Are there too many Deductible Gift Recipients in Australia?

By: Emeritus Professor Myles McGregor-Lowndes   |   The Australian Centre for Philanthropy and Nonprofit Studies, QUT Business School, QUT

Yes! is the answer by harried foundation trustees who are tired of the never-ending tsunami of grant applications.

Yes! is the answer by some deductible gift recipients (DGR) whose hearts fall when they discover so many other DGRS, many previously unknown, are competing for the scarce pool of foundation funds up for distribution.

Yes! is the answer by a health research DGR CEO who reads for the first time in the newspaper that a grieving family is establishing a new foundation to honour the memory of a dead relative, boldly stating that they are seeking funds to cure a wicked illness that the CEO’s DGR has been working on for a couple of decades now.

Yes! is the answer by the pedestrian deep in thought about some matter which is important to them, disrupted by an artificially enthusiastic millennial street canvasser asking if they cared about sick children in faraway Africa. 

Yeah right! is the answer by many who have looked at the evidence and pondered about the issue at regular intervals over the last couple of decades when the question enters the public discourse.

How many DGRs are there?

Although the federal tax statutes have allowed deductible gifts for well over a century, only recently has there been any idea of how many there are in existence. Until after reform of the taxation system required for GST purposes, DGRs, as could most charities, self-assessed their tax status without reference to the taxation authorities

In 2010 the Productivity Commission prevailed upon the ATO for a figure, and it reported that there were just over 26,000 DGRs in 2006. Today the ATO publishes the number of DGRs by purpose in its annual taxation statistics. In 2019 there were just over 30,000 DGRs.

After its establishment in December 2013, the Australia Charities and Not for Profits Commission cleaned out hundreds of zombie DGRs from the old ATO register.

Since 2013 there has been an approximate 1 % pa DGR net increase compared to an overall charity net increase of 4% per year.  The DGR subcategories of Private Ancillary Funds, Health Promotion Charities, School Building Funds and Cultural Organisation DGRs are those with significant increases in numbers.

Given our underlying economic growth, population and social need the increase does not appear to be out of kilter, provided of course that we did not have too many DGRs in the first place.

Should we ration DGR Status?

If one is still of the view that there are too many DGRs, then what should be done? A range of measures could be taken to restrict the numbers of DGRs through their status approval gateway. The number could simply be capped, such as is done by governments with the supply of aged care package funding or gaming licences, or there could be more stringent vetting of the meeting of conditions of entry on to the register.

Even the most ardent person advocating that there are too many DGRs would acknowledge that there are currently significant barriers in setting up as a charity and obtaining DGR status. It usually require boutique charity and taxation assistance to be successful, and that there are delays in the approval process that can last years. Sometimes a successful track record is also required, such as for overseas aid DGR status.

Capping measures might be seen to impinge on the freedom of association for citizens to undertake activities outside the state in civil society. It could also restrict the benefits of a population of diverse DGRs and reduce consumer choice and general competition.

Should there be just one DGR for research and assistance for each disease or medical condition? Some may point to savings on the duplicative effort by a range of small organisations competing for finite resources. Others may value competition, diversity of service provision in both locality and delivery, and experimentation with new ways of doing.

So, what is my assessment?

For the most part, I am comfortable with the overall numbers of DGRs in the Australian civil society population. It is a tough world out there for most charities raising funds from the public and securing and then delivering government service contracts, often with volunteers working on a shoestring budget. While the cut-throat competitive forces of some areas of the for-profit economy may not be as strong in all parts of the nonprofit sector, they are currently sufficient in most nonprofit sub-sectors to weed out those who can’t cut it.

In a perfect world, I would adjust the numbers in some DGR areas. For example, I would like to see more substantial ancillary funds (public and private) – who wouldn’t?

In my dreams, I would like all charities to receive deductible gift status as they do in most other OECD nations, rather than having it restricted to a subset of charities and a few favoured government institutions. This would probably require incremental implementation and a possible reduction in the extent of the deduction.

My overall advice?

For harried foundation trustees – tighten your grant conditions, pick winners yourself or count yourself lucky that people know about you and your great work.

For DGR grant-seekers – coalitions, mergers and picking the right grants to compete for are your considerations.

For Health research DGRs – try co-option of fired-up advocates into your organisation, giving them a little room to move, such as in a community foundation model.

For pedestrians – cross to the other side of the street!

Oct. 21, 2020

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