Governments have a financial vested interest not to reform gambling laws. Here’s why

Reforming Australia’s gambling industry has been one of the most high-profile political issues of recent years. Constantly in the headlines, there are high levels of public support to

bring in tougher rules, including gambling advertising bans.

But the federal government has been reluctant to act. It has introduced its new gambling legislation to parliament, but the bill has been criticised as not going far enough to address the problem.

There’s been a lot of speculation as to why there’s been so little political appetite to bring in tougher measures. One key reason is governments have a clear conflict of interest: they rely on gambling revenue while also being responsible for reducing gambling harm.

Years of resistance

Momentum for changing Australia’s gambling laws has been building since the 2023 release of the Murphy report. Handed down by a cross-party parliamentary inquiry and chaired by the late Labor MP Peta Murphy, the report made 31 recommendations, including limitations on gambling advertising and the appointment of a national online gambling regulator.

The government was slow to respond to the report. Three years later, it finally did.

The proposed legislation makes some attempts to protect people from gambling harms. If passed, this legislation would restrict when and how frequently gambling ads may air and ban the use of celebrities in those ads, among other changes.

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Read more: ‘Small and underwhelming’: Albanese’s gambling reforms won’t do much to reduce harm

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Last week at Labor’s 50th National Conference, the party’s draft national platform acknowledged the public health benefits of reducing tobacco consumption. It described the tobacco industry as coercive and stated the party would not engage with anyone with financial links to tobacco.

This raises the obvious question: why has the Albanese government taken a markedly different approach to the gambling industry?

Put simply, the federal government’s reluctance to push for stronger regulation can be linked to the revenue gambling generates.

Imbalances in funding

To understand how this situation came about, we need to consider a concept called vertical fiscal imbalance, as we did in our new research.

Vertical fiscal imbalance is the financial mismatch between the federal and state governments. Under the Constitution, the federal government is more able to raise revenue, but the responsibility to deliver public services is largely left to the states, leading to an imbalance. It first started when the federal government assumed control over collecting income tax after the second world war.

With this imbalance, the states became increasingly dependent on federal funding grants. These grants are distributed through the horizontal fiscal equalisation grants process: a process designed to share government money fairly across the country.

While all states receive grants from the Commonwealth, horizontal fiscal equalisation aims to provide each state with the financial capacity to provide services to its population at a comparable level.

But this process cannot fully account for differences in land areas or resources.

For example, Western Australia argues it has been effectively penalised for having ample mineral resources that create revenue, which negatively impacts their share of the equalisation funding.

What does this have to do with gambling?

The current grants don’t provide enough funding for the states to support vital public services such as education, health, transport or social services. State governments have sought different ways to make up the shortfall.

This includes gambling taxes. Gambling revenue isn’t taken into account when the Commonwealth Grants Commission decides how much money each jurisdiction should receive. Every dollar states raise from gambling, they get to keep.

Our study looks at how the vertical fiscal imbalance led to New South Wales embracing the idea of gaining revenue from gambling taxes, including from poker machines.

Based on records of parliamentary debates, our research shows gambling went from a moral issue in the early 1900s, with parliamentarians stating gambling was a “material evil”, to a new revenue source.

In 1956, extreme budget pressures caused NSW Premier Joseph Cahill to declare not allowing poker machines into clubs would put the government in a “parlous financial position”.

Yet, another MP argued the government had “sunk to the depths, was desperate for money, and was capitalising upon the most vulnerable members of the community”.

But despite earlier concerns about morality, new legalised forms of gambling proliferated, particularly poker machines.

In terms of bringing in money for the state government, it worked. According to the most recent state budget, revenue from all gambling taxes in NSW was $3.6 billion in 2024–25, making up about 7% of the state’s $48 billion total tax revenue. Gambling revenue is forecast to surge to $4.7 billion over the next four years.

NSW is now home to about half the poker machines in the country. There are almost 90,000 machines across the state.

In May, the Labor party unanimously passed a motion at its NSW state conference to significantly reduce the number of poker machines in the state in the next ten years. But the parliamentary party isn’t compelled to legislate accordingly.

What about beyond NSW?

Other states and territories, with the exception of WA, have also come to rely on gambling revenue.

In 2022–23, the Queensland government collected $1.9 billion in gambling taxes and levies. In Victoria in 2024–25, it was more than $2.4 billion.

Even in Tasmania, a much smaller state, gambling generated more than $120 million for state coffers in 2023–24.

On a national level, the Albanese government’s reluctance to impose stronger regulation on advertising for the gambling industry, or establish a national gambling regulator, is likely driven by concerns about what this would mean for the federal budget. Weaning the states off gambling revenue would necessitate fundamental changes to federal-state fiscal relations.

At a time when the government is already under pressure given the nation’s ballooning debt, such fundamental economic reform would be a courageous path to take.

From this perspective, the Albanese government’s response to the Murphy report is less an isolated policy decision than the continuation of a longstanding pattern in which structural reform gives way to more politically and economically acceptable measures.

Our findings suggest an important solution to the gambling crisis lies in reforming the current federal funding model to the states. Doing so would reduce the states’ dependence on gambling revenue and enable them to fund essential services without relying on the gambling losses of everyday Australians.

Barbara Kinder received no funding for this research. She is employed part-time with Relationships Australia (Queensland) as a community gambling educator. The views expressed in this article are those of the authors and do not necessarily reflect those of affiliated institutions or employers.

Michael B. Charles does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.