don’t have parliamentary committees, they don’t have [Australian National Audit Office], they don’t have freedom of information, they don’t have as strong disclosure requirements or any of the customary accountability measures that government does.
Clubs were already exempt from commercial tax rates by virtue of being not-for-profit entities, which was “somewhat odd, given that clubs have so much revenue they’re opening new facilities that are quite commercial in their orientation,” he said.
“We saw very little rationale for the concessions in the clubs industry.”
A spokeswoman for ClubsNSW said clubs already paid $1.4 billion in state and federal taxes and provided $936 million worth of low- or no-cost community and sporting facilities across the state. More than 40 clubs now had a higher tax rate than the casinos, she said.
“Unlike other hospitality venues, clubs are owned by the community, with profits going back into the community, or into the upgrade of members’ facilities, rather than the pockets of shareholders or owners,” the spokeswoman said.
“It is also worth noting that of the 2713 for-profit companies in the Australian Taxation Office’s 2021-22 Tax Transparency Report, 31 per cent did not pay any income tax.”
Acting NSW Treasurer Courtney Houssos did not directly comment on the gambling tax concession for registered clubs, but said the review of ClubGrants would help determine whether that scheme delivered value for money to the people of NSW.
Participation in the ClubGrants scheme is voluntary and entitles clubs to a rebate of up to 2.25 per cent on their gambling machine profits over $1 million if they devote a proportion of their profits to projects and services that improve the living standards of disadvantaged people, and community development or sporting activities.
More than $130 million in grants was distributed last year, for which clubs received a combined rebate of $84.5 million.
But it has been criticised for its lack of accountability and transparency. The publication of grant recipients for the first time this year showed that clubs were directing the largest donations back into their own operations and those of their subsidiaries, which is permitted under the scheme.
The government’s discussion paper on the scheme invites people to comment on the extent to which is has helped improve the lives of disadvantaged people and the appropriateness of the tax concession, among other considerations.
Monash University gambling researcher Charles Livingstone said it used to be the case that clubs provided a service to their communities that was not being provided by government, and the concession was then justified.
“It all changed in the 1990s with the introduction of electronic gaming machines and the whole industry went berserk,” Livingstone said.
“Essentially you’ve got a system where they all get the concession, they’re bagging the money, they’re making profits much higher than the pubs are making, and despite the fact that at the top end of town, calling them not-for-profit is a real stretch of the imagination.”
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