Development, Economics and finance, Law | Australia

20 October 2022

Governments are better suited than charities to alleviate poverty, but can never replace – and must better support – the authentic community-building these organisations provide, Robin Brown writes.

People in some nations are more philanthropic than in others – that is, they give more money away.

This isn’t just about who is most generous. It’s a matter of the role of governments. For instance, while American citizens donate a lot more money than Swedes, citizens of Sweden pay much more tax on average than Americans.

In this comparison, rather than donating directly themselves, Swedish citizens vote for an approach to government that results in the same thing – their money going to help the less fortunate and build a better society. In the United States, and many other places, giving directly to support these things is more common.

The deeper difference is what ‘needs’ financial support in the community is determined collectively in Sweden and individually in the United States.

This is not superficial – especially when one of these approaches doesn’t seem to work very well.

A collective system lowers transaction costs, reduces the incentive for charities to spend on marketing themselves, and provides government resources to ensure the charities that benefit from the community’s donations are achieving their goals.

An individual system has none of these strengths. While its advocates can say that people should have a right to directly choose who benefits from their money, they cannot hide from its weaknesses.

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Australia’s system is a funny mix of both. Individual donors elect to donate to a charity, but the government then uses collective funds to subsidise that choice by forgoing revenue on it. This is because all donations to designated charities in Australia are ‘tax-deductible’, meaning that any income an Australian earns, but then donates, is not counted as part of their taxable income, lowering their overall tax rate burden.

The new Assistant Minister for Competition, Charities and Treasury, Andrew Leigh, has a plan to double giving in Australia by 2030 under this system.

He has also made clear that the government will work to remove past constraints on charities lobbying for better policies for the sector.

This is an admirable goal. While governments are better suited than private charities to tackle systemic poverty issues, citizens, of their own volition, getting together to improve their community is crucial to a healthy society.

In Australia, one of the world’s wealthiest countries, about three million live below the poverty line. While the government must increase support to tackle this, citizen-based organisations, or not-for-profits, are often better suited to helping communities directly.

While most in the sector are involved in education and religious activities, it’s important to note the supplementary role some charities play when it comes to relieving poverty.

Ensuring charities keep playing this supplementary role, and enabling them to lobby to do so better, solves a number of problems with charitable giving. It encourages citizens to contribute to their communities, while those in poverty are still entitled to the government support they need.

More on this: The politics of aid in a crisis

However, it does not solve everything. Australia’s tax-deductible donation system needs a rethink.

As it stands, every deductible dollar is worth the same. This means that when a dollar is donated to a wealthy private school to construct a luxurious building, the taxpayer subsidises it just as much as a donation to a charity doing crucial work with those living rough.

Under this system, any charity, no matter its specific values and goals, and whether they reflect the majority of the Australian community, is subsidised – just as long as it can qualify for tax-deductible status.

For one, this system means that Australians support international development in two capacities – as taxpayers directly via the government, and as donors.

But only eight per cent of charities provide aid to people outside Australia. Reforming Australia’s system could help it better assist developing countries, where a donated dollar can go much further when it comes to improving lives.

If the government does achieve its plan to double giving, it also needs to consider that the current system is not always sending resources to where they are most needed.

As it stands, the giving system is uncoordinated and blind to genuine public need – the personal preferences of donors entirely direct government subsidies.

Charities play roles the government cannot, especially when it comes to building communities and they need support, but nobody could fairly say every charity is of exactly equal value.

The government needs to facilitate the meeting of the greatest needs by charities and ensure they have the resources to do the work they are best at. A system where one dollar given to a privileged private school or elite sporting club is subsidised just the same as one dollar given to a homelessness relief or to lift people out of poverty in the developing world isn’t capable of this – it needs change.

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5 Responses

  1. Athol Morris says:

    Denis Altman used to refer to “The Blankets for Pensioners Appeal Syndrome”. The Melbourne Herald used to run a campaign every winter to source/buy blankets to keep pensioners from freezing in the winters. But under Menzies and Bolte governments, it was anathema to consider assisting the pensioners in ways that might alleviate their actual plight.

    In a perfect system, surely we would not NEED charities. Charities assist in the space left vacant by government. I find it wholly unacceptable that voluntary donations are part of a system of relief, and that the underprivileged should depend on it. It is the role and responsibility of proper government to ensure that charity is not necessary.

    • Robin Brown says:

      Thanks Athol. I agree with Chinua Achebe, the great African writer, who said “While we do our good works let us not forget that the real solution lies in a world in which charity will have become unnecessary.” I would like to think all charities working to relieve suffering and give dignity have that vision. What I do stand by in the article is the suggestion that non-profit community sector organisations can be more effective than government in delivery of services. So the aim should be to replace their charitable donation funding with government funding.

  2. Bradley Carron-Arthur says:

    Interesting read. I’d never contemplated the homogenous nature of DGR status. I wonder if there’s merit to creating tiers of DGR status where higher tiers have greater tax benefits and the way to make it in to one of these higher status tiers is by demonstrating impact (proper evaluation – radical ideal) aligned with gov agreed priority issues. Maybe even link to wellbeing economy outcomes.

    • Robin Brown says:

      Thanks Bradley. With well-being becoming a measure of our economic success in the budget and other processes your idea would make very good sense.

      • Robin Brown says:

        A further thought on using a well-being measure – the greatest well-being per dollar donated would have to achieved in developing countries.

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