PETER MILLER: KZN’s plan for horse racing is a case study in self-sabotage

SA faces a multitude of complex challenges that sometimes seem insurmountable. Nowhere is this truer than in KwaZulu-Natal (KZN). After being badly affected by the Covid-19 pandemic, riots and floods, one would suppose that the provincial government would be preoccupied with resuscitating the precious businesses and jobs that remain in the province.

But instead — in an inexplicable move — the provincial legislature has tabled a bill that would decimate the horse racing industry, cause multisectoral jobs losses and cost the provincial fiscus millions in tax revenue.  

The bill, if passed, would not be enacted in a vacuum. Nationally, the economy is stagnant at best, and we are confronted with rising inflation, endemic unemployment, and the debilitating consequences of rolling power blackouts. And if the country is having a difficult time, KwaZulu-Natal residents have been through hell.

The pandemic, riots and floods have not been the end of the province’s woes, with the recent blockade of the N3 highway estimated to have cost the province more than R300m. In addition, Durban’s beaches are unsafe to use due to the uncontrolled outflow of sewage, and there are likely to be disruptions to water supplies for at least a year.

This is the context in which the KwaZulu-Natal provincial legislature is holding public hearings on the Gaming & Betting Tax Amendment Bill. The bill includes a proposal to divert nearly half of the betting proceeds paid to the provincial racecourse operator, Gold Circle, to a “transformation fund”. While economic transformation is a national imperative, the idea presupposes the existence of an economy or industry to transform. But if this proposal is adopted there may well be no provincial horse racing industry left at all.

It has been clear since the enactment of the pandemic regulations that the leisure and entertainment industries would be the hardest hit. This has remained so as the restrictions on gatherings were maintained even while other regulations were dropped. This precarious situation across the sector has been especially damaging for horse racing because of the peculiar economics of the sport.

As many residents of the province know all too well, the Hollywoodbets Durban July is a unique and high-profile event. But what outsiders to the industry may not know is that the industry is often loss-making. For example, Gold Circle forecasts a loss of R106m for the 2021/2022 financial year; this is after accounting for the R66m betting tax contribution. Without the betting tax contribution the losses would be around R172m.

It therefore only takes a cursory look at the figures to understand why the proposal to divert funds from the racecourse operator is untenable. The industry cannot stay afloat without this critical funding. But the case against the “transformation fund” is not simply that it is unaffordable; it is also unnecessary.

Another widely unknown fact is that Gold Circle does not distribute profits. Indeed, in terms of its memorandum of incorporation it cannot. A reduction in the income of Gold Circle will also seriously affect the quantum of the stakes it must pay to the connections of the winning horses in every race. Stakes must keep pace with inflation. Diminishing stakes discourage racehorse owners. Without owners the racing industry collapses.

In a job market where economic opportunities have been destroyed by successive crises, the workers who would lose their jobs would face bleak prospects indeed. These include workers for racecourse training facilities, the National Horseracing Authority, the Coastal Horse Care Unit, the SA Jockey Academy, the National Racing Bureau, horse feed manufacturers, farriers, jockeys, horse transporters, racecourse breeders and downstream leisure horse grooms. With all these jobs on the line there ought to be a compelling reason to enact such a destructive proposal. But in this case, there simply is not.

Gold Circle already funds training and career development initiatives, small business development, skills development for matriculants and job seekers, as well as operational support and skills transfers to black-owned bookmaking businesses. They also provide financial and operational support to rural racing in KwaZulu-Natal and various corporate social investment programmes — all initiatives that foster transformation in the industry.

It is unlikely that any “transformation fund” would be better placed to do this work than Gold Circle. Rather, the likely outcome of the proposal will be the decimation of the industry. This is exactly what happened when a similar proposal was passed in Gauteng; the racecourse operator in that province wound up in business rescue just a year after its implementation. In Gold Circle’s precarious economic context this is the likely outcome of the proposal now under consideration.

With all this considered, the enactment of the Gaming & Betting Tax Amendment Bill in its current form would be a remarkable example of an unforced error on the part of the legislature. At a different time, it may be worth the gamble. But the proposal is before the legislature now, at an especially difficult time for the province. The only rational thing to do is to reject it, or risk plunging the province further into the economic abyss.

• Miller is a former KwaZulu-Natal MEC for finance and a former member of the Gaming & Betting Board.