Star, NSW negotiations on casino tax proposal go down to the wire

Deferral of a tax risee on Sydney’s casinos, and rebates for investment in building upgrades, are among changes being discussed by the NSW government and Star Entertainment in a last ditch effort to ease the financial pressure on the embattled wagering operator.

But Labor appears set on seeing through the tax increase, first announced by the previous Coalition government in December, which is expected to raise $364 million from Star and its rival, Crown Resorts, by 2026.

The tax has been controversial, not only because Star has flagged it will materially affect its business and could result in job losses, but because Treasurer Daniel Mookhey has described it as not “properly developed”.

Treasury briefings provided to Mr Moohkey earlier this year note that Star has “correctly” argued that the policy means NSW was taxing casinos at a higher rate than Victoria, something the Coalition said it would not do.

“No consultation was undertaken with the casinos prior to announcement of the new duty rates,” the Treasury briefing, obtained by The Australian Financial Review, reads. The tax is scheduled to start on July 1.

Two sources with knowledge of discussions told the Financial Review that the Star was hoping for the proposal to be reconsidered in its entirety. But deferral of the start date, or for alternatives to be put in place, may be the only options available.

Mr Mookhey’s office declined to comment, as did a Star spokesman

The Coalition planned to crack down on poker machines and gambling tables in the state’s two casinos by introducing a top tax rate of 60.67 per cent. The plans, unveiled by former treasurer Matt Kean in December, were expected to bring the tax on poker machines in line with those in Victoria.

However, NSW effective rates would be higher because Victoria gives casino operators credit towards state taxation for GST on non-rebate and gaming revenue, the Treasury advice to Mr Mookhey said.

The taxes were only expected to be applied to the two casinos in the state, Crown Sydney and The Star in Pyrmont. Mr Kean said the proceeds would go to communities recovering from natural disasters and COVID-19.

A decision on what to do with the tax proposal is a critical political test for the new government, which has also inherited a budget deficit. Public sentiment about the casino has also soured after separate inquiries into Star and Crown found extensive wrongdoing, including the facilitation of money laundering through the gaming floors by international criminal gangs.

Mr Mookhey has already flagged a willingness to reconsider how the tax is levied. The Star has axed 500 jobs and tapped investment bank Barrenjoey to weigh up options for the business because of pressures that include the cost of regulatory compliance and the proposed tax increase.

“The advice I have received has led me to conclude that the policy wasn’t properly developed. And equally, Star wasn’t given the opportunity to explain what the impact would be on their business,” Mr Mookhey told the Financial Review in April.

“We will give them that opportunity. For me, the critical question that I’d like to know is what impact will it have on jobs and whether the claims are legitimate.”

Star, which owns and operates one of the state’s two casinos at Pyrmont in Sydney, has already warned the government the toll could mean a $1.6 billion downgrade in the value of its Sydney casino.

“We are not sure how the government modelled its financials nor the basis for suggesting the Star does not pay its fair share of taxes,” Star chief Robbie Cooke said at the time. Major shareholder and pub baron Bruce Mathieson said in April the proposed casino tax hike would “nearly ruin” the casino group.

The proposed tax increase came as Star was hit with $250 million in fines and was on a remediation program to recover its licence, after inquiries in two states found it had failed to stem criminal activity and money laundering.

The Star was fined $100 million and had its casino licence suspended in NSW by the state’s Independent Casino Commission in October last year.

It is still waiting on a potentially hefty fine from the financial crime watchdog, AUSTRAC, for breaches of counter-terrorism and anti-money laundering laws. Rival casino group Crown has agreed to a $450 million fine for its breaches.

Star shares last traded at $1.13, down more than 32 per cent since January 1.