Tobacco taxes on the rise
The announcement that the Macau government may be reconsidering a full casino smoking ban sent gaming stocks skyward in Hong Kong this month.
According to multiple reports, the territorial government may allow casinos to retain their smoking rooms if they can prove the health of employees and patrons is protected, said Secretary of Social Affairs and Culture Alexis Tam Chon Weng.
Even though the full ban on smoking was approved July 10 by the Legislative Assembly, several lawmakers argued on behalf of the casinos, saying they should be allowed to keep smoking lounges to avoid deepening an historic 13-month decline in gaming revenue. Lawmakers Zheng Anting and Kou Hoi In voted against the smoking ban, reported the Macau Daily News. So did legislator and SJM Managing Director Angela Leong On Kei. Leong is SJM founder Stanley Ho’s wife.
“Isn’t it possible to give our smoking customers an alternative?” Leong asked. “If you believe the existing lounges do not fulfill the criteria, then we can still study stricter criteria to match the needs.” She said it may be possible “to create in these lounges an environment without even a whiff of smoke…. If there is not enough ventilation we will work even better” to make the lounges safe, she said. She noted that the six major gaming concessionaires have already invested some MOP2 billion (US$250 million) in the smoking lounges now on mass gaming floors.
But Secretary for Social Affairs and Culture Alexis Tam said Macau is already “quite permissive compared to other regions like Japan, South Korea, Thailand and Hong Kong. In fact, we are not the strictest place when it comes to anti-tobacco efforts.” But Tam also pledged to review the impact of the ban three years after it takes effect. And he said authorities are willing to consider proposals by the gaming industry to adequately ventilate the rooms. “We must be objective. I can’t say anything since I have to see what their suggestions are.”
Song Vai Kit of the Macau Responsible Gaming Association recommended, “some dividing panels … or a certain distance could be determined between gaming facilities. Independent ventilation and independent air conditioning systems are a possibility too.”
As the proposal now stands, smoking would be banned in VIP rooms, and airport-style smoking lounges on mass gaming floors would be eliminated.
A compromise instead of a full ban would be heartening news for an industry that has been broadsided by the slump, now in its second year.
Yet another legislator, Cheang Chi Keong, pointed out that smoking lounges are still permitted in the local airport. “Should we seek a balance between protecting the health of workers and the businesses of the gaming corporations? I think most people will agree with me that casinos are not for local residents but tourists.”
And according to the Macau Business Daily, a joint statement issued by six legislators who voted for the bill cautioned that the ban could worsen the economy. “With gross gaming revenues dropping 13 consecutive months and declining year-on-year 37 percent cumulatively during the first half of the year, plus the intensive competition with casinos in nearby cities with no smoking ban, we can predict that the gaming industry will not recover from its downturn very soon,” wrote the legislators led by businessman Chan Chak Mo. “No one knows how much impact the full smoking ban will bring to the city’s gaming industry, but for sure the situation will be worsened.”
Moreover, the Macau News reports that the Macau Junket Operators Association has threatened to leave Macau altogether if a smoking ban causes a further slide in VIP gaming. AMJEM President Kwok Chi Chung said mass-market revenue has already dropped since a partial smoking ban took effect last year. Kwok pointed out that VIP revenues, which generate 70 percent of total gaming receipts, are down 50 percent due to the crackdown on corruption.
Tam says the city’s 83,000 casino workers are behind the ban, and “understand that their income may suffer from these measures.” However, he added, they are “risking their life every day because of smoking in casinos.”
As the debate continues, Tam said he believes more tourists coming in more often and staying longer could help offset any damage from a ban. “We are confident in our work of promoting Macau and increasing the number of tourists. There is huge potential to attract more tourists,” he said.
He also reassured the city’s casino workers who fear their jobs may be affected by an ongoing decline. “We don’t believe we will increase unemployment by implementing a full smoking ban in casinos. There are around 170,000 non-resident workers and we have the mechanisms for them to leave,” he said. “There is an unemployment rate of 1.7 per cent. This is very close to full employment.”
Along with the ban, the legislature approved a higher tax rate on tobacco products. The tax will now account for 70 percent of the cost of cigars and cigarettes.
Despite all the upheaval in Macau’s premier industry, its casinos still took eight of the Top 10 slots in a list of the world’s top venues by gross gambling yield. The Global Gambling Report’s 10th edition, published earlier this month by U.K.-based Global Betting and Gaming Consultants, ranks Galaxy Macau as No. 1, with $5.85 billion in GGY in 2014.
SJM Holdings’ Casino Grand Lisboa took second place with $3.82 billion; Melco Crown’s City of Dreams was third with $3.72 billion; Wynn Macau was fourth with $3.59 billion; Sands China’s Venetian Macao was fifth with $3.55 billion; MGM China’s MGM Macau was sixth with $3.24 billion; Galaxy Entertainment’s StarWorld Hotel ranked seventh with $2.87 billion; and Sands China’s Sands Cotai Central held the eighth position with $2.80 billion.
That advantage could vanish if Mainland China decides to allow casino gaming, as recommended by a new academic study. The study, by Li Sheng of the Macau Polytechnic Institute and Weibing Zhao of the Institute for Tourism Studies, indicates that the Chinese gamble roughly RMB1 trillion (about US$161 billion) a year. Last year, Macau generated just MOP352 billion (about US$44 billion) in bets.
Legalizing gambling, the authors argued, “would be strategically helpful in protecting China’s national economic interests. If the Chinese government does not take any action, the capital-exodus problem driven by overseas gambling will become a real threat to national welfare.”
