‘Tax nudge’ reform could unlock up to $19.5b in giving by 2030: new Philanthropy Australia report

A voluntary choice for Australians to donate part of their tax return to charity could help dramatically transform giving in Australia, writes Philanthropy Australia’s Executive Director of Policy, Government Relations and Research, Sam Rosevear. A number of options are investigated and modelled in the report by Impact Economics and Policy called Greater Giving: Tax Time Prompts to Increase Charitable Giving.

Read the full report – Greater Giving: Tax Time Prompts to Increase Charitable Giving.

Philanthropy Australia is pleased to release to the public the report that is designed to highlight the significant potential of tax-time giving reforms. The essential idea of the most powerful reform option in the report (Option 3) is to offer people a voluntary choice to donate to charity during their tax return process, once they’ve seen their estimated return. There would be two questions in the tax return along the lines of: Do you wish to donate some of your estimated tax return (yes/no)? If yes, how much and to whom? The ATO would then transfer the funds directly to the nominated charity.

The reform could be transformational for Australia’s national giving because the Federal Government returns a lot of money to the Australian people as part of the tax return process – the report says $41 billion. So even if a modest proportion of people donate some of their return to charity, the amount could be very large. Impact Economics and Policy modelling indicates the reform would deliver between $5 billion and $19.5 billion in additional giving by 2029-30. In the year 2029-30, it would deliver between $1.5 billion and $5.7 billion (a big addition, given total giving in 2021 was $13.4 billion).

In introducing the reform, the Government would communicate that donating is entirely voluntary, and outline the purpose of the reform, to provide more funds to address Australia’s most crucial challenges, including provision of support to people in greatest need.  This is particularly crucial now, as many Australians are doing it tough due to the high cost of living. Over time, there is potential for this reform to become part of the Australian fabric, a valued national custom helping to make us a more generous and giving society.

The Impact Economics and Policy results are based on conservative estimates from the behavioural economics literature, which shows giving can be spurred in several ways: prompts to give; making the process of giving simple; and drawing on “windfall gains”.  Of course, if people donated in the tax return, they might be less likely to donate as much later on. The Impact Economics modelling factors this in, discounting the initial gross amounts in their calculations by 38% to account for “substitution effects”.

Philanthropy Australia worked with Impact Economics and Policy to develop this report as part of our advocacy on ‘the double giving agenda’.  As you know, PA worked closely with Dr Leigh to secure the election commitment that an Albanese Government would work with the philanthropic, charity and business sectors on a Strategy to Double Giving by 2030.  The Government asked the Productivity Commission (PC) to undertake an inquiry into philanthropy to provide a roadmap for the double giving agenda.  The PC provided its final report to government on 10 May.

Two other options are also provided in the Impact Economics report:

• Option 1 involves the Government sending a prompt to taxpayers ahead of the tax return, noting they could consider a donation to charity and reminding people that it would be tax deductible if given to a DGR 1 charity.
• Option 2 involves the ATO sending a personalised message to all taxpayers who received a tax refund to prompt them to consider donating some of their refund to charity.

Both these options would require people to organise the donation to charity themselves. They would each deliver lesser amounts to charity than Option 3. However, they provide the PC and the Government alternative options that would still deliver positive contributions to national giving, should they not wish to embrace Option 3.

Philanthropy Australia and Impact Economics and Policy engaged the PC, Australian Tax Office and Federal Treasury in March as part of developing the report and provided them with the findings in April, well in advance of the final Productivity Commission report on 10 May. We’ve also shared the report with Charities Minister Dr Andrew Leigh and senior executives in the Department of Prime Minister and Cabinet.

Under legislation, the Federal Government has up to 25 sitting days (or several months) to release the PC’s final report to the Government. I have urged Dr Leigh to release the report as soon as possible to bring national attention to the double giving policy agenda and help build momentum for a solid package of reforms in response to the PC’s recommendations.

The philanthropy and charity sectors will not get all the reforms we’d hoped for in this one process. Budgets are constrained and many Ministers are seeking funding for their important causes. However, given the Government’s election pledge to double giving by 2030 and a robust report from the Productivity Commission, we can reasonably hope for some significant reforms to create a more generous and giving society later this year, or prior to the next election.

Through our work as a sector, we’ve done another important thing – continue to raise the profile and importance of more and better giving in our nation. As you know, achieving sweeping national reform is rarely a one-act play, but almost always a journey. In undertaking our policy and advocacy work – such as through our submissions and reports on super bequests, community foundations, a National Giving Campaign and a choice to donate at tax time – we create possibility in the now, but also plant the seeds for the future. If our movement for change continues to mobilise whenever opportunity presents, over time we will succeed in making Australia one of the most generous and giving nations on earth.

Philanthropy Australia has engaged extensively with the PC through our submissions – such as our initial 5 May 2023 submission, A Strategy to Double Giving by 2030 and our response to the draft PC report, released on 9 February 2024 – together with our meetings with PC Commissioners and the staff team. 

We’ve also commissioned reports on high-value reforms to model the benefits and find practical solutions to risks associated with the reforms. A good example was Charitable Superannuation Bequests: Making Giving Easy, which found super bequest reform could deliver up to $260 billion to charity by 2060.