Philanthropists given incentive to dig deep for struggling charities
6 May 2020 at 5:44 pm
Sector leaders say charities will struggle to stay afloat without increased philanthropic support
The Morrison government is creating an incentive for philanthropic funds to ramp up their support for charities during the COVID-19 pandemic.
On Wednesday, Assistant Minister for Charities Zed Seselja announced that public and private ancillary funds will be given a credit if they make total distributions in 2019-20 and 2020-21 that are at least four percentage points above the minimum required level.
Public ancillary funds (PuAFs) are usually required to distribute at least four per cent of the value of their net assets to charities each year, while for private ancillary funds (PAFs) it is five per cent.
This credit – equal to half the percentage points by which distributions exceed the minimum – can be used to reduce the minimum giving level by up to one percentage point in 2021-22 and future financial years.
The move is designed to encourage philanthropists to step up their giving levels now during the COVID-19 pandemic, when charities are reeling from the economic impacts of the crisis.
Seselja said he knew charitable giving was likely to decrease over the months ahead at a time when demand for charitable services was increasing.
“We know that many Australians are facing hard times as a result of COVID-19, and that the role charities play in supporting those doing it tough is as important as ever,” Seselja said.
“We have seen philanthropy do many great things in Australia, and I am pleased the government is partnering with the philanthropic sector to support their great work by providing this incentive for ancillary funds to increase their distributions to charities.”
The philanthropy sector has welcomed the announcement. Professor Glyn Davis AC, CEO of the Paul Ramsay Foundation, said it was great to see government initiatives that encouraged continued investment by all public and private funds.
“In this unprecedented time, the board of the Paul Ramsay Foundation has committed to extend its giving. Now is the time for philanthropy to support Australians in distress,” Davis said.
A recent report by JBWere estimated that the coronavirus crisis could see charitable giving decrease by 7.1 per cent in 2020, and by a further 11.9 per cent in 2021.
While philanthropy experts acknowledge that these credits will allow ancillary funds to give less during 2021-22 when giving levels could still be in decline, they believe it is more important to pump funds into the charity sector now.
Sarah Wickham, policy and research director at Philanthropy Australia, told Pro Bono News it was vital that philanthropy provides financial support to ensure the sector is supported, stable and delivering for the community.
“Our hope is that philanthropists will take up this incentive from the government to grant more than four per cent above the minimum distribution over this and next financial year when it is most needed, and then consider claiming back the credits over a longer period of subsequent years,” Wickham said.
“Philanthropy supports critical work in our communities, providing 7 per cent of the income to Australia’s charitable sector… [which] provides immense flexibility and risk capital [that is] needed to get charities through the crisis period and beyond.”
Wickham acknowledged that some foundations have suffered a significant loss to the value of their total funds.
But while some foundations believe a decrease in the required minimum distribution to charities is needed, she said supporting the needs of the charity sector must come first.
“While philanthropic endowments have been hit hard by the economic impact of COVID-19, the charitable sector has been hit even harder, with thousands of job losses and service cuts whilst delivering for our communities,” she said.
“The financial health of philanthropic endowments will recover in the long term, however if they don’t continue to provide granting support to the charitable sector now, it is less likely that our charities will be able to survive these challenges and build back better during the recovery period.”
The Morrison government has also this week declared the COVID-19 pandemic as a disaster for the purpose of establishing Australian disaster relief funds as DGRs.
This means donations to Australian disaster relief funds, which have been established to provide COVID-19 relief, will be tax deductible.
Many charities have had to go above and beyond through this pandemic to protect the most vulnerable in our communities. The government’s decision to incentivise increased financial support from the philanthropic sector is a testament to the great work being undertaken by many organisations across the country.
One of the challenges I see is where there are smaller, newer charities who don’t have pre-existing relationships with philanthropists. The article notes that the philanthropic sector provided 7% of the income to Australia’s charitable sector. Anecdotally the number of organisations that receive these gifts are very few. We know a good track record is important, but how do organisations build relationships with philanthropists to benefit from this new incentive? Or will it be directed to the same, existing recipients with whom philanthropists are already familiar?
Additionally, the other 93% of income to Australia’s charitable sector comes from sources other than philanthropy. What is the interest of the government in incentivising giving from this much larger cohort? With many fundraising events and activities now placed on hold (indefinitely) due to the COVID-19 pandemic, is there an opportunity to incentivise individual or business donations? For example tax deductible donations could be increased so that donors receive 150% of their donation back at tax time.
But it all comes at a cost. Even if we create these incentives it is shifting the payment into the future and there will eventually be a time to “pay the piper.”
The charitable sector is needed more than ever to help those that are vulnerable, disadvantaged and in need. It comes at a cost. And we need people to help us cover those expenses.