Wednesday, March 3, 2010

Voluntary Tax Will Now Boost Private Profits

I’ve always thought of lotto and lottery tickets as being a form of voluntary tax. When we buy them we know that our money will be going towards providing the services we deserve and expect from Government, with the added benefit of having just the slightest chance of winning a prize. Even if we don’t we still benefit from the hospitals, schools and transport funded from the proceeds. But it’s an entirely different matter to be handing over your hard earned money to a private enterprise who will give you nothing in return unless you are lucky enough to have your numbers come up.

Despite opposition from many sectors of the community, the State Government has finalized the details of its sale of the New South Wales Lotteries Corporation to the Tatts Group in a deal which returns over $1 billion to taxpayers. The sale is expected to be completed by the end of the month. It will see the State government continue to enjoy ongoing revenue from lotteries and games without the burden of actually operating the business. The Government tells us that this arrangement gives the best possible outcome for the taxpayers of New South Wales. Not everyone believes that.

It would seem self evident that if lottery operations can generate enough money to pay the government an ongoing dividend while also generating a profit for the private operator then keeping the operation in government hands should return an even bigger dividend to the taxpayer. Quite simply, with no private enterprise partner to share it with, the Treasury would be able to keep all of the profits for itself to spend on hospitals schools and transport. It just doesn’t seem to make any sense to think that the taxpayer could be better off by giving away some of the profits to a private operator.

Of course, it hasn’t exactly been given away, with the total price tag coming to more than a billion dollars. That’s comprised of $850 million in cash from Tatts, and another $160 million currently held by the Lotteries Corporation being returned to the Government. More to the point, it is not exactly an outright sale either, with the rights to operate the public lottery only valid for the next forty years, after which they revert back to the Government. It’s a bit like selling somebody a house and land where they get to keep the house, but the land is only leasehold. That means that after forty years either Tatts will have to negotiate a new deal, or the Government could find another operator.

Whether or not that represents value for the taxpayer really hinges on two questions. One; will the revenue stream to the government from lotteries increase under private management? And two; just what will the Government do with the $1 billion in cash it will have in its back pocket at the end of the month? On the first point, it is possible that the private operators could develop and expand the business, delivering greater returns to both themselves and the taxpayer. But that remains to be seen. On the second point however, while we will hear all about the boost to hospitals, schools and transport, the reality is that the New South Wales government is digging itself out of a budget deficit hole and the money is likely to be soaked up preventing the state from going backwards.

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