The NFP Sector and the Economy

The Not for Profit sector needs to pursue improved productivity and to advocate policy goals such as deficit reduction as part of fiscal policy, writes Dr Ron Edwards, the Co-founder of the Graham (Polly) Farmer Foundation.

The Prime Minister is right in arguing for measures, including a tax levy, to reduce the Federal Government deficit. For the Not for Profit sector this proposal is reflective of where the debate is heading which is to recognise that given the current settings, Commonwealth expenditures will outgrow revenue, placing Australia in an unsustainable economic position.

The current policy debates being developed by the Tony Abbott Coalition Government pose great challenges for the NFP Sector. The challenges arise from the urgent task of reducing the deficit along which will create a tougher climate for funding human services.

As a former member of the Australian Social Inclusion Board and the Not for Profit Sector Reform Council I am not optimistic about that conversation. Frustratingly those processes of the previous government, whilst being conducted in a wholehearted fashion, proceeded as if the economy was a separate entity to the functioning of the NFP Sector.

I always felt that the Social Inclusion Board was conducted in such a way that there was a fear we might actually do something to improve the economic circumstances of the disadvantaged.

There was a high degree of research oriented activity but scant attention paid to actually ensuring that any real policy changes were achieved. People such as entrepreneur Andrew Forrest recognised early on that the process being followed was flawed and it was therefore better to pursue more direct action.

With the NFP reform process every problem was viewed through the lens of, in the first instance, employing more public servants before actually changing the situation for the disadvantaged.

I found it endlessly frustrating that, on any occasion a matter was raised concerning economic outcomes it was like one was asking some NFP people to enter a new and uncertain world. For example, questions related to matters such as the expected rate of return on funds spent in the NFP Sector were questions the NFP placed beyond the policy discussion. Yet these are central questions for policy makers.

If the sector is as described by the Productivity Commission worth $43 billion and generating the rate of growth of 7.7 per cent per annum then it is legitimate to ask what might be the rate of return on funds spent in the sector.

Additionally it is pertinent to ask that for every dollar allocated to an NFP entity what percentage should be taken up by administration. It is reasonable for example to have a ceiling of 10 per cent on administration as part of a project’s budget so that funds allocated actually reach the target group rather than expanding the administration of the NFP entity concerned.

Further in the NFP reform process it was impossible to obtain an answer to the question as to the cost of regulation. If one applies a discount rate of 7 per cent to the cost of regulation, as advocated by the Department of Finance and Deregulation, then what is the cost of additional regulation in the sector?

Questions such as this remained unanswered and certainly the failure to clarify such questions did not assist the adoption of the important reform such as the establishment of the Australian Charities and Not for Profits Commission. To some the ACNC was seen as creating possibly more red tape rather than an efficient new regulator which in effect it has become.

The ACNC process represents a story of missed opportunities. It makes good sense that there should be a single regulator of the NFP sector yet the costs of the new regulatory environment and the benefits of this arrangement were never addressed as economic arguments. Nor, and crucially in a state like Western Australia was the case ever argued as to the extra costs of what came to be a duplicated system of NFP regulation.

The Canberra-based public servants never got on top of the local concerns despite there being regular warnings of the risks involved.

Yet the Barnett Government had already established the Partnerships Forum with the NFP Sector. This provided an ideal forum in which to address the concerns of the sector yet due to it’s nature the ACNC process became just another example of outsider influence in WA much like the mining tax.

Clearly Federal Minister Kevin Andrews is suspicious of any process aimed at addressing disadvantage that builds the bureaucracy before actually addressing the problem. In an economic and policy sense he is right. This has been the experience of much of indigenous policy over many frustrating years.

For its merits the WA based Graham (Polly) Farmer Foundation for indigenous youth has gone down the other path of funds being focussed upon the core group of participants and close attention being paid to a minimal regulatory and reporting framework. Along with my co-founder Fred Chaney we have been alert to focussing our efforts on funding the problem and not the process. As recipients of both Government and private support we are conscious of minimising red tape and administrative burdens whilst actually making a difference for indigenous people.

The success of this approach has been realised with indigenous school attendance rates over 90 per cent and some 1100 students in the programme across 18 different project locations

For the NFP sector to move forward along with Federal Government policy, an essential pre-condition is that conversations about resource allocations and income shares proceed, with the sector arguing that it is part of the economy rather than, as often portrayed, a recipient of the economic activities conducted by others.

Our sector needs to pursue improved productivity and to advocate policy goals such as deficit reduction as part of fiscal policy. A failure to reduce the deficit will impact ultimately upon the most disadvantaged through higher interest rates and inflation. This also requires a willingness to advocate for tax reform to enable the Government to meet its increasing commitments in an ageing society.

ACOSS through its current policy advocacy stance is beginning this process yet as a sector we need to contemplate how we might all become involved in this debate. Our economy and Federal Budget has been left structurally unsound by previous Government policy.

As we move beyond the resources boom and still challenged by tough terms of trade, further restructuring and social dislocation will occur. It would be good to think that the NFP Sector is up to the task of engaging in the debate with the Federal Government upstream instead of being chiefly concerned with rescuing the victims downstream.

A good beginning would be to say, “Yes Mr Abbott we need to collect more revenue to address our social needs.”

About the Author: Dr Ron Edwards is the Co founder the Graham (Polly) Farmer Foundation and a former member of the Australian Social Inclusion Board and the NFP Reform Council.