Ban vs. Regulation: Striking a Balance in New Zealand’s Online Gambling Landscape
New Zealand’s National Party released a global taxation plan on Wednesday, August 30th. With it, they plan to tax offshore gambling platforms as a part of their $14.6 billion tax plan.
General elections in NZ are just around the corner. Saturday, October 14 is election day and Christopher Luxon’s National Party will do everything in its power to win the majority over its rivals, the Labour Party. They’re running their election campaign on the wings of a massive tax package that would be funded by smart cuts and new taxes.
Among other taxes, the National Party estimates it could add roughly $179 million per year by taxing offshore operators who facilitate online gambling to NZ players and closing other existing tax loopholes in the online gambling ecosystem.
The National Party would force offshore sites to choose between two options:
- Pay taxes for providing online gambling to NZ residents according to the new taxation laws.
- Prevent NZ residents from accessing their gambling platforms.
While I do believe this is a step in the right direction, it might not do much for NZ’s gambling problems. In theory, the new offshore gambling tax seems like a win-win for the NZ government. In practice and the sad Australian experience, things are often completely different. In other words, this new tax could prove to be a double-edged sword. Let’s talk about that!
Current Situation on the New Zealand Gambling Market
The current situation is quite straightforward. The only regulated gambling institutions in the country are TAB NZ and the New Zealand Lottery Commission. All gambling that goes through these two institutions is properly regulated and taxed. No issues there!
Things get a bit messy when it comes to offshore gambling platforms. At the moment, New Zealand laws do not prohibit residents from playing at offshore gambling sites. However, New Zealand is not getting any taxes from these sites, and that’s what the National Party aims to enforce and regulate.
Why? This doesn’t seem like that big of a deal, right? I mean, there just can’t be that many NZ residents playing at online gambling sites.
That’s exactly the problem here. There are many estimates out there, but no one can say for sure just how many NZ residents use offshore gambling sites. These websites aren’t properly regulated and they don’t provide detailed reports of users’ activity. This means that the exact number doesn’t exist anywhere; all we have are assumptions.
As mentioned earlier, the National Party aims to add roughly $179 million to their budget by taxing offshore gambling platforms. This isn’t some random election promise, mind you, the National Party is serious about its tax plan. If they win the election, they plan on introducing the changes on July 1st, 2024.
I’m not here to pretend the proposed solution has no flaws. While I do agree that something has to be done in regard to unregulated offshore gambling, the National Party needs to start polishing the details if they want their plan to succeed.
How Other Countries Dealt With Offshore Gambling Sites
Let’s continue looking at how other governments took control of offshore gambling. Several countries tried to regulate offshore gambling sites but failed miserably. There are good examples too, though, and I firmly believe Christopher Luxon needs to learn from them.
Let’s consider several examples of online gambling industry regulation in other countries, that have led to success.
- Gambling Regulation and Gambling Policy in the UK
The United Kingdom’s gambling regulations are a massive success, all thanks to the introduction of the United Kingdom Gambling Commission (UKGC from now on). The UKGC was created with the Gambling Act of 2005.
- Ontario’s Open Online Gaming Market
The Alcohol and Gaming Commission of Ontario (AGCO from now on) put emphasis on creating a competitive online iGaming ecosystem based on fair play, privacy, and security. But, is the new gambling regulation in Ontario that successful? Well, the stats don’t like:
- State-by-State Regulation of Online Gambling in the USA
Another good example is the state-by-state regulation of online gambling in the USA. Every state has the freedom to regulate online gambling activities on their own. This could be viable in NZ too. NZ’s 16 regions could tailor the regulation and taxation as they please. This could be a great way to add extra budget for funding local/regional projects.
The changes it introduced were heavily focused on online gambling ecosystems. More precisely, the UKGC was focused on preventing underage gambling and fraud and regulating factors like know-your-customer (KYC) and gambling advertising restrictions.
Prior to the new regulations, it’s estimated that roughly 70% of online gambling activity by Ontario residents was done on unregulated gambling platforms. After opening the market and regulating international gambling platforms, the newest AGCO study states over 85% of Ontario residents used regulated sites.
Let’s have a look at various instances of ineffective regulation within the online gambling industry in several countries.
- Australian Gambling Scene
Let’s look at the Land Down Under first. Our neighbours introduced the Interactive Gambling Act in 2001 which made it illegal for gambling providers to offer certain online services to AU residents. The list of services includes offshore casinos, in-play sports betting, and sports betting services without an Australian licence. But, even with all these restrictions in place, the main problem hasn’t been dealt with.
- Monopoly in the Gambling Industry in Finland
Finland is another example of how not to regulate the online gambling market. At the moment, online gambling in Finland is legal, but there are a number of restrictions in place. There are no advertisements from offshore websites and winnings have to be declared via tax returns.
The Australian government has since tried to fix the glaring issues but to no avail. The country still faces issues with post-pandemic problem gambling and it seems like a never-ending cycle at this point. Research suggests there could be around 1.3 million Australians at risk of suffering from gambling addiction.
Thanks to the current set of rules and regulations, the online gambling market in Finland is one big controversy. The state practically has a monopoly over the whole market, yet it keeps on stumbling from one mistake to another. Luckily, the Finns are aware of the glaring flaws of the current systems and plan on ending the online gambling monopoly soon.
What’s the Best Approach to New Zealand’s Offshore Casinos Taxation
If everything aligns correctly for the National Party, we could see these changes roll out on July 1st, 2024. But, we still don’t have that much information on any of this. To be clear, that’s probably because the NP only has the basic draft at the moment. If the taxation plan actually comes into force, several choices will have to be made.
The obvious but awful, in our opinion, choice is to require offshore casinos to block NZ residents from accessing their websites. This is the sort of stuff Netflix uses for their services.
Those who want a piece of the regulated online gambling market in NZ will have to play by the new rules. This means adhering to the new regulations and paying taxes accordingly. This shouldn’t be an issue for reputable operators, meaning we can expect the biggest brands to join the NZ market as soon as possible.
Would Geoblocking Offshore Casinos be Effective?
Unfortunately, I honestly doubt geoblocking offshore casinos would put this matter to rest. There are many ways users can bypass geo-restrictions with a VPN. If users want to gamble at a certain site that’s no longer accessible, they’ll find a way and that’s a fact!
Take VPNs (virtual private networks) as the perfect example. With the flick of a switch, (virtual, of course), users can pretend to be from a different country, preferably one whose residents aren’t geo-blocked.
Yes, the NZ government could take further action by filtering/censoring the internet. However, this method of content blocking is, at least in my opinion, a bit too much. It’s a hot take, one that the new winning majority is likely to consider sometime next year.
The Final Word
There’s no easy way to wrap this one up, honestly. The National Party has good intentions. I can’t argue with that. There’s surely a ton of tax money to be made here; money that would greatly benefit some of the Kiwis.
However, it will be quite difficult to get big international casinos to comply with the new rules. Sure, if the tax isn’t too high and the rest of the regulations aren’t too strict, the biggest iGaming brands are likely to be first in line once the NZ market opens up. But, what about the others?
To optimise taxation and minimise unregulated gambling, the key is to find the perfect balance.
On one end, the focus has to be on attracting a healthy number of offshore gaming operators. This can be done by offering low tax percentages and simple, lenient regulations. But, on the other, the government shouldn’t make the regulations too lenient. Plus, the taxes can’t be too low as that would defeat the whole purpose of National Party’s tax plan.
It’s a complex matter, one that will take months and months to polish and present to the board.