DGR reform the focus of 'doubling philanthropy' inquiry

More than two months after it was delivered to Canberra, the much anticipated 468-page report was today tabled in the Senate.

As flagged in the earlier draft report, overhauling the Deductible Gift Recipient (DGR) system, which determines charities' eligibility to receive tax-deductible donations, is one of the key recommendations.

Productivity Commission deputy chair Dr Alex Robson said the system that determines which charities can receive tax-deductible donations has grown in an ad hoc way over decades and has no coherent policy rationale.

“The complexity and inconsistency of the system sees many charities that create clear community benefits miss out,” said Dr Robson.

“Our report proposes an overhaul of the DGR system that would make it simpler, fairer and focused on activities that are likely to generate the greatest net benefits for the community.”

The ink was barely dry on the final report, however, before the government scotched the Productivity Commission's contentious recommended changes to tax settings for donations to school building funds.

Charities Minister Andrew Leigh said while the government would consider the report's 19 recommendations, the changes to school building funds were not on the table.

"A world‑class education system is essential to tackling inequality, driving economic growth and supporting well‑paid, secure jobs, and our school system is a key part of it," said Dr Leigh.

This is despite the report's finding that tax-deductible donations were unlikely to be the best mechanism for allocating government support for school infrastructure.

The report acknowledged that many of those who responded to the inquiry's draft report feared that withdrawing DGR status for school building funds would "create upward pressure on costs for parents".

The change had been vehemently opposed by the Opposition, which described it as a slap in the face for the non-government school sector.

Among the report's 19 recommendations designed to strengthen the foundations of philanthropy in Australia and increase giving were:

• the establishment of a new organisation that would improve access to philanthropy for Aboriginal and Torres Strait Islander people
• reforms aimed at improving the regulatory framework for charities, including establishment of a National Charity Regulators Forum to formalise regulatory architecture and embed coordination and cooperation
• scrapping the concept of a basic religious charity
• supporting the ACNC charity register's role of providing further useful information for donors
• a government-mandated minimum distribution rate for ancillary funds of between 5% and 8%
• publication of information on corporate giving and requiring listed companies to be more transparent to stakeholders about their giving.

Charities minister Andrew Leigh has described the inquiry as a "once in a generation review of philanthropic giving."

The inquiry received 275 submissions and conducted more than 100 meetings with stakeholders, ranging from volunteers to government bodies and individual donors.

The final report incorporates feedback from the sector and a further 489 submissions in response to a draft report released in November.

The Productivity Commission inquiry analysed charitable giving trends and proposed recommendations in line with Canberra’s pledge to double philanthropic giving by 2030.

Community Council for Australia (CCA) CEO David Crosbie welcomed the tabling of the Productivity Commission report and said he was pleased that fixing a broken and unfair DGR system was a central recommendation.

“It is pretty clear that if more charities can offer tax deductibility for donations, we are likely to see the level of giving increase, which will offer real benefits to many communities across Australia,” said Mr Crosbie.

“CCA will examine all the recommendations in detail over the coming weeks, but the big question we now need a response to is whether the government is prepared to accept the recommendations and undertake some genuine reform for our sector.”

The report made nine significant findings, including that the value of tax-deductible donations by individuals is increasing but fewer people are donating, and that a sound regulatory framework, with greater transparency and consistency, is important for supporting donor confidence.

It is expected the changes to the DGR system would increase the number of charities that receive tax deductible donations from about 25,000 to as many as 40,000.

The report said reform of the DGR system would help charities that work to prevent poverty, improve animal welfare and support women and Indigenous Australians but are currently locked out of the system.

The report's authors acknowledged that subsidising philanthropy through tax deductions can encourage giving, but said it also means the government collects less revenue through income tax, which could otherwise be used to fund charities directly.

"Regulation can provide benefits, but it can impose compliance burdens and require additional resources for regulators.

"The bottom line: there is no free lunch."

Philanthropy Australia CEO Maree Sidey welcomed Canberra's re-affirmed commitment to doubling giving by 2030, and the commitment by Dr Leigh that the Commission’s report would play a key role in achieving this objective.

“Growing giving plays an important role in building a more inclusive and sustainable future for Australia, empowering people and communities to thrive – that is the future that Philanthropy Australia wants to see,” said Ms Sidey.

“Policy choices reflect our values and our priorities as a nation, and over the coming months, the Australian Government will need to make important choices about how to respond to the Future Foundations for Giving report and its recommendations."

Commenting on the recommendation to establish a new organisation to improve access to philanthropy for First Nations people, Productivity Commission commissioner Julie Abramson said some Aboriginal and Torres Strait Islander people have already taken the initiative to further their own goals and aspirations.

“The foundation would facilitate new collaborations between philanthropy and Aboriginal and Torres Strait Islander communities that support their ambitions.”

The report said the role, powers and functions of the ACNC would be expanded if the recommendations made by the Productivity Commission were adopted.

"The reforms the Commission is proposing to strengthen the ACNC are more likely to be successful if the ACNC is able – and resourced – to adopt a more assertive regulatory posture, while retaining its emphasis on supporting charities to meet their obligations through education and guidance."

Dr Robson acknowledged the widespread consultation with the sector leading up to delivery of the final report.

"This report has been informed by consultation and submissions from thousands of Australians in the charity sector and the wider community.

"We are confident our recommendations would create a stronger, fairer foundation for Australian philanthropy to support giving into the future."

The federal government said last night it would consider the report's recommendations.

More information

Coalition says no to DGR reform

DGR tax rules 'not fit for purpose': Productivity Commission