The Virtue of Prescribed Private Funds
9 April 2009 at 4:14 pm
The Federal Government’s suggested regulation changes to Prescribed Private Funds (PPFs) will limit the flexibility of charitable
funds and decrease the quality and quantity of philanthropy according to John Humphreys, a research fellow with the Centre for Independent Studies.
Humphreys says this would be bad policy at any time, but given the current economic situation it is especially important to protect civil society.
The purpose of a PPF is to allow donors to give tax-free money into a fund, which can then distribute that money later to approved
deductible gift recipients. Since 2001, more than 800 PPFs have been registered, with a total value of
about $1.3 billion.
Humphreys says the great virtue of PPFs is that they allow donors to distribute their money at the most appropriate
time in different financial years , which allows for more efficient and effective distribution of donor money.
He says this flexibility allows donors to adjust to the changing circumstances over time.
However he says in the Government discussion paper on PPFs,it proposes to introduce a compulsory minimum
distribution, possibly at 15 per cent of the PPF capital amount producing a variety of problems.
Humphreys argues that:
-Reducing the time flexibility of PPFs would undermine their primary benefit, which is that they
allow the effective shifting of philanthropy between years. This is likely to result in lower quality
and quantity of philanthropy.
-The proposed reforms would decrease the incentive and opportunity to build a ‘philanthropic
brand’ and result in lower levels of giving.
-Given that more than 800 PPFs have been formed on the understanding that donors would
maintain significant control over the timing of their distributions, the new regulations represent
a breach of trust.
Another problem he says is that making the contact details of PPFs available to the public would lead to
increased requests for funds and, consequently, increased administration costs—resulting in decreased
incentives to start a PPF.
He concludes that while there is an important role for the government and for the market, this should not come at
the expense of civil society. The government is right to keep an eye on PPFs to ensure there is no fraud.
But unnecessary restrictions on the flexibility of PPFs will only undermine civil society in Australia.