This week the Industry Commission delivered its report on charities. It would be fair to talk about a “”charity sector” in Australia these days. Australia has about 11,000 community social welfare organisations which spend more than $4.4 billion a year, employ about 100,000 workers and use about 1.3 million volunteers. The sector is almost the size of a small state.
Some purists argue that charities should be subject to the same taxation regimes as other corporate entities. Others argue they should be given more governmental help and tax breaks because they deliver social welfare more efficiently than the better paid and more highly unionised workforces of government.
Both those view carry a grain of truth. Few, if any, charities dispense their charity outside a value context, usually a religious one. All charities are capable of delivering welfare more cheaply than government because of the very commitment engendered by that value context. So there is a trade-off for the community: take cheaper “”value-added” charity or pay for more expense “”value-free” charity.
In a way a similar choice lies before Australia with respect to private education, and there is a similar pragmatic conclusion. To suggest that parents pay the full cost of non-state education would result in an exodus that would place an impossible burden on the state system. So it is with social welfare. As with education, it is always open to people to vote with their feet. They can stop sending their children to private schools. They can stop giving to charity.
And so the Industry Commission came to the reasonable conclusion that to impose additional tax burdens on charities would be counter-productive and would impose a very inefficient burden on government.
Rather, it very sensibly argued for reforms that would make charities more efficient and would make the contribution of volunteers more valuable.
It said tax deductibility should extend to donations below $2; capital gains tax on bequests should be waived; and tax deductibility should extend to all social welfare organisations.
It is a sensible conclusion. Whatever one might think of the religious or other agenda of charitable organisations, there can be no doubt that they deliver a social-welfare dividend far greater than the cost to government of tax-deductibility because without the charities government would have to pick up the tab.
That said, the commission also made some sensible recommendations about accountability of charities. If Australians are donating to charities in the hope that they will deliver more efficiently than government, then the evidence for that hope must be presented more clearly. Moreover, governments that give the tax exemptions and support the charities with direct grants need greater assurance that their money is well-spent.
This may, of course, present a further administrative burden on charities.
These suggestions about accountability and the general community requirement for effectiveness put a different perspective on the long-running administrative-costs argument. Many charities seem to be judged (quie wrongly) these days soley on the costs of administration as a percentage of total amounts raised.
It may well be that the charities that appear to be effective because they have low administration costs might not be so effective in reality. Though a high percentage may indeed be going to charity rather than administration, it may well be that what is going to charity is none the less mis-directed, ill-suited or otherwise misguided precisely because the charity has not spend enough on administration and research and the like to target its charity funds more effectively.
Put crudely, the charity that spends 40 per cent on administration might be getting a far bigger bang for its remaining 60 per cent bucks than the charity which spends only 10 per cent on administration.
This was only obliquely referred to in the Industry Commission report, though the thrust of the report appropriately dealt with overall efficiency of the welfare dollar and properly concluded that there is plenty of room for a diverse non-government charity sector but at the same time there is plenty of room for improvement in the way that sector accounts for itself to the giving public.
More accountability can only inspire more confidence and therefore a greater willingness to give by the Australian public, which can only be a good thing.