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HIDESIGHT: Charities Commission deserves better

Charity is big business. There are 25,500 registered charities. They hold $40 billion in assets. Their total income is $14.6 billion.

The industry is puffed up by $4.8 billion in government grants: government money is hardly charity. The charity business is further puffed up by its tax-free status.

Charitable donations create rebates totalling $350 million a year. In addition, tax breaks for charitable businesses are estimated as high as $1.5 billion.

The tax-free status is simple politics. Charities are up there with motherhood and apple pie. It would be political suicide for any party to start taxing them.

Politics aside, there’s no especial reason for charity to be tax free. There’s lots of good things we do with our own money, like feed and school our children. But none of these things are tax deductible. There’s no reason why spending on charity should be different.

It’s the same for trading. We trade for lots of good purposes but trading for charity escapes tax. It’s an oddity. It’s wrong. But it’s here to stay.

The government must climb all over charities to ensure their special tax position is not abused. That job falls to the Charities Commission.

It has gone to a great deal of trouble putting up the best government database on the internet. There’s every charity, with all their relevant information and, critically, the database is easily searchable by the likes of me and you.

That’s where all other government databases fall down. The information may well be there, somewhere, but who would know?

The charities database is important because it shines a bright light into the business. For example, a quick search shows that one charity one year raised a whopping $850,000 for a very good cause. But $650,000 went on telemarketing costs. Another $130,000 went on expenses. And then $21,000 was lost on some bad investments.

So for every dollar raised, less than six cents survived. I doubt armed with that information anyone would want to donate to this organisation. The critical information is easy to find because of the Charities Commission.

I would suggest anyone considering a reasonable donation to check the database first. It’s a great database once you get into it. One charity has assets of $66 million. It has an income of $1.5 million. The foregone tax on this business is almost $500,000 but its distributions by way of grants one year are only $50,000. 

That’s not bad: give a dollar away to a worthy cause and save 10 in tax.

It’s not the only one. One charity distributes $350,000 and saves $5 million in tax.

But here’s the kicker: I am sure that $350,000 does more good than the $5 million to government ever would.

The commission is well respected here and overseas. But to save money and to provide for “joined up” government, ministers are planning to disband it and drag charity regulation into the Department of Internal Affairs.  

Who would have thought? The problem with government is the cost of the Charities Commission and its lack of joined-upness!

But it’s typical of politics: take a small part of government -- in this instance, a part that actually works --  and fiddle with it. That way you keep busy and are seen to be doing things.

Meanwhile, the great morass of government failure sails on untouched.  It’s the small things that keep Wellington busy. The big stuff is just far too scary to tackle or even comprehend.

Comments and questions
13

You wouldn't invest in a managed fund with an expense ratio over 2-5% so why would you 'invest' in a charity with an expense ratio over (say) 20%.

Because finding people to give money altruistically for no return is more costly than finding people to place money for investment? (And likely requires far more individual contributors for the same amount raised.)

I think the problem is that unless you make a substantial donation people don't check.

Dear Mr Hide, the third reading on the Bill which proposes to disestablish the Charities Commission has not taken place yet. The Committee of the Whole stage is due to continue next week. Currently, no party except National, ACT, and United Future supports the proposal to disestablish the Charities Commission. With one more vote the proposal may be prevented from going ahead. Do you think ACT might vote against the Crown Entities Reform Bill, and give the Charities Commission a reprieve, at least for long enough to allow the imminent scheduled review of the Charities Act to take place?
Kind regards
Susan Barker
Director
CharitiesLaw Ltd
www.charitieslaw.co

Well never say never but I understand sadly that the government has the numbers to pass the legislation. I believe it's a mistake.

Dear Mr Hide
Thanks for your reply. I agree that it is a mistake. The government only has the numbers to pass the legislation by one vote. If ACT changed its vote, the bill may not proceed. Can ACT be persuaded to change its vote do you think?
Kind regards
Sue Barker

I am afraid I have not been party to the deliberations and negotiations. I don't know what the logic is. I would hope both ACT and National can be persuaded that this is a mistake on all grounds but as you say -- one vote is enough.

I know where my vote would lie!!

Rodney

You conveniently overlook the millions that stay in the government's hands through the inability of charities to claim the imputation credits attached to their investment income

True. But would that be much? I am relying on official estimates.

Why would a charity invest and receive imputation credits ?

Many charities spend far too much on shiny pamphlets, tv ads, begging letters.
While it is appreciated that they must keep the donations flowing in,it does appear that the spend in this area is excessive.
Willie Getonwithit
ps. good to see Rodney Hide back in print.

Ta.. Well it's all there on the Charity Commission's database with plenty of sunlight.

Charity is about giving generously to a good cause because it is worthy of your attention and support. Yes?
To give to an entity for a tax credit is not a charitable act?
So why are donations to a "tele-marketing" firm tax deductible?
Surely only the "6 cents" that is left for the "charity" should be "tax deductible", if that?

Distributions are not the only measure of a charity. Some provide services (eg, budgeting, counselling) while others provide assets freely for others to use or enjoy (eg, facilities, art). These are not "distributions" for the purposes of the Charities Commission's database.