COSATU SUBMISSION ON THE NATIONAL GAMBLING …

1 COSATU SUBMISSION ON THE NATIONAL GAMBLING amendment bill SUBMITTED TO THE PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY 22 AUGUST 2007 1. 2. THE ECONOMIC IMPACT OF THE CANNIBALISATION ADDITIONAL PUBLIC MONEY 3. THE SOCIAL IMPACT OF PROBLEM 4. CONSEQUENCES OF LEGALISING INTERACTIVE 5. COSATU S POSITION ON THE 6. 7. 1. Introduction COSATU welcomes the opportunity to comment on the NATIONAL GAMBLING amendment bill . COSATU believes that before amending the NATIONAL GAMBLING Act of 2004, government should have undertaken proper research that would investigate the impact of GAMBLING on the are opposed to any form of legalisation of GAMBLING . We view GAMBLING as a self-destructive vice that does a lot of harm to society. It gives false hope and promises to people that they can escape the misery of poverty, instead often plunging them into debt and deeper poverty.

2 Instead of directing resources to productive investment, GAMBLING takes away from the poor to the rich. It promotes greed. John Maynard Keynes once said that the only people who win from GAMBLING in the long term are those who operate the GAMBLING . The bill states its aim to regulate interactive GAMBLING . However, the bill effectively promotes it. COSATU calls on the Committee to reject the bill . As discussed below, there are various economic and social problems associated with GAMBLING , and we do not believe that government should be facilitating new forms of GAMBLING likely to lead to its proliferation. Instead, COSATU believes that government should be more strongly 1 COSATU Special CEC in December 2001 called upon the government to commission a study on the impact of the GAMBLING on income distribution, poverty, addictive GAMBLING and social cohesion after the introduction of the Lotto.

3 2regulating the GAMBLING industry and in particular combating interactive GAMBLING that is currently occurring, in line with the existing NATIONAL GAMBLING Act of 2004. 2. The economic impact of GAMBLING There are five major negative impacts of GAMBLING on the economy: the cannibalisation impact; additional public expenditure; debt; savings; and money laundering. The cannibalisation impact. The so-called cannibalisation effect refers to the reduction in the economic activity of other activities when a new activity comes to a community, resulting in shifts in residents expenditures from the previous economic activities to the new one. Expanding GAMBLING activities will lead to reduction in consumption of some goods and services. This will result in job losses. Unlike the cannibalisation effect in other economic activities, the resulting net job loss in the case of interactive GAMBLING will be significant since interactive GAMBLING does not create a significant number of jobs.

4 For example the introduction of the lotto negatively affected spending on many sectors such as retail. Poor people redirect their consumption away from other areas, including food, clothing and health because of GAMBLING . Additional public expenditure. Regulating interactive GAMBLING will require additional public expenditure. The additional public expenditure will counter the tax revenue that may be generated from legalising GAMBLING . Regulating and supervising interactive GAMBLING will be costly. Monitoring interactive GAMBLING equipment and software should require specialised skills and technology. There are also costs that will go with monitoring registered websites. The additional public expenditure required is not socially productive (although it would be necessary), as it does not directly lead to an improvement in people s lives. In this case public expenditure would be effectively subsidising the interactive industry.

5 Debt. Chronic gamblers tend to fund their addiction through borrowing or savings. Crippling debt is one of the most common outcomes of a GAMBLING problem. GAMBLING can lead to people being short of money to spend on other things. At the farthest end of the scale, problem GAMBLING can lead to serious debt and bankruptcy. The fact that online GAMBLING uses credit cards makes it even more difficult to curb severe debt. Leading financial institutions in the United States and in the United Kingdom block cardholders from using their credit cards for transactions identified as online gambling2. Credit card transitions are coded to indicate what is being bought or sold. The financial institutions can withhold credit by blocking codes associated with undesirable activities such as online GAMBLING . Since credit card cards are the lifeline of many interactive GAMBLING providers, blocking online GAMBLING can prevent credit cardholders from taking too much debt.

6 Some banks in UK penalise their clients when using their credit cards to gamble by charging higher rates. Debt and bankruptcy resulting from GAMBLING increases the cost of credit throughout the economy. This means that online GAMBLING could be problematic not only for the individuals directly involved, but also from a broader macroeconomic perspective. Savings. GAMBLING accounts for an ever-increasing share of household expenditure Increased expenditure on GAMBLING is funded by a run-down in household savings. Problem GAMBLING among the elderly can also erode their retirement savings; this segment of the population tends to have higher savings as well as being more dependent on these savings. Savings in South Africa are low relative to comparable economies, and hence moves that would be likely to further reduce savings should be discouraged. Money laundering is one of the negative externalities that could result from legalised interactive GAMBLING .

7 Money laundering involves physical movement of funds derived from illegal activities into a form that is less suspicious to law enforcing authorities. These proceeds from crime are introduced to the traditional or non-traditional financial institutions or the retail economy. It is not easy to curb money laundering because of the diversity of its forms, participants, and settings. It 2 4can involve respectable institutions unwittingly providing services to customers who participate in dubious activities. A large number of money laundering cases involve movement of funds across NATIONAL border. Interactive GAMBLING can be a useful vehicle for money launderers. 3. The Social impact of GAMBLING The social impact of GAMBLING can range from productivity loss, bankruptcy, crime, suicide, illness, abuse, divorce and separation, social services and treatment costs.

8 The social impact of GAMBLING is not confined to the problem gambler. It most certainly affects others such as spouses, children, extended family members or close friends. The history of GAMBLING is that of a stigmatised behaviour that has passed through numerous cycles of guarded acceptance and prohibition. The recent spread of GAMBLING in South Africa has been characterised by attempts to neutralise the stigma associated with this behaviour. Nevertheless, there are very real personal and social problems associated with GAMBLING . Problem GAMBLING . Pathological GAMBLING is a progressive disease that devastates not only the gambler but everyone with whom he or she has a significant relationship. Studies on the impact of GAMBLING found a strong correlation between greater availability of GAMBLING and pathological The bill will increase the numbers of pathological gamblers.

9 Some of the consequences of problem GAMBLING even if not at a pathological stage at the personal level can include an increased level of depression and anxiety, impaired judgement, reduced tolerance with other people, and loss of self-respect. Negative effects on work and study can include poor performance, high absenteeism, lower productivity, and unemployment or difficulty in maintaining employment. Research has found that effects on interpersonal relationships can include physical 3 Lesieur, H & Custer, R. Pathological GAMBLING : Roots, Phases and Treatment. Annals of the American Academy of Political and Social Sciences. 474:146-156 5and emotional abuse, family and relationship breakdown, and exposing children to greater risk of experiencing physical distress. Crime. There is positive correlation between crime and GAMBLING .

10 GAMBLING addicts resort to criminal activities in order to finance their habit. Theft, robbery and fraud are some of the things that problem gamblers sometimes engage in. GAMBLING is also a haven for organised criminal syndicates. GAMBLING operators usually refuse to acknowledge this for fear of losing wealthy clients. Anti-money laundering laws provide some constraint but are not 100 percent effective. In addition to money laundering, experience in other countries suggests that criminal syndicates are often involved in the actual operation of GAMBLING as well. 4. Consequences of legalising interactive GAMBLING While GAMBLING brings various social and economic problems, as discussed above, there are specific problems associated with interactive GAMBLING . The nature of interactive GAMBLING makes it more difficult to control or moderate, either by the individual gambler, the casino, or others.