In Defence of Civil Society: The Virtue of Prescribed Private Funds

John Humphreys
18 February 2009 | IA107
In Defence of Civil Society: The Virtue of Prescribed Private Funds

In 2008 Australians donated about $13 billion to welfare, health, education, foreign aid, and other philanthropic sectors.

Unfortunately, the government is suggesting new regulations that will limit the flexibility of charitable funds and decrease the quality and quantity of philanthropy. This would be bad policy at any time, but given the current economic situation it is especially important that we protect civil society.

The suggested policy changes affect Prescribed Private Funds (PPFs). The purpose of a PPF is to allow donors to give tax-free money into a fund, which can then distribute that money later to approved deductible gift recipients. Since 2001, more than 800 PPFs have been registered, with a total value of about $1.3 billion.

The great virtue of PPFs is that they allow donors to distribute their money at the most appropriate time in different financial years (called ‘inter-temporal shifting’), which allows for more efficient and effective distribution of donor money.

This flexibility allows donors to adjust to the changing circumstances over time. In some years there will be many deserving charities looking for funds, and able to produce good outcomes. At other times there will be fewer good projects.

For civil society to be most efficient and effective, we need the flexibility to shift money to times of the greatest need—such as during a recession or a natural disaster.

In their discussion paper on PPFs, the government proposed to introduce a compulsory minimum distribution, possibly at 15 per cent of the PPF capital amount. But there are various problems with the government’s suggested changes:

  • Reducing the time flexibility of PPFs would undermine their primary benefit, which is that they allow the effective shifting of philanthropy between years. This is likely to result in lower quality and quantity of philanthropy.
  • The proposed reforms would decrease the incentive and opportunity to build a ‘philanthropic brand’ and result in lower levels of giving.
  • Given that more than 800 PPFs have been formed on the understanding that donors would maintain significant control over the timing of their distributions, the new regulations represent a breach of trust.

Another problem is that making the contact details of PPFs available to the public would lead to increased requests for funds and, consequently, increased administration costs—resulting in decreased incentives to start a PPF.

While there is an important role for the government and for the market, this should not come at the expense of civil society. The government is right to keep an eye on PPFs to ensure there is no fraud. But unnecessary restrictions on the flexibility of PPFs will only undermine civil society in Australia.

John Humphreys is a Research Fellow with The Centre for Independent Studies.

Latest Publications

Eight Housing Affordability Myths
Stephen Kirchner
10 July 2014 | IA146

Australians are conflicted in their attitude to this long-run change in real house prices because they are both investors in housing as an asset class and consumers of housing services. This conflicted attitude on the part of the public is reflected in confused public policies followed by Australian governments. Unfortunately, many of the policies pursued by Australian governments in the…

Still Damaging and Disturbing: Australian Child Protection Data and the Need for National Adoption Targets
Jeremy Sammut
16 April 2014 | IA145

In December 2013, the Abbott government announced plans to make it easier for Australian parents to adopt children both locally and from overseas. Acknowledging the official ‘taboo’ on adoption in Australia, Prime Minister Tony Abbott ordered an inter-departmental committee to recommend ways to take adoption out of the ‘too-hard’ basket. The chief barrier to raising the number of local adoptions…

Why Jaydon Can’t Read: A Forum on Fixing Literacy
Jennifer Buckingham, Justine Ferrari, Tom Alegounarias
18 February 2014 | IA144

Many thousands of Australian students have very low levels of literacy after spending four or more years at school. The Spring 2014 issue of the CIS journal Policy contained an article called ‘Why Jaydon Can’t Read: How Ideology Triumphed Over Evidence in Teaching Reading’, which concluded that students were not being provided with the most effective evidence-based reading instruction in…

Independent Charities, Independent Regulators: The Future of Not-for-Profit Regulation
Helen Andrews
06 February 2014 | IA143

The Australian Charities and Not-for-Profits Commission was established by the Gillard government in 2012 with the intended purpose of cutting the red tape faced by Australia’s charities. So far, the regulator has failed to make any significant progress on this goal or on its two other main goals: increasing public trust in charities and improving the quality of regulatory oversight…

The New Silence: Family Breakdown and Child Sexual Abuse
Jeremy Sammut
30 January 2014 | IA142

Despite family breakdown exposing children to greater risk of sexual abuse, the issue receives scant attention in this country. Child sexual abuse is not fully and frankly discussed because the public discourse is self-censored by politicians, academics, social service organisations, and the media in compliance with politically correct attitudes towards ‘family diversity’—the socially ‘progressive’ and ‘non-judgmental’ fiction that says the…