After several months of debate and dire warnings from all sides, the New South Wales (NSW) government has decided after all to delay the full implementation of a massive casino poker machine tax rate increase until the end of the decade, giving Star Entertainment a huge sigh of relief just weeks before the operator is due to release its fiscal year results.
NSW Treasurer Daniel Mookhey, who has been at the center of the deliberations, announced on August 11 that instead of implementing a full-on hike, Star and the government managed to agree on a “transitional” arrangement that will see tax rates start at 20.9 percent and increase by one percent in both 2024 and 2027.
In 2030, a new four-level tiered system will take effect, in which the tax rate will vary depending on revenue—the four levels will range from 0 percent for the lowest-performing machines to 51.6 percent for the highest-performing.
The new agreement also includes additional stipulations for Star, such as a promise to maintain at least 3,000 jobs throughout the decade and mandatory participation in a cashless gaming trial for high-traffic machines and tables.
Economic models have predicted that the transitional tax rates should generate approximately AUD$2.7 billion over the next 10 years, which is higher than the existing rate but lower than original estimates.
The saga surrounding the tax increase and its potential consequences began in December of last year when it was first introduced by the previous state government, led by former treasurer Matt Kean and former premier Dominic Perottet.
Under the previous proposal, the flat 32 percent rate for all machines would have been replaced with a tiered system based on machine revenue. The maximum rate was a hefty 60.67 percent.
Increased tax revenues and a fairer overall tax structure were cited as the chief reasons for the increase, as bars and clubs with poker machines have a tax rate of 37.5 percent.
Star was especially blindsided by the announcement of the increase because it would essentially be the only one forced to comply, given that it would only apply to machines in casinos. The only other casino in the state, Crown Sydney, does not feature poker machines.
In the first half of 2023, Star faced increasingly dire straits thanks to a combination of steep regulatory fees, ongoing remediation efforts and turnover among the executive suite. The increase was set to take effect July 1 but the state government granted an extension to better facilitate a more feasible arrangement.
In an update to the Australian Securities Exchange (ASX) earlier this summer, Star CEO Robbie Cooke said that the company was facing a “rapid deterioration in operating conditions” thanks to the factors above. That said, once news of the deferment broke, Star shares skyrocketed some 18 percent, adding more than AUD$250 million to the company’s valuation.
In a statement following the announcement of the revised structure, Mookhey admitted that the original proposal was “poorly developed and put thousands of jobs at risk,” especially since it was “announced without consultation or consideration for the viability of the business.”
“The advice I received from NSW Treasury is that absent this agreement, if the government proceeded with the announced rates, The Star would be unviable,” Mookhey continued.
Although Mookhey and others have acknowledged that the increase was not ideal, it is difficult to fully eradicate, given that it was written into the state budget by the previous regime before March’s elections. So, in the end, Star will still face the highest tax rate, but it has some more time to get things in order before it takes effect.
“While the in-principle agreement will result in an uplift in duties payable to the State, it has due regard to the circumstances of our Sydney business and as such helps to create a sustainable path forward for The Star Sydney,” Cook said in a statement.
“The arrangements enable us to continue working at pace to implement the significant reforms required to restore The Star Sydney to suitability, earn back the trust of the community, and ensure we remain a valuable contributor to the NSW economy.”
