Since ancient times, governments have regulated the extent and conditions under which gambling is permitted. Governments also developed an early financial interest in legalising gambling, realising that certain forms of gambling were a productive base for taxation. These dual roles of government as a social guardian, and as a gambling operator, place it under conflicting pressures to both encourage and discourage gambling.
However, regulating the fairness of games, and measures to ensure the probity of operators serve the interests of consumers, operators and treasuries alike. It may be difficult to identify in whose interests governments are acting when they regulate gambling. For example, it is argued that existing regulatory policy of casinos in Australia, namely strict assessment of potential operators to limit casino ownership and management to ‘respectable’ elements, is predominantly industry protection rather than consumer or social protection (McMillen 1996a; Chapman, Beard et al. 1997). Reducing the risk of gambling through consumer protection regulation is likely to expand the consumer ‘market’ for gambling.
In such circumstances of market power and inelastic gambling demand, cutting gambling taxes to stimulate demand risks overall loss in revenue (Clotfelter and Cook 1989). Aggregate revenues may not benefit if gamblers switch from one form of gambling to another. Also, as a recreational activity, gambling requires continuous innovations or marketing to maintain consumer interest (Weinstein and Deitch 1974; Johnson 1976, 1985; Clotfelter and Cook 1989; Rychlak 1992; Haig 1985b; Haig and Reece 1985). Rather than cut prices/taxes, governments may therefore embark on new forms of gambling, using advertising and other promotion strategies, or varying the prize structures, effectively altering the ‘quality’ and range of the product (Haig and Reece 1985).
The existence of such ‘product life-cycles’ in consumer demand for gambling – and in government gambling revenues – appears an important reason governments find it difficult in practice not to get drawn into sponsoring or promoting gambling (Henriksson 1996; Alchin 1989; Haig and Reece 1985). This is especially the case if there are competitive pressures from neighbouring jurisdictions to retain business by cuts to tax rates
The overall ‘market’ for gambling may be relatively fixed in the short term by legislation and a limited number of consumer gambling dollars. Clotfelter and Cook (1989) show that because of the monopoly structure of the lottery industry, the operator finds it difficult to increase market share and instead focuses on enlarging the market, through active promotion and marketing.
The above suggests a number of reasons why governments in search of revenues will be as likely to ease restrictions on gambling or permit its promotion, as to raise gambling taxation rates. Against this background, the following section reviews gambling taxation in Australia.
