The Tipping Point?

The charities sector has experienced unprecedented growth over the last decade, but there is increasing evidence that the trend upwards is at best levelling out and at worst starting to head down, writes CEO of Community Council for Australia, David Crosbie.

The findings released by the Australian Charities and Not-for-profit Commission (ACNC) and the Centre for Social Impact (CSI) over the past month about the charities sector make for interesting reading. Total income across the charities sector has grown from $122 billion to $134 billion – an increase of 10 per cent. Similarly, staff numbers are reported to have increased from 1.1 million to 1.2 million. These increases continue a pattern stretching back a decade.

In 2007 total turnover was estimated to be only $47 billion. This means total income in the sector has been increasing at over 10 per cent every year for a decade. Employment levels in 2007 were around 700,000.

Based on these figures you might assume everything is going gangbusters across the charities sector. This kind of growth means the charities sector is clearly outperforming any industry group in Australia. But these assumptions may well be wrong. The reality is a little more complex and the story not so positive for the whole sector.

ACNC and CSI conducted their own internal comparison of 30,000 charities where they had relatively good comparative financial data between the 2014 and 2015 financial years. What it revealed is that most charities are not experiencing any increase in their income, and this is especially true for smaller charities. In fact, on average across all the 30,000 charities in the comparison, total income rose by less than 2 per cent – below the annual rise in the CPI – which amounts to a real reduction in income.

Professor Myles McGregor Lowndes from QUT has spent a professional lifetime analysing the not-for-profit sector. He uses the term “starvation cycle” to describe the process where a charity repeatedly cuts back on administration and infrastructure when money gets tight to try to protect their services and activities. When I talk with many of the smaller charities from different segments of the sector, and in different parts of Australia, it seems to me that the starvation cycle is being applied.

There are also some indications from more in-depth research into segments of the Australian charities sector that the level of reserves held by charities is slowly being depleted.

Most would agree that in recent years, growth in government funded programs has stalled, philanthropy and giving are not increasing in the same way they were before the GFC, and income from fees and services is increasingly contested. The drivers of charity growth appear to be levelling out. When you combine this lack of growth in income streams with a significant increase in competition within the charities sector for all sources of funding, and the growing encroachment of for-profits into areas previously largely dominated by charities, the figures of growth seem a little removed from the experience of most charities.

The Charities Aid Foundation in the United Kingdom recently published a new report, The Social Landscape 2017, the largest survey of UK charity chief executives. Key findings indicate that the UK charities sector is facing some very real and immediate challenges:

• The biggest challenges identified by charity leaders in the coming year are generating more income and achieving financial sustainability, meeting demand for services and a reduction in public and government funding.
• Almost one in five fear their organisation is struggling to survive, rising to more than one in four among charities with an annual income less than £1 million (A$1.62 million).
• More than a third had to dip into their reserves last year to cover income shortfalls.
• Three in five say they either have restructured in the past 12 months or will be doing so in the next 12 months.
• One in three has reduced or is set to reduce staff numbers and downsize the organisation over the same period.
• More than a quarter say they have or will be reducing front-line services. This compares to 19 per cent who said this was a case when the same research was carried out in 2015.

It is difficult to say with any authority that the Australian sector is in a similar position. We do not have the same data. But for the first time, with the potential to look more closely at the details in the ACNC data, we are starting to see beyond the headline figures and the story is not quite what the headlines might suggest.  

Perhaps part of the explanation lies in an apparent significant increase in the size of the education and research segment of our sector (now $60 billion annual turnover) and the fact that less than 60 organisations in this area now have a combined total annual income of over $34 billion. I am sure more informative findings will emerge as the CSI researchers begin interrogating the ACNC data in greater depth.

At Community Council for Australia, we are concerned about the trends across the broader charities sector. It is hard to sustain the argument that we are all working in an increasingly prosperous sector. There are many charities performing very well, increasing their effectiveness and capacity, growing their income and their impact. At the same time, the trend, at least for smaller organisations, appears to be more negative than positive.

The charities sector has experienced unprecedented growth over the last decade, but there is increasing evidence that for most charities, the trend upwards is at best levelling out, and at worst, starting to head down.

Maybe we are at the tipping point?

About the author: David Crosbie is CEO of the Community Council for Australia. He has spent more than 20 years as CEO of significant charities including five years in his current role, four years as CEO of the Mental Health Council of Australia, seven years as CEO of the Alcohol and other Drugs Council of Australia, and seven years as CEO of Odyssey House Victoria.

David Crosbie writes exclusively for Pro Bono News on a fortnightly basis, covering issues of importance to the broader not-for-profit sector.