How much of the Lotto spend goes in prizes?

Last updated 07:51 20/12/2012
Lotto
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With a recent large Lotto win of more than $20m in Invercargill, there has been much discussion around the office of late about who may have won this prize, and about "what I would do with it if I won it", writes Craig Macalister in Taxing Times.

While I'm happy for the winner , this got me thinking about just how much of our small Lotto flutter we "donate" each week to the New Zealand Lotteries Commission actually makes it into the draw.

Before I discuss that, I thought it worth mentioning a little about the responsibilities of the Lotteries Commission. These are set out in the Gambling Act and, although not surprising, I found the purpose for which Lotto is run in New Zealand interesting. After stripping out the mundane stuff, the relevant functions of the Lotteries Commission are: To promote, organise and conduct New Zealand lotteries for the purpose of generating profits for distribution by the New Zealand Lottery Grants Board, or for a community purpose for which a special purpose lottery is promoted; and To maximise profits so generated, subject to ensuring that the risks of problem gambling and under-age gambling are minimised.

To put this another way, the purpose of running Lotto in New Zealand is to maximise profits for distribution to the Lottery Grants Board. Naively, I had always thought it was a game of chance against the numbers, but this is not quite so. The statutory purpose of Lotto, while very worthy, means that the game is not quite the level playing field I had assumed it to be.

So, how much is actually passed on to the grants board? I couldn't locate financial information for 2012, but for the year to June 2011, according to the published financial information, a little more than $187 million was approved for grants, and according to the Lotteries Commission website, more than $3 billion has now been transferred to the grants board. While this money no doubt finds its way to very worthy causes, it is interesting to reflect on the amount of that money recycled back into our community through our Lotto flutters.

So how much makes its way into the prize pool that we all compete for when we queue for our tickets?

Well, under Lotto rules for the standard Lotto game, the Lotteries Commission must set aside at least 60 per cent of the turnover it receives for each game for this purpose. The remaining amount of the turnover is available for allocation to the Lottery Grants Board and the costs of running the lottery. However, "turnover" for this purpose is after gaming duty and, of course, GST.

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In broad terms, gaming duty is 5.5 per cent of the number of tickets included in the prize draw. GST is a little more complicated. The GST payable by the Lotteries Commission is not paid on its turnover; rather, it is paid on a cash box basis, that is, on the net proceeds of running the game after the prizes that are payable. While I couldn't find any published data on GST paid per game, if we assume 60 per cent of the turnover is paid in prizes, then another 6 per cent goes in GST. Thus, for every dollar spent on our Lotto flutter, by my estimate the total that reaches the prize pool is about 53 per cent.

While this will not put me off having a weekly flutter, the correlation between taxes and Lotto leaves me wondering whether we should be asking for a donations receipt with our tickets.

» Craig Macalister is tax principal at accounting firm WHK. He can be contacted on 03 211 3355.

- The Southland Times

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