The Productivity Commission has released its draft Review of Philanthropy Report. The Commission will now seek submissions on its draft, delivering a final report to the Government by May 2024.

The Commission called for submissions in March 2023 with a brief information paper that attracted over 270 submissions and 70 comments and conducted many group meetings in person and online.

What was the Commission asked to do?

The Treasurer tasked the Commission with preparing a review of philanthropy to understand the trends in philanthropic giving in Australia, the underlying drivers, and identify opportunities and obstacles to increasing such giving.

The terms of reference note that the Government seeks to double philanthropic giving by 2030 and that “[i]dentifying and assessing opportunities and obstacles to increasing philanthropic giving will provide a roadmap to achieving this objective.”

What did the Commission actually do?

If one was hoping for a roadmap with milestones to doubling philanthropy by 2030, then one may be disappointed. It is hard to find a vehicle, or even a fleet of smaller scooters, that the Government could use to reach its target.

Absent are any positive recommendations for incentivising significant giving, such as making bequests through superannuation easier, reducing superannuation taxes for bequests, bequest incentives, encouraging payroll giving, an exemption for philanthropic gifts from an introduced wealth tax or even a public giving campaign.

A recommendation is to remove the $2 threshold for a tax-deductible gift to encourage more micro-donations that might be solicited at a supermarket checkout through a roundup.

The Commission has recommended that some charities be extended deductible gift recipient (DGR) status, such as for advocacy in furtherance of another charitable purpose, public interest journalism, and smaller social welfare charities that do not already meet the criteria to be a public benevolent institution (PBI) and a more diverse range of animal welfare and health promotion charities.

This would increase the number of charities that are DGRs from 25,000 to between 30,000 to 40,000. The Commission guesstimated that:

the increase in total donations to charities that gain DGR status is estimated to be $170 million annually. This is partially offset by a $100 million decrease in total donations to charities with DGR status withdrawn, meaning that the net increase in total donations to charities would be about $70 million per year.” (p 207).

A minimal contribution to the doubling target  – and yes, more about who is to lose their DGR status below.

The Commission recommended a large number of minor regulatory reforms to the regulation of DGRs and charities, such as requiring basic religious charities to report as regular charities to the ACNC, more power to the ACNC to regulate, donor protection for those using online giving platforms, greater disclosure of public listed company giving in their tax returns, and improved data on charitable bequests. While these initiatives may be worthy in their own right, it isn’t easy to imagine that they will dramatically boost donor confidence for donors to open their wallets to double their present giving.

The Commission discounted any government-funded public campaign to broaden or increase giving as there was insufficient evidence that it would be effective.

The Commission has only recommended incremental measures at the margin to increase philanthropic giving using personal taxation as incentivisation, and these alone are unlikely to double philanthropy by 2030.

Who are the potential losers?

The Commission proposes that DGR concessions be refocussed towards activities with the greatest net community-wide benefits. This would be decided on the basis that:

  • the good or service would likely be undersupplied because there are benefits to the broader community that suppliers do not take into account, and additional government support for the activity provides net community-wide benefits;
  • leveraging philanthropy is likely to increase the total amount of funds available for an activity, compared with providing the same amount of government support through other mechanisms; and
  • the risk of the donation being converted to private benefit to donors is tolerable.

The Commission identified that school building funds and funds for religious instruction in schools with DGR status are falling foul of these principles.

The Commission explained about school building funds that:

“The Commission has observed the practice of schools, including voluntary contributions to school building funds on fee invoices, alongside tuition fees. Such direct solicitation for donations from the people who are also charged fees is strongly indicative that the main beneficiaries from an organisation’s service are likely to be the individual recipients of the service and that any broader community-wide benefits are likely to be incidental.” (p 188)

School building funds in government schools fared little better as:

“School building funds in government schools pose similar risks in terms of allocating government funding as those in non-government schools.  In part, they duplicate other government sources of funding, and given the primary role of state and territory governments in funding government schools could encourage cost shifting between governments.” (p193)

It did not provide details of how it conducted or quantified its observations to arrive at this conclusion.

The Commission specifically named religious instruction in schools as infringing its principles but did not offer a view about the DGR class of public funds established and maintained solely to provide education in ethics:

  • in government schools in Australia; and
  • as an alternative to religious instruction, in accordance with State law or Territory law.

Those bodies that were tax deductible under some other category, such as PBI or scholarship funds, would remain, and the Commission proposes a transition out of the DGR concessions for affected organisations.

The Commission did not deal with public library funds and necessitous circumstance DGR funds that many schools operate, as well as their building fund.

If you are of the view that giving does not expand with greater opportunities (inelastic), then another loser may be those charities that already hold DGR status, as they could face up to another 15,000 organisations competing for the donation dollar.

By the way recommendations

There are several recommendations that appear to have no direct relationship with increasing philanthropy other than increasing donor trust and confidence.

  • To develop a legislated definition of what constitutes a public benevolent institution to delineate its scope more clearly, but no guidance is given on the definition or whether it should depart from its Great Depression social welfare roots.
  • The concept of basic religious charity (churches and congregations) should be abolished, and such organisations should be treated similarly to other charities.
  • The ACNC should be given enhanced powers regarding the distribution of revoked charity assets, have greater co-operation with State and Territory regulators, the right of ACNC appearance in State charity proceedings, transparency of ACNC referrals to State regulators, the establishment of a national charity regulators forum, provide test case funding, establish a binding rulings program, produce better public charity data including reporting of bequests, and evaluation of the ACNC registers used by the public.
  • Amending the private ancillary fund and public ancillary fund guidelines to enable smoothing of the distribution rate over a period of up to 3 years.
  • Listed public companies would publicly report itemised information on their donations of money, goods and time to entities with deductible gift recipient status to enhance accountability, and the ATO would include collection of such data on its corporate tax return.
  • The Australian Bureau of Statistics should improve the reporting of volunteering statistics.
  • The Australian Government should support establishing an independent philanthropic foundation controlled by Aboriginal and Torres Strait Islander people.

So what?

The Commission has made extensive requests for further information to guide the final report and its recommendations.

Another round of submissions will inform the Commission and, no doubt, make the case for retention of the current DGR classes marked for revocation.

It should be noted that the previous recommendations of the Industry Commission and the Productivity Commission about the non-profit sector did not have a significant implementation rate – about 1 in 5.

Further, some that could be classed as implemented are barely recognisable from what was recommended. For example, the Productivity Commission in 2010 recommended a new national Registrar for Community and Charitable Purpose Organisations initially established as a statutory body corporate or organ in the Australian Securities and Investment Commission that would register all non-profits (not just charities) seeking Commonwealth tax concessions and fundraising across state borders. In the end, the Government established a separate agency just for charities in the ATO agency structure.

For those who rely on donations to finance their purposes, this once in a generation opportunity to enhance giving will be important.

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