Government’s Changes Could ‘Undermine Philanthropy’

The Turnbull Government has been warned against changing the minimum annual distribution required by philanthropic funds.

The Community Council for Australia (CCA) has written to Assistant Treasurer Kelly O’Dwyer to respond to proposed changes to the private ancillary fund (PAF) and public ancillary fund (PuAF) guidelines.

After consulting with 69 organisations, the CCA said the government should back away from a proposal to the minimum annual distribution percentage for PAFs and PuAFS.

The changes would mean that ancillary funds could distribute the average of the Reserve Bank of Australia’s target for the cash rate.

But the CCA said this could “weaken the need to focus on this primary charitable purpose and allow PAFs and PuAFs to be driven by their capacity to gain a return on their investments seems to be giving almost equal importance to the purpose of making a profit on investments”.

“Whether PAFs and PuAFs generate a substantial or minimal profit in any particular period should not be the driver of their purpose,” the CCA said.

“Whether PAFs and PuAFs can wear the fluctuations of particular investment markets and maintain their investment funds at a set level over time is not the key factor in whether or not the fund delivers a benefit to the community.”

The CCA said it understood that if a fund had maintained a balanced portfolio of investments over the last five or 10 years, the average returns would be well above the minimum distribution requirements.

“Some CCA members would go further and suggest that rather than dribble out small amounts of money over a long period of time, PAFs and PuAFs would achieve much greater community benefit if they invested significantly more of their assets in sustainable beneficial change,” it said.

“Philanthropists from around the world have argued greater community benefit flows from large investments in the short term rather than distributing much lower annual grants over a longer period.”

Another aspect of the proposed changes that the CCA took issue with was the apparent “lack of consultation or rationale”.

“CCA is uncertain who has put forward the proposed amendments and on what basis they were developed,” it said.

“In consultation with our members, it seems most people in the charities sector are unclear about where the proposed amendments come from.

“Charities have been supportive of the way PAFS and PuAFs operate. While there are always grounds for minor improvements… changing the very basis of the function of PAFs and PuAFs including the rate of distribution seems completely at odds with what is needed to promote philanthropy.

“Like business, PAFs and PuAFs need certainty for longer term strategic planning and investment. CCA would hope the proposed amendments to a system that already seems to be working well will not undermine the stability of philanthropy.

“Australian regular giving still lags behind comparable countries such as the US, but PuAFs and PAFs have made an important contribution to increasing levels of giving in Australia. CCA does not want this contribution undermined.

“CCA hopes this approach by government to changing legislation impacting on the sector does not reflect a dismissive attitude to the charities and Not for Profit sector.”

The CCA also urged the government to provide recognition of the role of the Australian Charities and Not-for-profits Commission, saying that supporting the role of the national regulator would reduce compliance costs and provide real benefits to the Not for Profit sector and the broader community.