Donohoe’s officials told him time was right for increase in betting tax

Minister for Finance Paschal Donohoe was told in advance of October's budget that the "opportune time" had arrived to double betting tax amid ongoing pressure to increase tax on gambling.

Mr Donohoe doubled the rate to 2 per cent in Budget 2019, after which he was met with fierce opposition from the bookmaking industry.

His officials had warned that alternative proposals to tax punters directly, or the profits of bookmakers, would not be possible this year.

The Minister approved the rate increase only seeking clarification on what share of betting revenue was accounted for by the greyhound and horse racing industries.

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In the departmental submission, officials said the tax increase could yield an extra €50 million each year.

“Implementing betting tax increases prior to 2015 would have run a significant risk of simply undermining domestic bookmakers,” it said. “But given that remote operators and betting intermediaries are now well embedded in the scope of the betting tax regime, it may be an opportune time to consider rate increases.”

On the doubling of the betting tax, the department said the tax had not been increased since 1975 and had consistently been cut over the years.

“Given the increased concerns regarding the social costs of problem gambling, it is now appropriate to increase the rates to better reflect the negative externalities involved,” it said.

The department has committed to a review of the measure in 2019 to assess its impact.

Department records also reveal how Mr Donohoe considered giving a reprieve to smokers in the budget after seven consecutive years of excise duty increase.

Asked for his views on a tax rise for tobacco, the minister wrote: “Not currently minded to implement a further increase.”

Another hit

However, cigarettes did ultimately take another hit with a 50 cent rise in the price of a box of 20 cigarettes, and rises for other tobacco products.

The submission said that there were “moves” in the market towards the use of lower-price and value-sized packs by smokers.

“Surveys conducted by Revenue indicate an increase in the consumption of illicit cigarettes from 10 percent in 2016 to 13 percent in 2017,” it said.

Another 9 percent of the cigarettes consumed in Ireland had been bought legally abroad, it added.

Revenue had suggested that further tax hikes on tobacco might not generate extra money for the exchequer. It said predicting how much money tobacco would bring in had become increasingly difficult because of a practice known as “frontloading”.

This was where cigarette manufacturers had brought old branded product to market in Ireland in anticipation of the introduction of plain packaging.

The submission said Ireland’s anti-tobacco drive was working with the number of cigarettes “cleared for consumption” down by 27 per cent between 2008 and 2017.

Roll your own tobacco had become increasingly popular, accounting for 10 per cent of excise duty paid.

In a statement, the Department of Finance said the Minister's reversal over increasing excise duty on cigarettes came about because of health policy.

“Increasing tobacco products taxation is an important public health policy measure to continue the downward trend in smoking rates in Ireland.”

For alcohol products, Mr Donohoe heeded the advice of officials who warned Brexit and cross-border shopping could counteract any tax increase.

“I am currently minded to make no changes,” said the Minister. “Will review in final days before budget.”

Officials said there was now a “significant price differential” between how much was paid for booze in Dublin and offers available north of the border.

A submission for the Minister said: “Revenue conducted a cross border [Dublin and Newry] price survey on excisable goods biannually. In its May 2018 survey . . . it was found that there are significant price differences.”

It highlighted how a bottle of whiskey was €3.57 cheaper, vodka €4.52 cheaper, while common brands of wine were between €1.72 and €2.15 cheaper in the North.

The submission also said Brexit posed particular risks to the industry with the possibility of disruption of trading links and supply chains.

The department said the decision to make no change on alcohol was driven mainly by concerns around cross-border trade.

“An increase combined with the prevailing weakness of sterling could have encouraged cross border trade and a subsequent reduction in the excise yield.”