Minister for Financial Services & Superannuation
14 September 2010 - 1 July 2013
Address to Australian Charity Law Association Annual Conference
23 September 2011
Thank you for inviting me along, friends.
I have just come from a Parliamentary sitting fortnight in Canberra. And I assure you there isn't a great deal of political charity there right now.
It's odd though. Because, despite my questionable impartiality, the political narrative and newspaper headlines should really be far more charitable to the Government at present – and indeed the national state of play.
Australia is a very good place to be right now. Our economic fundamentals are strong – high employment, low debt, stable low inflation, excellent terms of trade, we came through the GFC probably better than anyone.
We are perfectly positioned for the Asia Pacific Century and indeed we can now say we have the world's best Treasurer.
There is no doubt in the Ministry that the high dollar makes life very tough for some sectors – like manufacturing, tourism and education.
But the Treasurer's award, indeed one he readily acknowledges is one for the country and not the individual, does illuminate how there is some stark lack of perspective and warped perceptions about how Australia is doing at present and how we are placed for the future.
As Michelle Grattan said on Monday morning upon discussing the Euromoney Award that Treasurer Swan will accept today – "it highlights the mismatch" between some public perceptions and the reality of the economic facts and external assessments.
Laurie Oakes similarly described it as a "dichotomy".
But of course Australia has always been a good place to be. The best country in the world, as we are blessed to know first hand.
History of charity and community work in Australia
There is a long tradition of giving, of community work and of philanthropy in our country.
It's a big part of our egalitarian way.
The First Fleet had scarcely dropped anchor before some charitable service was required and supplied for some of the convicts who had fallen ill and couldn't care for themselves.
Surgeon John White was the first head of the colonial medical service. Under his direction, as early as 29 January 1788, a series of tents were erected on the west side of Sydney Cove, where the sick were cared for.
The tents were later replaced by a timber building that could accommodate 60 – 80 patients on a spot near the water's end of present day North George Street.
Charitable service and care have remained a supporting social spine of Australia ever since.
Back in June this year I was fortunate to have some revealing and enjoyable correspondence with the well known and credentialed Australian historian Geoffrey Blainey.
He observed that the Scots were the great charitable contributors in the period 1850 - 1900. Most had made their wealth as pastoralists (predominantly wool) and as merchants.
Education was a special field for their Hibernian giving.
In the last half of last century the Jews have been the great philanthropists, especially in proportion to their population.
All kinds of Australian institutions of note were founded mainly or considerably as a result of private philanthropy.
Nearly all the university colleges in Australia; most of the private secondary schools created before 1960; and most of the older medical research institutes.
Institutions such as the Royal Flying Doctor Service, launched in outback Queensland in the late 1920s, came initially from private gifts.
A variety of the public hospitals in Australia once depended considerably on philanthropy as well as government grants.
The Red Cross in Australia has depended heavily on private gifts.
A rich Launceston merchant helped to keep alive the Salvation Army's welfare work in England in its formative years.
In the depressions of the 1930s a lot of help for the hungry and unemployed came from private philanthropists including Sidney Myer of the Bourke St store and Fred Cato the grocer (of Moran and Cato, the first big chain stores in Australia) and Mac Robertson the chocolate maker.
Myer financed the Yarra Boulevard, thus giving work to many unemployed.
All this history matters. It is part of who we are today.
Social giving and engagement with the charitable and not-for-profit sector isn't new.
But unfortunately much of the confusion and issues of complexity that frustrate the charitable and not-for-profit sector today have been around since well before Surgeon John White and his North George street clinic.
So what is the contemporary notion of charity? How has this changed from historic origins?
Clearly both conceptually and legally the evolution of charity is unfinished.
The present appreciation of what makes a charity has been developed by the common law over centuries.
Since the 2001 Inquiry into the Definition of Charities and Related Organisations, other common law jurisdictions have recognised the need to move beyond the common law definition, with the United Kingdom, Scotland, Ireland and Northern Ireland introducing all statutory definitions of charity. There is no definitive judicial definition of it.
So clarity on the concept of charity is in need of some unprecedented administrative effort and direction – and that is why the Gillard Government is determined to act by introducing a statutory definition of charity.
In Australian politics and public policy – these issues have been identified and shuffled around the drawing board for some time.
The Report of the Inquiry into the Definition of Charities and Related Organisations said this in June of 2001:
Many judges have said that it is impossible to define. Nevertheless, it is possible to extract from the vast numbers of judicial decisions the elements that will identify a purpose as charitable. ...
Community service organisation, public benevolent institution and religious institution, and other terms, have been introduced into the Commonwealth revenue Acts in a piecemeal way over the years in response to changing policy priorities. Their relationship with charity is unclear and the boundaries between them are blurred and cause confusion.
In recent years our friends in the United Kingdom have been host to a very thorough process of examination and change on not just around the definition of charity but the very role, responsibility and opportunities of the Third Sector in British society and delivering front line public services.
I spoke in May at the National Press Club at some length about the genuinely interesting role that charities and not for profit organisations might play in the years ahead in Australia.
In the space of public benefit provision particularly and addressing public policy problems more generally.
And not just on their own, or with the substantial support of Government funding arrangements, but in innovative, leadership savvy partnerships with the private sector. The Second and Third Sectors working more closely together as the Government (or First) Sector steps back.
It is far from a closed book and what we do here in Australia in terms of encouraging and debating the evolution, reform, and place of charities and the Third Sector ought to be mindful of the recent experiences and observations internationally.
This is what Westminster MP Tony Wright said back in mid 2008 as chairman of the Commons committee who examined public services and the Third Sector:
"The era of big government is over, and charities will deliver services more effectively than the state ever did. So say the advocates of maximising third sector involvement. Such organisations are better than the public sector behemoth at meeting user needs; they are more flexible, more joined up, more innovative, and better trusted - and they can ice the cake by encouraging voluntarism, generating a culture of community engagement, and helping build social cohesion. It is, so we are told, win-win.
Not so, say the critics on both right and left. Charities are for charity, and public services are for the state. Blurring the boundaries will damage the independence of the voluntary sector, which is vital if it is to carry out its core roles of campaigning against society's ills and acting as advocate for its needy and vulnerable. Public service contracts distort a charity's mission, and may even distort the nature of what it means to be a charity."
Our Westminster Parliamentarian friend's fundamental point I think is that the sheer diversity and breadth of the charitable sector suggests that it is folly to try to identify global characteristics among all the sector's organisations.
It cannot just be about an intention to do good because surely the intentions of all charitable and public sector organizations are to do good – at least when they are established.
The British Charity Commission used an example of charities set up in World War I to supply cigarettes to soldiers in hospitals.
But who would now argue that the benefits of cigarettes as sedatives outweigh the downsides?
For one, I believe it is important that the public can clearly see the benefits charities bring, including those that have until now been able to take their charitable status for granted.
Without this, charities risk losing the high levels of public trust that underpin charitable giving and other essential activities, and may damage their ability to be a voice for genuine, lasting social change.
That is why the Government is acting to introduce a range of historic reforms.
The issue of defining charity is one that Australia has been grappling with for quite some time.
The 2001 Inquiry into the Definition of Charity, conducted by the highly respected Hon Ian Sheppard QC, David Gonski and Robert Fitzgerald, still provides the most comprehensive framework for the approach that any Government should make in approaching this issue. It made its recommendation on the basis that a legislative definition can more readily bring certainty to the law and bring the law in line with the modern understanding of what it is to be charitable.
At the same time, it acknowledged the place that the common law had played for the sector – and determined that the common law should provide the basis for this definition –adapted to accommodate modern perceptions of what we as a nation considered 'charitable', going beyond those well intentioned but bygone notions like considering the marriage of poor maids to be charitable!
It outlined that the statutory definition should build on the principles that have been developed from the common law, but provide greater clarity while maintaining flexibility to altered for the changing needs of society.
An attempt was made in the 2003 exposure draft released by the former Howard Government to define charity at the Commonwealth level. This draft bill outlined that an entity is determined to be a charity if it had a dominant purpose that is charitable, and provided an updated list of 'charitable purposes' so determined by the courts, and common understanding of what is charitable.
Alongside the announcement of this exposure draft, the definition was referred to the Board of Taxation, to review.
It was widely considered, and indeed the Board of taxation explicitly indicated, that that the primary area of concern with this definition was the inclusion of advocacy as a disqualifying purpose if it was considered to be more than ancillary or incidental.
And so the former Government , spooked by an ideological aversion to the power of collectivism, reverted to the common law definition of charity, except for some minor extensions to take account of not-for- profit childcare centres and closed and contemplative religions.
This Government believes in the value of advocacy. Labor Governments do.
And the Courts agree - recognising in the 2009 Aid/Watch decision the value of advocacy as part of the imperative role that the modern charitable sector plays in ensuring that issues of social concern are brought to the attention of both the general public and the Government of the day.
A further two major reviews have explicitly recommended that a statutory definition will provide the clarity and certainty that the sector is calling for.
The Henry Review called for the codification of the definition of charity, and the Productivity Commission report into the Contribution of the Not-for-profit sector specifically called for the adoption of a statutory definition of charity in line with the 2001 Statutory Definition of Charity.
And so, after four reports over ten years, undertaken by experts in this field, unanimous in their support of a definition of charity, perhaps the real question is not should we do this – but why has it taken so long?
The Government's reform agenda
For over a decade the Australian not-for-profit sector has loudly demanded significant regulatory reform to allow it to get on with its most important job: delivering services to those in need and making a difference in our communities.
There are about 180 individual regulations facing just charities in Australia, across all levels of Government. That, by any measure, is ridiculous and a consequence of piecemeal regulatory development through different state jurisdictions and the courts.
In this year's Budget, the Government announced three reforms to ensure the sustainability of the not-for-profit sector and improve its effectiveness: the Australian Charities and Not-for-profits Commission, the introduction of a statutory definition of 'charity', and the better targeting of tax concessions measure.
We have also moved forward on a number of related fronts in the past few months, including the 'in Australia' test and on the regulatory framework for Public Ancillary Funds.
Given the decades of inaction on this front, I make no apology for getting on with the job of reform. Changes are needed across all levels of government and we need momentum to ensure that real reform doesn't languish for another decade.
But I recognise that, unlike your corporate counterparts, many in the sector are not paid for their contribution to policy development and that the burden of submissions can be heavy. I also recognise that if the reforms are to be sustainable and workable, they will need to be owned by the sector and government – not government alone.
That's why I've spoken with dozens of organisations from the sector since Budget night, and why we are conducting detailed public consultations around all of the Budget measures. By and large, I've been overwhelmed by the positive response I've received, particularly for the establishment of the Australian Charities and Not-for-profits Commission. The sector is excited to be moving forward, and to have people of the calibre of Susan Pascoe and Robert Fitzgerald to help lead these reforms.
The role of the Taskforce is to make sure the ACNC is fully operational from 1 July 2012. It has now been operational for over two months, and preparations are well underway for establishing the ACNC's staff, infrastructure, and processes.
The Taskforce is keen to work with others – and has started consulting with key stakeholders on the general reporting framework, public information portal and education strategy. The Taskforce will be conducting public consultations, including utilising the internet to ensure that their consultations reach all across Australia.
I know you will hear more about this work from Susan Pascoe at this conference.
Definition of 'Charity'
Clearly the diversity of the sector means that any attempt to define what is charitable is not without its challenges. But I am confident that through a careful process of consultation and engagement, we can achieve what previous attempts have failed to do.
Being in Government is not an exercise in ideology – it is about sustainable and incremental reform, built through robust talk and detailed deliberations. And I assure you friends that such a process will be followed here.
Society has come a long way in the 400 years since the statue of Elizabeth was first enacted, so unsurprisingly, the modern perception of charity has moved significantly too. Indeed, notions of charity have come a long way in the last decade.
And any legislative intervention will need to resolve some important questions:
Should charity be determined based of the organisation's purpose or activities?
How can we ensure that the definition has the flexibility and scope to remain appropriate for our constantly changing society? This will be pivotal to both how we define charity itself, as well as how we define what a charitable purpose is.
In the modern age, how appropriate is the common law presumption of public benefit for organizations that exist for the advancement of religion, education and the relief of poverty?
Has our society moved beyond the natural assumption that these three pillars of charity should automatically be presumed to be charitable?
The Government will shortly release a discussion paper that seeks to elicit the diversity of community views that surely exist in response to these questions.
But the charitable and not-for-profit sectors should take comfort that any outcome will be governed by the law of unintended consequences.
That is, the good and noble work that each of you carry on in the relentless pursuit of a better Australia has little to fear. Charities on 30 June 2013 will remain charities on 1 July when the definition takes effect.
But I do believe that, in time, and as our new independent commission assumes its role in regulating charities, these reforms will ultimately reduce regulatory burden, and provide greater certainty, transparency and accountability.
Better targeting of tax concessions
I also believe that, notwithstanding some understandable rumblings from the sector, the better targeting of tax concessions measure can find a similar landing place.
The Government directly supports not-for-profits through grants and service funding and indirectly through a variety of tax concessions. Funding for the sector through tax concessions comes at a cost to the budget bottom line - 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.
Reform of tax concessions available for unrelated commercial activities serves two core purposes: it prevents the gradual erosion of the tax base through concessional treatment for activities that do not bear no relationship to a 'charitable' or a core not-for-profit activity, and it ensures that valuable tax concessions are not provided to organisations that choose, for all intents and purposes, to run a purely commercial business.
This in no way means the Government does not support not-for-profits diversifying into commercial activities to supplement and strengthen their revenue streams. In fact, we encourage it.
But the policy intent that underpins the tax concessionality of such activities is that taxpayers are supporting activity for the good of the country and the community: not activities which could be dubiously linked to a not-for-profit cause in order to avail themselves of a tax break.
The evidence presented to Government of potential abuse in this regard suggested that, without prompt action, there was a significant risk that tax concessions would become skewed towards activities that did not match this policy intent.
Accordingly, not-for-profit entities will be required to pay income tax on profits from their unrelated commercial activities that are not directed back to their altruistic purpose. That is, entities who do not direct their earnings back to their altruistic purposes will have to bear a measure of income tax on those earnings. Those not-for-profit entities who undertake unrelated commercial activities will also not have access to FBT, DGR or GST concessions in support of those unrelated activities.
Importantly, activities that are 'related' to an altruistic or charitable cause will remain exempt from income tax, a reasonable threshold will exclude small scale activities, and unrelated commercial activity from pre-Budget night will effectively be grandfathered for the time being.
Change is never easy and some in the sector have sought to avoid change, fearing life will become harder for the vast majority of not-for-profits who are doing the right thing and using their tax concessions to benefit the community. The legal eagles have also been circling the sector, raising some concerns that are legitimate and some that are more likely tinged with a degree of professional self-interest (which I can say as a former lawyer!).
Consistent with these concerns, some have claimed that the proposed reforms are an attack on the mainstream religions.
Nothing could be further from the truth. Religious institutions are, and will always be, important in the fabric of Australian society. I am confident that these reforms will not cause detriment to the ability of churches to continue to deliver the vital community services that they have done for hundreds of years.
Likewise, I consider that the vast majority of commercial activities conducted by not-for-profits – such as health and aged care, child care and enterprises staffed by people with a disability – will not be subject to any additional tax. The sector should be comfortable that work related to a core not-for-profit or charitable purpose will continue to receive the benefit of tax concessions, and other unrelated commercial activities will also receive concessions if the earnings are being directed to an altruistic purpose.
I am also aware of concerns around timing issues that may arise when profits are temporarily retained in an unrelated commercial entity. Namely, that there are situations where a not‑for-profit will be required to retain earnings in its commercial arm for a period greater than one financial year. We have heard these concerns and will consider them as we begin the process of developing exposure draft legislation.
The Government will continue to consult with the sector on the best way to implement these reforms, whether there are any unintended consequences, and what guidance will be required. I have instructed Treasury to be pragmatic in its approach and to address the concerns expressed by the sector in its advice to me.
We'll develop guidance materials, factsheets, rulings and whatever else is needed to assist not-for-profits to comply with the new arrangements. We'll make sure that the compliance burden is kept to a minimum - for reasons of efficiency and cost effectiveness, our tax system operates on a self-assessment basis, and these changes will too. We have already made a significant commitment in these areas through our establishment of the first ever National Compact between the government and not-for-profits.
Related reforms - the 'In Australia test' and Public Ancillary Funds
As you are all undoubtedly aware, there are two other pieces of reform going forward at the moment. The first, the reform of the Public Ancillary Funds, was introduced into Parliament House earlier this week as part of the Tax Laws Amendment Bill 2011 Number 7.
After extensive consultation through the Treasury and my office with the philanthropic and religious communities, I am confident of the sustainability of these reforms.
The second, the re-statement of the 'In Australia' principle in the tax law, was released as exposure draft legislation in August.
Consultation on this measure continues. I'm happy to acknowledge that this draft legislation had some issues. Accordingly, I have instructed Treasury to issue a revised exposure draft later this year, and I am confident that the final legislation will address the vast majority of sector concerns.
This is a Labor Government determined to work with and support the sector, but not to accept that the status quo should remain.
Let no one be in any doubt. The Gillard Government believes in the dynamism of charities and their power to improve the quality of individuals' lives and our national life. We are ambitious for a society underpinned by equality of opportunity, where people don't get left behind.
The not-for-profit sector is a pivotal partner in realising this vision.
In ensuring all charities have to demonstrate how they fulfil their obligations in exchange for the benefits they receive, the Government is creating the circumstances in which they will continue to flourish.
It is not only publicity-hungry celebrities that love a charity; everyone values the contribution of charities to our society, and we want that to continue.
That can only happen if the public are confident they are getting a return from the status charities enjoy.
We hear a lot about the selfish gene, and the hip-pocket nerve, and how you always rely on personal advantage as the principal motivator of action in the modern world, and all politics depends on an appeal to selfishness.
And how Australia isn't as fair go as it was once cracked up to be, or it isn't any more, that it's all about the real estate killing now,a nd the corporate take-over… and the local progress association, and the local football team, and Legacy and Lions, might as well be sent to Coventry.
To some extent it is what we hear from the out of touch moral pulpit at times, from tabloid columnists at times and the Tea Party fools and the extremists running for office in Europe.
But it's not what we're seeing. Not if we are truly looking. For in fact the history of this millennium thus far is pointing the other way.
Because I think we see Beyond Blue, and Beaconsfield, and the great upsurge of neighbourly feeling and communal help that followed the Marysville fires and the Queensland floods and the Fukushima tsunami and meltdown.
We saw billions expended on the Gulf of Mexico oil spill wash-up and the clean-up of Hurricane Katrina and the almost daily tornadoes in America's south-west.
We are seeing the Arab Spring, and the almost daily giving of lives in freedom's cause, in the glad hope of a better society, somewhere down the track, by young people who believe there is a place for us, a time and place for us, even while the tyrants' bullets cut them down.
Do we, as Australians, belong to this great world, or a smaller, nastier, crueller one?
Not the latter, I think, not the latter.
I myself saw in Beaconsfield a rallying of generosity and local communal feeling that entranced the world, a feeling I saw duplicated at Marysville and Flowerdale, and Kinglake after the Victorian Black Saturday bushfires.
And in my immediate previous portfolio of disabilities, those heroes of our time with their daily struggle to put one foot in front of another, or feel their way down the street, and the accolades they achieved at the Paralympics, and the applause we got from both sides of the House for the National Disability Insurance Scheme commitment… applause that was indeed nationwide.
It was not a selfish nation that applauded these things. It was Australia.
And Australia has form in this kind of work, your kind of work, this kind of charitable preoccupation.
Good Australians, fulfilling our fair go ethic in the times that count, unpaid. Good Australians, like you. Good Australians of whom we, in the Gillard Labor Government, are well aware.
We know that, and law reform is needed, and law reform is coming, after consultation and consensus, and a wholesale slaughter of red tape.
But I want to end by simply saying: we do hear you. And we are responding.
We hear you because we in this Government are part of a movement that believes in redress from those shafts of fate that leaves one helpless and without hope – Ben Chifley's phrase.
A movement built on an obstinate will to erode by inches the conditions which produce avoidable suffering – Dennis Healey's phrase.
So we hear you, we are acting and we should never stop talking in great faith and comradeship through all of this time of change.
So thanks for having me here this morning.