Declining tax revenue from gambling: a change in tax revenue

The German state has relied on income from gambling for decades - from lotteries and sports betting to online offers. In 2023, tax revenue from gambling amounted to around 2.48 billion euros, which corresponds to a decline of 3.6 per cent compared to the previous year.

This decline marks the first downturn after a long phase of steady growth, even if revenues are still significantly higher than in 2013 in a ten-year comparison.

Considerable decline in total revenue

Although the gambling sector has traditionally been regarded as a reliable source of income for the state, there have recently been signs of change. While traditional offerings such as lotteries continue to generate high revenues, segments that are highly digitalised are particularly affected by declines.

It is not only conventional betting that is playing a role, but also modern variants. For example, the ability to play slot machines in online casinos is becoming increasingly popular - a trend that is also leading to a shift in tax revenue.

Overall, the decline in tax revenue amounts to 3.6 per cent, which shows that the market is in a state of flux. At the same time, it is clear that the state is always the winner in the end - no matter how small the chances of winning may be for the individual player.

Lottery tax as a stable pillar of revenue

Lottery tax remains the most profitable source of revenue in the gambling sector. In 2023, around 1.77 billion euros were flushed into the coffers of the federal states, which corresponds to 71 per cent of total tax revenue.

This revenue rose by 5.8 per cent compared to the previous year and even recorded an increase of 22.3 per cent in a ten-year comparison. The continued success of lottery products may come as a surprise given the decline in other segments, but at the same time emphasises the importance of traditional gambling offers for the state budget.

Sports betting: a double-edged sword

In contrast to lottery revenue, tax revenue from sports betting recorded a slight decline. At 409 million euros in 2023, revenue was 5.2 per cent below the 2022 level. Nevertheless, a comparison with the figures from ten years ago shows that revenue from sports betting has more than doubled, namely by 116.8 per cent.

This finding makes it clear that although sports betting is experiencing weaker development in the current year, it will play an important role in the gambling sector in the long term. The momentum in this segment reflects the growing market for online betting and live events that has established itself in recent years.

Significant decline in virtual machines

The most drastic decline in tax revenue was in the area of virtual machine tax. In 2023, revenue here fell by 38.5 per cent, meaning that only around 264 million euros flowed into the public coffers.

This decline indicates a significant change in gaming behaviour. Possible reasons for this include a shift in user preferences towards other online offerings or a change in regulation that influences customer gaming behaviour.

At the same time, the decline could also require an adjustment to taxation models in order to do justice to the changing market conditions.

Online poker and the impact of new regulation

Revenue from online poker has also changed recently. Since the State Treaty on the New Regulation of Gambling came into force on 1 July 2021, online poker and virtual slot machines have been taxed.

In 2023, revenue from online poker fell by 7.5 per cent and only reached 30 million euros. This decline could be due to changing gaming habits or increased competition from other digital gambling services.

Despite this decline, online poker remains an important part of the digital gambling market, even if the trend in some areas points to declining figures.

Regional differences and the influence of the federal states

Lottery law in Germany is a matter for the federal states, which means that tax revenue from games of chance flows directly to the federal states. In 2023, North Rhine-Westphalia generated the largest share with 535 million euros, followed by Bavaria with 350 million euros and Baden-Württemberg with 300 million euros.

These regional differences reflect not only the different population densities, but also the varying preferences and market conditions in the individual federal states.

The allocation of revenue to the federal states plays a central role in the distribution and use of funds in the state budget, which in turn has an impact on regional infrastructure projects and social programmes.

Forecasts and outlook for the future

Experts assume that tax revenues in the gaming sector will continue to fluctuate in the future. Economist Jens Boysen-Hogrefe from the Kiel Institute for the World Economy (IfW) has already predicted a further moderate decline of around 0.6 per cent for the coming year.

While some segments, such as online poker, may well show growth potential, others, particularly the virtual machines segment, are likely to remain under pressure. These forecasts show that the dynamic developments in digital gambling will continue to have a major impact on tax revenue.

The state must therefore prepare itself for an environment in which flexible and adaptable regulatory mechanisms are necessary in order to ensure stable revenues in the future.