Should lottery tickets be tax-deductible?

Editor’s note: This article was first published in March 2013, when Montoro was Spain’s Minister of Finance; the 20% tax on prizes above 2,500 euros reflects the rules at that time, and the tax-free threshold was raised in later years.

The title of this article is a rhetorical question (the answer is a resounding yes), and let it be clear that I’m not writing it to annoy Mr Montoro (Spain’s Minister of Finance), but because it is something whose logic is self-evident.

Until relatively recently, prizes from the National Lottery, ONCE and the Red Cross were tax-free. As we all know, since September 2012 all prizes above 2,500 euros are taxed at 20%. In other words, if you win 10,000 euros you have actually won 8,000 euros, but if you spend 2,000 euros a year on the lottery, you have lost 2,000 euros. If you win a million euros, I think having to part with 200,000 euros out of the blue could give you an ulcer.

Every time we play the Bonoloto, the Primitiva and so on, we are helping to cover the state’s deficit, an investment that, in times of crisis, is often an expense for many low-income families, since it is their last glimmer of hope of changing their situation. I think it is more than logical and reasonable that if the state wants to help itself to part of my winnings when I win, it should also share in my losses when I lose.

At least this has already been done in the gambling industry, because the system for gambling in Spain was, to say the least, rather curious: if someone played at online casinos, deposited 5,000 euros into their account, lost 3,000 euros and then withdrew the remaining 2,000 euros, they had to pay tax on those 2,000 euros they withdrew as if they were winnings. This has changed with the gambling law, and now you can deduct your losses at both physical and online casinos.

On the stock market we can offset our capital gains against our capital losses, so our stock market losses are also tax-deductible.

So why can’t we deduct what we spend on the lottery? I think it’s only logical, unless I’m missing something…

Featured image: John Phillip, Public domain, via Wikimedia Commons.