Inside Asian Gaming

INSIDE ASIAN GAMING | August 2009 10 N o economy exists in a vacuum—even one as blessed as Macau. At first glance, sitting next door to the most populous political entity on Earth (i.e., Mainland China)—a place where the citizens love to test their luck, but where casino gambling is technically illegal— looks like a licence to print money. It is, but Macau does face significant structural challenges. Its gaming tax rate at nearly 40% of gross revenue is among the highest in the world, even if its personal and corporate tax rates are not. With each year that passes, more jurisdictions and more supply of land-based product with lower taxation on the gross come onto the market in Asia. At the same time, China’s high rollers show an increasing inclination and ability to travel further afield for their casino entertainment. The argument that what high roller gamblers in Macau lose in tax off their gross stake they gain in terms of tax free personal spending doesn’t really wash. Most of their living expenses while they’re in town such as accommodation and catering are effectively absorbed by the casino operators and agents in the form of ‘comps’. Macau also displays a significant tendency toward public affluence and private squalor—almost the diametric opposite of the description the Canadian- Americaneconomist JohnKennethGalbraith gave to United States’ society in the mid 20th century. A major issue for Macau is that its people are largely under-educated, and under-achieving. This matters because it can have a restricting effect on any attempts at economic diversification, which in turn could affect the long-term value of investments in the Macau economy. Under-achievement in the educational field—such as an inability in some cases even to speak Mandarin let alone English—also has an impact on service quality in a service-driven economy touted by the government as a world-class tourism destination. Singapore, the next jurisdiction to enter the Asian casino gaming market, suffers from no such underdevelopment of its human capital. Grasping the nettle There are no signs so far that Macau’s political leadership is tackling the cause of that particular structural weakness. Simply expanding college campuses won’t cut it when school leavers can walk into a well- paid job as a casino dealer with few formal qualifications. There are two possible ways to implement a structural reform. One is to bar Macau residents aged under 21 from working in casinos. The other is to bar all visitors aged under 21 from casinos. Policing an employment ban would be far easier than policing a blanket ban. This idea was actually touted by Edmund Ho last year before the economic downturn took hold and was supported in principle by, among others, Dr Stanley Ho. The argument for the move appears strong despite the current recession. On paper, Macau has one of the highest rankings for gross domestic product (GDP) of any economy in East Asia. How that GDP is distributed is an important issue. It’s beyond dispute that the near 40% of the gaming gross paid in taxes by the casino industry is of huge benefit to the local population. It allows the government to spend money on infrastructure, to subsidise the living costs of low-paid workers and to build a budget surplus for emergencies. In practice, the distribution of the net wealth generated by the economy is lopsided. A small number of highly qualified people earn the bulk of the money, and a large number of under- qualified or unqualified people earn average or below average incomes. To keep the whole economy ticking over, the territory adopts what is essentially a developing world model. This is to import management and professional experts to run its most important industries (principally gaming and real estatedevelopment), while locals remain under-represented in senior management roles in those and other industries. Easy options This situation is tolerated among the locals because lawmakers have designated that casino dealer jobs are reserved for permanent residents. This means that school leavers have the opportunity of moving quickly into casino jobs paying well above the local average—typically 15,000 patacas (US$1,900) per month. In reality, unless the dealers acquire other skills and experience they can quickly find they are in a gilded cage, with little chance of promotion or any opportunity to switch professions. If Macau is to broaden its economic base beyond the casino sector, as suggested by China’s Vice-President Xi Jinping on a visit to the Macau and Hong Kong SARs in April, then Macau’s Chief Executive-elect will need to think about getting young people to stay in education for longer. There is no quick fix to achieve this, but the raising of the casino employment age would probably be the best and easiest-to-implement policy measure available to the politicians. If anyone among Macau’s current upper echelon of lawmakers understands the value of education, it’s Mr Chui. According to media reports he holds a bachelor’s degree in community health from California State University, and a master’s degree and PhD in public health from the University of Oklahoma. A difficulty facing Mr Chui is that there are competing pressures. The last thing the casino operators want during an economic downturn is upward pressure on wage costs, resulting from an increase in the casino employment age. Dr Stanley Ho went on record recently on The Pearl Report—a current affairs series on one of Hong Kong’s English language commercial channels TVB Adapt or Die Clinging to the status quo has its perils Cover Story