Ideology dressed up as charity a taxing problem

Aug 3, 2022 | Read

August 03, 2022 | News & MediaRead

The Australian newspaper’s Inquirer section recently published an edited extract of the Hon Dr Gary John’s recent Ramsay Lecture Charity – Enhancing its Value to Australian Society. 

For the full article as it appears on The Australian newspaper website click here

There are thousands of great charities in Australia and tens of thousands of great people working and volunteering for them, and millions who donate to them. Strangely, charities are not treated alike within the taxation system. Even stranger is that some of them do very little charitable work and others use government for fundraising.

Charities have been successful at being exempted from taxation. In this sense, the Australian public underwrite charities. Does the public know what they get for their money?

A traditional assumption among leftist politics is that all needs unmet by the market should be met by government, which is why the left has often disdained charity, especially voluntary effort. The apparent rapprochement in recent years between the charity sector (or, more accurately, its spokespersons) and the left is because so much of the sector delivers government services. The right is comfortable with charity and volunteer effort although the shibboleth of limited government has weakened. The private sector has often engaged with charities; however, there is a trend to subsume charitable support within corporate social responsibility, now called ESG – environmental, social, and corporate governance.

Charity advocacy has mostly been grounded in charitable works, not disembodied ideology. Using the example of ESG, if a welfare charity wishes to be “environmentally responsible”, how much of its money should be spent to save the environment and, if spent, how much will not be spent on the charitable purpose?

Are charities independent of other sectors and their thinking?

On the 200th anniversary of The Benevolent Society, the curator of the State Library of NSW observed that while it was Australia’s oldest charity it was also “the oldest continuous organisation apart from government”.

Following the 2020 bushfires, the Australian Charities and Not-for-profits Commission reviewed the work of the Red Cross and two other charities that had received millions of dollars in donations to help those who suffered. Raising funds for charitable purposes – for example, on social media – seems easy, but disbursing those funds to beneficiaries is not so easy. It requires organisation. Red Cross assessed 15,000 applications for grants during the 2020 bushfires.

Red Cross gave the example of 850 people who sought help six months after the bushfires had ceased. Apparently, delayed claims are common. Only an experienced organisation would know to retain some funds for those people.

It is highly likely the initial funds for The Benevolent Society were raised from donations. Asking members of the public for support ensures charities are independent of government.

Many other charities do the same.

The NSW Wildlife Information, Rescue and Education Service Inc, for example, which was involved in the 2020 bushfire response, received and managed $90m in donations.

Volunteers are an essential part of charity work. Or at least they were at the outset of The Benevolent Society. The NSW Rural Fire Service Trust, also involved in the 2020 bushfire response, assisted 70,000 volunteer members of rural fire services.

At its outset, the Benevolent Society helped unmarried mothers, destitute children and elderly ex-convicts. Presently, The Benevolent Society seeks to “prevent social problems”, in part by advocacy to government about law and public programs.

Charitable endeavours may be less targeted to a group of individuals than was once the case, and more to a concept – for example, reconciliation, or how to save the world environment. For these, and more traditional issues, charities will have a way of thinking about problems and a conception of the good of society – an ideology.

These values are important contributions to Australian society. Now let me tell you what is happening in the sector and how this may weaken these values.

In 2020, the revenue of charities in Australia was $178bn. However, of the $178bn, the main elements were: $89bn came from government, $57bn came from the sale of goods and services, much of which was government-subsidised, and; $13bn came from donations and bequests.

Was the value of the charity contribution $178bn or $13bn, or somewhere in between?

Sydney University is a charity. Its income in 2021 was $2.6bn and it employed 8000 staff. Most of its funds came from government grants or government-subsidised fees for education services. Donations were a minor source of income.

Brisbane charity Zephyr Education Inc supplies school uniforms and books to the children of women who have sought refuge in a women’s shelter. Its income in 2021 was $600,000. Its income was drawn entirely from donations, and its staff were voluntary.

Some charities raise no funds and do not carry the name charity in their advertising. They are, to all intents and purposes, not-for-profit government services contractors.

They have probably grown from a charity base and retain the status because their purpose remains charitable. An original asset – say, a community hall – has long passed into the accounts and is maintained as part of the business.

Some charities deliver no services. They raise funds from donors with the sole intention of lobbying government for a change to law, or for funds. The shift away from “services” to “voices” runs the risk of charities drifting into ideology.

Some charities will slip into public debate ideas foreign to charity. For example, some argue for equality as the means to eliminate poverty. Equality, however, is not a charitable purpose. The words “equality”, “fair” and “equitable”, so often used by those in the sector, do not appear in the Charities Act 2013 (Cth).

These potential weaknesses in the chain of value – reliance on government funds, loss of economic independence, low reliance on volunteers, drift in purpose, and advocacy based on ideology rather than practice – can be strengthened.

Based on my experience as commissioner, and in the spirit of passing to others for their consideration, here are some suggestions.

• Provide the public with clear evidence of what charities do

• Anchor independence in donations and volunteers, and advocacy in practice

• Provide donor taxation incentives for all charities in return for the disciplines of Public Benevolent Institution status

Charities need to demonstrate added value in pursuit of their charitable purposes. The issue is how to provide information that would satisfy the public’s need to know what charities do, at little burden to the charity and little cost to the donor.

The solution to the information question lies in the language that charities use to describe their work – the programs charities run for their beneficiaries. Programs provide useful information for a wide range of potential users – philanthropists, donors, researchers, service users, volunteers, governments and charities.

In addition to 60,000 charities on the Australian Charities and Not-for-profit Commission Register, there are now about 80,000 programs described. The public response to the enhanced register has been superb. Searches of the register have risen from 4.5 million last year to more than 7 million (on an annualised basis) since its launch.

Charities often use governments to raise funds. In doing so, they use government compulsion instead of voluntary donations. About 300 charities are entirely reliant on government and around 2500 receive more than 90 per cent of their income from government.

Auditors regularly make an “economic dependency” disclosure note in a charity’s accounts, commenting that overreliance on government grants and contracts is a risk to the viability of the organisation.

It would be too disruptive and impractical to have a rule about an acceptable level of government funds to sustain charitable status. Nevertheless, to retain the unique nature of charity organisation charities should endeavour to raise funds directly from donors. In the same vein they should also endeavour to recruit volunteers.

A major legal debate at present is whether those who do not deliver services to beneficiaries, can gain access to donor (and other) tax deductions by gaining Public Benevolent Institution status. The blocker to the award of PBI status is that PBIs “must have a clear mechanism for the delivery of relief”. They need to do some concrete charity work.

Advocacy alone, even in pursuit of charitable purposes, does not prove the value of charity work. Advocacy alone is disembodied, nothing more than ideology dressed up as charity: any citizen or political party can do that. Lobbying informed by charitable practice, however, is a value that few others could match.

There is a solution to the weakness of ungrounded advocacy. About 60 per cent of charities do not have donor deductions. Clearly, some charities are thought to be more charitable than others.

In 2010, the Productivity Commission argued that donor deductions should be extended to all charities. In 2013, a Treasury paper recommended extension of donor deductions, with some carve-outs, to all charities.

A proposal worth considering is that registered charities should be eligible for donor tax deductions, as per the Treasury recommendation, and in return charities must have a means of delivering on their purpose.

All charities should be granted the privilege of a tax deduction for the donor. In return, charities must satisfy a “clear means of delivering” test, and charities must attempt to raise donations and recruit volunteers.

I believe these modest changes would strengthen the distinctive contribution charities make to Australian society, including justifying the support of Australians through taxation.

Gary Johns is the outgoing Australian Charities Commissioner. This is an edited extract of his Ramsay Centre lecture, Charity – Enhancing its value to Australian society.