This submission outlines ten measures the Community Council for Australia (CCA) believes will significantly strengthen Australia’s not-for-profit (NFP) sector to support our communities and drive real economic savings for government over the coming financial year and beyond.  These measures have been informed by consultation with CCA members and key organisations in the NFP sector.

It is important to note that this submission does not override the policy positions outlined in any individual Federal Budget submissions from CCA members.

The content of this submission includes: a brief background to CCA; a listing of proposed measures; an overview of the current issues for the NFP sector; further details about the costing of proposals; and a conclusion.

CCA welcomes the Albanese Government’s engagement with the charities and NFP sector and the upcoming revisit of the Productivity Commission’s 2010 Report into the Contribution of the Not-for-Profit Sector as it works to implement the positive policy agenda for the sector carried into Government.  The need to realise the benefits of planned reform has never been more urgent. Australia confronts growing costs of living, harsh economic challenges, the impact of climate change and an increase in the frequency of natural disaster, and the enduring impact of pandemic and global events.  A government committed to building economic and social resilience and productivity across our communities will actively encourage and invest in more effective and efficient charitable organisations delivering better outcomes for our communities.

CCA welcomes this opportunity to provide input into the Federal Budget process and to engage in detailed discussion about any issues this submission raises.

The Community Council for Australia

The Community Council for Australia is an independent non-political member-based organisation dedicated to building flourishing communities by enhancing the extraordinary work undertaken by the charities and not-for-profit sector in Australia.  CCA seeks to change the way governments, communities and not-for-profits relate to one another.  It does so by providing a national voice and facilitation for sector leaders to act on common and shared issues affecting the contribution, performance and viability of NFPs in Australia.  This includes:

• promoting the values of the sector and the need for reform
• influencing and shaping relevant policy agendas
• improving the way people invest in the sector
• measuring and reporting success in a way that clearly articulates value
• building collaboration and sector efficiency
• informing, educating, and assisting organisations in the sector to deal with change and build sustainable futures
• providing a catalyst and mechanism for the sector to work in partnership with government, business and the broader Australian community to achieve positive change.

Our success will drive a more sustainable and effective charities and not-for-profit sector in Australia making an increased contribution to the well-being and resilience of all our communities.

Summary of proposed budget measures

The following proposals have been developed through extensive discussions and feedback from CCA members and other key stakeholders.  Each measure would deliver real benefits to government over the longer-term and strengthen communities (proposed measures are outlined in more detail on page four).

1. Provide Deductible Gift Recipient (DGR) status to all registered charities with an initial exemption of organisations for childcare, primary and secondary education, and the advancement of religion.
2. Create more incentives for giving as Australia experiences the largest ever inter-generational wealth transfer over the coming two decades.
   1. Living Legacy Trusts
   2. Opt-out workplace giving provisions
   3. Superannuation charitable investment options
3. Fix fundraising regulations.
4. Boost sector investment and productivity by increasing certainty in government funding, concessions, incentives and regulations.
5. Develop a Charities Transformation Fund to support cybersecurity and sector capacity development through: adoption of technology; staff training and development; research and evaluation; and infrastructure improvements, including to respond to climate change.
6. Develop a Charities Investment Fund that could provide charities reduced interest loans for impact investment or longer-term line of credit options.
7. Establish an Impact Capital Fund to grow social impact investing.
8. Support a one-stop-shop registration process to enable volunteers to be registered and insured more quickly without the red tape of multi-jurisdictional compliance.
9. Introduce a targeted ‘estate duty’ for people with estates valued at over $10 million with appropriate incentives for donations to charities, safeguards relating to family businesses and farms, and mitigation of any potential adverse impacts.
10. Review the generous tax concessions provided to gaming, catering, entertainment and hospitality income for mutual organisations, especially licensed clubs.

Context: not-for-profit reform

The charities and NFP sector encompass over 600,000 organisations – from large to very small – supporting and enhancing our society and contributing 8% of GDP.  Australia’s 50,000+ charities employ over 1.38 million staff (around 11% of Australia’s workforce), mobilise over 3 million volunteers and collectively turn over more than $170 billion each year.

These facts tell only a small part of the story. The real value of the charities sector is often in the unmeasured contribution to Australian quality of life.  Charities are at the heart of our communities, building connection, nurturing spiritual and cultural expression, and enhancing the productivity of all Australians. Collectively, they make us a more resilient society.

COVID19 highlighted the critical role played by charities and not-for-profits (NFPs) in Australia.  Government acknowledged this role in extending a modified form of JobKeeper payments to charities as well as supporting increased giving during the pandemic.  These measures have been important to many charities, but the impact of the pandemic, rolling natural disasters, inflation and economic pressures make the years ahead incredibly challenging.

At a time when we need to support resilience within our communities, many charities face increased costs, a decline in revenue, uncertainty in income streams and reduced access to volunteers.  Many delivering community services face the triple-squeeze of rising costs, a shortage of volunteers and demand that exceeds their capacity to meet.  At the same time, charities need to invest in critical capacity, including cybersecurity and adaptation to respond to climate change.

The Albanese Government’s positive policy agenda for the sector is welcome.  Reviewing and building upon the Productivity Commission’s 2010 Report in the Contribution of the Not-for-profit Sector is a good start to inform nation-building reform.  The one major recommendation enacted since the 2010 report – the establishment of the ACNC – has proved to be a positive step towards red tape reductions, increased transparency, and trust in the community by prospective volunteers and donors.  But there is still a lot of work to do in streamlining and improving the regulation of charities in Australia and enhancing their capacity, performance and contribution to our economy and the kind of Australia we want.

While Australia’s charities represent a social and economic strength, lack of certainty in funding arrangements, a failure of government and funders to invest in organisational capacity, the barriers to accessing capital and growing impact investing, and a decline in giving (with philanthropic giving as percentage of income still not recovered to the pre-GFC highs of 2009) are handbrakes on realising more for our communities.  At the same time, revenue available to governments is effectively falling in real terms against a backdrop of increasing demands and higher community expectations.

Given the size of the sector, its critical role in our community and the foundation it provides to achieve so much more, the Federal Government should prioritise strategic investment in the charities and NFP sector.  As the now Assistant Minister for Competition, Charities and Treasury said pre-Election, The future of the charity sector is too important to our economy and our communities to grow and develop without planning or strategic investment. Even a one per cent productivity increase would add $1.4 billion to the resources available to the sector, creating more jobs and providing services to more Australians. (Labor to ensure strong future for Australia’s charities – Media Release, 22 April 2022)

Supporting the proposals in this submission will ensure the government receives a better return on their investments, strengthens communities, improves well-being, builds connectedness and resilience, and increases productivity for all Australians.

Description of proposed budget measures

1. Provide Deductible Gift Recipient (DGR) status to all registered charities with an initial exemption of organisations for childcare, primary and secondary education, and the advancement of religion.

Despite some reform, and recently announced plans to progress additional reform, the system of determining Deductible Gift Recipient (DGR) status will still largely favour larger charities that can afford lawyers to assist the progression of their applications.  Many smaller charities do not have the capacity to apply for DGR status, and therefore cannot access the community support that comes when donations are tax deductible.  DGR remains a complex, costly and inequitable system – with less than half of all charities having DGR status.  It makes good policy sense that all donations made to registered, complying charities should be tax deductible.  This is the practice in comparable countries like the UK and Canada.

The ACNC determining charitable status and DGR will deliver a fairer system and reduce red tape. This policy is economically feasible with the initial exemption of organisations for the advancement of religion and education reducing the likely implementation costs to approximately $130 million per annum.  Excluding all schools and all churches for automatic DGR eligibility makes this measure affordable.  At the same time the intent is not to deny DGR, so existing DGR exemptions for ministers of religion and other concessions based on religious and educational purposes would continue to apply.

This measure is estimated to be revenue neutral in the first instance.  Initial projected expenditure of approximately $130 million is offset by past savings in ending uncapped FBT entitlements.

2. Create more incentives for giving now as Australia experiences the largest ever inter-generational wealth transfer over the coming two decades.
   • Living Legacy Trusts

Over the next two decades $2.4 trillion in wealth is expected to pass from Australian ‘baby boomers’ to the next generation.  It is expected that charities will benefit from this wealth transfer through bequests. However, giving by bequest is currently low – in 2012 only 7.6% of final wills had a direct charitable bequest, and charitable bequests accounted for only 2% of the total value of estates.

Living Legacy Trusts involve a donor placing an asset in a trust for the benefit of a charity upon the donor’s passing.  The asset is irrevocably committed to the charity, but the donor can still receive an income stream from the asset while they are still alive. In return for irrevocably committing the asset to the charity, the donor receives a tax deduction when they place the asset in the trust, worth a percentage of the asset’s value. This percentage may vary with factors including the donor’s age.  There are also models where intermediaries may be established to manage the donations and enable charities access to the donated funds prior to the passing of the donor.  This immediate access is particularly important given the current economic climate.

This measure encourages giving and enables intending donors to act on their bequest intentions at the time of greatest need (rather than time of death). It extends the policy intent of DGR concession, while supporting donors to maintain a self-supporting income stream.

This measure will have minimal impact to revenue over the next two years, with its impact increasing as the structure becomes more attractive over time. Deloitte Access Economics modelling suggests a cost to revenue of $870 million over 10 years, which would be more than offset with the growth in legacy giving over a ten-year period.

• • Opt-out workplace giving provisions

When in place, ‘opt out’ systems of workplace giving have ensured much higher levels of success in workplace giving programs.

Less than 2% of working Australians currently donate to charity from their pre-tax income through workplace giving. When in place, the ‘opt out’ approach to workplace giving can result in 60-70% of employees in an organisation participating.  With ‘opt-in’, average participation rates are less than 5%.  Uncertainty over provisions in the Fair Work Act are an impediment to more widespread use of the ‘opt-out’ approach. Clarifying the Fair Work Act would help increase the number of Australian employees participating in workplace giving. Growing to 10% of employees donating 0.35% of their pre-tax income, would raise over a quarter of a billion dollars each year through workplace giving.  This is a realistic target based on local and international experience that would increase philanthropy and the engagement of Australians in the broader NFP sector.

CCA anticipates there would be limited additional costs to government in this measure.

• • Superannuation charitable investment options

Using employee super contributions to drive improvements for communities is increasingly being adopted around the world.  CCA support a model similar to that applying in France where all employees are given the option of investing 5-10% of their superannuation into ‘solidarity organisations’ (the equivalent of our charities).  In 2008 the French government regulated that all super funds needed to provide this option to employees, and since that time the amount invested has grown to over $5.5 billion.  This has stimulated social entrepreneurship, created opportunities to achieve social impact, improved the capital base and capacity of solidarity organisations.

The success of the French 90/10 rule shows what could be achieved if Australia chose to provide employees with some limited choice about how their superannuation contributions are invested.  If just 2% of the MySuper funds were invested this way it would generate around $8.5 billion, or enough to significantly reduce homelessness by investing in social housing initiatives that could assist 50,000 Australians struggling to maintain secure and appropriate housing.

This measure could be transformative in encouraging the charities sector to find ways of establishing social enterprises that strengthen our communities.  It would also link into the work of the Social Impact Investing Taskforce and provide a boost to impact investing across the charities and NFP sector.

This measure has minimal government impact as costs are almost non-existent – it is simply about enabling a different use of a very small part of Australia’s $2 trillion superannuation investment pool.

3. Fix fundraising regulations.

This measure would save millions of dollars a year in red tape, duplication and dysfunctional compliance activities that provide no benefit to the community.  Simply ensuring fundraising activities are covered by the Australian Competition and Consumer Commission (ACCC) and noted through the ACNC would ensure any deceptive or misleading conduct associated with charitable fundraising, whatever the platform, could be closed down and perpetrators prosecuted.

CCA and many other groups have repeatedly called for the fix fundraising solution to be implemented, but still charities languish in a bygone era of accountability that has little relevance or effectiveness, and costs charities millions in wasted effort.

It is now four years since a Senate report recommended harmonization of fundraising regulations.  The need to address the barriers created by fundraising regulations has also been highlighted in a recommendation from the Royal Commission into National Natural Disaster Arrangements.

All Australian governments say that they support the need to streamline fundraising regulations so that every charity big and small across Australia does not have to make separate fundraising applications and returns for every individual jurisdiction just because they have a ‘donate here’ button on their website.  Yet meaningful change is yet to happen.

There is no cost to government in ensuring appropriate application of Australian Consumer Law.

4. Boost sector investment and productivity by increasing certainty in government funding, concessions, incentives and regulations.

This measure is focused on achieving a more stable financial and regulatory framework for all not-for-profits, particularly in relation to government funding and interaction with the sector.  CEO Forums across the country run by CCA with the support of key organisations have clearly showed that uncertainty of government funding and the failure to cover the full direct and indirect costs of delivering services is a critical barrier to investment in the future sustainability of organisations.  The Centre for Social Impact’s research found that only 39% of government grants were reported to cover all costs of service delivery (CSI Pulse of the Sector).  The implementation of the Government’s pre-Election commitment to review and reform the funding models for contracted services to support longer-term planning and better service provision should result in initiatives such as:

• an agreed notice period of six months prior to the ending of any major government contract, incentive or concession, with limited exemptions for cases of fraud, other criminal actions, etc.
• increasing the length of government contracts where possible to at least five years,
• more transparent and accessible processes for reviewing the performance of NFPs,
• more transparent and accountable processes for government funding decisions relating to NFPs,
• a commitment to covering the full direct and indirect costs of delivering services,
• funding practices that recognise non-profit organisations are better positioned than for-profit corporations to provide community services, including via provisions in funding agreements with States and Territories. (An example is prioritising the involvement of NFP community providers in the boost to VET funding, valuing their established outperformance of for-profit providers in engaging disadvantaged and vulnerable communities.)

These measures would all boost investment in organisational capacity across the NFP sector.

At the centre of many concerns across the NFP sector is the ability of small and large community organisations to deal with an increasingly uncertain future.  While governments are not responsible for all disruptions and challenges to the NFP sector, increasing certainty in government funding is a critical measure that would build capacity and effectiveness.

CCA anticipates these measures would produce savings with very limited (mostly internal) outlays.

5. Develop a Charities Transformation Fund to support sector capacity development through: adoption of technology; staff training and development; research and evaluation; and infrastructure improvements, including to respond to climate change.

The Australian government invests billions of dollars in charities and not-for profits to provide critical services and supports to communities across Australia.  Unfortunately, there is often little allocation of funding to enable funded organisations to improve their services through capacity development in critical areas like technology, staff training and development, research and evaluation, and infrastructure.

While the government should not be solely responsible for sector capacity, it is important to acknowledge that significant economic and social benefits flow from growing our social capital; funders share the risks inherent in areas such as climate change and cybersecurity; and that increased productivity will only come if there is increased capacity to improve organisations and the way they operate.

In the area of technology for instance, COVID-19 has clearly highlighted a digital divide between charities – those with the capacity and know how to develop and adapt their services online and in other innovative ways and those without this capacity who have had to hibernate programs and services in the hope of finding additional funding in the future.

The latest Digital Technology in the NFP Sector (November 2022) report from Infoxchange highlights the urgent need for charities and their funders to review and invest in cybersecurity, finding the workforce in 53% of charities has not received cyber-security awareness training.

Significant productivity and performance gains for community and government could be realised if more charities were supported to invest in evaluation and information systems that would allow them to better understand their impact (the Infoxchange report finds that only 41% believe they have this capacity).

A transformation fund would enable charities to respond to what has become a challenging operating environment and improve services to communities, especially in this time when many communities are experiencing higher needs for support from charities.

CCA believes at least $300 million should be allocated to this fund.

6. Develop a Charities Investment Fund that could provide charities reduced interest loans for impact investment or longer-term line of credit options.

Access to bridging finance is limited within charities and few have established lines of credit to smooth out inconsistent or lumpy income streams, despite the sector’s asset base of around $380 billion.

Establishing a fund that could provide longer term 5-to-10-year loans at subsidised interest rates – possibly with potential first loss risk partly underwritten through philanthropic backing – would enable charities with relatively strong balance sheets to continue to operate and maintain service capacity, even when temporary cash flow issues may otherwise have forced cutbacks and retrenchments.

CCA believes many charities would benefit through such a fund which could also underwrite a level of impact investment within the charities sector.

CCA anticipates the cost to government of supporting this fund would be an initial outlay of $500 million which would be invested in the charities sector and provide a small financial return over time.

7. Establish an Impact Capital Fund to grow social impact investing

The potential for impact investing to provide public benefit through attracting new sources of capital and applying this capital to address a wide range of social issues has been under-realised in Australia.

CCA supports the work of the Social Impact Investing Taskforce and welcomes promising engagement with government, banking and philanthropy about establishing a social impact investing ‘wholesaler’.

Experience in the United Kingdom has demonstrated that government, banking and philanthropy can come together to catalyse impact investing.  A model similar to the UK’s Big Society Capital would undoubtedly deliver the same benefits in Australia.

There is currently around $1.5 billion in unclaimed money held in consolidated revenue, and an opportunity for Government to put some of this to work for the Australian community while it awaits rightful claimants.  An Impact Capital Fund is an ideal vehicle.

Cost to Government can be minimised by putting unclaimed money to work within an Impact Capital Fund.

8. Support a one-stop-shop registration process to enable volunteers to be registered and insured more quickly without the red tape of multi-jurisdictional compliance.

COVID-19 had a devastating impact on levels of volunteering across the charities and NFP sector with over two thirds of volunteers reducing or ceasing their volunteering activities.

Getting volunteers back is proving a challenge, not the least because of the complexity involved in ensuring all regulations, checks and regulatory requirements are met.

CCA believes it is past time to establish a national system for registration of volunteers, a one-stop-shop where various regulatory requirements and checks for people to work with children etc. can be streamlined into what effectively would become a volunteering passport.

Individual charities will still need to run their own recruitment, training, and preparation programs for volunteers, but removing the broader regulatory requirements would make volunteering much more feasible. This initiative would align with the objectives of the new National Strategy for Volunteering.

The cost of this national program would be less than $2 million per annum as it would largely draw on existing capacity.

9. Introduce a targeted ‘estate duty’ for people with estates valued at over $10 million with appropriate incentives for donations to charities, safeguards relating to family businesses and farms, and mitigation of any potential adverse impacts.

National estate duties exist in many countries including: the United Kingdom, Germany, Italy, Belgium, the Republic of Ireland, France, the Czech Republic, Canada and the USA.  Not only do these duties provide substantial government revenue, they also increase philanthropy by offering relief from estate duties for any money left to charity.  The Henry Review drew on this international experience in supporting estate duties as a taxation measure.  Among other benefits, estate duties can apply a small brake on growing levels of inequality in our communities.

Until 1979, many Australian governments gained substantial income through various forms of death or estate duties.

Australia’s growing gap between rich and poor, and the gap between government income and demand for government supported services, can both be partially addressed by applying a form of estate duty on the richest 1% in our communities.

A targeted 35% estate duty on all estates over $10 million (with appropriate exemptions) would raise substantial new government revenue and stimulate philanthropy.

ATO figures suggest over 25,000 people have assets above $10 million.  If 4% of these families paid 35% in estate duties, it would equate to a minimum revenue of $3.5 billion.

10. Review the generous tax concessions provided to gaming, catering, entertainment and hospitality income for mutual organisations, especially licensed clubs.

The mutuality principle that rightly applied in the late 1800s in Australia is no longer appropriate or consistent with existing taxation arrangements, particularly for organisations involved in gaming.  Large licensed clubs that act as gaming venues should not be able to treat over 75% of their income as tax free, especially when they have not satisfied the basic requirements of being a not-for-profit organisation that exists to provide a public benefit.  As pointed out in the Not-for-profit Tax Concessions Working Group Report (May 2013), concerns with the current application of the mutuality principle include:

– integrity concerns about member and non-member receipts; 

– competitive neutrality concerns where mutual organisations are trading in competition with taxable businesses; 

– social policy concerns about significant gambling and hospitality receipts of some organisations, which are not subject to income tax at the Commonwealth level; and 

– concerns about private member benefit.

It is recommended, on public benefit grounds, that the tax law should be amended to treat all member and non-member income of mutual organisations as assessable for taxation purposes in line with normal income tax principles. 

If this recommendation is not supported, all income from gaming, catering, entertainment and hospitality trading activities of mutual organisations should be treated as assessable. 

It is difficult to justify the hundreds of millions of dollars of tax concessions provided to large licensed gaming clubs based on the mutuality principle.  It is time to review these concessions taking into account any unintended consequences on mutual organisations that do provide a real benefit to members.

CCA anticipates this measure could generate significant additional government revenue.

CCA Pre-Budget Submission 2023-24

Budget implications (costings)

CCA acknowledges the need to ensure an effective economic framework for all Australian governments that serves the needs of our various communities.  We also acknowledge that COVID-19, climate change, an increase in natural disasters, inflation and global events have created new challenges for governments and for budgets.

In considering the specific budget implications of the ten key measures outlined in this submission, CCA has taken a relatively conservative approach to the projection of new income and expenditure for government.  Given the complexity of some of the proposed measures and the lack of data about others, the initial costs and benefits outlined in this submission represent a starting point for further discussion and more detailed economic modelling.

CCA believes the measures proposed in this budget submission will over time generate significant revenue as well as long-term savings for governments, NFPs and the communities they serve.

Conclusion

This submission promotes Federal Government measures to strengthen the charities and NFP sector and deliver sustainable economic and social benefits for governments and our communities.

Never has there been a stronger case for investment in the charities and NFP sector to build more resilient communities through greater engagement in our society and our economy.

Many individual not-for-profit organisations (including CCA members) will be seeking to have the Federal Government fund specific measures for the benefit of their own causes and communities.  Most of these budget proposals from the not-for-profit sector are important and have real merit.

It is important to note that CCA does not see increased giving as a cost to government but a benefit to the communities we all live and work in.  It is counter-productive to treat increased philanthropy and social impact investment as a government loss of potential tax income or ‘foregone revenue’.  The whole community benefits when individuals or organisations choose to direct their resources into strengthening communities, increasing economic and social activity, and improving health and well-being.  This is particularly the case if the money involved avoids the significant transfer costs of moving into, through, and out of government.  Philanthropy and social investment are about encouraging greater ownership of local issues by enhancing the role of charities and NFPs.

The times we live in present us all with many challenges. Inequality continues to rise in Australia.  We need fairer and more inclusive ways to strengthen our communities and our environment, and more impact investment to grow the capacity of charities to make a positive difference across Australia.  Estate duties, an impact capital fund and the French 90/10 rule are three examples of sustainable policies that have the potential to be transformative.

The NFP sector is too large and too important to be left on the margins of economic debates and major policy reforms within Australia, especially in difficult times.  Government investment in enabling NFPs to be more efficient and effective will ultimately deliver stronger, more resilient and productive communities across Australia.

The Federal Budget is the most important policy document a Federal Government produces.  Recognising the role of the charities and NFP sector through implementation of the measures outlined in this submission will translate into a fairer budget that will increase sector productivity and growth, benefitting all Australians.