by Declan Jordan

Recently I posted on this blog about the potential for taxation measures to address some of the negative effects of Ireland's problem with gambling addiction. In the course of it I noted the substantial difference between the rate of betting tax (1% paid by bookmakers) and the VAT rate (23%), and suggested that there was scope for an increase in the betting tax (among other suggestions) which could be paid by the bookmakers or by punters.

I received an email from a UK colleague who took issue with my suggestion that the negative effects of gambling (internalising the external effects) could be achieved by punters paying taxes (especially at a higher rate) on their bets. As I reflected on the points, I realised he was right and that this element of my suggestion could in fact worsen the problem for gambling addicts. As he pointed out, there is a difference between alcohol consumption and betting consumption. An increase in the price of alcohol (through higher excise for example) should reduce the quantity consumed, albeit at a slow rate given alcohol's price inelasticity. For gambling however, the difficulties arise from the total value of money gambled and the difficulties this poses for addicts, so an increase in the price of gambling (by raising a tax levied on punters) would increase the overall value of bets and probably exacerbate the financial difficulties (and ensuing personal and social difficulties) for problem gamblers.

I think this means higher taxes would have to be borne by the bookmakers, and not passed on to punters. My other suggestions, a higher bookmaker-paid betting tax and/or a levy on bookmaker profits would still be beneficial in my opinion where the revenue is directed into education about and support services to those with gambling problems. This would mean ending the situation where revenue from betting taxes are largely invested in the horse racing and bloodstock industries to keep the vicious cycle going. The tax on bookmaker profits may be preferable to a high betting tax since it would be easier to collect and monitor where there is such substantial online gambling.

The conclusion I've drawn is that it would seem very difficult to internalise the external effects of gambling on an individual basis - and this makes sense when one considers that gambling addicts impose costs largely on themselves (and families) through their behaviour. This would mean the societal costs would need to be internalised in the aggregate.

There are two other initiatives that should also be mentioned.

My correspondent made the very useful suggestion that a reliable national estimate of the prevalence of problem gambling and gambling addiction would be very beneficial in Ireland to inform policy and I agree. 

I think also as part of the policy measures to address the problems of gambling there should be a ban on advertising and sponsorship by bookmakers, similar to that in place for tobacco companies and to a limited degree for alcohol. 

by Declan Jordan

A recent discussion on Newstalk’s Talking Points with Sarah Carey addressed the difficult issue of gambling addiction. It is very difficult to assess the scale of gambling addiction in Ireland (and elsewhere), particularly with the advent of online gambling websites and mobile phone apps. Gambling is a particularly invidious form of addiction. As pointed out in the radio discussion, gambling addiction is a silent and hidden disease – there is no smell on the breath or puncture marks in the skin to give it away. Addicts may believe that a way out of their problems is to ‘double down’ so that more gambling becomes the ‘solution’. It is unlikely that any alcoholic or drug addict believes that a way to solve their addiction problem is to drink more. Gambling is also a difficult addiction to address because it is not a substance introduced to a body, but rather is bound up with an individual's self-worth and need to be right.
 
As a society Ireland is coming to terms with its damaging drink culture. There is more education about the dangers of alcohol and there is an opening up about the problems of gambling addiction, with several high profile sportspeople now talking about how they suffered from their gambling problem.
 
This is not the case with gambling, and if anything we are normalizing gambling as an activity, just as we did (and to an extent still do) with binge drinking. The saturation coverage on all media of the Cheltenham festival is a perfect example. However, it is clear now that betting has infiltrated many parts of our national discourse with coverage of the recent election often showing the odds on different election outcomes and potential Taoisigh. Football on television has become an opportunity to bet as the game progresses with odds flashed on screen continuously during, for example, Sky Sports coverage. Of course, once you have a mobile phone then it is so easy to put down a stake.
 
Of course there are many (probably a majority of punters) who can control their gambling, just as there are a majority who can control their drinking. There is no way a prohibition on gambling makes any sense. Indeed there are many strong vested interests who would have a stake (pun intended) in keeping the gambling industry as strong as possible. The Irish government levies a 1% tax on bets (which in the last budget was extended to online betting). The take from this tax is paltry however.

Even this small amount is used to prop up the bloodstock and racing industries – irrespective of whether the bet being taxed was placed on horse racing or not. It’s fairly clear there are very strong vested interests at play here – and the popularity of horse racing in Ireland means the government continues to forego what could be a very profitable source of tax revenue. The ring-fencing of revenue from this tax for the horse racing and bloodstock industries also makes little sense. The value of bloodstock industry itself was estimated at €0.9bn in 2010. The industry receives approximately €11m from the betting tax (or approximately 1% of the industry value). Does this very successful industry require state support?
 
This boils to little more than a question of priorities however, until the issue of gambling addiction is considered. Whatever the scale of gambling addiction in Ireland, there can be no doubt that the gambling industry, and the sport of horse racing that relies on gambling to exist, have negative social external effects. The effects are more significant also because they are so highly concentrated, in that the damage done to individuals and families are catastrophic. An issue raised in the discussion on Newstalk was the lack of investment in gambling addiction support in Ireland. Potential solutions were in short supply, though it is clear that a large part of the solution must be internalizing the external costs of gambling. That means dramatically increasing the betting tax. There can be little justification for VAT rates of 21% and a betting tax rate of 1%. This could be paid by bookmakers (as is currently the case) or by punters. This could be supplemented by a levy on bookmakers’ profits. And instead of ring-fencing the income for investment in an industry that hardly needs such investment, the proceeds could instead by invested in gambling addiction counseling and other mental health supports.