POKIES ... this is a scandalBy JAMES BOYCE
The Mercury’s revelation, Evidence presented too the 2003 Public Accounts Committee hearings into the Federal deal by Treasury boss and chief government negotiator, Don Challen, confirmed that not even the most basic internal modeling was done by Treasury on this fundamental question. Hansard records the following exchange between the Chair of the PAC, Tony Fletcher and Mr Challen: “Chair - I don’t have the backing of Treasury and I don’t have you’re skill and training but I want to make a judgment as to whether you achieved a good result or not. Mr Challen - yes, I understand that. Chair - How do I do that? If you cannot provide me with something to measure against, am I take to take your word as the sole decision maker in relation to this matter? Mr Challen - I am not sure how I can help you with that Mr Fletcher.” An incredulous fellow PAC member, Rene Hidding, later suggested to the Treasury boss that on the basis of a simple calculation from the taxation numbers: “We are talking here about a pair of licences that grant the ability for an organization to produce a gross profit over $1 billion over the period of the contract. I think it is in order of that -” Challen replied “I don’t know, I haven’t done that sum.” There is also overwhelming evidence that the Government's only justification for this dodgy deal - the achievement of a cap and the prevention of another 1500 poker machines in the state - was based on nothing more than the unsubstantiated self-interested threats of the company concerned. It is now clear that the ‘cap’ - which actually significantly increased the number of pokies by 287 to 3680 - was simply the number of poker machines sought by Federal Hotels and was determined by profit not policy. The market was in fact already full. The evidence for this includes that: · Tasmanian Gaming Commission statistics confirm that in the two years prior to the deal there was almost no change in the number of gambling venues despite the lack of legal restriction - indeed slightly more pubs and clubs handed their licences back than sought new ones. · Don Challen told a Legislative Council Select Committee way back on 17 April 2002, (when there were many less machines than when the Government finalised the new deal 12 months later - let alone those allowed under the new ‘cap’) - “if you look at the detailed statistics you can see already that the market is showing signs of saturation of the machine numbers”. · And at the PAC hearing Federal owner Greg Farrell admitted “We see very little opportunity in Tasmania. We believe that under this cap the number of venues in this state is about the appropriate number and that does provide the opportunity, if there are outstanding opportunities, for new venues.” Farrell acknowledged that he had been saying for a number of years that “between 105 and 110 venues” was about right for Tasmania and he agreed that the market was now “in balance”. Federal and the Government thus have only one argument to justify the ‘1500 more pokies without the deal’ threat - apparently it was all about preventing competition post expiry of the current licence in 2008. But there are two very obvious problems with this logic. First - Federal’s expressed need to ‘protect their competitive position’ leading up to 2008 by placing poker machines with whoever would have them, regardless of profitability, obviously only made any sense if competition was coming. Yet as a frustrated Hidding repeatedly emphasized at the PAC, “no one was talking about competition - its about who to run the existing licence.” Second, the logic of installing 1500 new machines only made sense if it was assumed Federal’s licence would be automatically renewed after 2008. Given Federal had no legal right to operate machines after this time, there would seem to have been an obvious market incentive not to expand further until arrangements after this time were clarified. Far from protecting any competitive position, the extra machines would under normal transparent tender processes have simply been potential money down the drain as after 2008 Federal may have been the owner of near new poker machines with nowhere to operate them. Farrell admitted to the PAC that he considered the possibility of not having their licence automatically renewed “extraordinarily remote”. Challen, although not prepared to concede that Federal effectively had a “licence for life”, asked “ whether it would be real life to allow those licences just to come to an end and wave them goodbye”. And Hidding made the point - “It would appear from their responses this morning that they (Federal) see that as not a real life thing and you don’t see it as a real life thing. How were the negotiations then in any way commercial negotiations? If both negotiators know that there is no possibility of, for instance, Tabcorp Victoria actually competing for the network gaming business- “ Hidding knew that the ‘licence for life’ assumption was indefensible and could not understand why the Government would not “sit down for instance in 2008 with Tabcorp, Tattersalls, whoever.” He pointed out that the licence to run the poker machines is not like the casino licence, which because of the high fixed investment involved, is difficult to end. The point is a basic but very important one. In the case of network gaming, there is no logical reason why another operator could not have been chosen after 2008. The right to place poker machines in clubs and pubs is easily transferable, as the fixed investments are largely borne by the pubs themselves. It would be business as usual for them with another licence holder - except that there would be a different overseer of the IT and promotion side of the operation. There would be nothing anti business or anti Federal to put this licence up for tender. It was always clear that the monopoly went for 12 years, and this was a very profitable concession to have had. Federal would have had a very high return on their small capital investment made and any company should have been expected to have been grateful for it and the right to tender again. It seems that our Government and Federal Hotels need to be reminded of a very simple principle: any party to a profitable government contract should be expected to uphold whatever the contract specifies, and there is no extra financial reward for doing so. Nor does making very profitable investments in Tasmanian tourism, (almost all of which were takeovers), then buy you the rights to a profitable public licence. The issue involved in the post 2008 tender was about achieving the best price in the context of any regulatory changes the Government decided on, not assessing Federals corporate citizenship. To simply assume the relationship between the two parties was such that normal government guidelines and competition principles that apply to small business and even community organisations, and that are written and enforced by Treasury, didn’t apply in this case, was scandalous. The taken for granted assumption that Federal could never lose their pokies licence has literally cost us all hundreds of millions of dollars. Moreover, if the assumed position had instead been that normal tendering processes would apply for the pokies licence post 2008, all the logic of the claim that there would be another 1500 machines under the current deed collapses. In other words, to achieve the vaunted cap, the Government didn’t need to do anything more than make transparent and explicit that standard public policy processes would apply leading up to the tender for the monopoly rights to operate poker machines in Tasmania after 2008. If they wanted to go beyond this in a responsible way, Premier Bracks in Victoria could have provided them with the example of how to do so. He has announced that there will be full public inquiry well before the current licences expire in 2012, which will establish the optimum number of poker machines, (balancing all the economic and social costs and benefits involved), and sets the appropriate regulatory environment. The right to operate poker machines under these more stringent regulations will then go to tender. Thus there would be nothing ‘radical’ or ‘anti pokies’ or ‘anti Federal’ about putting the monopoly licence out to tender after a full regulatory review. It is just sensible and responsible public policymaking that seeks to maximise the taxation return, and minimise the social and economic costs from the most valuable, and most potentially harmful, licence the government has in its control. Moreover the current public subsidy is grossly unfair to Federal’s competitors in the hospitality and tourism industry, and transfers much needed public monies from our public hospitals, state schools and community services, to four already very wealthy individuals. But despite the scandalous process and disastrous outcome, well understood by Rene Hidding, it seems that our current members of parliament are too beholden to Federal to even consider ending the current contract until it expires in 2023. If this is the case then they should at the very least do what the Victorian Government recently did to moderate the excesses of their current deed - apply an excess profits tax of 1600 dollars each machine. This extra tax would only come out of Federal’s disproportionate share of the pie - which currently amounts to about five cents from every dollar put into a machine. It is totally predictable that just as in Victoria, the cry of ‘sovereign risk’ will again be heard loudly when any such change to taxation arrangements are discussed. And just as in Victoria, this argument should be ignored. No other company in Victoria took TabCorps and Tattersalls protests along these lines seriously. The Lennon/Hidding position that such changes would undermine general investor confidence in Tasmania should be laughed off here as it was across the strait. Other Victorian investors recognised that the pokies business was unique - a risk free government sanctioned licence to print money, which was unlike any other contract with government. Moreover competing businesses will welcome the lessening of the large ongoing public subsidy that is undermining investor confidence in Tasmania by preventing a level playing field for new and existing businesses. This is not only about the smaller hotels without pokies doing it hard. Witness the recent sell off by Doherty’s in Tasmania - a group which had made its protests about the Federal deal quite clear to the PAC. The real argument in Tasmania is not about sovereign risk. It is about whether either of the two major parties are prepared to cross one of their largest corporate supporters in the interests of a fair competitive environment for all businesses and a fair go for Tasmanian taxpayers and the under funded essential services we all rely on. It is so easy - and in Tasmania it seems - so hard. For all the debate including financial and social analysis by James Boyce and John De Vries on tasmaniantimes.com (written months ago): CLICK HERE ... and follow all the links from the bottom of the article James Boyce is a Tasmanian historian and social policy consultant
RAPID RESPONSE EMAIL: What do you think? Friday, November 5, 2004 |