How Ontario can change its gambling policies to help, not hurt, low-income families

As the other side of the pandemic comes into view, things are looking up for many of Ontario’s low-income families. Even though lower-earning households bore a disproportionate share of lockdown job losses, recent Statistics Canada data suggests many of these families are emerging from the economic tumult of 2020 with more cash on hand: compared to 2019, households across the income spectrum recorded higher income in 2020. Low- and middle-income Canadians saw the largest annual increases in disposable income, thanks largely to government support programs like CERB making up for their lost employment earnings.

While these pandemic-era programs will wind down as lockdowns lift and economic life gets back to normal, Ontario has a more sustainable opportunity to continue supporting low-income families: reforming its gambling system to turn it into a tool that helps the poor, as we argue in our new report, Turning Aces into Assets.

In its current form, the province’s gambling monopoly acts as a regressive tax on low-income families and problem gamblers, as Cardus found in a 2020 report. The poorest 20 per cent of Ontario’s households lose around five per cent of their incomes to gambling each year — a rate more than 2 1/2 times what the highest-income families pay. This hidden tax places the heaviest burden on those least able to bear it, while legitimate taxes run in the opposite direction: the province’s income tax system collects nearly 10 times more from the wealthiest families compared to the poorest.

Nor can these figures be dismissed as the result of citizens freely choosing to gamble. Gambling certainly functions as a tax — profits flow directly into the province’s consolidated revenue fund and are spent the same way as income taxes — but evidence shows that it’s far from voluntary. The burden of gambling is shouldered most heavily by problem gamblers (and, importantly, their families), for whom the lack of free choice when it comes to gambling is a source of significant suffering. Even though problem gamblers are a minority in the province — only one or two per cent of Ontarians have a significant gambling problem — they are responsible for up to 24 per cent of the gambling revenue collected by the government each year.

Ontario is disproportionately reliant not only on gambling addicts, but also on the province’s most addictive gambling medium: slot machines. Around 56 cents of every dollar the Ontario Lottery and Gaming Corporation (OLG) has contributed to the provincial treasury over the past 20 years has come from slots. These machines have been meticulously programmed to extract as much money as possible from players, taking advantage of natural human cognitive biases to manipulate their perceptions of the game and keep them glued to the lever. Problem gamblers and slot machine players may be “free” to sit down at the casino, but calling gambling “voluntary” ignores a system structured to undermine that freedom.

While the cash-strapped provincial government may be tempted to milk the OLG cash cow for all it’s worth — close to $2.5 billion annually before the pandemic — no government should rely on a system financed disproportionately by its most vulnerable citizens to rebuild its balance sheet. In fact, the pandemic has made it easier than ever to get gambling money out of the general revenue fund: With the province’s total economic losses certain to dwarf whatever it might have made from gambling, the cost of taking OLG revenue out of the general budget have never been lower.

Cardus has built on our earlier research to flesh out four realistic and sustainable ways for the government to turn gambling into a tool to help low-income families while reducing OLG’s reliance on problem gamblers.

Today, Ontario’s gambling profits go into the same pot as all other taxes, including income and corporate taxes: the consolidated revenue fund. Our first three proposals are variations on removing those profits from the consolidated revenue fund, and distributing them via various means into the hands of those who would benefit most from financial support. Each of these come with various benefits and challenges which we discuss at length in our full report.

The first, and simplest, is to use gambling profits to fund cash transfers, returning gambling money to the income bracket from which it’s disproportionately taken. This approach would treat gambling revenue the same way as sales taxes: providing a credit to mitigate their regressive impact. Just as low- and moderate-income households currently receive regular GST/HST rebates to offset the sales taxes they pay, they would receive an annual “Gaming Savings Credit” (GSC) payment. The GSC would give struggling families a real boost: Dividing OLG profits equally among the approximately 1.3 million Ontario adults living below the poverty line would provide each person with a cheque worth about $1,886.

A second method would use gambling profits to promote asset-building through matched savings. Participants would receive, say, $3 in matching credits for every dollar they contributed to a designated savings account over a year, up to a set monthly and/or annual cap.

Finally, Ontario could support saving by introducing a prize-linked savings (PLS) program like lottery bonds. The money that would normally be earned on each bond or contributed to each savings account as fixed interest is pooled into a single prize fund: instead of earning regular interest, every participating saver has a chance to win. PLS programs are a popular savings option in other countries, particularly among lower-income savers, those who struggle to save in conventional savings accounts, and — importantly — lottery players; in fact, saving in PLS can act as a partial substitute for gambling.

The first three options — a cash credit, matched savings and PLS — would help reduce the burden of gambling on the poor. A different approach, and one that could happen alongside the first three, is to realign OLG’s marketing priorities to invest in public health and harm reduction rather than protecting its bottom line. In Ontario, problem gamblers make up one to two per cent of the population and contribute up to 24 per cent of gambling revenue. But right now, OLG spends 4 1/2 times as much on marketing ($282 million) as it does on problem gambling research, prevention and treatment ($64 million). Reversing that ratio would help alleviate the burden of gambling on those least able to bear its social costs.

If the province curbed its aggressive promotion of gambling, Ontario’s approach to the gambling market would be brought more in line with its approach to the sale of other addictive products, such as alcohol and tobacco. While Ontario has clear restrictions on the advertising of tobacco, and strong limits on the marketing of alcohol, it invests heavily in promoting its gambling vehicles despite strong evidence that shows significant personal and social harms are caused by problem gambling. Restrictions on advertising would minimize those harms.

Reducing the intentional stimulation of gambling demand would also allow money formerly spent on gambling to be directed to savings, or spent on (taxable) activities in more growth-oriented sectors. This option would also, of course, provide more money for problem-gambling prevention and treatment.

However, the province may hesitate to implement the most effective strategies: because problem gamblers contribute disproportionately to gambling revenue, one of the marks of policy success would be a reduction in revenue.

Ontario’s gambling scheme is one thing that shouldn’t get back to normal as the province reopens. Far from helping the province get back on its feet, the return of gambling money to public coffers would be a burden shouldered by the Ontarians who are least able to bear it. There are better ways to rebuild. It’s time for the province to admit it has a problem, and to make amends to the vulnerable citizens harmed by its bad gambling habit.

It’s time to bet on a fairer future.