Reform of pokies tests Gillard deal with Wilkie

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Reform of pokies tests Gillard deal with Wilkie

By George Williams

Today marks the next stage in the battle between the Commonwealth and the states over poker machines. In return for support on the floor of Parliament, the Prime Minister, Julia Gillard, promised the Tasmanian MP Andrew Wilkie that by the end of today she would have legal advice on whether the Commonwealth could go it alone in imposing change.

At stake are much-needed reforms to combat problem gambling - and billions of dollars of state revenue.

Gillard has undertaken to change how the machines operate. She will implement a commitment scheme - whereby gamblers set a limit on how much they are prepared to lose - require machines to display dynamic warnings and impose a limit of $250 on ATM withdrawals in poker machine venues.

Gillard's problem is that poker machines, and the tax they generate, are guarded jealously by the states. The Commonwealth has traditionally kept out of this area and the states want it to stay that way.

It is not only problem gamblers who have poker machine addiction. State treasuries suffer the same affliction. On average, the states raise 10 per cent of their revenue from gambling. In NSW, gambling taxes generate $1.6 billion, or about $300 per adult - 70 per cent of it from poker machines.

The Wilkie agreement requires Gillard first to ask the states to carry out the reforms themselves. If they have not agreed to do so by May 31, the government must impose the changes. The legal advice due today will provide an initial answer about whether this is possible.

The constitution does not give the federal Parliament power over gambling but Parliament could impose conditions on how trading corporations operate poker machines. The constitution is clear that in the event of a conflict between federal and state law, the federal law prevails.

The Commonwealth has great untapped power in this area but this is not so extensive as to cover every hotel and club with a machine.

Federal power falls short for venues not operating as a corporation or across a state border. This may entice some clubs and hotels to ditch their corporate status to escape federal regulation.

This suggests a messy fight and incomplete federal regulation - both a staple of our federal system. Gillard will want to avoid this by securing state co-operation. She might do so through a compensation package to the states but this seems unlikely given the Commonwealth's difficult financial position.

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Another option would be for the Commonwealth to reduce its grants to a state by the same amount the state receives in poker machine revenue, unless the state agrees to implement the reforms. The Commonwealth has had success with this tactic in the past. The idea has also been floated as a way of forcing the states to eliminate mining royalties in favour of a federal resource super profits tax.

The Commonwealth may achieve its reforms but in doing so could exacerbate the problems that caused the states to rely on gambling revenue so heavily in the first place. The underlying financial positions of the states, except Western Australia, are dire. They generate less than 70 per cent of the revenue they need for their annual budget, including for essential services. Without handouts from the Commonwealth, their finances would collapse.

The states have been in trouble since World War II when the Commonwealth wrested control over income tax. Then in 1997 the High Court decision in Ngo Ngo Ha deprived them of lucrative taxes on alcohol, tobacco and petrol worth $5 billion a year. With few areas left in which to raise revenue, the states have turned to socially harmful and economically inefficient forms of tax. Gambling taxes are an example of this.

Poker machine reform has put the Commonwealth and states on a collision course. The Gillard government cannot afford to disappoint Wilkie because its existence depends on his continuing support, while the states will be desperate to retain a big part of their tax base.

Experience suggests that the Commonwealth will win out. However, this will not remedy the dysfunctional aspects of our federal system that contributed to these problems in the first place.

George Williams is the Anthony Mason professor of law at the University of NSW.

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