NSW Treasurer Daniel Mookhey will defer the full implementation of poker machine duty rates until the end of the decade, offering the cash-strapped Star Entertainment Group respite less than two weeks before the casino giant unveils its full-year results.
After months of deliberation over a controversial tax increase the government inherited from the Coalition, Mookhey on Friday announced a revised, “transitional” arrangement for the planned duty rate increase on poker machine profits. The announcement confirmed the Herald’s story on Thursday.
The negotiated arrangement will legally require Star to maintain more than 3000 jobs between now and 2030; while the casino will participate in the state’s cashless gaming trial, with 50 poker machines and eight tables in high-volume areas to go cashless from October this year. The Star’s share price opened close to 20 per cent higher to reach $1.14 following the announcement.
The transitional tax arrangement on gambling machines will apply until the new rate begins in July 2030. The transitional casino duty rates are expected to generate $2.7 billion over 10 years from Star, more than half a billion more than they would under the previous rate.
The levy will be pegged to The Star’s financial performance, with the government collecting more tax under adjusted rates if the casino outperforms forecasts.
In a statement confirming the new arrangement on Friday, Mookhey said the previous government’s casino duty hike was “unrealistic, poorly developed and put thousands of jobs at risk”.
“It was announced without consultation or consideration for the viability of the business and the thousands of workers they employ,” he said.
“The advice I received from NSW Treasury is that absent this agreement, if the government proceeded with the announced rates, The Star would be unviable.”
Two months ago, Mookhey delayed legislation for the duty rate increase that would have been imposed on the profits from poker machines and table game earnings in the casino from July.
Former Liberal treasurer Matt Kean in December proposed profits from The Star’s poker machines be taxed at a top rate of 60.7 per cent to generate $364 million extra revenue over the next three years. The current tax leveraged from the group’s poker machine profits is less than half this amount.
The Star’s chief executive Robbie Cooke said the new arrangement was more sustainable despite an uplift in overall duties.
“It has due regard to the circumstances of our Sydney business and as such helps to create a sustainable path forward for The Star Sydney. The expected additional duty payable in FY24 is circa $10 million,” Cooke told the Australian Securities Exchange on Friday.
Although The Star has less than 2 per cent of the total number of poker machines in NSW, Cooke warned in February the embattled business could not wear Kean’s increase without significant job losses. This is because it would have been forced to come up with $100 million from a cost base of $450 million.
The group has already made 500 roles redundant across its Sydney and Queensland casinos from its 8000-strong workforce.
“There is no business that can sustain a doubling of the tax rate,” Cooke told the Herald in February.
Mookhey said in April he did not think Kean’s proposal had been properly developed, and called out the former deputy NSW Liberal leader for failing to consult the group on the financial ramifications. The duty rate increase was written into the budget by the former government but is yet to be legislated.
The Star’s share price plummeted by more than 60 per cent this year and its market capitalisation has halved to $11.7 billion. Kean’s public announcement blindsided Star Entertainment’s leadership, who were not consulted about the proposal ahead of time.
Star Entertainment’s financial distress started after two damning state inquiries revoked its casino licences in NSW and Queensland and issued multimillion-dollar fines, after a 2021 investigation by this masthead exposed it had enabled suspected money laundering, organised crime, large-scale fraud and foreign interference in its Australian casinos for years.
The group is also facing four shareholder class actions and is in the midst of a very expensive path to remediation. It’s also bracing for what is expected to be one of the biggest financial penalties ever issued by the corporate regulator AUSTRAC.
The Star announced an $800 million emergency capital raise in February following a bleak half-year result for the December half. The group confirmed on Friday the new tax arrangement will facilitate its plan to refinance its existing debt funding arrangements.
When the head of the NSW casino regulator Philip Crawford suspended The Star’s casino licence in October, he stressed the only reason the group wasn’t shut down entirely was to protect the jobs of its 4000 Sydney employees.
Under the direction of the NSW Independent Casino Commission, the group will operate with a suspended licence under the watchful eye of independent manager Nick Weeks until at least 2024.
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