12 Oct 2010

Henry Tax Review - a dodged bullet for the Leisure & Entertainment industry?

by Tony Rein, Andrew Clarke

The Henry Review recommended an array of policy changes which, if adopted, could have had significant implications for the Leisure & Entertainment sector.

In May, to much fanfare, the Henry Tax Review was released. While the media at the time focused on the immediate reforms which were to be implemented in the 2010 Federal Budget, commentators suggested that the Leisure & Entertainment sectors dodged a bullet with minimal policy reforms recommended for the industry.

The Henry Review recommended an array of policy changes which, if adopted, could have had significant implications for the Leisure & Entertainment sector. They were designed to further a primary aim of the Henry Review - to minimise tax complexities while enhancing social and economic well-being.

This article explores two of the recommendations specifically relevant to the Leisure & Entertainment sector:

  • gambling taxes; and
  • alcohol taxes.

Gambling taxation


 Henry Review recommendations
  • Gambling taxes should focus on recouping economic rent generated by Government restrictions.
  • The elimination of gambling tax concessions for clubs. Subsidies should be implanted through direct expenditure.
  • Review of the allocation of responsibilities for regulation and taxation of gambling to minimise conflicts with state revenue raising and addressing problem gambling.


The Henry Review recognised that gambling taxation is an important revenue source for state governments. This is balanced against regulating gambling in a way that limits problem gambling.

Identifying the issues associated with problem gambling, the Henry Review stated that while taxes may help addicted consumers overcome their self-control problems, they would only work if consumers understood and responded to the increased prices they faced. It suggested that other interventions may be more effective to counter addictive behaviour and that taxes generally impose costs on all gamblers including the large majority of responsible gamblers.

With a view to minimising complexities in gambling taxation, the Henry Review identified that wagering, gaming machines, casino gambling and lotteries are each taxed on a different basis and at vastly different rates. In recommending a simplified tax system, it argued that as gambling businesses were able to earn economic rent (as a result of state government restrictions on the supply of gambling services), capturing economic rent would be the most efficient tax base for gambling services.

To create a tax system that could be applied to most gambling businesses, the Henry Review offered a series of ways to calculate economic rent and recognised that governments would need to consider the trade-off between the accuracy of calculating economic rent and the compliance costs that it would impose on gambling businesses.

The Henry Review also made the point that the rationale for gambling taxes applied to clubs as much as it does to other gambling businesses. As such, it recommended that governments wishing to subsidise clubs for social policy reasons should do so through direct expenditure; not through gambling tax expenditures (ie. tax concessions for clubs).

Finally, the Henry Review argued that, as state governments were unwilling to forfeit gambling tax revenue derived from problem gamblers (which in NSW is said to account for 3 percent of total State tax revenue), the state and federal governments should together explore options to minimise conflicts between revenue-raising and addressing problem gambling. While gambling taxes historically were the promise of state governments, the Henry Review stated that policy discussions in respect of gambling taxation "cannot be undertaken outside a broader consideration of federal financial arrangements".

Early indications of a preparedness to adopt the above recommendations have been weak. For example, in the 2010 NSW State Budget, none of the recommendations were implemented. The budget papers simply stated that the NSW Government "is working to improve the NSW tax system over time" and that the Henry Review was "likely to guide tax reform over the next decade".

Alcohol taxation


 Henry Review recommendation
  • Alcoholic beverages should be taxed on a volumetric basis. The rate of alcohol tax should be based on evidence of the net marginal spillover cost of alcohol.


If implemented, the Henry Review's recommendation regarding alcohol taxation would be a major shake up to the sector. With a detailed review of the current complex tax regime applying to the different classes of alcohol, the Henry Review stated that "taxes on alcohol should not be used for general revenue-raising, …[but should address] the significant spillover costs on the community associated with alcohol abuse".

In the implementation of a new tax regime, the Henry Review recommended that "alcohol taxes should be levied on a common volumetric basis across all forms of alcohol regardless of place, method or scale of production", not only considering alcohol strength, but also identifying classes of beverages which may be associated with greater or less risk of social harm.

However, a Federal Government press release issued in response to the Henry Review stated that there would be "no change [to] alcohol tax in the middle of a wine glut and where there is an industry restructure underway".

This response came as a surprise to some commentators in light of the Federal Government's taxes which sought to reduce teenage binge drinking. However, at that time, with a Federal election forthcoming, one can appreciate why this wider, potentially unpopular alcohol tax regime was not implemented in the 2010 Federal Budget.

The future

With commentary suggesting that the 2010 Federal Budget had more of an objective of balancing the books rather than the implementation of social policy ideas, it remains to be seen how the State and Federal Governments will respond to the Henry Review recommendations in the future. Clayton Utz will continue to closely monitor developments.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.