The Macau government’s surplus is likely to decline by 92 percent in 2016 but should remain “very comfortable,” meaning there is little pressure for policy easing in support of the city’s casino industry, says a research note from Morgan Stanley Asia Ltd.
“Despite the Macau government budgeting a 15 percent decline in total public revenue (13 percent decline in gaming revenue) and 92 percent decline in surplus in 2016 versus annualised 11-month 2015 amounts, we do not see an urge for the government to announce easing measures to support the gaming industry,” said Morgan Stanley Asia analysts Praveen Choudhary and Alex Poon in Wednesday’s note.
Direct taxes from gaming accounted for MOP78.54 billion (US$9.8 billion) – or nearly 77 percent of Macau government revenue – in the 11 months to November 30, the city’s Financial Services Bureau said in a statement on December 28. But the aggregate of such taxes fell 34.7 percent in year-on-year terms.
Despite the erosion of the city’s main tax base, the execution rate – for the 11 months to November 30 – on Macau’s authorised public budget for 2015 was only 70.7 percent, show data from Macau’s Financial Services Bureau.
“The government has spent 20 percent lower than budgeted expenditure every year since 2013, due to delay in infrastructure projects. If we add back 20 percent of expenditure, the surplus would be a very comfortable MOP22 billion for 2016,” added the Morgan Stanley Asia team.
Mr Choudhary and Mr Poon also said there could be an “upside” to Macau’s 2016 public revenue if the city’s 2016 GGR declines at a slower pace than the 13 percent currently projected by the government. Morgan Stanley Asia is currently estimating the GGR decline will be 6 percent.
The institution noted that the Macau government had what it termed “a strong balance sheet” with more than MOP350-billion of fiscal and foreign exchange reserves.
Macau’s gaming revenue contracted dramatically year-on-year in calendar year 2015, the city’s Gaming Inspection and Coordination Bureau confirmed on January 1. Macau’s accumulated casino gross gaming revenue (GGR) for the full year of 2015 declined by 34.3 percent compared to 2014.
Investment analysts have pointed to a number of reasons for the GGR contraction, including China’s anti-corruption campaign and macroeconomic pressures in the world’s second-largest economy, such as slowing growth and reduced liquidity in China’s real estate sector. There have also been policy initiatives announced by Macau that have been regarded by some analysts as potential headwinds for the city’s gaming industry.
The Monetary Authority of Macao announced in December it would implement a real time monitoring system for payments made via China UnionPay Co Ltd bank cards. Deutsche Bank Securities Inc said in a note the announcement could be read as a negative for the city’s gaming industry.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China