The Department of Internal Affairs

The Department of Internal Affairs

Te Tari Taiwhenua

Building a safe, prosperous and respected nation

 

Resource material › Regulatory Impact Statements › Gambling (Fees) Regulations 2007

April 2008

Regulatory Impact Statement

Executive Summary

Currently the costs of regulating the gambling sector are in excess of the revenue received from fees. At present the fees are insufficient to support the proper, effective regulation of the sector. The forecast deficit is not sustainable and represents a loss to the Crown, rather than the gambling sector funding gambling regulation.
    Costs exceed the low-end estimation made in 2003, when the Act was passed, of the capability required for a comprehensive approach to regulating the sector. The cost of integrating the electronic monitoring system (EMS) with other Departmental systems also exceeded expectations. The actual costs are now emerging from experience.

    Costs also reflect the requirement of the Act to address broader outcomes and harder-to-measure activities, such as harm prevention and minimisation and dealing with crimes of dishonesty associated with gambling.
      Revenue has also fallen due to a greater decline in the number of operators and gaming machines than anticipated.

      Adequacy statement

      The Department of Internal Affairs considers this Regulatory Impact Statement to be adequate. The Department confirms that the principles of the Code of Good Regulatory Practice and the regulatory impact analysis requirements (including the consultation Regulatory Impact Analysis requirements) have been complied with.


      Status quo and problem

      In 2004, the current fees were set prior to much of the Gambling Act coming into force. The Department noted the uncertainty over how the gambling sector would respond to the new environment and future volumes of work required in a number of areas. The Department agreed to monitor business activity, costs and revenue in the years following the introduction of the fees with a view to conducting an early fees review.


      The fees regulations for the electronic monitoring system (EMS) came into force in May 2006. Due to the tight statutory timeframe for implementing the EMS on all non-casino gaming machines, the fee to pay for the system was put in place before the total cost was clear.

      As the result of monitoring costs and revenue, the Department has identified that:
      • The forecast costs of the Department and the Gambling Commission exceed the forecast revenue derived from fees charged to the gambling sector, requiring an increase in budget.
      • Departmental costs for managing the EMS contract and making the changes to the Department’s systems to ensure compatibility with EMS have exceeded previous expectations.
      The number of gaming machines, licensed operators and gaming machine venues have declined to a level that is less than forecast. As most of the Department’s revenue is derived from fees charged to license gaming machine operators and venues, and from a compliance charge per gaming machine, revenue has declined.

      Continuing with the existing level of fees would fail to address the policy objective that the regulation of the gambling sector should be paid for by the sector itself. The status quo is therefore is not a viable option. An increase in fees is necessary to recover the additional costs required to regulate the gambling sector effectively and strengthen the Department’s ability to achieve the strategic outcomes sought. An adjustment to fees levels is required to recover the cost of regulating the gambling sector and provide certainty of fee levels for the next 5 years. The proposed fee increase will recover the current deficit and increased costs by the end of the fees review period.

      Objectives

      In general the proposed fees have been set to recover the costs of providing each service and are a direct result of the compliance and administrative costs necessary, in accordance with the
      Treasury Guidelines for Setting Charges in the Public Sector to meet the more stringent requirements set down in the Gambling Act.

      Alternative options

      Reduce Costs Further
      The Department could elect to focus primarily on a “cost savings” approach, for example reducing the number of staff, at the expense of taking a more strategic view and continuing to focus on achieving the purposes of the Act. This would be at variance with what the Office of the Auditor-General report recommended and, in a wider context, with the Department’s mandate under the Act and will lead to poorer regulatory outcomes.

      Both the current and forecast capability is required to achieve the specific purposes and broader activities of the Act. This includes the encouragement of voluntary compliance through engagement with a wide range of stakeholders. Intelligence and investigations activity is also required to support the focus on higher risk areas of the gambling sector. Cost cutting would undermine these activities.

      Preferred option

      In general the proposed fees have been set to recover the costs of providing each service. The fees are intended to recover only the compliance and administrative costs necessary, in accordance with the Treasury
      Guidelines for Setting Charges in the Public Sector.

      The proposed fees for class 3 gambling and licensed promoters have not changed and reflect the cost of carrying out the licensing and compliance checks required by the Act.

      It is proposed that clubs operating in their own clubrooms, the New Zealand Racing Board and racing clubs be charged reduced licensing fees and that they not pay a separate operator’s compliance charge. While the Department has increased the resources dedicated to assist clubs in achieving compliance with the Act, these lower fees reflect the reduced number of licensing checks and less stringent auditing regime that societies operating on their own premises will be subject to.

      The true costs of implementing the legislation effectively are emerging from experience. For example, the cost recovered by the EMS fee will have to be increased by $4.099 million over the review period if full cost recovery is to be achieved. In addition, the EMS fee was based on an over estimate of the number of gaming machines and the days that they operate. The Department has now revised the number of gaming machines downward to 20,000 meaning that a larger cost must be recovered over a smaller number of gaming machine days. The result is an increase in the fee from $1.14 to $1.35 (GST incl) per machine per day. For many societies, the change in the EMS fee will be the single largest contributor to their overall increase in fees.
        The annual fee charged to each casino is a combination of Departmental direct costs plus support costs and overheads, which are allocated across all casinos on the basis of player positions at table games and gaming machines. The proposed fees allocate a greater proportion of these overheads to casinos. In addition, the Gambling Commission’s activity in relation to casinos has increased in excess of the original forecasts. Over the last two years the regional Casino Inspectorates have moved off-site from a number of casinos.

        The allocation of costs between casino and non-casino functions of the costs of business support such as Intelligence, Investigations and Operational Policy, have changed since fees were last reviewed in 2003. This reflects the change in the focus of activity in casino compliance from routine audit work to specific investigations in key risk areas such as problem gambling and criminality in casinos. The corresponding impact has been a shift of some costs from the non-casino gambling area.
          As part of its regulatory function, the Department tests, approves and certifies games, gaming machines and other gambling equipment and sets and monitors technical standards for their operation. The need to increase capability in the technical gaming and IT areas reflects the increasing technical demands of EMS, the technical sophistication of gaming machines and the ongoing improvements in IT systems, especially the Department’s key licensing and compliance system that was developed and implemented in 2004/05. In response to submissions it is proposed that a new game and gambling equipment approval fee be implemented. This fee would be largely paid by gaming machine manufacturers.

          Implementation and review

          If Cabinet agrees to the proposed fees, new Gambling (Fees) Regulations will be drafted that will apply from 1 February 2008. The Department of Internal affairs will provide information to gambling operators, including information on its website and its quarterly newsletter to the sector,
          Gambits. As many gambling operators will only pay the proposed fees when they come to renew their licences throughout the year, the Department will monitor the impact that the fees have had.

          Consultation

          Government
          The following department’s/agency’s views have been sought and are accurately reflected in this paper: The Ministry of Economic Development, the Ministry of Health, the NZ Police, the Department of the Prime Minister and Cabinet, the Ministry of Social Development, SPARC and Treasury.

          Industry
          Section 372 of the Act provides that consultation must be conducted with persons or organisations that appear to the Minister or Secretary to be representative of the interests of persons likely to be substantially affected by the proposed regulations. A consultation document was issued to all class 4 operators and their representative national bodies, organisations granted class 3 licences in the last year, all casinos and licensed operators. A copy of the document was also posted on the Department’s website. Twenty submissions were received and have been considered.