By Ben Reid
MELBOURNE — The growing financial difficulties of the Crown Casino have exacerbated the poor fortunes of the Kennett Liberal government in Victoria. A decline in revenue resulted in Crown posting a loss of over $40 million in the five months to November 1997. Now the Australian Stock Exchange has launched an investigation into why the loss was concealed from shareholders last year.
The news could hardly have come at a worse time for Kennett. A great deal of his myth-making about Victoria's "economic recovery" was based on the opening of the Crown complex last year and this latest news comes in the wake of a dramatic fall in the government's popularity following its changes to WorkCover and the powers of the auditor general.
In 1993, Crown said it would spend $762 million developing the casino complex. By its opening in May 1997 this had blown out to over $2 billion. Commentators have pointed the finger for this at company chairperson Lloyd Williams.
Despite the blow-out, investors, egged on by Kennett, were initially enthusiastic about the project.
Fewer international visitors due to the Asian economic crisis and one-off big wins by high roller gamblers forced Crown to raise $126 million in emergency funds in December. Share prices have fallen from over $2 to around 65 cents and valuation of Crown by the share market has fallen from $1.8 billion to just $1 billion.
Crown's losses have already delayed the construction of the second tower at its Southbank site. Under an agreement contained in the Casino Control Act, which Crown lobbied hard to have waived, the company must pay a penalty of $50,000 a day from November if the tower is not built.
Revelations that Crown had informed the state government of its financial difficulties and the construction delay long before it told its shareholders has prompted an inquiry by the Australian Securities Commission. In turn, Crown is suing the ASC and the Australian Stock Exchange for revealing "confidential commercial correspondence".
The 1997 losses, coming in the wake of the huge initial outlay, have prompted Crown to pressure the state government into implementing measures which will ensure the casino's viability.
Two weeks ago, a meeting of Liberal MPs voted not to reduce Crown's revenue commitments. This was despite Kennett publicly campaigning for concessions for Crown, and despite the strong connections between the Liberal Party and Crown's board of management, on which Ron Walker and other party members sit. However, this back flip has further compounded problems for the Kennett government.
Ironically, Kennett may fall victim to the same problems that eventually brought down the previous Kirner and Cain Labor governments. In the 1980s, the ALP developed strong links with sections of big business through loans from the Victorian Economic Development Corporation. The VEDC collapsed in 1988 after it made a spate of bad loans.
While slashing funds to public services and welfare, Kennett has lavished businesses like Crown with all sorts of incentives. Huge slabs of the public sector have been hived off to private investors.
Kennett's restructuring of public finances in Victoria has massively increased the state's dependence on revenue from taxes on gaming, to almost $1.2 billion or 17% of total revenue. An unviable casino or a decline in gaming tax revenue undermines the government's carefully cultivated facade of "balancing" the budget.
Already, commentators have speculated that the probable outcome of Crown's woes is a writing down of the company's value. If this occurs, the casino will be in breach of the gamming commission's regulations on debt ratios.
Kennett staked a large part of the government's reputation on the casino's viability. The project has accounted for a large share of Victoria's investment and job growth in 1996-97.
But casinos rely on transferring funds from consumers and international visitors that would otherwise be spent elsewhere, or saved. They are particularly vulnerable to changes in income which depend on the casino's ability to cajole people to come and lose their money. Governments which have thought casinos would solve their taxation and revenue problems have increasingly had to grant concessions, or even intervene directly, to ensure the casino's viability.
Now Crown is shedding jobs and almost certainly going to try to reduce further its role as a revenue collector for the government, and Kennett will pay a large political price.