Budget – curate’s egg

Horse Racing Ireland’s chief executive Brian Kavanagh described last Tuesday’s budget as a curate’s egg: part good, part bad but hopefully not so bad so as to ruin the entire thing.

The good part was the government’s commitment to widen the tax net in order to generate revenue from internet and telephone betting. The inexorable and largely unforeseen growth in internet betting, and its encroachment on traditional off-course and on-course betting media in Ireland, has presented a well-documented major difficulty for the collection of tax revenue from betting over the last decade, and HRI have been lobbying for the adoption of measures to rectify the situation for a while now. There were signals from the government earlier this year that there was a commitment to so doing, but it was important that a statement in that regard be included in the budget, as it was.

The bad parts of this particular egg, according to the CEO, were the reduction of almost 3.4% in the Horse and Greyhound Fund for 2011, from €59.3 million to €57.3 million, and the fact that the tax rate was not increased from 1% to 2%, the rate put forward in the 2009 Finance Act, or even to 1.5%, as proposed by Labour in their policy document.

On the face of it, a further reduction in the government’s grant to racing looks grim. The Horse and Greyhound Fund is split 80-20 between horse racing and greyhound racing, so it means that HRI will receive €1.6 million less this year than it did last year. It is the fourth reduction in funding in three years, from €76.3 million in 2008, and it means that most of the cornerstones of the racing industry will have to be scaled back further. However, as Jonathan Mullin argued in his column on Thursday, a reduction of only 3.4% should probably be seen as a serious result for racing. In a budget that saw the minimum wage reduced by over 11%, tax credits and bands reduced by 10%, the introduction of a new consolidated social charge of 7%, and a whole raft of other austerity measures, a reduction of 3.4% in the Horse and Greyhound Fund is to be greatly appreciated rather than stomached.

From many aspects, the maintenance of the 1% tax is no bad thing either. It is impossible to know the effect that an increase to 2% would have on the off-course sector, but it appears that the Irish Bookmakers’ Association’s presentation in this regard was sufficiently convincing to persuade the Minister for Finance not to make the proposed increase last year. If the case to maintain the status quo last year was strong enough to effect a change of heart at government level, then why would you not maintain it this year?

And it is easy to believe that an increase would have had a serious impact. A significant proportion of Ireland’s betting shops operate on the precipice of viability, an increase in the tax rate to 2%, effectively a doubling of shops’ tax liability – and the laws of competition dictate that they would have to pay it themselves, that they couldn’t pass it on to their customers – could push a significant proportion into the abyss. That would lead to job losses, shop closures, a consequent decrease in betting turnover, and ultimately almost certainly a considerable discrepancy between projected and actual tax revenue.

Three major issues still need to be addressed. Firstly, the government estimate that a 1% tax on on-line and telephone betting would yield another €20 million. Add that to the €31 million that was generated for the exchequer from betting last year, and that still falls over €6 million short of even next year’s reduced fund. That €6 million still needs to be found, and that is even if the government do draft legislation that will ring-fence tax revenue from betting for the funding of Irish racing.

That is the second issue. While racing and betting have always been inextricably linked, these are changed times. It is wholly desirable to have a legislative structure in place that will guarantee racing’s funding that is not dependent on the whims of the government of the day, but it is not a given. It is estimated that, at most, 15% of all betting by Irish bettors is on Irish racing. There is still a debate to be had.

Thirdly, and most importantly, there is the not inconsiderable issue of convincing off-shore operators of the need to sign up to a new taxation regime. This is imperative in order to ensure that those firms that are based in Ireland, and therefore easily accessible, are not targeted to the exclusion of foreign firms. Such a scenario would inevitably lead to the flight of indigenous operators and more job losses.

The case to foreign operators needs to be a solid business case. They are commercial operations with boards of directors and shareholders. Reliance on their philanthropic department, their good eggs, is not an option.

© The Racing Post, 14th December 2010

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