Community returns were originally excluded from draft online gambling legislation over concerns it would make future policy decisions to reduce gambling more difficult and create “perverse incentives to increase gambling activity”.

That’s according to Internal Affairs Minister Brooke van Velden’s Cabinet paper on the decision to give community groups a 4 percent cut of the proceeds, a decision made after significant public outcry.

According to proactively released documents, officials expect the changes could result in community returns of $10 million to $20 million in 2027.

This places the anticipated size of the regulated online gambling market at $250m-$500m.

Nearly 4000 submissions were made advocating for community returns on the Online Casino Gambling Bill, fearing the legalisation of online gambling would reduce the amount spent on pokies.

By extension, this would result in less money going to grassroots causes.

At least 40 percent of gaming machine proceeds need to go towards community grants, constituting a major source of income for grassroots sports and community groups.

Former Black Caps seamer Martin Snedden, who campaigned on the change for the NZ Community Sports Collective, was one of the first to present to the select committee on the bill.

“I could tell by lunchtime on the first day they had totally bought into our argument, and then they had to sit there for six weeks listening to different versions of exactly the same argument.”

The Governance and Administration Select Committee is yet to report back (it is expected to do so on December 4), but Van Velden announced her tweak in late October, while the bill was still before select committee.

Cabinet documents relating to this decision were proactively released by the Department of Internal Affairs in late November.

They show the thinking behind the decision to exclude a community return requirement in the first instance.

Key reasons given were:

It creates a level of dependency on funding which can be difficult to sustain;

It creates perverse incentives to increase gambling activity to increase revenue streams for community organisations;

It makes it harder to make policy changes to reduce gambling and gambling harm, because this may result in less funding for community; and

High tax rates make licences unattractive to commercial operators.

In contrast to evidence supplied by community groups, the Cabinet paper said there was no clear evidence that online gambling “cannibalises” the land-based gambling market.

“Internationally, evidence tends to lean towards online gambling being complementary to other forms of gambling, rather than resulting in a complete substitution of one form to another.”

It said requiring community returns would support grassroots community benefits. “However, community returns can create upward pressure to grow or maintain the gambling market and can normalise gambling.”

Van Velden tells Newsroom she believes the 4 percent contribution “strikes a more appropriate balance between the desire for community benefits, concerns about the impact the new system will have on funding levels, making licences attractive for overseas providers and most importantly, reducing gambling harm.”

Snedden acknowledges that gambling harm is very real, and that the minister has a responsibility to act with that in mind, but he believes these are “sweeping” statements not backed by evidence.

He says he had previously filed Official Information Act requests seeking the supporting evidence behind such claims, but the Department of Internal Affairs “basically said they didn’t have any and that they were making general statements based on their involvement in gambling over a long period of time”.

One such claim was that of “perverse incentives”.

“I don’t think there’s any likelihood gamblers are thinking of community organisations when they’re gambling.”

But Problem Gambling Foundation advocacy and communications director Andree Froude tells Newsroom the reasons put forward in the Cabinet paper ring true.

“Including community funding as a part of this whole regime risks positioning [online] gambling as an essential source of social funding, rather than harm minimisation.

“We really see that as problematic. Sustainable community funding shouldn’t be built on people losing money gambling.”

Froude says she understands concern from community and sports groups: “They want and need sustainable funding, but we should be looking at ways to do that, rather than deepening the reliance on gambling revenue.”

“I do totally agree with the minister’s comments in that it can unintentionally cause an increase in gambling.”

Van Velden’s Cabinet paper sought agreement for a review of the online casino to be conducted within three years of operation, but the resulting Cabinet minute of decision added a review of community returns and the scheme’s impact on other forms of gambling within two years.