As coronavirus bites, two-thirds of volunteers have left non-profits and many organisations in the sector face becoming ‘zombie charities’. By Mike Seccombe.

The end of charity: Sector at risk of collapse

When the Victorian government put 3000 residents of nine public housing towers under hard lockdown earlier this month in an attempt to stop the spread of coronavirus, it seemingly didn’t think much beyond the punitive.

Hundreds of police were rostered on to secure the buildings, but what of the welfare of those inside who had no warning so they might prepare? That fell, as it so often does in an emergency, almost wholly to charities. Yet the charitable sector received no notification of the lockdown either.

Still, it scrambled to respond. David Crosbie, chief executive of the Community Council for Australia (CCA), ticks off the range of organisations that rallied to the challenge of keeping 3000 people fed, healthy and sane: food charities, religious groups, various organisations that worked with migrant communities and asylum seekers, mental health organisations, alcohol and drug rehabilitation groups and “quite a lot of informal local groups”.

“It was a real, sort of, coming together,” he says.

It appears that is what the Andrews government assumed would happen. It’s what all Australian governments, indeed all Australians, assume will happen: that in times of crisis – bushfires, floods, droughts, pandemics et cetera – charities will be there to help.

And not only in time of crisis. As the chairman of the CCA board, Reverend Tim Costello says, much of what we think of as the social safety net that the government provides is actually dependent on charities that are contracted by government “to be the arms and legs, to be the vehicle of that safety net”.

Beyond the role they play in the nation’s social fabric, charities are also a big part of the economy – accounting for about 8 per cent of Australian gross domestic product. Collectively, they employ 1.3 million paid staff, some 10 per cent of the workforce – as many people as the construction sector, and more than all of manufacturing.

But charities also rely on the altruism of countless volunteers – an estimated two-thirds of whom have stopped volunteering because of the pandemic. Many of these volunteers are older, often retired people who are naturally concerned about their health in this time. Without them, though, the charitable sector now finds itself in crisis.

Covid-19 has also robbed charities of a sizeable chunk of their revenue because it has made fundraising difficult. Think of the sausage sizzles that used to happen outside Bunnings on weekends, but no longer do. And the fun runs and gala balls and other such in-person fundraisers that now cannot take place. The op shops that have been closed.

On top of that, there is mounting evidence that donors are tapped out – having given during the bushfire crisis, they are less willing to open their wallets now. Or, if they do, they are giving to those front-line charitable groups that provide crisis services, money that may have otherwise supported important but less urgent endeavours.

As the Covid-induced recession continues – and is more sharply felt as the government winds back the economic support of JobKeeper and JobSeeker – donations are likely to decline further, and for a protracted period, if past experience is any guide.

During the global financial crisis, the average amount given to charity by Australians fell about 20 per cent and stayed down for three years, says David Crosbie.

And this time, the economic circumstances are much, much worse.

“Many charities not on the front lines during the fires were reporting to me their worst start to a year. They were hoping it would pick up before the end of the financial year. But that hasn’t eventuated.”

Instead, Crosbie says, “for most charities, incomes have been going backwards”.

He says he has had to counsel some charities out of selling down their meagre assets – at the bottom of the market – in order to meet their operating expenses.

Crosbie fears many organisations will be transformed into “zombie charities” within a year or two – “charities that exist, but are no longer able to do their work”.

“I think we’re going to have thousands of zombie charities that have cut their programs, cut their staff, cut their services, cut their infrastructure, [that are] just trying to hang on until they can rebuild,” he says.

Already, many have entered what he calls “the starvation cycle, where you cut all your infrastructure first to try and keep the programs going. And then you start cutting the programs as the money gets tighter.”

But charities, unlike most for-profit enterprises, operate counter-cyclically – demand for their services increases in hard times. As such, you might think they would be high on the list of government priorities for support at this time.

Yet when the Morrison government announced its first support package back in March, that $17.6 billion was directed entirely towards the private sector. There was nothing for charities and non-profits. State governments, too, seemed to have forgotten them.

Crosbie says that, in response, leaders in the sector – including Costello and Susan Pascoe, former head of the federal regulator of the sector, the Australian Charities and Not-for-profits Commission (ACNC) – formed the Charities Crisis Cabinet.

They were heard. The sector was included in the subsequent JobKeeper program and treated quite generously. Charities needed to show only a 15 per cent decline in revenue – half the rate of most businesses – to qualify. And they were allowed to exclude government payments in calculating the loss of revenue. An exception, of course, was universities, towards which the government seems to have a peculiar antipathy.

The majority of charities with paid staff now are dependent on JobKeeper, says Crosbie.

A report released last month by Social Ventures Australia and the Centre for Social Impact found that a 20 per cent reduction in revenue would see 88 per cent of charities immediately making an operating loss, and would put 17 per cent at high risk of becoming unviable and “closing their doors within six months, even when taking their reserves into account”.

At the time of that report’s release, it was unclear whether the JobKeeper program would continue beyond its originally scheduled cutoff date of September 28. It forecast that if financial supports, such as JobKeeper and lease and loan deferrals, came to an end in October, more than 15 per cent of jobs in the charity sector would be lost.

But even after this week’s announcement that a scaled-back JobKeeper will continue, the outlook for charities remains dark. From the end of September to December, the wage subsidy will be cut by 20 per cent to $1200 a fortnight for those working more than 20 hours a week, and to $750 a fortnight for those working fewer hours. Then until March, those payments will be cut again, to $1000 and $650 respectively.

This will disproportionately affect charities, because they employ a lot of part-time workers. And it is unlikely that donations will recover in that time to fill the gap. Private wealth manager JBWere has estimated total giving will fall by about 7.1 per cent this year, and then a further 11.9 per cent in 2021.

That’s an average, though. Some charities are worse hit than others.

“It’s patchy,” says Tim Costello. “As of June 30, a number of charities that were doing essential services, like food relief for homelessness – even community radio – with people in lockdown all had received quite generous donations.

“But many others, particularly smaller charities that do face-to-face fundraising, have missed out. They include the arts and lots of others that aren’t on the front line of feeding or housing people.”

Even before the recent crises, charities were doing it tough, says Professor Kristy Muir of the business school of the University of New South Wales, who is also chief executive of the Centre for Social Impact.

“Charities were already getting really close to the bone prior to the Covid crisis,” she says. “Their expenses grew far faster than revenue.”

Myles McGregor-Lowndes, emeritus professor in law and public policy at the Queensland University of Technology and founding director of the Australian Centre for Philanthropy and Nonprofit Studies, says fewer Australians appear to be giving.

He has been analysing Tax Office data on claimed deductions for charitable donations for 25 years. Between 2016 and 2018, there was a sizeable drop in the number of taxpayers who claimed a donation in the tax returns – about 100,000 people.

“And this is a trend that has been going for a few years now,” says McGregor-Lowndes.

A few factors may explain the decline, but most likely it is a reflection of a weak economy, low wage growth and cost-of-living pressures that were a burden on donors well before the recent crises.

“Giving is usually a high discretionary ‘spend’, as the economists would say,” says McGregor-Lowndes. “So, the tighter your circumstances, the less likely that you are to give.”

And there is another factor: the rise of online crowdfunding sites, which often are not tax deductible and so do not turn up in the ATO data, and which operate largely unregulated.

These sites are a source of immense frustration to the charitable sector, which Crosbie says is mired in a tangle of “administrivia”, or red tape. There are tight regulations at the federal level, through the ACNC and the Australian Competition and Consumer Commission, but there are also all sorts of extra requirements placed on it by various governments around the country.

He argues that this results in a great deal of duplicated effort and millions of dollars in costs – about $15 million a year by one accounting firm estimate, he says – in order “to satisfy every state and territory regulator of charities that this fundraising event is legitimate”.

Some charities have faced weeks of frustrating delays as they attempt to move their fundraising activities online during the crisis.

Crosbie cites a Queensland requirement that a fundraising effort be advertised in the local press.

At a recent meeting with a senior ministerial staffer in Brisbane, he questioned its rationale, given that no such requirement applies to crowdfunding.

“They said, ‘For protection’,” he recalls.

So, right then and there, Crosbie conducted a Google search of the site GoFundMe for animal welfare fundraisers in Queensland.

“And there were 3000 asks for, you know, ‘my dog needs a hip replacement’ kind of thing. And I said, ‘So you haven’t checked any of these, have you? Three thousand of them, and you don’t even know if they’ve got dogs.’

“And yet, you want some registered charity with an organisation and an annual return on the ACNC website … to do an ad in the local papers to show they’re legitimate in fundraising?”

For more than a decade, says Crosbie, charities have made the case for cleaning up the “dog’s breakfast” of compliance demands on the sector.

“But no change happens,” he says. “Then they complain about spending on administration.”

The kinds of expenditures that are accepted when incurred by the private sector, says Crosbie, are apt to be criticised by the public, the media and the government when they are incurred by charities.

He cites the complaints after the bushfires about the Red Cross keeping “10 per cent of the money to run things”.

People think all the money should go to the front line, but Crosbie says that if a charity is not spending significantly – about 20 per cent – on things other than front-line services, then key things might be getting missed, such as security. The Red Cross, for example, was targeted by bots in an attempt to defraud it.

“If a charity came to me and they said 100 per cent of their funding goes directly to their services, I wouldn’t give them any money,” says Crosbie, “because that would tell me they had no evaluation. They had no infrastructure; they had no kinds of administrative controls. They weren’t providing any staff training or development. They weren’t investing in their future.”

But that, sadly, is what is being forced upon a large number of Australian charities as Covid-19 closes in. The starvation cycle has begun.

This article was first published in the print edition of The Saturday Paper on July 25, 2020 as "The end of charity: Sector at risk of collapse".

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Mike Seccombe is The Saturday Paper’s national correspondent.

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