The wrong people are gambling on the wrong things. And the tax burden on the gambles are falling in the wrong places.
This week the ACT Budget increased the amount of tax on gambling. It will now raise put on some extra gambling taxes. Gambling taxes will rise to $54.8 million, or 9.8 per cent of ACT taxes, up from 9.2 per cent.
Forget the absurdity of the Budget at the same time allotting $0.5 million to research the social costs of gambling. We know; they are shocking. Gambling taxes will raise double the amount raised by land tax.
Where will these taxes come from: poker machines, the TAB and lotteries mainly. These are mainly the gambling outlets of those on lower incomes. The gambling of the wealthy takes a different form – the sharemarket — and the odds are very different.
The gambling of the masses has several key elements. First, is the allure of a huge prize. Second, is a lot of small prizes to keep up interest. Third, is the setting of odds that ensure that overall the mug gambler loses. Poker machines and the TAB are fixed to ensure a skim of 15 per cent. Lotteries are fixed to ensure a skim off of 25 per cent or more. The more you gamble the more you lose. Inevitably.
The system relies on inequality. First, there is an inequality of intelligence. If you gamble regularly on pokies or the TAB you will inevitably lose. It is stupid conduct. On the other hand, installing a machine that automatically reaps 15 per cent to you as owner or controller of the machine is intelligent conduct. You can hardly lose.
Second, there is inequality in resources. Players with small amounts of money are likely to bottom out and have to walk away well before owners and controllers of poker machines or TAB outlets.
Third, there is inequality of demand and expectation. The desire for the big win based on small stakes is very high in people with little money. They can only afford a relative few gambles and so can be sucked in by the allure of the very remote possibility of a very high return. On the other hand the provider with secure wealth can rely of the certainty of thousands of small returns.
Contrast this with the stock market.
In the past 10 years returns have averaged 110 per cent, compared to a poker machine’s return of 85 per cent. Put $100 into the share market and take out $110. Put $100 into a poker machine and take out $85. And there’s the rub. With the stock market you have to wait days, months or years to get the return. With the poker machine, the winnings (such as they are) are instant. Gratification is immediate. It appeals to the unintelligent to see only the short-term. Further, you need to put at least several hundred dollars into the stockmarket as a minimum, so the poor are excluded. A poker machine will take a single dollar.
Australians wagered $94.5 billion last year, or $6835 per adult, and lost $11.3 billion, or $818 per adult. They wagered a similar amount (very roughly $130 billion) on the sharemarket, but for a gain greater than the gaming loss, at least $15 billion.
Sure, in some years stockmarket gamblers taken in toto do not win; sometimes they lose. But taken in toto lottery, TAB and poker machine gamblers always lose. Year in, year out, they lose. The system is designed for them to lose. Yet people stupidly fall for it.
For the first time in the history of capitalism we have a chance to change this.
Two developments have helped. First computerisation has made it possible for companies to deal with huge numbers of shareholders. Telstra has about 600,000. The Commonwealth Bank has about 300,000. Qantas, GIO, AMP, the TAB National Mutual also have very large shareholder lists. When these companies raised capital they could cope with large numbers of small shareholders because computerisation enabled the lists to be managed. So they welcomed small shareholders because more capital could be raised. With the TAB you could buy lots as small as $400. That still represents a big day at the races or night on the pokies. Nonetheless it is an improvement on pre-computer days when minimum shareholdings were higher.
Secondly, the internet is reducing paperwork and helping bring buyers and sellers together more easily. The result is that brokerage is falling. You can do internet trades in small parcels of shares for $25.
Surely, the climate is ripe for a change. At present low income people fall for a doomed gamble on the pokies, lotteries and horses with increasing tax hits. Meanwhile, high income people are putting money in sharemarket gambles that almost inevitably will lead to wealth with decreasing tax hits. State Governments recently reduced stamp duties on share transactions in the name of competitive federalism.
We also have people working longer weeks for fairly static pay. Meanwhile, the executive pay ever increases. Bank CEOs are getting obscene amounts (NAB and ANZ’s CEOs get $2.7 million each.) They are getting ever more multiples of the bank teller’s wage — and increasing trend of inequality. And the income of capital owners goes ever up.
Now it is no good for the PAYE slaves and welfare recipients to put their hands out and whinge. If you cannot get what you think is your fair share through negotiation or polite appeal, then join the capitalist ranks. And don’t say you cannot afford it. With the average person spending $6835 a year of gambling and losing $818, there is money to put in the sharemarket.
If we could channel low-income earners’ gambling money into the share market we could arrest some of the alarming growth of inequality. Instead of working for capital, get capital to work for you. All you need to do is resist the temptation for that elusive instant and large gratification and replace it with the certainty of long-term smaller earnings.