Unpacking the final report of the Productivity Commission’s Philanthropy Inquiry

Philanthropy Australia’s Policy, Government Relations and Research team look at some of the key themes and recommendations of the Productivity Commission report.

The Productivity Commission’s final report of its philanthropy inquiry, Future Foundations for Giving, was publicly released on Thursday 18 July.

At more than 400 pages, the report is a significant and comprehensive analysis of giving in Australia. It explores a range of issues and topics, from trends and motivations of giving to recommendations on regulation reform, giving structures, public information and reporting. The Hon Dr Andrew Leigh, Assistant Minister for Competition, Charities and Treasury, issued a media release in response to the report, stating that the report will inform future steps in reaching the Australian Government’s goal to double giving.

The report’s findings and recommendations have been informed by wide-ranging stakeholder consultation, with Philanthropy Australia contributing extensively to the inquiry process. Philanthropy Australia’s CEO Maree Sidey welcomed the public release of the report, underlining the importance of the choices the Australian Government will have to make in the coming months about how to respond to its recommendations.

The report outlines key trends in giving to charities in Australia over the past decade. These include an increase in the total value of giving, but a decrease in the number of people donating. A lot of this growth has been driven by those on higher incomes, in particular.

The major theme of the report is that the policy foundations for supporting and giving need reform. An overhaul of the ‘deductible gift recipient’ (DGR) system is a key priority identified by the report, and it also makes recommendations about improving regulation, including of giving structures such as ancillary funds, and enhancing sources of information on giving. There is a focus on supporting First Nations philanthropy and the capacity of First Nations organisations to access philanthropic networks.

The report also points out that whilst growing the quantity of giving is important, the way that giving is practiced is also important. 

The way philanthropic funding is provided is as relevant as the quantity of funding. Philanthropy can be ‘practiced’ in different ways and the decisions philanthropic organisations make about their funding approaches influence the effectiveness of philanthropy and can contribute to improved outcomes for the wider community. (page 6)

Reform of the DGR system

A considerable amount of the report covers the DGR system and how it can be improved. The report recommends that reform is needed:

. . . to simplify the DGR system and refocus it on activities that are likely to generate the greatest net benefits for the community as a whole. This would create fairer and more consistent outcomes for charities, donors and the broader community. (page 8).

The report acknowledges the lack of policy rationale for why some charities receive DGR status, and others do not (for example those seeking to prevent harm or hardship).

With the reforms the Commission estimates the number of charities with DGR status to increase from around 25,000 to 30,000-40,000 charities, and that some of the charities that would benefit include grassroots and community-based charities and those focused on advocacy and prevention.

The report did recommend removing eligibility for DGR status for some categories of charities, such as school building funds, but the Government has ruled out making this specific change.

Strengthen the regulatory system

The report emphasises that a more transparent and consistent approach to regulation of the sector is essential to build and maintain the trust and confidence of donors, taxpayers and beneficiaries.

The report acknowledged the confusing and burdensome regulatory framework for charities. It recommends:

• Enhancements to the ACNC regulatory framework to address gaps in the ACNC’s current powers and provide charities with greater clarity about regulation
• Establishing a permanent National Charity Regulators Forum to improve coordination and information-sharing among regulators, especially given the multiple Commonwealth and State/Territory regulators
• Ensuring that fundraising regulation harmonisation is fully delivered by State and Territory Governments, and that an independent review be undertaken next year to assess reform outcomes. This has been a priority of the #FixFundraising coalition that Philanthropy Australia is a part of.

Enhance structured giving vehicles

The report recommends enhancements to structured giving vehicles, or ancillary funds. These include renaming ancillary funds as public and private ‘giving funds’, which better reflect their purpose, and improving their transparency by publishing information more information on distributions, including by sub-funds within public ancillary funds.

The report recommends that the Australian Government sets the minimum distribution rate at between 5% and 8%, with the rate reviewed every 10-15 years.

In addition, the report recommends that ancillary funds should be required to develop and maintain a ‘distribution strategy’. The content of the strategy would be determined by individual funds and may include the causes funds give to, the ways they provide support and how they evaluate their own effectiveness.

There is discussion of the administration of charitable trusts managed by licensed trustee companies, including fee arrangements and processes for changing trustees. The report states that these issues could arise in relation to all charitable trusts, not just those administered by licensed trustee companies, and should therefore be examined holistically as part of a wider Australian Law Reform Commission inquiry into charities law and regulation across Australia.

Improve public information on charities and giving

The report proposes that the ACNC should provide more information on charities and giving for donors and the public. It outlines initiatives to do this, such as collecting and presenting more meaningful data, and promoting and enhancing the ACNC charity register, such as by indicating a charity’s DGR status.

The report also calls for enhanced disclosure and reporting of corporate giving and improved data on bequests, respectively. These recommendations would generate better insight into two major sources of giving that contribute billions of dollars to charities every year.

Improving access to philanthropy for Indigenous organisations and communities

A welcome inclusion in the report is the recommendation for the Australian Government to support the establishment of an independent (non-government) entity, provisionally called Indigenous Philanthropy Connections, to improve access to philanthropy for Indigenous communities.

The goals of Indigenous Philanthropy Connections should be to strengthen the capacity of:

• Non-Indigenous philanthropic organisations to be more culturally safe and effective in their work with Indigenous organisations
• Indigenous organisations to build relationships and partnerships with philanthropic and volunteering networks
• Indigenous communities by supporting the establishment and growth of new and existing Indigenous philanthropic organisations.

Administrative expenses not related to charity performance

The report also includes the important finding that administrative expenses are not an accurate reflection of the performance of a charity. This is an issue that is getting increasing attention within the philanthropy and not-for-profit sector, including through the Pay What It Takes and the Reframe Overhead initiatives.