Supervision charge on
gaming venue
operators
Statement of reasons
October 2013
Supervision charge on gaming venue operators
Statement of reasons, October 2013
i
The Secretary
Department of Treasury and Finance
1 Treasury Place
Melbourne Victoria 3002
Australia
Telephone: +61 3 9651 5111
Facsimile: +61 3 9651 5298
www.dtf.vic.gov.au
Authorised by the Victorian Government
1 Treasury Place, Melbourne, 3002
© Copyright State of Victoria 2010
This book is copyright. No part may be reproduced by any process except in accordance with
the provisions of the Copyright Act 1968.
Published October 2013.
If you would like to receive this publication in an accessible format please telephone
9651 0909 or email mailto:[email protected]
This document is also available in PDF format at www.dtf.vic.gov.au
Supervision charge on gaming venue operators
Statement of reasons, October 2013
Contents
Statement of reasons in determining the supervision charge on gaming
venue operators ......................................................................................................... 1
1. Regulatory impact statement ................................................................................. 1
2. Public consultation ................................................................................................. 1
2.1
Level of equity in the design and application of the charge…………………………………….2
2.2
Sharing of the Victorian Commission for Gambling and Liquor Regulation's
regulatory costs…………………………………………………………..………………………………………….3
2.3
Impact of the charge on venue operator cash flows……………………………………………….4
2.4
Financial accountability of the Victorian Commission for Gambling and Liquor
Regulation………………………………………………………………………………………………………………5
2.5
Multi-criteria analysis approach and findings………………………………………………………….6
3. Conclusion
....................................................................................................... 7
3.1
Final decision………………………………………………………………………………………………………….7
3.2
Other considerations………………………………………………………………………………………………7
Supervision charge on gaming venue operators
Statement of reasons, October 2013
i
Statement of reasons in determining the supervision
charge on gaming venue operators
Under section 3.6.5A of the Gambling Regulation Act 2003 (GRA), the Treasurer determines a
supervision charge payable by gaming venue operators in consultation with the Minister for
Liquor and Gaming Regulation. The supervision charge is intended to reflect the reasonable costs
and expenses incurred by the Victorian Commission for Gambling and Liquor Regulation (VCGLR)
in carrying out its functions and powers with respect to monitoring and ensuring compliance with
obligations under the GRA.
1.
Regulatory impact statement
As required under the Subordinate Legislation Act 1994, the Department of Treasury and Finance
(DTF) developed a draft regulatory impact statement (RIS), which formally assessed the options
for recovering the VCGLR’s reasonable regulatory costs through the supervision charge.
The RIS argued that there is a strong case for setting the supervision charge to fully recover all
reasonable regulatory costs from the gaming industry. This is primarily based on the argument
that the regulatory cost should be fully internalised by the industry that gives rise to the need for
the regulation in the first place.
Of five options considered, the RIS proposed a two-tiered charge incorporating two elements:
2.

a per entitlement charge multiplied by the average number of entitlements held by the
venue operator; and

a per operating gaming machine charge multiplied by the average number of operating
gaming machines held by the venue operator.
Public consultation
A draft RIS and draft notice to make a legislative instrument were released for public
consultation on 7 June 2013. The consultation closed on 5 July 2013.
Public submissions were received from the following organisations and have been published on
DTF’s website.

Australian Hotels Association (Victoria);

Australian Leisure and Hospitality Group;

B.J & L.M Wood Pty Ltd for and on behalf of Lara Hotel Pty Ltd, Royal Hotel Pty Ltd,
Rowell Hotel Pty Ltd and Wool Exchange Hotel Pty Ltd;

Clubs Australia;

Clubs Victoria;

Community Clubs Association of Victoria;
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Statement of reasons, October 2013
1

Foster Golf Club; and

Mercury Group Victoria Inc.
Of these submissions, three supported and four did not support the proposed method for
calculating the charge. One submission was neutral in its overall views.
The responses raised two issues specifically in relation to the proposed method:
1. the level of equity in the design and application of the charge; and
2. whether the costs of the supervision charge should be borne more broadly other than
by the gaming industry.
In addition, three other issues were raised in response to the RIS:
1.
the impact of the charge on venue operator cash flows;
2. the VCGLR’s incentives to contain their regulatory costs; and
3. the approach taken and assessment made in the multi-criteria analysis.
In determining the 2012-13 supervision charge on gaming venue operators, careful consideration
was given to these issues raised as outlined below.
2.1
Level of equity in the design and application of the charge
Differing views were expressed in submissions on whether the design of the proposed charge
was fair or equitable, and some proposed an alternative design.

Australian Leisure and Hospitality Group believed that ‘a two-tiered charge based on the
number of gaming entitlements owned and the gaming machine operated by a venue
operator is the most equitable model’.

Community Clubs Association of Victoria suggested that ‘any supervision charge should
be based on venues’ capacities to pay, and for this reason it is fairer to consider gaming
revenue on a per machine basis’ (i.e. Option C – Gaming machine revenue based charge).
This also ‘ensures lowest cost by spreading the base for charges across the entire GME
estate rather than limiting it to installed operating machines’.

B.J & L.M Wood Pty Ltd suggested that the charge should account for ‘the great majority
of city hotels’ that paid a lower price for gaming entitlements than ‘much smaller
country venues’. Further, ‘it would make sense that any cost recovery should be
allocated to venues who reaped the greatest benefit’. A charge on ‘gaming turnover by
venue would give a very good guide to the benefits in terms of profit that is attributable
to a Gaming Venue’.
Treasurer’s response
The Treasurer appreciates the views put forward on the level of equity or fairness in the design
of the charge, however does not support the proposal to base the charge on gaming revenue.
The RIS stated that equity in the context of cost recovery charges means that those who benefit
from government activities or contribute to the need for government regulation should pay the
associated costs. Cross subsidies should be minimised.
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Supervision charge on gaming venue operators
Statement of reasons, October 2013
The relationship between the VCGLR’s regulatory costs and gaming machine turnover is minimal.
Most VCGLR regulatory cost drivers primarily arise from the actual demand for the VCGLR’s
regulatory functions. As a result, imposing higher costs on venues with higher revenue earning
gaming machines would create a cross subsidy towards venues with lower revenue earning
gaming machines, with an unclear and potentially tenuous link to the VCGLR regulatory functions
and costs.
Basing the charge on the number of entitlements and number of operating gaming machines
more closely aligns with how the VCGLR incurs its gaming related regulatory costs. Such costs
mostly arise through volume-based influences (e.g. the volume and nature of audits are likely to
be greater when more entitlements/operating machines are held).
The proposed charge indirectly incorporates venues’ capacity to pay by basing the charge on the
number of entitlements and gaming machines operated.

Venues with fewer operating machines and entitlements will pay less than those with a
greater number of machines and entitlements.

It also accounts for the capacity to pay of venues that hold, but do not use gaming
entitlements for factors beyond their control including regulatory, planning and building
processes. Charging venues in these situations a lower amount is considered equitable
because such venues did not give rise to the VCGLR’s costs of regulating operating
gaming machines.
The GRA provides the Treasurer with the ability to set instalment payment arrangements, which
can assist venues experiencing cash flow issues.
2.2 Sharing of Victorian Commission for Gambling and Liquor Regulation
regulatory costs
Some submissions argued that the VCGLR’s gaming related regulatory costs should not be borne
by the gaming machine industry, and should instead be borne by government through general
taxation. Others argued that costs should be recovered through existing gaming machine tax
revenues collected, rather than through the imposition of an additional charge on the gaming
industry.

Clubs Australia was ‘in principle, opposed to the application of a Supervisor Levy in
Victoria or other jurisdictions, believing existing taxation should cover these costs’.

Foster Golf Club questioned whether it was fair to industry to ‘internalise on a cost
regulated by a body governed and held accountable to the state government’. The club
also proposed that the Treasurer determine that the cost be shared.

Community Clubs Association of Victoria preferred the government recover the VCGLR’s
gaming related regulatory costs through general taxation because clubs ‘are already
facing significant cost pressures arising from the changes to the gaming environment’,
paid a ‘significantly higher proportion of revenue for Gaming Machine Entitlements
(GMEs) than did other venue operators’ at auction and ‘have been forced, with other
industry participants, to fund unbudgeted legacy monitoring system costs’.
Treasurer’s response
It is general government policy that regulatory fees and user charges should be set on a full cost
recovery basis where justified and practically feasible. A number of government fees and charges
levied are set in this way, ensuring that those that contribute to the need for government
regulation pay the associated costs.
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Statement of reasons, October 2013
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The Treasurer maintains the view presented in the RIS that there is a strong case for using the
supervision charge to fully recover all reasonable regulatory costs from the gaming industry
because:

such regulatory costs should be internalised by the industry that gives rise to the
regulation in the first place;

venue operators also benefit from the regulations administered by the VCGLR through
educative programs and by the VCGLR’s regulatory activities maintaining the integrity
and value of the gaming entitlement system; and

those parties that do not benefit or take part in gaming related regulatory activity do not
have to bear the associated costs.
Relying fully or partially on general taxation revenue to recover the VCGLR’s gaming related
regulatory costs would inappropriately shift the costs of gaming regulation onto a number of
other individuals and businesses with little to no contact with the industry. In addition, by
increasing the level of general taxation needed to finance gaming related regulated activities, the
State may incur additional costs of tax administration and compliance, and the ‘deadweight loss’
of tax-related distortions to the economy more broadly.
Venue operators were advised prior to the auction of gaming machine entitlements that a
supervision charge would be imposed. An indicative estimate of $550 per gaming machine per
annum was provided prior to auction, which is higher than the estimated charge amounts
disclosed in the RIS (i.e. $191.67 per gaming machine operated and $16.36 per entitlement
owned). It was also made clear prior to auction that the charge would be payable based on all
costs associated with regulating the gaming industry.
2.3
Impact of the charge on venue operator cash flows
Clubs Victoria and Mercury Group Victoria Inc both noted that their members, particularly club
venues, have significant cash flow issues that make it difficult to pay a potentially large one off
expense once a year. Both recommended the Government offer the option for the supervision
charge to be paid monthly and direct debited along with the already established monthly
arrangements for payment of gaming machine taxes.
Treasurer’s response
The Treasurer has reflected on the proposal to allow the charge to be paid monthly, and
considered the financial and practical implications of doing so.
Monthly instalment payments would significantly increase the VCGLR’s administrative costs of
implementing the charge. In addition, linking payment arrangements to the payment of gaming
machine tax would make tax reconciliation difficult and could also have implications for the
governance requirements on the Gaming Machine Monitor licensee.
In order to balance these considerations, a one-off extended payment deadline of 6 months from
the date of invoice will be offered for the 2012-13 supervision charge. In proceeding years,
consideration will be given towards the length of the payment deadline.
Pursuant to section 8 of the Financial Management Act 1994 and the Minister for Finance's
Standing Direction 3.4, the VCGLR will cause policies and procedures to be created for the
collection of the charge, including credit policies, the negotiation of payment terms and
outstanding debt procedures. Venue operators that genuinely cannot pay the supervision charge
by the due date/s can contact the VCGLR to discuss this further.
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Supervision charge on gaming venue operators
Statement of reasons, October 2013
Further details of these arrangements will be communicated by the VCGLR when invoices are
issued in the coming months.
2.4 Financial accountability of the Victorian Commission for Gambling and
Liquor Regulation
Clubs Victoria was the only organisation to raise concerns regarding the VCGLR containing its
gaming related regulatory costs. It proposed a number of measures aimed at holding and
maintaining the VCGLR accountable including:

an annual audit regime to ‘consider the application of fee recovery and publicise to
license holders the fees and actual expenditure applications’;

a clear indication to the gaming industry of the allocation of the VCGLR’s costs annually,
with a view to contain and reduce costs;

introducing a cost management protocol to ‘ensure responsibility is taken by nominated
officers for the spend’;

share annual VCGLR budgets with the gaming industry, and compare and review the
VCGLR’s budget performance with the industry annually;

the Treasurer make an assurance that costs are recovered for ‘actual services delivered’,
and do not include ‘miscellaneous costs added such as management fees and other
indirect expenditure’; and

an annual review of the VCGLR’s ‘education outreach program to venues’, with the input
of the gaming industry to improve current service levels and standards.
Treasurer’s response
In the context of the supervision charge, the VCGLR’s management of gaming related regulatory
costs are monitored in government, by the Department of Justice and DTF, to ensure costs are
prudently managed and reasonably contained. The VCGLR’s real gaming related regulatory costs
declined by an annual average rate of 3.5 per cent over the last 13 years.
To ensure that public resources are being managed in a financially responsible manner, the
Government imposes a broad whole of government Financial Management Framework (the
Framework), which helps ensure agencies such as the VCGLR apply sound and transparent
financial management processes.

The Financial Management Act 1994 seeks to improve financial administration and
accountability and requires annual reporting to the Parliament by all Victorian Public
Sector entities. The Framework supports this aim.

Under the Framework, the VCGLR is subject to legislative obligations including the
Standing Directions of the Minister for Finance. In order to demonstrate effective
financial practices and to achieve a consistent standard of accountability and financial
reporting, the VCGLR is required to certify its compliance with the Standing Directions
under the Framework annually. The VCGLR does this by maintaining strict financial
delegation controls and expenditure monitoring.

In addition to this, the VCGLR is required to submit annual financial statements that are
audited each year by the Victorian Auditor-General. The VCGLR also maintains an annual
internal audit program and has a standing Audit Committee chaired by a highly qualified
person external to the organisation.
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Basing the proposed charge on actual costs provides a transparent and demonstrable basis of
comparison to review the VCGLR’s regulatory costs annually, ensuring ongoing efficiency of the
VCGLR’s regulation activities.
In determining the VCGLR’s total cost base for regulating gaming, costs that are considered nonsupervisory in nature and/or unrelated to gaming are excluded for the purposes of the
supervision charge. In addition, the charge will net off amounts already collected from specific
gaming related licence fees to avoid double charging.
A summary of the VCGLR’s cost base will be disclosed when invoices are issued to venue
operators. More generally, output costs related to gaming regulation are published in the State
budget papers and the VCGLR’s costs of regulation are published annually in its financial
statements as part of its annual report.
2.5
Multi-criteria analysis approach and findings
Community Clubs Association of Victoria was the only organisation to raise concerns regarding
the multi-criteria analysis of options considered in the RIS:
‘While in no way impugning the motives of DTF in these analyses, the criteria, scores and
weightings are all capable of objective challenge – i.e., there is a degree of subjectivity about the
weightings, in particular. We make this point as DTF’s preference for Options is influenced by the
weightings. A slight movement in Weightings for Transparency would bring the scores closer
together; the Weightings for Cost Effectiveness seem out of balance, as we see no greater
complexity for the VCGLR in preparation of invoices for Option C than there would be for other
Options. The Weightings for Equity do not seem relevant – revenue is more likely to be an
outcome of customer preference than it is of “machine intensity”’.
Treasurer’s response
The RIS was independently assessed by the Victorian Competition and Efficiency Commission
(VCEC), which advised that the RIS presented adequate evidence and analysis.
Multi-criteria analysis necessitates a certain level of judgement. In the case of this RIS, it was
based on economic analysis undertaken by qualified economists within DTF and tested by the
VCGLR, Department of Justice, Department of Premier and Cabinet and VCEC.
The criteria were based on standard public finance criteria outlined in the DTF Cost Recovery
Guidelines and commonly applied in economic assessments of fees, charges and taxes.
Efficiency and equity were weighted more heavily because avoiding distortions in venue operator
behaviour (i.e. changing business decisions in response to the charge that would not have
occurred in the absence of the charge) and minimising cross subsidies between different gaming
venues are considered primary considerations.
When weightings are removed, the proposed option still receives the highest score in the multicriteria analysis. In addition, the result would remain unchanged for any upwards adjustment to
the cost-effectiveness rating for option C.
As stated in section 2.1, the equity assessment of option C reflects the observation that the
relationship between the VCGLR’s regulatory costs and gaming machine turnover is minimal.
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Supervision charge on gaming venue operators
Statement of reasons, October 2013
3.
Conclusion
3.1
Final decision
In the context of the RIS analysis and the consideration of submissions above, the Treasurer’s
final decision on the supervision charge is to apply a two tiered charge on the number of gaming
entitlements and operating machines.
This two-tiered system will incorporate two elements:

a per entitlement charge multiplied by the average number of entitlements held by the
venue operator; and

a per operating electronic gaming machine (EGM) charge multiplied by the average
number of operating gaming machines held by the venue operator.
The calculation of the per entitlement and per EGM charges was detailed in the RIS and will be
based on actual costs determined in arrears. These two elements will be summed to form the
supervision charge, which is levied on venue operators annually in arrears. The total supervision
charge for a given venue operator will be expressed as:
3.2
Other considerations
The process for preparing and issuing invoices to venue operators will follow the steps outlined
in section 5.5 and Appendix 3 of the RIS. As outlined above, a one-off extended payment
deadline of 6 months from the date of invoice will be offered for the 2012-13 supervision charge
to assist in managing cash flow constraints. A summary of the VCGLR’s gaming related regulatory
costs will be disclosed to venue operators when invoices are sent. In future years, this will
include a comparison to costs recovered in the prior financial year.
As required under the Subordinate Legislation Act 1994, the following documents will be
prepared and submitted to the Victorian Parliament once the 2012-13 supervision charge is
determined:

a copy of the Treasurer’s 2012-13 supervision charge determination;

a certificate outlining the consultation undertaken during the RIS process;

a certificate declaring that the RIS process undertaken complied with the requirements
under the SLA; and

A certificate of human rights compliance.
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Statement of reasons, October 2013
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www.dtf.vic.gov.au
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Supervision charge on gaming venue operators
Statement of reasons, October 2013