KL's 4-D thrust rooted in sound economics

Business Times - 30 Jul 2009

LAST week, Malaysian number forecast operator Multi-Purpose Holdings told the stock exchange that its subsidiary Magnum Corporation had received government approval for a new four-digit (4-D) game that would incorporate a jackpot element. This follows Kuala Lumpur's decision last October to award all three Malaysian 4D gaming companies - Berjaya Sports Toto, Magnum and Tanjong plc - 10 more special draws a year. Each draw typically adds about RM20 million (S$8.2 million) to total sales.

Such decisions demonstrate Prime Minister Najib Razak's unusual pragmatism. He doubles as finance minister and thus oversees the gaming sector and such decisions leave Mr Najib vulnerable to attack from the opposition Islamic party which could easily accuse the government of being unIslamic. Even so, the decision to allow more draws is rooted in sound economics. For one thing, it will further reduce the share of the illegal gambling market. No one really knows how large the market is. Even the gaming companies think it could be anywhere from one to 15 times the legal market which, in 2008, was valued at around RM8 billion. That is why Kuala Lumpur has always resisted raising gaming taxes. It would only result in illegal gambling stealing market share from their registered, and taxpaying, rivals. So allowing a jackpot element in forecast draws frustrates the underground industry, for their operators cannot match those kinds of payouts. It is in the government's interest to reduce illegal gambling for the simple reason that it will derive more revenue as a result. Last year, gaming companies, excluding casino operator Genting, paid the government over RM1.5 billion in taxes.

Allowing more draws will also eat away at the underground's share while directly boosting federal government revenue. Last year's 10 new draws were estimated to have added RM130 million to the Treasury; a trickle, to be sure, but useful nevertheless. Revenue is what lies at the heart of the matter. Kuala Lumpur remains mired in an economic downturn that could potentially cost it thousands of jobs. To mitigate the effects, it's embarked on a RM67 billion fiscal stimulus package that's yet to produce tangible results. On the other side of the balance sheet is a yawning budget deficit that could rise to close to 8-10 per cent of gross domestic product. The country is being squeezed between falling exports and sharply declining investment. To tackle the latter, Mr Najib has announced a series of liberalisation measures in the services sector and banking.

More recently, he relaxed affirmative action policy guidelines in the equities and property markets. It is too early to say if the measures will work but sticking to the old ways just to remain politically popular will not make Malaysia's economy grow and that can be politically self-defeating in the long run. Sometimes, it pays to be practical, like allowing more lottery draws to boost the country's revenues.