The philanthropy challenge: can giving be doubled by 2030?

Garreth Hanley:
This is With Interest, a business, finance and accounting news podcast, brought to you by CPA Australia.

Dr Jane Rennie:
Hello and welcome to With Interest. I'm Dr. Jane Rennie, general manager media and content at CPA Australia. Australia's Productivity Commission is conducting a public review of philanthropy. One of its objectives is to double giving by 2030. That's a sizable jump, but is it going to make a difference and could it have unintended consequences? Knowledge about philanthropy is limited in Australia. Specialist knowledge is often needed to navigate the complex regulatory and tax structures supporting donors and recipient not-for-profits. Is the sector really ready for a greatly expanded donor base? CPA Australia has made a submission to the productivity inquiry and believes their scope to better understand and modernise this sector. Joining me now to discuss this issue is senior manager reporting and audit policy at CPA Australia, Ram Subramanian. Welcome to With Interest, Ram.

Ram Subramanian:
Thanks, Jane. Looking forward to the conversation.

Dr Jane Rennie:
Ram, to start with, what exactly is philanthropic giving? Because when I hear this term, I immediately think of billionaires like Warren Buffet and Melinda Gates, but that doesn't feel too relevant to the lives of everyday Australians. So, can you tell us a bit more about this?

Ram Subramanian:
Yeah. There really isn't one single definition of philanthropy or philanthropic giving. If you wish, a loose description would be it's the act of giving primarily motivated by a desire to improve the wellbeing of others.

Dr Jane Rennie:
Does that also capture small charitable donations?

Ram Subramanian:
It's a huge range, actually. The dollar you drop into the coin box whilst waiting at the traffic lights to support the local fireys philanthropy. Or even the sausage in a bun you buy, the sausage sizzle outside Bunnings on the weekend, that could also be considered part of philanthropic activity. Equally, private philanthropy has had a hand in some of the big ticket social impact stories, like the virtual eradication of polio that occurred in the last century. That's actually attributed partly towards private philanthropy.

Dr Jane Rennie:
Does it extend more than financial giving? Does it cover, for example, volunteering?

Ram Subramanian:
Absolutely, it does. Philanthropy not only includes volunteering and the giving of money, it also includes the giving of non-cash goods. So, the bag of clothes and other unwanted knickknacks that you might collect and drop off at the local op shop, that's also counted towards philanthropy.

Dr Jane Rennie:
What about if I receive something for the donation I make, for example, philanthropic activity, if I buy a raffle ticket that's sold for a charitable purpose, or what about if I buy a ticket to a fundraising ball and get dinner when I'm there?

Ram Subramanian:
Well, that's what you would normally consider some kind of mixed funding model, and lot of not-for-profits do engage in that kind of activity. So, you might find, like you said, a not-for-profit that organises a fundraising ball, sells tickets. Let's say the tickets are, I don't know, $1,000 a head, some of that would actually be towards the delivery of services. So, that would be the food that you get, perhaps a drink or two, the dance floor, whatever happens as part of that fundraising ball. So, you are getting something in return for the $1,000 you pay, but there is also a philanthropic element to it, which is basically the premium you pay, which you want to go towards philanthropic activity or something that contributes back to the community.

Dr Jane Rennie:
So, it's actually quite a dynamic concept then, isn't it? And I wonder, do perspectives and norms on philanthropic giving differ among cultures and communities in Australia?

Ram Subramanian:
Well, the motivations that drive philanthropic giving can be very, very diverse. We have large philanthropic establishments, like the Maya Foundation, which is set up to support a range of non-profit and charitable activities. We also have faith-based giving driven by religious beliefs. We have people giving for particular causes, such as eradicating homelessness or animal welfare. We also have people donating ad hoc in response to a crisis, such as the bush fires we had a couple of years back.

Dr Jane Rennie:
What do we know about philanthropic giving in Australia, I mean what it's worth and who's giving, that sort of thing?

Ram Subramanian:
Well, to be very truthful, we don't know a lot about the Australian not-for-profit sector, including the philanthropic giving that is an important element of that sector. There are many reasons for a lack of data about the sector, but the two main reasons are the sector is very diverse and there are a number of regulators who look after the sector. So, those are the two main reasons. Even if we look at the consultation paper from the productivity commission for this inquiry, for revenue breakdown from different sources, they're relying on information available for registered charities, which is only a small proportion of the entire sector. The information is also from 2020, so nearly three years old.

Dr Jane Rennie:
And I imagine if the information was gathered around 2020, that could be impacted by what was going on at the time, namely the emergence of the pandemic.

Ram Subramanian:
Absolutely, it would've, because people would've been focusing on other things, like their health for example. And also, it would've impacted on volunteering, because people would've been in fact not possible to do volunteering because of the restrictions we had around the lockdown time.

Dr Jane Rennie:
Ram, I had heard that the level of public giving was in decline in Australia. Is that correct?

Ram Subramanian:
Yeah, it is. And in fact, the submission to the Productivity Commission inquiry from Philanthropy Australia got picked up by the age over the weekend, and they've actually identified that Australia is actually ranked quite lowly amongst other similar comparable nations. For example, apparently Australians give less than the UK, Canada, New Zealand and the United States.

Dr Jane Rennie:
Well, if we don't know too much about who is giving and how much they're giving, do we know much more about the effectiveness of charitable giving, so how much impact it actually creates?

Ram Subramanian:
Well, this is actually another black box that we have to open up and shine a light on. What actually reaches the intended purpose of the donation actually varies. Donors and the general public have to and do accept that there are running costs. So, whilst that might be the case, we actually don't know the split between what is actually going towards the running costs of the not-for-profit and what's actually reaching the intended beneficiaries. So, we don't know that split at the moment.

Dr Jane Rennie:
Is there actually any requirement on how much has to reach the intended target?

Ram Subramanian:
Well, at the moment there are some requirements for charities and some incorporated associations to report on their activities, but there are no specific requirements to measure and report the impacts of donations. So, to answer your question directly, no, the answer is no.

Dr Jane Rennie:
Is that a bit of a gap in the law? I mean, should impact reporting be mandated for not-for-profits and charities? Because what I'm thinking here is if there's no requirement on a charitable purpose, you could have an organisation that is potentially not passing along much more than 2% on each dollar it receives.

Ram Subramanian:
Yeah, it is a tough challenge. To answer your question, I think there is scope for something in that space. And I recall the Accounting Standards Board here in Australia was trying to initiate a project on this, and that might happen hopefully sometime in the future. But there are a few things we need to keep in mind here. We have to firstly define what impact reporting is. So, if we say it is the ultimate outcomes within the community that arise from not-for-profit activities, that is quite hard to measure. So, for example, if a religious organisation wants to measure the improvement and spiritual wellbeing of its congregation, that is going to be almost impossible to measure directly. But on the other hand, if the measure were to look at the number of people who attend the institution's premises on a regular basis, that might be an easier impact to measure and report. But the question is, what is the impact we're looking to measure here? Jackie Blondell: If you're enjoying this podcast, you should check out our in-depth business and finance show, INTHEBLACK. Search for INTHEBLACK on your favourite podcast app today. And now, back to With Interest.

Dr Jane Rennie:
That's interesting that you mentioned religious organisations, because it just highlights that there is an enormous diversity in the organisations that are providing not-for-profits services or charitable services. And they can run from enormous organisations with thousands of paid stuff to very small organisations running on a shoestring. I do understand that they often don't have the capacity to pay for advice. Does that generally hamstring the financial reporting or impact reporting of these organisations?

Ram Subramanian:
Yeah, it absolutely does. In particular, at the smaller end, the not-for-profits lead very much a hand-to-mouth existence and often have very minimal working capital for survival. This, of course, severely affects their ability to hire external professional help to assist them with their finances and reporting obligations. And this situation is actually not unique to Australia either. We hear similar concerns from our not-for-profit counterparts in New Zealand also. The lack of resourcing, particularly at the smaller end of the sector, does sometimes translate into difficulties with complying with their reporting obligations.

Dr Jane Rennie:
Ram, I'm also quite interested in the impact of philanthropic giving on government funding. Does the government in effect rely on that money coming from the private sector to fund charitable services that it would otherwise have to fund?

Ram Subramanian:
Well, there's no question that the government actually encourages philanthropic giving. And the tax breaks donors get when they donate to certain not-for-profits like deductible gift recipients are designed to do just that. A lot of what the sector does is the responsibility of the public sector. And that's been subcontracted to the private sector. So, healthcare, education, age care, these are just examples. Such services which are primarily the government's responsibility needs to be funded by the government. So, whilst we think an increase in private philanthropy can go towards increasing overall revenue for the sector, it shouldn't be a substitute for government funded services that are already paid for by the taxpayer.

Dr Jane Rennie:
That's exactly what I was getting at, Ram. If the government does have a goal to double philanthropic giving, is it doing that for self-interested reasons? And we might not go there, but I just wonder it shouldn't be that that additional amount should actually allow the government to remove that funding itself, should it?

Ram Subramanian:
So, any increase in philanthropy giving shouldn't allow the government to reduce its own funding to the sector. What we want to see is any increase in philanthropy should increase revenue overall for the sector. And the government funding should either remain the same or possibly even increase proportionately if philanthropic giving is increasing.

Dr Jane Rennie:
Let's talk a little bit about a couple of other issues facing the sector now. Regulatory burden has gotten a lot better for not-for-profits and charities in the last few years, but is it fair to say there's more that could be done?

Ram Subramanian:
Yes, more is definitely needed. We still have the fundraising regulation issue to be resolved. For example, earlier this year, we heard that all states and territories have agreed to implement a common set of fundraising principles, but that implementation is yet occur. We believe it'll happen, but that's just one example of regulatory reform that's still needed for the sector.

Dr Jane Rennie:
And what about the challenges of the increasing digitalization of society? I assume that's also affected this sector. What issues has it given rise to?

Ram Subramanian:
Well, not-for-profits are as vulnerable to cybercrime and cybersecurity issues as any other business or organisation, except they probably have less financial capacity to deal with these challenges. The government has to step up and help not-for-profits better deal with this challenge, not only through educational initiatives, but also providing assistance with shoring up the technological infrastructure that not-for-profits rely on to better repel cyber attacks.

Dr Jane Rennie:
Ram, earlier you mentioned that donations to prescribed charities receive special tax treatment in Australia. And there's no doubt that for some people tax deductions can be an important motivator for giving. I'm wondering what more would need to be done to encourage the public to give if the Productivity Commission is to be successful in its mission to double giving. Could the government use the tax system to incentivize the public to give more?

Ram Subramanian:
Yes, there is definitely scope for that. And don't get me wrong here, the fundamentals of the tax concessions system that we have in place for charitable giving or philanthropic giving, if you wish, does work. But there is scope for improvement here. There is certainly scope for streamlining the deductible gift recipient framework. For example, we have around 50 categories of DGR, so deductible guest gift recipients are present. This is a complex regime which can prove extremely challenging for not-for-profits to navigate without specialist help. And of course, that's going to cost money as we discussed earlier.

Dr Jane Rennie:
What about social impact investing? A social investor, for example, a big superannuation fund investing in social housing might receive a financial return from social impact investing. Is that something that we should encourage more with special treatment?

Ram Subramanian:
Strictly speaking, you could argue that social impact investing is not philanthropic giving, because like you said, the person giving the money is expecting a financial return. But equally, I think we have an opportunity here a little bit to think outside the box. And there is actually a lot of room to improve social impact investing in Australia, as not necessarily a substitute to philanthropy, but a compliment to philanthropy. Strictly speaking, we may not be able to describe this as purely as philanthropy, like I said, but a hybrid model that allows someone to not only provide funding for a good cause, but also get something out of it, some financial benefit out of it. And other countries, like the UK, the United Kingdom has a well established framework for social impact investing. So, there are other countries which are doing something a bit more sophisticated than we have it here in Australia. And we could learn from some of those experiences.

Dr Jane Rennie:
And social impact investing, we're really talking about the big end of town, but at the other end of the scale we're talking about consumers. And are there in fact risks with ramping up philanthropic giving so significantly? Would Australia need to take steps to protect consumers?

Ram Subramanian:
Yes, there is. And there's probably two points that I'd like to note here. Firstly, whilst it's okay to actively approach and remind people to give for causes that they may want to donate to, there's nothing wrong with that because everyone's going about their everyday life. So, a prompt once in a while is not a bad thing, but there is a line that should not be crossed. We sometimes hear of aggressive tactics employed by the sector when fundraising and that's absolutely a no-no. Sometimes not-for-profits, also subcontract their fundraising activities to for-profit organisations. And of course, there are valid reasons for this approach, but it'll clearly eat into the dollar donated, as some of it has to go to hiring someone from the for-profit sector to engage in fundraising activity. And we also hear sometimes there are aggressive tactics that may be employed, which is not a good look for the sector itself. For example, there was a very tragic case in the UK a few years back that was allegedly as a result of excessive requests for donations. And since then there has been some significant reforms to fundraising laws over there in the UK. Secondly, like in any other sector, fraud can occur within the sector, especially around fundraising. And both government and the sector have to be vigilant around this. Some listeners may be aware of the Bell Gibson case from a few years back, and there have been other examples too in the past of activities which one could argue are fraudulent in nature and are not going towards a philanthropic purpose.

Dr Jane Rennie:
Ram, to finish out today's show, I'll ask you a few questions about the Productivity Commission inquiry. Who actually commissioned it? Was it the Labor Government or is this activity left over from the coalition's time in office?

Ram Subramanian:
The Productivity Commission inquiry is actually an initiative of the Labor Government. For the first time under the Labor Government, we've got a charities minister. This wasn't a portfolio position we had in the past, so it's actually initiative of the current Labor Government.

Dr Jane Rennie:
Will there be a report and recommendations out of the review, and if so, when do you expect they will be delivered?

Ram Subramanian:
So, the inquiry is being run over the course of this year. And we are expecting further outreach activities will be undertaken by the commission and the final report is due in May 2024.

Dr Jane Rennie:
In terms of magnitude, do you expect that the outcome is going to shake the foundations of the industry or is it merely going to tinker around the edges?

Ram Subramanian:
That's a very interesting question, Jane. The scope of the report, as we know, is on philanthropy. And of course, this is just one aspect to the not-for-profit sector. What this inquiry isn't, is it's not a holistic review of the sector, which really is what we would've wanted. This is what we believe at CPA Australia within the policy team. So, while this inquiry can have some impact on the sector in the context of philanthropy, we certainly hope it will, it does need to go a little further into many other aspects of the sector to make a real difference.

Dr Jane Rennie:
That's all we've got time for today. Thanks very much to our guest expert, Ram Subramanian. If you'd like to know more about today's topic, a link to CPA Australia's submission to the Productivity Commission is included in the show notes. With Interest is CPA Australia's business, accounting and finance podcast. If you like what you've heard today, why not subscribe on your favourite podcast app? From all of us here at CPA Australia, thanks for listening.

Garreth Hanley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business and accounting news. To find out more about our other podcasts and CPA Australia, check the show notes for this episode. Hope you can join us again for another episode of With Interest.