Minister for Financial Services & Superannuation
14 September 2010 - 1 July 2013
Passing Round the Hat for Change:
This Labor Government and the Not-For-Profit Sector
National Press Club, Canberra
27 May 2011
-- CHECK AGAINST DELIVERY --
The great bush poet Henry Lawson once wrote:
Now this is the creed from the Book of the Bush--
Should be simple and plain to a dunce:
"If a man's in a hole you must pass round the hat—
Were he jail-bird or gentleman once."
The story of "Giraffe" and his generosity, his awkward pose but kindness of heart – whether by helping Mrs Smith whose husband was drowned in the flooding Bogan River or the bullocky who'd broken his leg while drunk when run over by his own wagon – Giraffe's story is really your story – the not-for-profit sector.
The sundrenchingly warm Australian tradition of giving and helping.
And this is a very Australian place - the National Press Club.
It may not be quite the front bar of the pub where Henry Lawson wrote the story of Giraffe or where the shearers from the Big Billabong Shed would whet their whistle.
But stories are told here and that is the read of the nation.
I noticed during the week that another poet Bob Dylan celebrates 70. He had a clear voice and in his words:
'I think of a hero as someone who understands the degree of responsibility that comes with his freedom.'
There are a lot of thoughts that are delicately balanced within that one sentence.
What we are owed – and what we owe.
How much we should pay – and how much we give freely.
The significance of this for me is that it takes courage to be generous – and, in the end, what you give is your strength.
The change to the world can be made by a group of committed people, ardently believing in a good cause, and working diligently to achieve it should never be underestimated.
For this was the way it was always done.
Slavery was ended by volunteers, preaching and pamphleting, demonstrating and moving motions for no personal financial gain, but out of a belief in what was good for humankind.
It was the way civil rights were gained for black South Africans. No money changed hands. A not-for-profit organisation achieved it, after much sacrifice, and fifty years of struggle.
And in other societies, like ours, it is the way some of the most socially significant advances are gained.
From the cradle to the grave. From the bush to the city.
Think about an everyday Australian's direct experience of the community or not-for-profit sector through their life.
It starts at the earliest stages when you might be born at a church-run hospital.
You might have your first social interaction at the playground held at the nearby neighbourhood house.
You grow up a bit, and might go to local swimming classes at a centre run by the YMCA or join your local junior netball, football or scouts.
When you leave school you might get assistance from a not-for-profit organisation getting a job.
At university you might volunteer at a community legal centre or with a group that mentors young people at risk of dropping out of school.
You might join Rotary, Lions, help out the Brotherhood of St Lawrence homework club or coach hockey on Thursday nights.
If you acquire a disability, or a family member does, you might use community based carers.
In tough times you may get financial counselling or quit smoking with some help from a not-for-profit.
As you get older you might live in your latter years in community aged care.
And if we were to do one of those 'day in the life of' profiles of the not-for-profits landscape – it's rather impressive to think even for a few moments what the images we'd have at the end of our day's work might look like?
There might be some happy but weathered night time faces serving at a Surrey Hills soup kitchen.
There might be a group sitting around a Bell Park kitchen table planning the next adventure camp their group is running for kids with disabilities and their siblings.
Perhaps group of enthusiastic Guides busy planting trees along the foreshore of a Sunshine Coast beach.
There are so many not-for-profit organisations and charities that are not just giving us these pictures today, they have been providing these pictures in Australian society for decades.
Some since early last century and much earlier still.
History of charity and community work in Australia
In fact there is a long tradition of giving, of community work and of philanthropy in Australia.
It's a big part of our egalitarian, mateship, fair-go way. And I'm grateful to the compelling Australian historian Geoffrey Blainey for providing some of his observations – or what Professor Blainey called "a few loose generalisations".
The Scots were the great contributors in the period 1850 - 1900. Most had made their wealth as pastoralists (with wool) and as merchants. Education was a special field for their Hibernian giving.
Institutions such as the Royal Flying Doctor Service, launched in outback Queensland in the late 1920s, came initially from private gifts and effort.
The Red Cross in Australia has depended heavily on the giving of time and money.
A rich Launceston merchant helped to keep alive the Salvation Army's welfare work in England in its formative years. The Red Shield Appeal is this Saturday.
In the last half of the 20th century the Jews have been the great givers to charities and not-for-profit organisations, especially in proportion to their population.
All this is not just about giving, the roots of the not-for-profit sector stretch back through the ages too.
The Benevolent Society was established in 1813 and will celebrate its bicentenary in 2013. A remarkable achievement.
The first meeting of the RSPCA as we know it today was held in February 1981 but the first society for the prevention of cruelty to animals was formed in the colony of Victoria in 1871.
The organisations with Royal Charter that eventually merged to form Vision Australia go back over 140 years.
In 1963 a memo from the Duke of Edinburgh inspired Francis Ratcliffe to consult with his CSIRO colleagues and gather a group of likeminded friends together to establish a national conservation body – which soon became the Australian Conservation Foundation.
The Royal Life Saving Society has been saving lives on Australian beaches for over 110 years.
Caritas has been helping the disadvantaged and homeless in Australia since 1964.
Meals on Wheels started in this country down in South Melbourne in 1952 – back then a lady would ride around on a tricycle making deliveries.
All this history matters. It is part of who we are today. Social giving and engagement with the not-for-profit sector isn't new. Unfortunately many of the issues the not-for-profit sector deals with today have been around since Caroline Chisholm.
There comes a time for renewal – particularly in terms of the interaction between not-for-profits and the state.
And because of the modern size and complexity of the sector the time for renewal is now.
Present (size of the sector and size of the problems)
The NFP sector consists of approximately 600,000 entities, contributing around $43 billion to GDP per annum and employing close to 1 million people.
When it comes to jobs your sector is bigger than the transport sector. It's easily twice as big as the finance and insurance sector and nearly seven times larger than mining.
And the sector continues growing in size and importance.
Look within the last decade alone.
From 2000 to 2007 the NFP sector grew at an average rate of 7.7 percent per year.
That's the sort of growth number we normally associate with booming Asian economies to our north, not a typical advanced economy sector.
A key reasons for the growth is that successive governments have utilised the sector for service delivery.
Government support to the sector is significant: north of $25.5 billion.
Philanthropic donations to the sector have also been increasing: now north of $7 billion.
And that's without counting the huge value of volunteer time – which is officially estimated at some $14.6 billion.
Philanthropic gifts claimed as tax deductions have also been increasing.
In the ten years to 2007‑08, donations claimed by individuals increased by an average annual rate of 14.4 percent to reach $2.34 billion. Incidentally reducing tax revenue by $810 million.
Now as Assistant Treasurer I of course find myself conflicted about anything that reduces tax revenues.
And while some of you may dispute the Treasury assumptions, the size of the tax reductions, gives us a clear sense of the spirit of giving in Australian society.
It says something about the way we still 'pass round the hat', about how we still have a real sense of looking out for each other.
The delivery of social services has evolved significantly since Federation with a growing partnership between government and not-for-profits.
At its heart, our not-for-profit sector makes a contribution to the Australian way of life that is every bit as important as that played by our other, formal institutions.
You are evidence of a basic truth that none of us is impelled by self-interest only, or fear of gaol or fines or shame if we do not do what governments ask of us.
Australians are generous, caring people.
We believe in making a passionate difference, in eroding by inches the avoidable suffering of our neighbours and families and unfortunate friends, and what the Bible calls the strangers within our gates.
On these foundations the not-for-profit sector has evolved into a real 'Third Sector', complementing the 'First Sector' (government) and the 'Second Sector' (private).
Some of you would no doubt suggest the number 1 -3 for each of the sectors should be reallocated!
In terms of size, diversity and complexity this transformation is undeniable.
Yet while the not-for-profit sector is evolving, government regulation hasn't kept pace.
So many Third Sector organisations are now national actors and they require a national response. Increasingly some are even international players.
Interestingly, despite your numbers, you don't have the influence on national policy your weight should warrant. There is very limited public discussion about your needs or your issues as a sector.
One of the inherent difficulties for the Third Sector is that you are all so flat-out with the activities and services of your group, that to some extent, overall sector issues have missed out.
When I talk with people in the not-for-profit sector and ask them what they most need, they usually talk about the needs of their clients, the people they serve, their community. Making their organisation stronger or more sustainable is a second order issue, and the needs of the broader not-for-profit sector come a long way behind.
Often small groups don't recognise they are even part of a "sector".
Like all groups with asymmetric bargaining power, you need more unity.
Such goals: unity of purpose, better leadership development and outward looking innovative thinking. These are what I think of as a vision for the future.
Our shared goals are to enable not-for-profits to get on with doing the work that they should be doing that strengthen and improve our community and our democracy.
We believe the one stop shop regulator is an important first step partly because it will enable us to unify information under one umbrella – providing a clearer picture about the sector, its component parts and its contribution.
We acknowledge the amount of time you currently waste dealing with suffocating complex regulation, the 178 pieces of legislation, and the multiple layers of government – it's a wonder sometimes that you do even have time to do your day jobs.
Red tape strangles the human dimension, the needs and desires and furies and frustrations of those you are trying to help.
The red tape grows, the next information contradicts the old, the harried officer does not make the adjustment, a clean-up is called for and then delayed. And in the meantime, far down the food chain, the people suffer, and some people suffer from it, for no one person's fault, but from the rate and oppressive complexity of reporting.
The cycle of not-enough-time and inadequate unity of voice had produced no major reform – this cycle has gone round and round, year after year.
That is why this sector needs reform champions - and it needs them now.
The Gillard Government knows the spirit of volunteering is alive and well in Australia. And, in time of flood and fire and earthquake and tsunami and monthly battering cyclones, it is clear it never went away.
One quarter of all Australians at some point volunteer for a not-for-profit organisation.
This is to a great extent what, for them, Australia means. What a fair go means. What a civilisation is made of.
Recently David Crosbie [CEO of Community Council Australia] wrote in the Canberra Times, that the more we get people engaged and supporting their local community the stronger and more resilient the community will be.
I think he's right – and so does the Gillard Government.
We get it – we understand just how economically and socially significant community groups are and their critical role in our social inclusion agenda.
Labor in Government undoubtedly has the best track record – we are the ones who removed the gag clause from government funding contracts with the community sector.
We enabled the pay equity case. We asked the Productivity Commission to examine the viability of a National Disability Insurance Scheme.
But further big reform in the not-for-profit space is long overdue because too many reforms have previously been considered a low priority or been put into the too hard basket.
I said today that the sector has lacked some unity in purpose and voice, and the reform agenda has lacked necessary leadership.
But I'm standing here now to say that this Government is ambitious to be the champion the sector has patiently waiting for.
And I want to pay warm tribute to the work and leadership of Tanya Plibersek, the commitment and passion of Senator Ursula Stephens. The new work of Michael Danby in examining the role of corporate philanthropy.
And also of the broader and ongoing social inclusion agenda led so ably by our Prime Minster, our Treasurer and assisted by our Families Minister Jenny Macklin.
That we 'get it' is why we've put so much energy into developing better public policy in this space and have, with a road map of independent and sector-supported recommendations, moved so quickly since the August 2010 election.
It's why we stood by the sector in tough times, why we stood beside you during the global financial crisis.
We were right alongside you in the tough times because you are right beside ordinary, modest Australians every day.
We asked the Productivity Commission to review your contribution and in its 2010 report the PC recognised four broad ways in which the not-for-profit and community sector builds wellbeing:
- You draw more people into contact with our national economic life, and help deliver critical services;
- You play a policy role in economic, social, cultural and environmental issues;
- You connect communities and expand social networks; and
- You build our community skills and enhance our asset investment.
The National Compact with the not-for-profit sector we signed with you on 17 March last year is testament to the importance of what you do.
As a sign of how seriously the Compact's being taken nationally, more than 560 organisations have signed up to to date – and when you factor in the number of organisations they represent, you swiftly hit the thousands.
And in the coming year most government Departments will be required to appoint a senior officer to be the contact person for developing better relationships with the not-for-profit sector.
It's also why in December last year the Government announced the membership of the Not-for-profit Sector Reform Council - another example of the Compact.
The Council will play an important role advising us on strengthening the sector through smarter regulation, reduced red-tape, and greater transparency and accountability.
And to support the Reform Council, the Gillard Government established the Office for the Not-for-profit Sector in the Department of the Prime Minister and Cabinet.
Putting the Office in the Prime Minister's own Department should show just how serious we are – and indeed the PM is - about who you are and what you need.
The reform agenda
Our reform agenda is to develop a more coherent and robust approach to regulation, tax and service delivery.
We get that high regulatory costs are undesirable.
In the same way that the complexity of our existing tax system too often diverts mums and dads from their time being doctors, communications technicians, plumbers, teachers or whatever else we need...
...the complexity of the tax and regulatory landscape you operate in as NFPs diverts your time from providing the services and public advocacy that our community and democracy needs.
There have been a number of reviews into the regulation and taxation of the NFP sector in Australia over the last decade which all have unambiguously supported reform.
As an administrator of tax law, the ATO has become the default regulator of the sector, but this raises the question of whether a conflict exists between the ATO's revenue administration and charity regulation roles.
There is no public database providing simple access to information about not-for-profit entities, and this means a lack of public transparency and accountability.
We lag behind other comparable jurisdictions such as UK, US, Canada, Ireland, Singapore, New Zealand.
A consistent theme of reviews is that the regulation of the not-for-profit sector could be significantly improved by establishing a national regulator and harmonising and simplifying regulatory and taxation arrangements.
One stop shop regulator
That's why, as announced in the Budget, the Gillard Government will establish an independent statutory office – the Australian Charities and Not-for-profits Commission (ACNC).
We know the sector has called for this for a very long time.
A new national regulator will provide a one-stop shop for regulation and reporting for the sector. The ACNC will initially be responsible for regulation of not-for-profits, including charities and community organisations at the Commonwealth level.
Its core functions will include:
- determining charitable status, including public benevolent institutions
- providing education and support to the sector on how to comply
- implementing a 'one-stop shop' reporting framework
- implementing the public information portal by 1 July 2013, and
- providing a 'seamless' application process for applications for ABN's, charity status and tax concessions.
The ATO will maintain responsibility for administering the tax system, including tax concessions as is appropriate for the Government's principal revenue collection agency.
An implementation taskforce will start work on 1 July 2011 to ensure the ACNC is ready for operation by 1 July 2012. They will consult the sector and other governments about what goes into the single general reporting framework and how the information portal will work.
It will be headed by a Taskforce Leader who is expected to become the Commissioner of the ACNC, subject to a public appointment process. Expect further announcements in the near future.
The taskforce will drive the establishment of the ACNC, working with the Treasury, ATO and of course the sector to make sure that we get the functions, resourcing and focus of the Commission right the first time.
There will also be an Advisory Board assisting the ACNC consisting of technical and sector experts. And I'm pleased to announce today that Robert Fitzgerald will lead that Advisory Board.
I know Robert is well known to many of you and I am sure you will agree that it serves both Government and the sector well to have his assistance.
The Government has also announced it will undertake further reviews of aspects of the regulation of the NFP sector, including reviews of the company limited by guarantee entity, NFP fundraising and governance obligations appropriate for NFP entities.
Of course, not-for-profit entities are increasingly national actors, and the Commonwealth cannot alone reduce the maze of red tape across jurisdictions.
Yet when faced with a choice, to act now or wait for others and follow, the obvious course for a reforming Labor Government is to act now.
So the Gillard Government will establish the ACNC and lead by example. But we won't rest there.
We will also progress national regulation of the sector through the Council of Australian Governments, and negotiate with the States and Territories on how we can ultimately achieve a consistent regulatory framework across all levels of Government.
Unrelated business income
But regulation is only part of the picture. The sector also needs a sustainable funding base.
Funding for the sector via forgone tax revenue is a significant outlay for Government. Indeed, quantifiable tax expenditures in 2010-11 are estimated to be $3.3 billion, but this does not include unquantifiable expenditures including forgone income tax which is estimated to be at least $1 billion per year but could be significantly more.
Like any significant government outlay, taxpayers should expect the fiscal ruler to be run over things from time to time.
As I'm sure you are all aware, the High Court held in Commissioner of Taxation v Word Investments Ltd (2008) that charities are able to use tax concessions intended to support altruistic activities for unrelated commercial activities.
As part of the reform package announced in the Budget, and in response to the Word Investments case, the Government announced that it would reform the tax concessions provided to not-for-profits that carry on unrelated commercial activities.
A clear policy intent underpins this measure.
It is designed to protect the integrity of the sector by ensuring that valuable tax concessions are utilised to further the altruistic aims of the sector, rather than being used to provide an uncompetitive advantage to a purely commercial activity.
We understand that many not‑for‑profits face challenges in raising funds to maintain their services.
As our record shows, this Government has actively encouraged not-for-profits to be innovative and to diversify and to grow their revenue streams.
However, we do consider that Government support by way of taxpayer concessions to not-for-profits is best utilised in furtherance of the altruistic purposes of the not-for-profit entity. That is the very reason for the existence of the concessions.
It is what taxpayers expect.
Accordingly, as of 7.30pm on Budget night, not-for-profits will be required to pay income tax on those profits from new unrelated business activities that are not directed back to their altruistic purpose – that is, the earnings they retain in their commercial undertaking.
This is not a revenue raising measure – you won't see a single dollar gained in the forward estimates as a result of this reform.
But the Government has acted based on the strong advice of the Treasury and ATO that the loophole created by Word Investments posed a significant risk of exploitation and presents a risk to revenue for all levels of Government.
Importantly, it is not the Government's intention for these reforms to affect the use of tax concessions that support a charity's related commercial activities.
That means the sort of innovative commercial activities established by some of the people in this room – the likes of GoodStart or some of the social enterprises – will continue to receive the benefit of charitable tax concessions.
We think that the local op shops providing discounted goods to the disadvantaged, not-for-profit child care centres, or even not-for-profit hospitals should not be prevented from accessing these concessions to undertake their vital activities, even when they are being operated on a commercial basis. This sort of innovation is, and should be, encouraged.
We also recognise that low risk and small scale commercial activities should be carved out. Therefore running a local lamington drive, school fete or leasing out a school hall, will not put at risk an entities status. The Government realises that these activities are a natural part of the local community life.
There are also no Budget night shocks for those not-for-profits with existing unrelated commercial activities. Tax concessions will initially be available to support these activities. And we will talk to the sector about transitional arrangements.
There are also exemptions for not-for-profit entities that have entered into a government service delivery contract as at 10 May 2011 or participate in the National Rental Affordability Scheme.
But these reforms will raise a number of legitimate questions about the application of these measures to the diverse and innovative activities that the sector engages in. Sometimes the line between what is 'related' or 'unrelated' may be blurred. Some organisations may structure their activities in a certain way that might not automatically gel with these reforms. And we understand that it may hard to determine what constitutes a 'low risk' activity.
I am mindful of the law of unintended consequences, and I am determined to get this right. We want to provide certainty to the sector – we shall consult.
So today I am pleased to release a discussion paper on this issue, seeking input from the sector about these reforms and how best to implement this change. I am keen to hear from each of you on how these changes will affect existing unrelated commercial activities that are being undertaken or planned, and how best to transition entities that are undertaking unrelated commercial activities over time.
Statutory definition of charity
As part of the NFP reform package, the Government will also implement a statutory definition of 'charity' to take effect from 1 July 2013.
The current definition of charity is based on over 400 years of common law.
In its submission to the 2001 Inquiry into the Definition of charities and related organisations, ACOSS said:
"The present definitions.....are outmoded, unnecessarily complex, and lacking in clear guiding principles ".
That was 10 years ago.
This Government is determined to get things done.
A statutory definition will be easier to understand and simpler to implement. It will clarify the key principles of the common law, including the developments in Aid/Watch Incorporated v Commissioner of Taxation, where the court extended the definition of 'charity' to include further advocacy-type organisations.
This Government believes in the value of advocacy. Labor Governments do.
There is no cloak and dagger intention to use this review to wind back concession or gag advocacy.
Friends, I do understand that you are time poor.
I get that time is something that community groups and charities, whatever their stripe and tribe, never have enough of.
But it's the generations of not-for-profit participants ahead and the long legacy of your work today that will be the ballast of the future.
And I'm thus reminded of an old Egyptian saying:
Man fears time, but time fears the pyramids.
Your business isn't building pyramids, or not in the old way, with the kind of work practises my old union would come after you for.
And though there isn't a huge physical monument to testify to the grandeur of your sector's work - think about what you collectively build.
You build lives. You build wellbeing.
You build better futures, bigger opportunities, greater self esteem.
You build the common wealth of a town, a nation.
You build a better Australia.
And you do it, as it were, between the lines. Between public and private, between profit and tax, you are there, the not-for-profit sector.
So thinking about the future.
Where will you be – or could you be - 10 and 20 years from now?
Much of what I've spoken about today has been focused on how the Commonwealth interacts with the Third Sector – and we're determined to get these interactions right through those reforms I've outlined.
But what I haven't said much about is how the third sector interacts with private enterprise - that Second Sector.
Now Margret Thatcher said a while back there is no such thing as a society, just individuals and families.
Neil Kinnock famously riposted: 'No sisterhood. No brotherhood. No neighbourhood. No number other than one. No person other than me.'
I believe there are such things as neighbourhood and nationhood and comradeship and community.
Between the lines of public and private, those good, glad shadows, that army of shadows, the army of better angels are indeed there for us.
To be fair David Cameron acknowledged this too upon his rise his party's leadership, when he said: 'There is such a thing as society. It's just not the same thing as the state.'
It is, perhaps, what his predecessor Tony Blair once called comunitarianism - the almost religious defence of a sacred site which is the town, the community, and how it has always lived.
And for the Labor movement this involves, with some reluctance I know, an acknowledgement that in the century ahead many public problems will not be solved by state intervention, but by an improvement in the soul of the neighbourhood, an unleashing, an empowering of the better angels of our nature.
What in the twentieth century we called the Welfare State has given way in the twenty-first to a more delicate, more complex arrangement of social health by other means.
The third way.
A seeking out of the better angels within the neighbourhood, the community.
I saw firsthand at Beaconsfield, and then at Marysville, and Flowerdale, and Kinglake, in the bushfire cinders and twisted wreckage of Victoria's heartland how this collaboration works.
Local groups, made up sometimes of traumatised neighbours, nimble and flexible in giving help quickly. Government moving swiftly to restore electricity, water and open, passable roads. Business bringing in skilled volunteers.
I profoundly believe we need more such relationships with the second sector – with private enterprise.
There are clever partnerships already commencing between you and corporate Australia.
- Vodafone and the Kids Help Line – and their free calls (and confidential billing) of counseling on abuse, violence & suicide prevention;
- ANZ matched savings programs with the Brotherhood of St Lawrence;
- NAB's no-interest loans - working with Good Shepherd;
- BHP Billiton's work with Conservation Volunteers Australia on their 'revive our wetlands' program;
- Colgate-Palmolive's work with the Smith Family on their 'Learning for Life'program;
- Virgin Unite's work with the Oasis Youth Support Network on youth homelessness;
- And the strategic partnership between Westpac and Mission Australia
As this sort of innovative leadership continues, perhaps there is indeed a place for an NFP leadership institute.
Perhaps as we in government deliver corporate tax reform, we need to encourage more major corporates to give more back to their community.
Corporations and not-for-profits don't need the Government to get on with things.
It's actually a future that government might more watch play out (or at least try to broker) rather than participate in boots and all – as it's more than anything between your sector and the private sector.
We need to think more about how to create a capital market for the not-for-profit sector, how to support increased social engagement through community enterprise, how to make it possible for individuals to invest in social impact.
While charity is in our heart, sustainable change is about looking beyond where we are now.
What we need to do is get on with the reform program while still guiding the discussion towards the best next questions.
How do we build a bigger pyramid? How do we build a better society?
Lawson wrapped up, Send Round the Hat, his tale of Giraffe, with this:
"...in the midst of a great city of shallow social sham, of hopeless, squalid poverty, of ignorant selfishness, cultured or brutish, and of noble and heroic endeavour frowned down or callously neglected, I am almost aware of a burst of sunshine in the room, and a long form leaning over my chair, and:
"Excuse me for troublin' yer; I'm always troublin' yer; but there's that there poor woman..."
Lawson's generous Giraffe, the battler who encouraged so many to be part of both giving and receiving. Sometimes I wish we could immortalise him – and maybe we have – maybe he is the tall part in all of us.