As required by the review’s terms of reference, DTF has consulted with the VRI in the course of conducting the review including providing the VRI with an early draft copy of the report for comment. The VRI subsequently provided the following commentary and
recommendations.19
6.1
VRI’s comments on the review’s terms of reference
The VRI is strongly of the view that the terms of reference for the review were settled between the VRI and the former Government in April 2009 and that the purpose of the tax review was to recommend any necessary changes in the pari-mutuel rate “…to replace the revenue which the industry currently gets from electronic gaming machines...” and “... ensure the future arrangements are no less favourable”. A statement in the same terms was made by the former Minister for Gaming in a media release issued on 3 November 2008. It is the VRI’s contention that the report is flawed, in that it has misinterpreted the terms of reference, by producing an approach that contradicts the true purpose of the review. The report seeks to provide for a no less favourable outcome to the VRI considering all aspects of funding under the new wagering licence arrangements.
The VRI reasonably believes that the Secretary of the Department of Justice previously provided an opinion that the arrangements with the new wagering licensee are no less favourable than arrangements with the previous licensee, on the basis that there would be adequate compensation to replace the lost gaming revenue. This was done by the Secretary in 2011 in discharging her statutory requirements as a prerequisite to the grant of the new wagering licence. There is no statutory authority for DTF to repeat the work done by the Secretary.
The question that the Gambling Regulation Act requires to be asked of DTF is limited to what changes to the tax rate must be made to offset the loss to the VRI of gaming revenue for the term of the licence.
6.2
VRI’s financial modelling
The VRI also disagrees with the financial projections contained within the review and considers that they firstly underestimate future gaming revenue and secondly overestimate future pari-mutuel wagering performance.
The VRI’s estimation of future pari-mutuel revenue performance is based on a trend analysis taking into account the past three years and the continuing migration of customers to fixed odds betting alternatives and assumes an annualised decline of 3.4 per cent. The VRI thus rejects a historical trend analysis that is greater than the past three years because it would not reflect fundamental changes that have occurred to the market which includes intense competition from corporate bookmakers in fixed odds betting products.
19
DTF has included the views of the VRI (as drafted by the VRI) in this section for transparency. The views in this chapter do not necessarily reflect the views of DTF. DTF consider its approach and recommendation the most relevant and appropriate response to the terms of reference.
Review of the wagering tax rate post 16 August 2012
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6.3
VRI recommendations
The VRI makes the following recommendations:
a) That the pari-mutuel rate for 2012-13 be reduced to 4.29 per cent effective from the commencement of the new licence period on 16 August 2012 to fully offset the projected loss of gaming revenue in that period totalling $79.1 million.
b) That the pari-mutuel rate be reviewed annually and adjusted in order to fully offset the lost gaming revenue throughout the term of the licence.
Appendix A: Terms of Reference
Review of the pari-mutuel tax rate – March 2012
Context
1. The Baillieu Coalition Government is committed to maintaining and developing racing as a significant industry in Victoria, and to ensuring that thoroughbred, harness and
greyhound racing continues to flourish.
2. The restructure of post-2012 licences involves a financial transition of the Victorian Racing Industry from a funding base incorporating a share of the current licensee’s gaming operator profits to one where revenue is derived to the greatest extent possible from activities conducted under the new wagering and betting licence.
3. In that context the Gambling Regulation Amendment (Licensing) Act 2009 legislated the following changes to the tax rates applying from the 16 August 2012 licence
commencement date:
the pari-mutuel tax will be reduced from 19.11 per cent to 7.6 per cent; the fixed odds betting tax will drop from 10.91 per cent to 4.38 per cent; and the simulated racing games tax will remain at 10.91 per cent.
4. The tax reductions were intended to replace the revenue which the racing industry currently gets from electronic gaming machines and ensure that future funding arrangements would be no less favourable under the new licensing structure.
Terms of Reference for the review of the pari-mutuel tax rate
The Government will undertake a review of the new pari-mutuel tax rate in 2012.5. The review will recommend an appropriate pari-mutuel tax rate to ensure that post-2012 arrangements are at least no less favourable to the Victorian Racing Industry, taking into account in particular the industry’s loss of funding from electronic gaming machines through the current Joint Venture arrangement with Tabcorp Holdings Ltd.
6. The review will be conducted by the Department of Treasury and Finance, in consultation with the Office of Gaming and Racing and will take into account the latest available information on:
a) Wagering industry revenue trends;
b) Gaming machine industry trends, including funding to the Victorian Racing Industry from its share of Joint Venture profits; and
c) Other relevant information.
7. The Department of Treasury and Finance will determine the methodology (econometric and/or other analytical techniques) used and will ensure that its approach and
calculations are transparent. The methodology will discount the benefit to the Victorian Racing Industry (if any) from windfall gaming profits between the announcement of the venue operator model in April 2008 and the end of the current licence (or alternatively make an upwards adjustment in the event of extraordinary gaming losses), to ensure that the calculation is based on underlying and sustainable profit levels over the term of the licence.
Review of the wagering tax rate post 16 August 2012
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8. The Department of Treasury and Finance together with the Office of Gaming and Racingwill work in close consultation with the Victorian Racing Industry in undertaking the review.
9. To inform calculations, the Victorian Racing Industry will provide relevant and up to date financial information, including Joint Venture profit data. Commercial data provided in-confidence for the purpose of the review will remain confidential between the Government and the Victorian Racing Industry.
10. The methodology will be premised on the next wagering licensee passing the value of the tax cut from 19.11 per cent to the Victorian Racing Industry as part of the Arrangements with the industry, as provided for in the Licence and Related Agreement.
11. Depending on the outcomes of the calculations, the review should recommend an appropriate pari-mutuel tax rate to ensure that post-2012 arrangements are no less favourable to the Victorian Racing Industry.
12. The review will be concluded by the end of April 2012 and a recommendation made to Government so that the tax rate can be finalised prior to the commencement of the new wagering licence in August 2012.