Labor and the Greens agreed to cut the number of electronic gaming machine licences by July 2020 as part of their power-sharing deal struck in 2016.

As of April, there were 4981 licences in circulation, although only 4498 machines were in use.

A review by former Commonwealth departmental secretary Neville Stevens found the current trading scheme had failed to cut the number of pokies in part due to the uncertainty in the industry and the casino development.

Mr Stevens found a number of clubs had been holding onto their authorisations because they might need them in future, or because their value may go up with the casino now able to buy licences for 200 machines and 60 automated table games.

He said clubs "broadly acknowledged" the need to diversify away from gaming machine revenue, with a number of venues already looking at alternate business models.

However Mr Stevens found even underperforming machines still made a difference to a club's bottom line.

He found it difficult to pin down how the reduction of licences would affect clubs' profits in the short term, but said it would vary from club to club and was not necessarily related to club size.

Therefore diversification had to be considered "on a club by club basis, depending on the available expertise and club assets", Mr Stevens said.

Under the plan, small to medium sized clubs would get $12,000 per authorisation they applied to surrender by January 31, 2019.

Smaller clubs could also get a discount of $25,000 per licence on lease variation charges and planning fees, while larger clubs would get a $15,000 discount per authorisation.

In limiting the cash incentive to smaller clubs, Mr Stevens said the smaller venues in many cases lacked both the significant cash reserves and land suitable for redevelopment available to bigger clubs.

"Larger clubs have both more financial capacity and more expertise to undertake diversification through land redevelopment," Mr Stevens wrote.

The five hotels in Canberra that have gaming machines would also get $6000 in cash for each authorisation they surrendered, but would be ineligible for the planning discounts. Hotels hold a total of 50 gaming machine authorisations.

Venues that gave up all of their machines would be eligible for a 25 per cent bonus on top, so long as they remained a community facility for at least five years.

Clubs would be forced to surrender their machines in two tranches -  April 2019 and April 2020 - if the 4000 cap was not reached. Hotels would not be forced to surrender their machines.

Mr Stevens said it was "not possible" to place an accurate value on a gaming machine authorisation, although the clubs sector had told him they'd gone for between $6000 and $20,000 in the past.

The price of $12,000 "provides a balance between cost to government revenue, the value of an authorisation to a club and a sufficient amount that can make a difference to the ongoing viability of a small to medium sized club", Mr Stevens said.

If all eligible clubs surrendered one in five of their licences, the cost would be about $1.8 million.

The government also agreed to levy clubs to create a “diversification fund”, with the government matching the amount levied – although it only agreed to match funding for three years.

No levy has been announced, but Mr Stevens suggested a monthly levy of $20 a machine for the first 99 machines a $30 a machine over that.

The levy would provide $1.08 million by the time the number of machines reached 4000, plus matched funding from the government.

The money could be used to train club directors and staff and provide grants for planning, development and diversification studies.

Mr Stevens’ report shows that Canberra clubs pay the lowest tax of any jurisdiction, paying 20 per cent of poker machine spending in tax, behind NSW on about 23 per cent, and Victoria and South Australia at well over 35 per cent.

But over the past decade, the number of clubs had shrunk from 62 in 2009 to 44 now, with smaller clubs closing or merging with bigger clubs. Numbers would continue to fall, he predicted, and clubs must significantly diversify to stay in business.

A 2015 report by KPMG found Canberra clubs were more likely to be financially “stable”, “solid”, or “flourishing” than their counterparts interstate (77 per cent of Canberra clubs in those categories, compared with 59 per cent nationally).

But Mr Stevens said those figures should be treated with caution and a number of clubs, especially small and medium-sized clubs, were “only just covering their costs” and “at risk of falling into financial distress”.

The union for clubs workers, United Voice had called for an Industry Transition Board to be set up to develop a transition package for workers impacted by the reduction.

However Mr Stevens said it was unlikely the number of workers employed by clubs would be impacted by the reduction, and he did not believe a transition package for workers was
necessary at this time.