Packer mines a good thing: roll your own tax rate
It goes without saying, of course, the project is going to be absolutely world-class.
Maybe even world-ier than world-class. If it wins final approval the hotel will be Sydney's first "six-star" , according to Packer.
This "sixth" star doesn't exist for formal hotel ratings. When the premise of the thing rests on a marketing gimmick, there's no reason to limit your perception of it to world-class.
But it's the process itself that has been particularly exciting.
As an example of how governments and rich insiders can together align self-interest with public interest, to spruik vague and indeterminate community benefits, and to lay over it a veneer of transparency, Barry O'Farrell's government and Crown have hit on a model the business community can really get behind, and that deserves wider application.
When Packer lodged his "unsolicited proposal" to build the hotel and casino, it had the obvious benefit of bypassing the need for a commercial tender.
In an alternate world a government responding to the needs and desires of its citizens might decide these people wanted and needed a second casino, and run an open process to see who would pay the most for the right to profit off it.
Not so with unsolicited proposals.
Under this process, the idea of building a big casino on prime waterfront land was considered so unique the NSW government decided Packer didn't need to face competition. It would assess Packer's proposal and Packer's only.
Trouble was, of course, Sydney already had a casino with a rival owner.
So Echo, the owner of the Star casino, pitched an alternative expansion plan and offered a $250 million payment if its plan was approved at the expense of Packer's.
Despite itself, the NSW government ended up with a semi-competitive bidding process for Sydney's next casino licence.
Unfortunately, this might have cost Crown and Packer money as they started to increase their financial offer to the people of NSW. But no one should blame the NSW government.
The process got a kick along from the appointment of ex-Commonwealth Bank chief David Murray to chair the "ethical committee" to assess the proposals.
Murray was a guest at Packer's first wedding, so he understands how world-class the guy is. Murray is also highly intelligent.
He has proven to himself, for instance, that "there is no correlation between [global] warming and carbon dioxide" and the world's glaciers are in fact not melting.
Put another way, David Murray might well be smarter than the great majority of the world's scientists who work in fields in which he has no training.
If there's a criticism to be made here, it is that Murray is not in charge of more aspects of Australian public life.
But Murray's final report, released on Thursday and which endorses Packer's plan at the expense of the Star's, is top-notch.
We read, for instance, that Packer proposed two tax rates for domestic gamblers at his new casino. (Big-money overseas gamblers are taxed at 10 per cent in Australia.)
Option A was a 23 per cent tax rate coupled with a $250 million one-off licence fee. Option B was a 27.5 per cent tax rate with a $100 million licence fee.
This 27.5 per cent tax rate matches the base rate that the Star now pays for its domestic gamblers.
But once Echo's revenue from domestic gamblers crosses a threshold, it pays progressively higher rates of tax up to a maximum rate of 50 per cent.
According to Echo, by the end of the decade "a large proportion" of its revenue from domestic gamblers will be taxed at this 50 per cent rate.
Packer's pitch to pay 23 per cent or 27.5 per cent tax on revenue earned from domestic gamblers - with no progressive increase to 50 per cent - might therefore be seen as innovative, world-class and low-ball.
And what was Murray's response?
The committee stumped for Option B, the 27.5 per cent rate with a one-off payment of $100 million, but on the condition the rate was lifted to 29 per cent.
There must have been some discussion around the "ethical committee" on this one.
"The majority of the committee, including the chair, support a flat rate of 29 per cent which will provide an environment conducive to investment and growth, without material risk to taxation revenue," the report says. "The alternative view was the flat tax rate should be 31 per cent, which would provide the state with a better share of any potential upside in the casino gambling market ."
Fortunately, though, this alternative view did not find its way into O'Farrell government policy.
As a by-product of the Murray committee's endorsement of a flat 29 per cent rate, the Star's tax arrangements will also have to change if Crown's casino gets built.
This will be to avoid the two casinos being taxed at different rates.
The 50 per cent threshold rate will be winnowed back to a flat 29 per cent.
And what will be the net impact of this on state revenues?
How much money has the state forgone by deciding to tax Packer at 29 per cent, not 31 per cent, as some committee members seemed to recommend?
Would the sliding 50 per cent tax scale have worked at Packer's casino as well, even though he did not propose it?
Murray's report does not answer any of these questions. It merely asserts 29 per cent is a good rate.
In 2010 the big miners had to go to the trouble of tearing down a prime minister before Julia Gillard and Wayne Swan let them write their own tax.
Much neater to simply propose your own tax treatment, unsolicited.
Ross Gittins is on leave.
Frequently Asked Questions about this Article…
According to the article, James Packer and Crown cleared the latest stage of the approval process for their proposed hotel and casino on Sydney Harbour. The project has been promoted as a marketing 'six‑star' hotel and the Murray committee ultimately endorsed Packer's plan over an alternative put forward by Echo (the owner of The Star).
An 'unsolicited proposal' is when a developer lodges a private bid directly with government instead of entering an open commercial tender. The article explains that Packer used an unsolicited proposal to bypass a full competitive tender, which initially meant the NSW government would assess only his plan. Echo later submitted an alternative expansion plan (and a $250 million payment), producing a semi‑competitive process instead of a wide open competition.
Ex‑Commonwealth Bank chief David Murray chaired the so‑called 'ethical committee' assessing the proposals. The article says Murray's committee endorsed Packer's proposal over Echo/The Star's plan and recommended a flat tax outcome (see the 29% flat rate decision described in the report).
The article reports Packer proposed two options for taxing domestic gamblers: Option A — a 23% tax rate paired with a $250 million one‑off licence fee; Option B — a 27.5% tax rate paired with a $100 million one‑off licence fee. It also notes that big‑money overseas gamblers are taxed at 10% in Australia.
Murray's committee backed Option B (the 27.5%/ $100 million package) but asked that the flat rate be lifted to 29%. So the committee effectively recommended a flat 29% tax rate combined with a one‑off $100 million licence payment for the Crown proposal, according to the article.
To avoid having two casinos taxed at different rates, the article says The Star's tax arrangements would need to change. Echo currently faces a base 27.5% rate that rises progressively up to a maximum 50% once revenue crosses certain thresholds. Under the committee's endorsement of a flat 29% rate, that sliding scale — including the 50% top rate — would be winnowed back to a flat 29%.
The article highlights several unanswered issues: it does not quantify how much revenue the state may have foregone by choosing 29% rather than higher rates (some committee members favoured 31%), nor does it show whether the existing sliding 50% scale might have produced more revenue if applied to Packer's casino. Murray's report asserts 29% is 'a good rate' but doesn't provide detailed answers about net fiscal impact.
For everyday investors the article suggests a few takeaways: the approval process shows how unsolicited proposals and government decisions can shape corporate competition and market entry; the agreed flat 29% tax rate (and $100 million licence fee) could influence Crown's and Echo/The Star's future revenues; and the outcome also raises questions about state revenue and policy transparency. These are factors investors might watch when considering exposure to casino owners or related infrastructure plays.
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