James Boyce

This is outrageous. How could the Government have given away the most valuable public licence in Tasmania without doing any calculations as to its worth? The taxpayers of Tasmania must demand that these sums are now belatedly done. Is it to much to ask that as Treasury goes through every government asset worth anything to assess them for possible sale to fund the new hospital, that the pokies licence be added to the mix? Why is this asset alone quarantined from any scrutiny, despite it being probably worth more than any government business enterprise other than the Hydro? Whose interests are the government looking after here?

CONTRARY to Mr Lennon’s assertions, there is an alternative to asset sales to fund a new hospital for Tasmania. And it is totally consistent with the anti-public (pro-private) debt-obsessed economic orthodoxy that is still upheld across all major political parties in Tasmania.

What is this ‘free market’, ‘rational economic’ alternative to both asset sales and debt?

It is simply to seek a full market price for the most valuable government licence available in Tasmania — that to own and operate poker machines in hotels and clubs.

This licence is, according to Jenny Owen, a professional gambling industry analyst at the world’s largest financial services organization, Citigroup, worth $130 million (precluding the pokies at the two casinos).

As reported in the BRW rich list edition (May-June 2006), other analysts have put the sum that large gambling industry players would pay for the monopoly rights to the guaranteed profits that flow from the 15 year licence at up to $300 million. In its article detailing how Sydney’s Farrell family so quickly catapulted to the 18th richest family in Australia, BRW left no doubt that it was the ex-gratis handover of the pokies monopoly by the Tasmanian government (effectively a massive public subsidy) which underpinned the family’s $385 million dollar wealth, and that “successive governments… have failed taxpayers on this issue.”

Of course $130 million is not a new public hospital, nor even is $300 million. But it is not a bad down-payment. And with some adjustments to current tax regimes, far more money could potentially be available. If pokie taxes (which at about five cents in each dollar wagered are roughly the same as that accruing to the licence holder) were removed, the value of the licence in an open tender would increase by over 100 per cent (revenue to the licence holder would double, but costs stay the same, hence the proportionally greater increase in profit). Under these arrangements the licence could well be sold for an up-front payment of around $600 million. In essence the government under the latter option would be foregoing future revenue for current capital (achieving the same financial outcome as asset sales while keeping possession of the profitable government owned businesses, the ‘family silver’, which will be so needed to fund health and community services in our small state over the long term).

I would be happy to see my figures, and Citigroup modeling, disputed. Let us have the debate. It is well overdue. There is room for different estimates as to how many hundreds of millions of dollars of public subsidy the current contract delivers to the Farrell family (the four Farrell siblings are the full owners of the private company, Mulawa Holdings, of which Federal Hotels and Resorts which has the pokies licence is a part). Everyone who has looked at the current deed, from the National Competition Council to Business Review Weekly and even Treasury Secretary, Don Challen (to the Public Accounts Committee), have acknowledged that the current government return is well below the market price. What is needed to inform the debate is simply what Challen admitted to the PAC that the Government did not do before conducting its secret ‘negotiations’ with Greg Farrell to hand over the licence for no up-front payment at all — basic economic modeling on the value of the licence.

This is outrageous. How could the Government have given away the most valuable public licence in Tasmania without doing any calculations as to its worth? The taxpayers of Tasmania must demand that these sums are now belatedly done. Is it to much to ask that as Treasury goes through every government asset worth anything to assess them for possible sale to fund the new hospital, that the pokies licence be added to the mix? Why is this asset alone quarantined from any scrutiny, despite it being probably worth more than any government business enterprise other than the Hydro? Whose interests are the government looking after here?

Nevertheless while we have a right to expect that our government might be interested in what the pokies licence is actually worth, and while the direct transfer of public monies to one of the richest families in Australia must end, I am not advocating that this licence be sold as it is currently constituted. Selling the present pokies licence to the highest bidder addresses only half of the current scandal because it leaves the group who provide most of the revenue, problem gamblers and their families, in their current sorry predicament. Tasmania’s pathetic code of industry self-regulation also has to go.

At the moment Tasmania has the worst of both worlds. We have a farcical regulatory regime which hasn’t seen one new gambling regulation that impacts on turnover introduced since this government came to power, and the evaluation of industry self-regulation, which the report on which it was based recommended occur between June and December 1998, consistently vetoed; AND a well below market level of taxation return. What needs to happen to change this is very simple.

First there needs to be a comprehensive study that would determine the socially and economically sustainable number of poker machines in Tasmania and the regulations necessary to minimize problem gambling (for example establishing bet limits on machines, bans on cash access at venues, slower game speeds, real opening hours restrictions etc). And then, after this long over-due work has been done, there can be a full open tender for the right to operate the determined number of machines (assuming of course there are any left to operate) within the prescribed new regulatory framework.

Given the political will, these changes would not be difficult to implement. The right to operate poker machines in pubs and clubs is easily transferable. There is very little fixed investment or costs involved — these are almost all, down even to the cost of the machines, ultimately borne by the hotels. The licence holder runs what is effectively an IT operation, a business accurately described by the Farrells as ‘network gaming’. Many businesses could easily take on this no-risk operation and many would dearly love to. This cash-cow gives what every business and their bankers wants —guaranteed recession proof returns. No wonder the up-coming tender for the equivalent Victorian licence is expected to fetch over a billion dollars (despite the higher taxes paid in that state and a shorter licence period).

It should also be remembered that a proper review of the status quo is what the ALP had long promised would occur once the former Liberal Government’s costly 1993 deal with the Farrells finally expired in 2008. Nothing could be done, we were told time and time again, until this agreement expired. ‘Everything can be looked at then’, we were told at each election. ‘Sovereign risk precludes any change before this’. This of course proved to be another empty promise as immediately after the 2002 election the secret negotiations with Greg Farrell — that locked in something even worse than the status quo (an increase in pokie numbers, continued self regulation and only a $2 million dollar a year increase in tax) until 2023 — commenced.

There is absolutely no doubt that current levels of social harm can be reduced AND revenue be increased simply by the application of normal public policy process. That this is seen as a radical position shows how far the pervasive political influence of the Farrell family has perverted Tasmanian public life. And don’t believe the predictable long standing argument that ‘sovereign risk’ precludes any change. The current arrangement represents nothing more than a crude public subsidy going straight from our pockets to one of the richest families in Australia, and has recently been condemned even by that advocate of private enterprise, the National Competition Council. It is resented by many in the hospitality industry who lack a level playing field on which to compete, and have to stand back and watch while taxpayer funds are used to facilitate the takeover of one established iconic Tasmanian tourist business after another. The Farrell’s ‘Pure Tasmania’ is unfairly sucking the life out of many businesses and regions. Removing the government subsidy the family receive won’t discourage private investment — it will promote it.

The response to policy change we can expect from most in the private sector was evident when the Victorian Government unilaterally changed its contract with Tattersalls and TabCorps a couple of years ago, and instituted a hospitals and charities tax to get a better public return on their state’s poker machines. Despite loud calls of ‘sovereign risk’ from the gambling giants when the change was proposed, other employers noticeably failed to join the protest. They knew this licence was a special case.

Poll after poll has shown the community want policy change in this area. The Lennon government and the Liberal opposition only oppose change because, as the BRW notes, “Farrell works the politicians.” It is time the public worked the politicians too, and even if we can’t offer five star hospitality, we can offer our opinion and ultimately our vote.

Poker machine policy in Tasmania must become the concern of many more than the welfare groups who struggle to care for its immediate victims. The financial and human cost of the current regime is being borne by us all (and, you never know, we might even get a new hospital out of it.)

James Boyce is a Tasmanian historian and social policy consultant.

Earlier, (with full links to earlier James Boyce analysis): The Goose who laid Federal’s Golden Egg