Wednesday 16 October 2019

Richard Curran: 'Betting tax delivers cash but squeeze on small bookies is coming'

Finance Minister Paschal Donohoe. Photo: Mark Condren
Finance Minister Paschal Donohoe. Photo: Mark Condren
Richard Curran

Richard Curran

Paddy Power owner Flutter has been busy spreading its bets all over the world through the multi-billion-euro merger with The Stars Group, which was announced during the week. If it goes ahead, the deal will give the combined group a presence in lots of new markets. Busy with its global footprint, Flutter may not even notice that Finance Minister Paschal Donohoe has shot down the industry's attempts to restructure the betting tax which he doubled in last year's Budget.

Bookies around the country lobbied hard after the minister increased the betting levy from 1pc to 2pc of turnover.

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The minister agreed to look at a proposal from the industry that tax based on 10pc of profits for retail and 20pc of profits for online would be a better way of protecting small, independent operators.

Answering a parliamentary question in the Dáil recently, the minister said that differentiating rates between different types of operators would not be a runner. He alluded to consultation with the European Commission but didn't exactly say that Brussels had rejected the proposal. Instead, he said there was "insufficient certainty" to proceed with "any such proposal".

There may be some disappointment among larger bookmakers, but smaller ones say they are really beginning to feel the pinch. The Irish Bookmakers Association has said that 23 smaller shops have closed this year since the new levy rate was applied, and that licence renewals are coming up in November. The industry says it is at crisis point, with tax clearance certificates being revoked. The next few months may see significant numbers of shops close.

Figures quoted by Horse Racing Ireland (HRI) chief Brian Kavanagh suggest the higher tax will deliver pretty much on target for the Exchequer. Having taken in €52m in 2018, doubling the levy should in theory bring in about €100m in 2019.

According to figures quoted by HRI for the first eight months of the year, the tax take has been around €67m to €68m, which points to an annual figure of around €95m.

So has it been a success? That depends on what the higher levy was supposed to achieve. If its main aim was to bring in more revenue for the Exchequer, then it will have done its job.

However, doubling the tax take on foot of doubling the tax rate implies the same level of gambling is going on. So, if the higher levy was supposed to reflect social concerns about gambling addiction and help act as a deterrent for excessive gambling, it isn't having any impact at all.

Surely the best way to tackle this social problem would be to proceed with the establishment of a gambling regulator, as promised in legislation as far back as 2013.

Proposed gambling legislation has been sitting dormant for so long, it isn't even fit for purpose any more because the technology of the industry has changed so much.

The Taoiseach said in March it could take 18 months to get a new regulator up and running. That would be late 2020.

So that would be nearly eight years since 2013, and 12 years since the last Fianna Fáil government opened up a consultation on it.

Donohoe was the one who appeared to link the tax rate with the social issues around gambling when he said recently that "in any discussion on betting duty, we must acknowledge the raised public consciousness of the problem of gambling in society".

The best way to tackle that one is with a regulator, rather than through a tax measure that will weaken smaller bookies, help consolidate the position of bigger operations, and maintain the same level of gambling in the first place.

Given bookies cannot pass the betting levy on to customers, the tax serves no purpose as a deterrent to gambling. The extra €50m or so a year in tax will come in handy for the Exchequer. But if we are serious about problem-gambling, how betting firms operate, market their services and protect consumers, introduce a regulator.

Irish whiskey can raise a glass to Trump's EU trade war

Just when it looked like nothing could go wrong for the Irish whiskey industry, things got even better. Economists often say that nobody wins in a trade war. Perhaps the opening salvo in the Donald Trump-EU trade war will be an exception to that rule.

The US government seems poised to introduce a raft of tariffs against EU imports, which will include dairy, pork and beverages. Irish exports to the US look set to take a hit.

Within the beverage category, Scotch is likely to carry a 25pc tariff when imported to the US, but Irish whiskey has escaped that penalty.

Given that the Irish whiskey category has been growing rapidly, particularly in the US, the tariffs on Scotch could give Irish whiskey a bit of a boost.

Total beverage exports out of Ireland last year amounted to €1.5bn. Of that figure, whiskey sales were around €630m.

Of this figure, the US accounted for a staggering 57pc of whiskey exports. That is equal to around €360m.

Scotch distillers are very unhappy about the way this is shaping up. And while the exclusion of Irish whiskey might be very helpful to the likes of Jameson and lots of smaller players, there is a sting in the tail. Liqueur imports from the EU, which include Baileys, are in line to be hit by the 25pc tariffs. Whiskey, mainly distilled by Irish Distillers for the manufacture of Baileys, is a big ingredient.

Liqueur exports were 23pc of the total €1.5bn of beverage exports in 2018. Baileys would have accounted for the lion's share of this. If the tariffs hit Baileys' sales in the US, they could also hit Irish Distillers' bulk sales used to make the product. However, given that Jameson is the big beast of the Irish whiskey industry and it could benefit from a massive tariff being placed on rival Scotch, this would be a real case of swings and roundabouts for Irish Distillers.

Ornua's Kerrygold and Glanbia's new cheese offering in the US might not escape as well as whiskey.

Dairy exports to the US are in the crossfire. Last year was very strong for Irish dairy exports, especially to the US and Europe.

Butter exports from Ireland hit €1bn for the first time in 2018, but this year has not been as strong. Nevertheless, Kerrygold has a strong market presence in the US, with the number-two butter brand. Glanbia has been eyeing premium product opportunities with its 'Truly Grass Fed' cheese.

Premium-branded products always have a better chance of absorbing the price increases that tariffs bring.

But if the US administration goes for hefty tariffs on the likes of butter and other dairy products, sales will be hit and there could be some economic blow-back at home.

The UK doesn't look like it will be taking up the slack by buying more Irish produce either, given the political chaos and economic uncertainty over Brexit.

Yet, the glass isn't just half-empty. A little context on this trade dispute might give some consolation. The scale of the tariffs is a lot less than the $25bn (€23bn) contemplated and threatened by the Trump administration. If introduced, the tariffs will come in direct response to a very specific state aid issue around plane maker Airbus.

Compare this with the US/China trade war. There are much bigger flash points there between the two countries, from global technological supremacy, to copyright theft and cybersecurity.

Trump's approach on trade has been to talk tough, get a concession, however small, and sell it to his political base at home as a big win. It should be easier to resolve an EU/US trade dispute than one between the White House and Beijing, as long as EU states can agree on sharing the pain that a resolution might bring.

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