The Productivity Commission has released its draft report on philanthropic giving and indicated there could be a reform of philanthropy management in Australia.
The Productivity Commission was asked to analyse motivations for philanthropic giving in Australia and identify opportunities to grow it further. The context for this request was the Australian government’s goal of doubling giving by 2030.
The scope of the federal government’s request for an inquiry into philanthropy included consideration of:
- tendencies and motivations for Australians’ charitable giving
- opportunities to increase philanthropic giving
- current barriers to philanthropic giving
- appropriateness of current sources of data related to philanthropic giving
- the tax expenditure framework that applies to charities
- Reforms to address barriers or harness opportunities to increase philanthropy and assess benefits, costs, risks, practicalities and implementation.
The Commission’s review began in 2023, and the draft report was published in late 2023. Early in 2024, the Commission will conduct a public inquiry into philanthropy and recommend how to increase philanthropic giving.
The draft report
The Commission released its draft report, Future Foundations for Giving, on 30 November 2023. It will gather more feedback on this report by 9 February and undertake public hearings from 12 February 2024. A copy of the draft report can be downloaded here.
This draft report proposes practical reforms related to policies for governing, supporting and incentivising philanthropy. Reforms would benefit donors, charities, taxpayers, and people who receive goods and services from charities and the general public.
Report’s observations on the role of philanthropy
The draft report noted that philanthropy could make a distinct and valuable contribution to projects that benefit the community, which differs from the contribution made by government funding. For example, philanthropy provided “untied, flexible or long-term funding for more innovative and riskier projects” compared to government funding.
Comments in the draft report made by inquiry participants highlighted some of the valuable attributes of philanthropic funding:
Patient capital – Philanthropy can provide more ‘patient capital’ through long-term untied project funding. Government funding is less likely to offer this since “it is common for government grants to be linked to short-term funding cycles”. Patient capital could supply the essential conditions for the success of some innovations that would not bear fruit under a short-term funding approach.
Tolerant trialling – Philanthropic funding of projects can incorporate “a greater tolerance for – and even expectation of – failure when trialling new models of service delivery, for example.” Commencing with a different risk profile from government funding and having greater tolerance of various outcomes, philanthropy can fund and trial a broader range of initiatives. Successful project trial results then yield credentials that enable access to government funding opportunities that are more risk-averse. “Once philanthropy has funded initiatives that have demonstrated success, governments could provide funding on a larger scale and change policy settings more widely.”
Australian statistics from the report
Many generous Australians give money, other assets, or their time to philanthropic causes. Some recent statistics in the current report, which also covers some of the pre-pandemic period, include:
- More than $13 billion was donated to charities in Australia in 2021. This was an increase of 26% in real terms since 2017
- Based on an average nominal growth rate of 7.9%, the commission projects that by 2029–30, the “total giving to all registered charities will be about $26.5 billion.”
- Around 6 million people in Australia volunteered in 2022
- The proportion of people taking part in formal volunteering with an organisation declined over the decade or so before the COVID-19 pandemic
- However, there has been an overall increase in people taking part in informal volunteering – supporting non-family members outside their household – although the rate of informal volunteering “declined slightly in 2020, reflecting the effects of the COVID-19 pandemic, it had mostly recovered by 2022.”
- In Australia, a relatively small number of large charities are in the fortunate position of receiving the most donor focus. “In 2016, the largest 10% of charities (by annual revenue) received 94% of all donations, and the 25 largest charities received almost 20% of total donations.”
- Small charities are the most numerous in Australia, but many are stretched and are reliant on philanthropic giving. The report found that among the 60,000 plus registered charities in Australia more than half of all charities operate without paid staff. On average, charities with revenue under $250,000 receive 40% of their total revenue from donations, as opposed to grants or selling goods and services.
Proposed reforms and recommendations in the report
A key reform noted in the draft report centres on making Australia’s deductible gift recipient (DGR) system “simpler, fairer and more consistent”.
The draft report notes that the area of personal income tax deduction for giving “does not need substantive reform”; however, reform is needed for better access to tax-deductible donations. If adopted, the Commission’s draft recommendations would mean more charities could access tax-deductible contributions. Government focus could include:
- Simplifying the system for access to DGR status
- Directing support to where there is likely to be greater community benefit
Other key areas for proposed reforms and recommendations mentioned in the draft include:
ACNC role, powers, functions and enforcement tools – A more formal regulatory framework was one recommendation, with the government establishing a National Charity Regulators Forum with state and territory regulators.
Public data value – It was also suggested that the government could improve the data collection potential of the ACNC register, “collecting and publishing additional data on ancillary funds, corporate giving, volunteering and charitable bequests.”
Transparency and accountability of corporate giving – A two-pronged approach was outlined where the government would “require listed companies to publicly report itemised information on their donations of money, goods and time to entities that have DGR status using a consistent approach and methodology;” and the ARO would “require listed companies to report charitable donations of money and assets as a distinct line item in their company tax return”.
Measurement of volunteer value – To improve measurement of the contribution of volunteering to the community, it was suggested that the ABS make amendments for “gathering data on informal volunteering and time spent in formal and informal volunteering in the Census”. It should “develop methodologies to reduce underreporting of volunteering by Aboriginal and Torres Strait Islander communities and culturally and linguistically diverse communities” in consultation with these communities.
To contribute to the public hearings in February, you can register online to attend. The final Productivity Commission report to Government is due on 11 May 2024.
With a recommended increase in philanthropic giving and reform of DRG rules leading to potential changes to accounting processes, Next Dimension Accounting can provide more information to clients on related matters such as DGR status or corporate giving.
