The government has announced additional recurring revenues from lotteries, of up to R$15 billion (US$ 3b). However, we estimate a collection of around R$ 5 billion (US$ 1b), which could be even lower if there is exclusivity in the distribution of the ‘raspadinha’ (scratch cards).
Employees of the Ministry of Finance (MF), in the public hearing on the regulation of sports betting in the Federal Chamber and in an interview with GloboNews, have announced additional recurring revenues arising from the regulation of specific types of betting and lotteries, which may prove to be precious for the fiscal sustainability of the government.
The measures deal with two sources: regulation of sports betting and bidding for the Exclusive Instant Lottery (Lotex), the scratch card. In these two sources, the government has been talking about a potential of up to R$ 15 billion (US$ 3b) in revenue, according to articles that circulated on the UOL and CNN websites this past weekend.
However, the accounts show a much smaller potential value, of around R$ 5 billion (US$ 3b), which could be even smaller if there is exclusivity in the distribution of scratch cards to people with special needs.
Initially, it should be mentioned that the most effective way for the government to collect taxes from sports betting would be to regulate by Decree the law approved in 2018 and reformed in 2021, already adapting to the standard in England, which seems to be the desired one. In fact, the punishments and other adjustments that the government wants to carry out through a Provisional Measure (PM) could be made, in a simpler and faster way, by Decree and through the concession contracts entered into with the companies.
In my accounts, there will be no revenue gain from approving the PM in the manner presented at the hearing in the Chamber. If the current law is regulated by Decree, the government should collect around R$ 1.5 billion (US$ 300m) per year, an amount equivalent to what it will collect if it approves the PM as proposed in the public hearing.
News from this weekend, circulated on journalistic sites, indicate that the intended taxation will be even higher than the proposal at that hearing. The cost of this claim is the usual: migration of at least part of this activity to the informal market, which can reduce the revenue itself (part of the so-called Laffer curve) and all the social benefits associated with the formalization of the business. We would see an undue conversion, at least partial, of this activity into new modalities of “jogo do bicho”, with all the known consequences of unnecessary “gangsterization” of the business.
Restructuring what is already ready to regulate is an additional headache, with little or no gain in terms of good regulatory practices and revenue.
On the other hand, in the case of the instant lottery modality, it should be mentioned that there is a greater potential for the government to collect, in the order of at least R$ 3 billion (US$ 600m) per year. However, the exclusivity defended at the hearing and circulated on websites this weekend will certainly reduce this potential for revenue gains.
By wanting to give exclusivity in the distribution of scratch cards to people with disabilities, using Spain as an example, which served as a model at the hearing, there are at least two facts that suggest negative impacts either on collection or on the proper functioning of the market.
First, in relation to the likely loss to collection, it is worth noting that ONCE – Spanish lottery operator – sells less than half of what is sold in Portugal. However, the population in Spain is 40 million – about four times the population of Portugal. In other words, per capita revenue in Spain is 1/8 that of Portugal, which is strongly related to the difference in service efficiency between the two countries.
Second, as far as hampering the smooth functioning of the market, this is particularly bad in a line of business that is just getting started (or restarting, as is the case with scratch cards).
The initial movement of individuals and companies in any economic activity is a test of how to format the conduct of the business, which includes marketing, hiring personnel, among others. The competition of various types of business models designed by individuals or legal entities that the government does not yet know who they are will allow the most successful business models to stand out.
By the way, this is what underlies the view that free competition, without exclusivity of any kind, will lead to the emergence of a more mature service in the long term, which is the one that best serves consumers and society. Restricting the pool of people who will be able to start this type of business destroys this selection process that the competition allows.
That is why the principles of free initiative and free competition, contained in the economic order of the Federal Constitution, are so complementary to each other.
At this moment, someone who has read this far may be thinking that the lottery in Spain is a good humanitarian example, of attention to social causes, and that the author of this text is a person without social sensitivity. In this sense, it should be noted that there is no humanitarian example in this action, there is misinformation. The ONCE format is an example of what not to do, it is something that has no sense that the MF seems to want to import into Brazil.
By the way, the experience of the old craft guilds of the Middle Ages and of 'bond capitalism' in the Brazilian experience and in other countries have as a common trait the constraint to freedom of initiative for the great mass of the population, the majority formed by poor people.
In addition to this socially negative impact of exclusion, society relinquishes the immense ability to run businesses on the part of many who are in this marginalized mass, who could contribute greatly to the efficiency, development and growth of the sector. This entrepreneurial capacity of many people in the lower income classes is artificially blocked by the State, a curious policy of perpetuating or eternalizing poverty.
I also find it difficult to understand how it is possible for the Secretariat for Reforms, which has the legal competence to defend competition and the obligation to propose measures to stimulate efficiency, innovation and competitiveness, to defend, according to article 56, item II of the Decree Presidential nº 11.344, of January 1, 2023, exclusivity in the distribution of a product or service. And this without any economic justification and without clarifying why other non-excluding instruments for promoting people with disabilities in business, such as favored credit or training for the specific needs of each one, would not be better alternatives for the intended objective.
Instead of supporting by restricting, there is much more return for society and, mainly, for people with disabilities themselves, in supporting them in the most inclusive way possible. Without forwarding a priori to this or that segment.
The business capabilities of people with disabilities must be developed so that they themselves can decide which businesses are most likely to succeed and make them happy. As with many other life decisions, especially professional ones, the State is in a clearly inferior position to carry out this action. Imposing on people with disabilities the business that the State understands is the best attack against their freedom of choice in one of the most important decisions for all of us: the choice of your trade that can be for a lifetime.
Therefore, defending exclusivity of the type described is the antithesis of the main mission of the secretariat and the MF.
Cesar Mattos
Doctor in Economics. Former secretary of SEAE (current Secretariat for Reforms) and former counselor of CADE.
