Ideas@TheCentre
Defending civil society and Prescribed Private Funds
In 2008 Australians donated about $13 billion to welfare, health, education, foreign aid, and other philanthropic sectors. As the recent fundraising for the victims of the Victorian fires has shown, there is a generous heart at the core of this country.
Unfortunately, the government is suggesting new regulations that will limit the flexibility of charitable funds and decrease the quality and quantity of philanthropy. This would be bad policy at any time, but given the current economic situation it is specially important that we protect civil society.
The suggested policy changes affect Prescribed Private Funds (PPFs).
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.
The great virtue of PPFs is that they allow donors to distribute their money at the most appropriate time. For example, donors might contribute a regular amount towards their PPF over a number of years and then give this money to a charity in a time of special need (such as a disaster or recession). Alternatively, they might give a large initial amount of money in one year, and then distribute that money regularly over a number of years.
In their discussion paper on PPFs, the government raised the prospect of new regulations which reduce the flexibility of PPFs by requiring that they distribute a minimum percent of their value (perhaps 15 per cent) every year.
The suggested regulations would harm PPFs in two ways.
First, some PPFs would have to be closed as they would be forced to pay out more money than they would receive each year.
Second, reducing the time flexibility of PPFs undermines 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 and consequently harm civil society.
John Humphreys is a Research Fellow at The Centre for Independent Studies and author of In Defence of Civil Society: The Virtue of Prescribed Private Funds.
