The ongoing debate over mandatory pre-commitment on pokies is big on hype, but at the heart of it all is the Productivity Commission’s (PC) inquiry into gambling. The report is an in-depth look at the economics of the gambling industry in Australia, and provides an insight into the sizeable benefits and costs of the industry. Despite these insights, the findings of the inquiry may often fall by the wayside when the debate switches to a war of politics, and arguments turn towards sentiment and emotion more than research and data. As such, I believe it would be useful to review some of the key findings of the inquiry to understand what has motivated this latest push towards pokies reform.

The key policy issue regarding gambling is a question of balance between preserving the enjoyment that many people receive from gambling against the considerable harms that gambling poses. While this is no simple task, the PC has also chosen to focus on policy options that provide Pareto improvements, that is:

• Policy measures that can reduce the cost of gambling without reducing the benefit, or
• Policy measures that can increase the benefits of gambling without increasing the cost

The benefits and costs of gambling

The PC estimated the tax and consumer benefits of gambling to be in the range between $12.1 and $15.8 billion AUD. This includes the tax revenue that state governments receive, social contributions and the consumer surplus that non-problem gamblers receive from gambling. One finding of note is the dispelling of the myth that reduction in gambling revenue would hurt the ability of clubs to provide sporting and community support, with the PC finding that clubs with more reliance on income from pokies actually provided less community and social support. Similarly, the PC points out that while the gambling industry may employ a large number of individuals, the net employment that the industry creates is relatively small, given the skills of many of these workers would be heavily demanded in other industries.

Estimates of the cost gambling were between $4.7 billion and $8.4 billion AUD. This was primarily composed of social and financial costs of problem gamblers and their families and friends, and is actually considered a conservative estimate as the PC has not considered possible costs arising for non-problem gamblers.

The result is an estimated net benefit from the gambling industry between $3.7 to $11.1 billion AUD. This re-iterates the idea that banning gambling outright would not be an optimal decision (and would actually result in society being worse off), something that the PC duly notes. However, one other caveat to this result is that the PC states this net benefit could be much larger if effective harm minimisation measures were put in place; they estimate that a sustained 10% reduction in the costs associated with problem gambling would generate benefits to society in the range of $450 million AUD (in 08-09 prices), as well as producing long term benefits in the billions.

Introducing mandatory pre-commitments

The PC makes a number of recommendations, but the two recommendations which received the most fanfare were the introduction of full mandatory pre-commitment to all pokies machines and limiting the maximum bet on all machines to $1, both by 2016. It cites pre-commitment as a “strong, practicable and ultimately cost-efficient option for harm minimisation” and would allow for other government regulations to be relaxed or removed. Moreover, the introduction of mandatory pre-commitment would have little impact on recreational gamblers, and so would not reduce the sizeable consumer surplus that these consumers enjoy.

Despite this, there are still many opponents to the introduction of mandatory pre-commitment. Clubs Australia has been quick to (repeatedly) claim (bringing in high-profile personalities such as former AFL Star David Schwarz and Youth Off The Streets Founder, Father Chris Riley) that mandatory pre-commitment will not deter problem gamblers from seeking loopholes or workarounds to beat the limits, which is likely to be true. However, if anything this means that effective and thorough design must go into creating a better system rather than rejecting this idea until “something better” comes up or relying on the status quo of education and counselling which conveniently do not seem to harm club gaming revenues.

The full report discusses gambling in much greater depth, as well as offering a number of additional recommendations. Nonetheless, it is clear that much of the solid economic research in the report is getting drowned out by the noise of rent-seeking clubs. Given that we are talking about the possibility of reducing harm to tens of thousands of individuals, it would be a real shame if the lobbyists won this particular battle.

For those interested in reading the full report, it is available at the link below.

References

Productivity Commission (2009), Gambling: Productivity Commission Inquiry Report No. 50, February 26 2010, Last accessed on 22 December 2011 at http://www.pc.gov.au/projects/inquiry/gambling-2009/report

Coorey, Phillip (2011), “Pokies clubs play an ace in battle to prevent changes”, The Sydney Morning Herald, December 7 2011, Last accessed on 22 December 2011 at http://www.watoday.com.au/national/pokie-clubs-play-an-ace-in-battle-to-prevent-changes-20111206-1oha5.html

Craven, Jessica (2011), “David Schawrz says mandatory pre-commitment won’t help gamblers”,Herald Sun, December 5 2011, Last accessed on 22 December 2011 at http://www.heraldsun.com.au/news/more-news/david-schwarz-says-mandatory-pre-commitment-wont-help-gamblers/story-fn7x8me2-1226213824606