The first reports on the charity sector reveal staggering duplication and a nation less willing to give than it likes to imagine. By Mike Seccombe.

Inside the $100b charities bubble

They have income each year of more than $100 billion, employ more than a million Australians and on average 10 new ones are established every working day.

They are, in the words of a recent comprehensive report on their operations, “the glue which holds much of Australian society together and allows it to function and prosper”.

They are the charities and not-for-profit organisations that socialise our children and tend our elderly, fund science and culture, defend our environment, advocate for the sick, and help the hard-up at home and the impoverished overseas. And do much more besides.

Yet, as noted in that same report, released this month by JBWere, until very recently we knew little about them as a sector. Not even how many there were.

It was not until the establishment of a national regulatory body at the end of 2012, the Australian Charities and Not-for-profits Commission (ACNC), that we got a real fix on how many charities and not-for-profits Australia had, and how active they were.

Before that the Australian Tax Office held a register of charities but, says ACNC assistant commissioner Murray Baird, it was never updated, “so once you got on, you stayed on”.

With the advent of the ACNC, though, charities were required to report on their activities, to different degrees depending on size. Some actively opted not to, many others simply did not respond.

Some 13,000 charities have since been wiped from the register. Most were simply defunct.

“We’ve only revoked 13 after investigations into their governance,” says Baird.

The net result is we can now say there are about 54,000 active charities in Australia, or about one for every 445 people. That ratio is constantly changing though because, as we said before, about 10 new ones are registered every day.

1 . Low level of public donation

At first blush, one might think the number of charities is testament to the extraordinary generosity of Australians. However, one would be wrong.

First of all, most of those charities are pretty much broke. Eighty per cent of income goes to just 4 per cent of charities.

Second, and more startling, is the fact that very little of that money flows from donations. More than half of the sector’s income is “self-earned”, mostly from fees for services provided. Another 38 per cent comes from government.

Less than 8 per cent comes from philanthropy, and only about half of that from individual donations. And it has been stuck at that level for a couple of decades.

Little more than a third of taxpayers donate money to charity, according to figures from the Australian Tax Office.

“I think that’s way too low,” says John McLeod, who wrote the JBWere “Cause” report. “It should be 50 per cent of the broad population.”

And it should be higher still from those who can most afford to give, he says. “Even for those earning above $1 million the number who give is still only 60 per cent.”

The news is not all bad. As McLeod notes in his report: “Although philanthropy has been flat as a proportion of [charities’] income, it is within a growing total. Also within the philanthropic pie, there have been major changes, with structured giving [by wealthy donors] … and corporate support growing much faster than other forms. Individual giving, which still comprises 50 per cent of the total, has seen good gains in average giving by existing donors, but the proportion who donate is stuck at 36 per cent of taxpayers, having peaked in 1983.”

The question is why that figure remains so modest. Australians are much wealthier now than they were then. In the past two decades, real incomes have grown by more than 60 per cent. You might think our greater standard of living would allow for greater giving.

Dr Carmen Lawrence, former Labor politician, now professor of psychology at the University of Western Australia, points to research showing affluence is often antithetical to altruism. With wealth comes a sense of entitlement. And generosity also declines as societies become less equal. Apparently when people are scrambling to keep up with the rich Joneses, they are less likely to see the need of others.

Whatever the underlying psychology, though, Australians are not as generous as perhaps we would like to think.

“Australia has a long history of being very good when there is a natural disaster, a big event like a flood or a fire,” says David Crosbie, chief executive of the Community Council for Australia, the peak body for the not-for-profit sector.

“But ask us to regularly put the coin in the hat and we’re not so keen. And ask the very rich to put the coin in the hat and we’re nowhere near as good as other cultures.”

2 . Government suspicion of advocacy

Notwithstanding the extraordinary growth of the sector – turnover went from $46 billion to $105 billion between 2007 and 2012 – times are getting tough, he says.

The attitude of government – particularly the current federal government – is one problem.

“There have been cutbacks in grants at both the state and national levels. There’s a lot of uncertainty about continuity of funding; lots of programs just rolled over for a year because of the election,” says Crosbie.

“Competition for service fees also has increased significantly. And for-profits are moving into the charitable space.

“Think education or employment or offshore detention or migrant services or disability: increasingly, when the amount of money in a pool gets above $100 million, a well set-up for-profit will come in to compete.”

The current federal government has also shown a willingness to use funding as a means of discouraging advocacy or dissent.

Many examples have been reported, from the push to remove tax-deductible status from environment groups to the cutting of funds to legal aid and other groups that advocate for their causes.

“In many ways governments prefer working with for-profits because for-profits are not necessarily advocates for those they serve,” says Crosbie.

“Say a charity is running services on Manus Island. They will likely say if conditions are terrible, because their purpose is to support children.

“The trouble with not-for-profits is that they are committed to serving the community, not making money, so they are more likely to advocate publicly.

“A for-profit might well push for more money and better conditions, but they’ll do it quietly through direct lobbying of government.”

3 . Private ancillary funds

Conservative politics tends to be conflicted in its attitude to charity. On the one hand, charity is seen as good because it provides services government might otherwise have to provide and it empowers individual choice about what causes are worthy of support. On the other hand, it is seen as suspect because it is not motivated by profit and is redistributive, and is therefore seen as somewhat socialist.

In the view of former prime minister Tony Abbott’s favoured source of external advice, the Institute of Public Affairs, any government support for the charitable sector only served to co-opt it into “the broader welfare state system”, which in turn was damaging to “private sector entrepreneurship”. The IPA favours a completely unsupported deregulated charitable sector.

Thus it railed against the establishment of the ACNC to regulate and assist charities and not-for-profits. And sure enough, the policy of the Abbott government was to abolish the ACNC, regardless of the fact the sector overwhelmingly supported it.

Legislation was drafted accordingly, but the senate would not back it. Nonetheless, it remained the government’s policy until last month, when the idea was quietly dropped.

Still, the government moves in mysterious ways when it comes to the regulation of charity. The current controversy within the sector is over proposed changes to the operation of charitable vehicles for the wealthy, called private ancillary funds.

“PAFs,” one money manager for the wealthy explains, “were set up to allow individuals to make tax-deductible donations in a trust vehicle, and to control the direction of those funds. It’s essentially an irrevocable gift, so you don’t own that money anymore, but you control it.”

In return for the tax exemption, PAFS are required to donate at least 5 per cent of their capital value to charitable causes each year. Most donate rather more than that.

Since they were introduced seven years ago, PAFS have grown to hold some $15 billion in total. The charitable sector is very supportive of them: they provide a steady, reliable source of income.

But that could be about to change.

“The government has a piece of exposure draft legislation out now trying to reduce the amount that PAFs have to give each year,” says David Crosbie. “They are saying it should be reduced to 2 per cent.”

The charities naturally oppose the move, which would potentially cut their annual income from these trusts by 60 per cent. So, we are told, does the treasury. As do most of the philanthropists who run PAFs, and who have told The Saturday Paper they have found no difficulty, even in the current low interest rate environment, in meeting the 5 per cent requirement.

Multiple sources suggest the government has moved at the behest of a small minority of funds and one in particular – the largest of all – the $3 billion Paul Ramsay Foundation, set up by the late private hospital operator.

Numerous attempts to get comment from the Ramsay Foundation or the relevant minister, Kelly O’Dwyer, received no response.

So the impetus for the proposed change remains a mystery. It has not escaped notice, however, that Paul Ramsay and Ramsay Health has donated millions to the Liberal Party over the years, including hundreds of thousands funnelled through the controversial Free Enterprise Foundation.

It is just one more problem facing the charitable sector.

4 . Problems facing charities

Perhaps the biggest concern of all, however, is simply the proliferation of charities.

Says John McLeod: “There are simply too many people doing the same thing.”

And not doing it very well, dissipating money and energy as a result. These charitable inefficiencies come in various forms.

One, says Crosbie, is the vanity charity, marked by the “Absolutely Fabulous crowd getting together for a big party”.

Neither he nor McLeod will comment about the obvious example, the recently collapsed Shane Warne Foundation, except to note that “event” charity is the riskiest and often the lowest-return way to go about it.

Another might be termed the tragedy charity.

“The data around the world shows the biggest growth relates to particular health conditions,” says Crosbie.

“Someone suffers or dies from something and they or their family set up a charity in the area. Another big one is people who go overseas and visit some disadvantaged area and fall in love with the people and set up a charity to address the needs in that community.”

In these cases, although the people act from the best of motivations, their operations are often inefficient, especially with duplicate management bodies around the states.

“The biggest issue within existing charities,” says Crosbie, “is federated structures. I know of no other area where we are so inefficient in terms of running nine CEOs, CFOs, office staff. A lot of national charities seem to spend a lot of time arguing internally about who can do what.”

He cites the example of a study of one large charity that found it could save 20 per cent of its costs by ending such duplication.

“It contrasts with our successful corporates. Wesfarmers has only one board. They don’t have a separate entity in each state for each brand. The problem is the sector is competing against itself. We need more collaboration and more mergers.”

To that end, the Community Council for Australia has begun a program of encouraging more consolidation.

The big success story was the merger of two organisations, Good Beginnings and Save the Children.

 “The CEO of Good Beginnings, Jane Meyer, who lost her job, became part of the roadshow,” Crosbie says of the CCA’s campaign.

There’s a long way to go, however, in rationalising Australia’s ever-growing charity sector.

The message from the sector is this: If you are not donating to charity, start doing it. You can afford it. And if you are thinking about starting one, ask yourself if it is the best way of addressing the cause, or is it better to work through an existing organisation. And if you’ve already got one, consider to what extent it’s about ego or the outcomes.

“Running a charity is not a hobby,” cautions Crosbie. “It costs a lot of money. It requires real skill.”

This article was first published in the print edition of The Saturday Paper on April 23, 2016 as "Inside the $100b charities bubble".

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