Opinion & Commentary
A War on Charity
Having launched wars on unemployment, drugs, inflation, whalers, disadvantage, downloads, pokies, doping in sport, bankers salaries, greed, neo-liberalism and most other things … Kevin Rudd is looking to extend his targets to include charity.
Rudd’s war on charity is a strange one. The government’s plan is to over-regulate charitable funds (called ‘Prescribed Private Funds’ or PPFs) and require them to distribute 15 percent of their assets every year. This will lead many PPFs to close down and it will deter people from setting them up in the first place.
Recognising this as bad policy is the easy part. The hard part is working out why the government is attacking the charitable sector. In their discussion paper the government tries to explain itself by saying that groups which distribute 10 percent of their assets to a charity are ‘not philanthropic.’ Huh?
The best excuse for the proposed policy is this: sure, over-regulating PPFs will probably decrease the amount of money going to charity, but perhaps the government rules will lead to a better allocation of philanthropy? Perhaps donors are considered too stupid or selfish to correctly distribute their money, and so politicians should step in to regulate when they donate.
In reality, it turns out that the proposed new rules will most likely lead to a less efficient and effective allocation of philanthropy.
The great virtue of PPFs is that they allow people to shift their tax-free philanthropic giving between different years. For example, a donor might contribute a regular amount towards their PPF over a number of years and then give this money to charity in a time of special need. Or a donor who wins the lottery could put a large chunk of money in a PPF in one year, and then distribute it over a number of years.
So the freedom to control the timing of donations is actually a positive thing. And the proposed restrictions on those freedoms will make it harder for donors to match their funds to the most appropriate charities. This means the new laws will likely lead to less philanthropy that is allocated less efficiently. A classic lose-lose situation.
Australians are a generous bunch of people. In 2008 there was about $13 billion donated to welfare, health, education, foreign aid and other philanthropic sectors. That is about the same as the entire GDP of Afghanistan, and theoretically enough money to give about $50,000 to the poorest 5 percent of families in Australia.
This is something that should be encouraged, not undermined. Since 2001, over 800 PPFs have been registered, helping to improve the effectiveness of charity. The government should abandon their war on charity and their plans to over-regulate PPFs.
John Humphreys is a Research Fellow at The Centre for Independent Studies. His paper In Defence of Civil Society was released by the CIS in February 2009.
