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Decision to Increase Betting Tax from 1% to 2%
By Jim Power, M.Econ.Sc - October 24th 2008
Background
Budget 2009 was described by the Minister for Finance as a ‘plan of action for economic renewal’. In the context of this description, it is difficult to understand the decision to increase the betting tax from 1% to 2%. In announcing this initiative the minister stated that the ‘betting tax is being increased from 1% to 2% yielding €40 million in a full year’. This statement is vague and difficult to interpret as it is not clear if the measure is intended to raise an extra €40 million or if the total yield from the Betting Tax is estimated at €40 million in a full year. Presumably it is the former, in other words that the change in the rate would yield an extra €40 million in a full year.
Either way the economic wisdom of making this charge is not at all clear. The Betting Industry is suggesting that the measure could force the closure of 300 betting offices around the country. This argument looks solid, because it is clear that the domestic betting industry is already facing serious competition from forms of betting that do not come within the tax net, such as the medium of the internet. The 1% betting tax already places the domestic industry at a competitive disadvantage, and the decision to double the tax compounds the situation.
In assessing the decision to double the tax, it is first of all important to outline the economic and financial contribution that the industry makes to the Irish economy.
The contribution of the betting industry to the Irish Enconomy
The Irish betting industry is an indigenous service sector activity, which has no import content, which creates considerable employment and which is geographically spread across the countryside and as a consequences makes a strong economic contribution at a national and at a local level.
In assessing the direct contribution that the betting industry makes to the Irish economy, factors such as total employment, PAYE paid by employees, incomes tax paid by the industry, VAT collected by the industry on behalf of the Government, betting tax collected by the industry on behalf of the Government, and commercial rates paid, need to be taken into account.
There are 1,248 licensed betting offices in Ireland. On average it is estimated that each office employs five people on a full-time or part-time basis. This translates into total employment of around 6,200 full-time or part-time jobs. This is equivalent to almost 0.3% of total employment in the economy, and 0.6% of total private service sector employment.
Based on these numbers:
- Total gross wage bill paid is estimated at €137 million.
- PAYE and PRSI paid on these earnings estimated at €34 million.
- Total net wage bill estimated at €103 million.
- Assuming an income multiplier effect, this net income translates into total spending of €206 million in the broader economy.
- Net profit of betting industry before tax estimated at €100 million.
- Income tax paid by betting industry estimated at €25 million.
- VAT paid by industry estimated at €5.75 million.
- Total annual rates paid by licensed betting offices estimated at €2.75 million.
- The betting tax collected by the licensed betting offices estimated at €36.5 million.
Background
The Irish Betting industry estimates that the change to the betting tax would force the closure of up to 300 betting offices around Ireland and a reduction of 25% in turnover in the licensed betting offices. The economic and financial impact of this would be significant.
The likely closure of 300 offices would result in:
- The loss of around 1,500 jobs
- A reduction of an estimated €37.5 million in the gross wage contribution to the economy
- Based on a conservative income multiplier effect of 2, the spending contribution to the local and national economy would be reduced by an estimated €56 million
- A reduction of an estimated €9.38 million in the PAYE/PRSI contribution to the Exchequer
- A reduction of an estimated €6.75 million in the corporate/income tax contribution to the exchequer.
In general terms the loss of 1500 jobs and the closure of 300 offices around the country would have a very negative impact on numerous towns and villages around the country and would seriously undermine commercial rates and other business related revenues for the local authorities. In an environment where many towns and villages around the country are under serious threat due to the economic recession, this would not represent good news.
In 2007, it is estimated that the turnover of the Irish betting industry was €3.65 billion in 2007. Applying a 1% betting tax to this turnover would yield the government €36.5 million. In budget 2009, the Minister for Finance has indicated that the increase of 1% in the betting tax would yield €40 million in a full year. This implies an assumption that turnover in the betting industry would increase to €3.8 billion in 2009. Against a background of deep recession and the 1% increase in the betting tax, such an increase in turnover would be very difficult to achieve.
The Irish Bookmakers Association believes that the 1% increase in the betting tax would reduce turnover in the industry by 25%. A reduction of 25% on the turnover figure of €3.65 billion in 2007 would imply a turnover of €2.74 billion. The application of a 2% betting tax to this turnover figure would yield just €54.8 million to government and not the €76.5 million implied by the calculations in Budget 2009.
Conclusions
Apart from the direct contribution made by the betting industry to the Irish economy in terms of employment, taxes paid by employees, taxation paid by the industry itself, VAT and betting tax collected, commercial rates, and the income multiplier effect, the indigenous and regionally dispersed nature of the industry is very significant.
Betting offices are located in towns, cities and villages around the country and as such are a very important source of employment across most local economies throughout Ireland. The jobs are indigenous and high value added in the sense that there is no import content.
In an environment where the Irish labour market is under significant pressure, with employment falling in manufacturing and construction, and set to fall in the public sector, such indigenous jobs are crucial to the future prosperity of the Irish economy in general and local economies in particular, the industry should be nurtured to the greatest extent possible. Employment in the Irish betting industry is equivalent to almost 18% of the employment generated by the major retail bank groups in the Republic of Ireland. The Irish betting industry has a significantly greater coverage around Ireland than the banking industry. There are 1100 betting offices around Ireland, which compares to 804 branches and 130 sub-offices operated by the major retail banks.
The licensed betting offices typically occupy prime real estate locations in the cities, towns and villages around the country. In a more difficult economic environment where considerable office and retail space is now becoming vacant, it would not be desirable to have betting offices being forced to shut down and add to the excess supply of office and retail space around the country.
While some people have moral issues with the betting industry in general, it is a fact of life and is a valuable social outlet and activity for many thousands of people across the country. The reality is that even if all licensed betting offices were shut down, betting would occur in any event through the medium of the internet, where no tax revenues are collected.
It is better to have a betting industry that has a physical presence on the ground and as such can be regulated and controlled by the authorities, which is not the case with online gambling. Online gambling makes virtually no contribution to the Irish economy and is unaccountable for its activities. In marked contrast, the Licensed Betting Offices have a physical presence on the ground, are closely regulated and make a major economic contribution in terms of employment, tax revenues and income generated.
In addition to the direct contribution made by the industry, the betting industry also plays a key role in supporting two of Ireland’s most successful indigenous industries, horse breeding and horse racing, and greyhound breeding and racing.
For policy makers, there has to be a key imperative to create a regulatory environment that will protect these indigenous jobs and create a level playing field in the face of intense competition from other unregulated forms of competition.
The imposition of the increase of 1% in the betting tax would not achieve the revenue targets laid out in the budget and could contribute to the closure of 300 shops and a reduction of 25% in turnover. An alternative approach would be to apply a 12.5% gross profits tax, which would be more equitable and result in larger revenues for Government.
