Romania bets on gambling to balance budget despite long odds

[BUCHAREST] Under pressure to reduce its public deficit, Romania's government is betting on gambling to help fill its coffers, but critics warn it may lose that wager because of high tax rates.

Romania, one of the poorest of the 28 EU member states, reached an agreement last month with the International Monetary Fund to reduce its deficit by four-tenths of a point to 1.83 per cent of gross domestic product.

The centre-left government of Prime Minister Victor Ponta is scrambling to find the funds needed to reduce the budget gap, and just before the New Year issued a decree that both expanded the scope of gambling and also hiked taxes on the sector.

In particular, it will legalise online gambling, which the government believes will create a massive new revenue stream.

"We estimate that online gaming will bring in 100 million euros in direct taxes in 2015," said Cristinela Nistor, who heads up the country's gambling regulator ONJN.

The new law "aims to increase public revenue and stimulate the market, and at the same time harmonise Romanian legislation with European norms," she told AFP.

Romania's gaming market, excluding online gambling, is estimated at 800 million euros (S$1.22 billion) and generated 150 million euros of tax revenues last year, or 0.1 per cent of total output in the economy, according to ONJN figures.

Gaming operators welcomed the legalisation of online gambling.

They "are finally opening the tap", said Cristian Pascu, head of one of the trade associations for gaming operators.

He estimated several hundred thousand Romanians are currently braving jail terms of up to two years to connect to foreign online gambling sites, particularly poker websites.

Gaming operators are also happy that the decree opens up the possibility of holding poker tournaments.

Sorin Constantinescu, head of the casino operators group AOCR, said "such tournaments could attract thousands of foreign tourists ready to spend significant sums."

SIN TAX

But gaming operators fear that the second part of the decree that raises taxes would end up killing the goose that lays the golden egg.

Pascu said taxes were already "at the limit of what we can bear".

In order to retain their gambling licenses companies will need to pay an annual fee of up to 180,000 euros depending on their revenue.

Slot machine operators will see their fees rise from 5,700 to 20,000 euros per year.

The decree also imposes a new "sin tax" from 1,000 to 5,000 euros to fund a new foundation that will help fight against gambling addiction.

"These measures will lead to a contraction in the market and won't bring in any extra revenue" for the state budget, said Alexandru Debrezeni, director of the Romanian Bookmakers association.

"Since the crisis the appetite of Romanians for gambling has dropped sharply," said Mr Constantinescu.

Romania's economy contracted by 7.1 per cent in 2009. It only returned to strong growth in 2013, and is expected to have expanded by around 2.5 per cent last year.

The poor economy has led to the number of casinos dropping from 22 in 2009 to just five today.

The number of daily visitors, which used to average 400, barely reaches 50 now. And the gamblers that still turn out are wagering less at casinos, said Mr Constantinescu.

On the other hand, the number of slot machines, popular with Romanians, grew to 72,000 from 60,000 in 2009. Slot machine halls dot major cities, their neon lights luring in youths.

AFP