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Contribution of the Not-for-Profit Sector

Research report

This research report was released on 11 February 2010.

To assist readers in identifying the key aspects of the Report the Commission has prepared a set of Key Points, a short Fact Sheet and a Summary of Recommendations.

Please note: Appendices B to K are only available online and are not in the printed copy.

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  • Key points
  • Media release
  • Contents
  • The not-for-profit (NFP) sector is large and diverse, with around 600 000 organisations.
    • The ABS has identified 59 000 economically significant NFPs, contributing $43 billion to Australia's GDP, and 8 per cent of employment in 2006-07.
    • The NFP sector has grown strongly with average annual growth of 7.7 per cent from 1999-2000 to 2006-07.
  • 4.6 million volunteers work with NFPs with a wage equivalent value of $15 billion.
    • More Australians are volunteering, but for fewer average hours, so total hours grew only slowly (2 per cent per annum over the 7 years to 2006-07).
    • Most areas have seen a decline in volunteering, although there has been strong growth in volunteers with culture and recreation organisations.
  • The level of understanding among the wider community of the sector's role and contribution is poor and deserves attention. A nationally agreed measurement and evaluation framework would add significantly to this understanding.
  • Current information requirements imposed on NFPs for funding and evaluation purposes are poorly designed and unduly burdensome. Reform is needed to meet 'best practice' principles.
    • A significant advance would be to establish a Centre for Community Service Effectiveness to improve knowledge on good evaluation practice, and assemble and disseminate evaluations based on the agreed measurement framework.
  • The current regulatory framework for the sector is complex, lacks coherence, sufficient transparency, and is costly to NFPs.
    • A national registrar for NFPs should be established to consolidate Commonwealth regulation; register and endorse NFPs for concessional tax status; register cross- jurisdictional fundraising organisations; and provide a single portal for corporate and financial reporting.
  • Legislative proposals to reduce reporting burdens associated with companies limited by guarantee are welcome and needed if more NFPs are to adopt Commonwealth incorporation.
    • A separate chapter in the Corporations Act dealing with NFP companies should be introduced, as should rules on the disposal of assets.
    • More generally, states and territories should seek to harmonise Incorporated Associations legislation in these and other key areas.
  • Jurisdictional and agency differences have also resulted in a lack of consistency and comparability in financial reporting requirements for NFPs. Australian governments should, as a priority, implement the agreed Standard Chart of Accounts.
  • Fundraising legislation differs significantly between jurisdictions, adding to costs incurred by the NFP sector. Harmonisation of fundraising legislation through the adoption of a model act should be an early priority for governments.
  • Enabling the public to provide greater support to a wider group of NFPs is desirable and would be facilitated if deductible gift recipient status were to be progressively extended to all charitable institutions and funds endorsed by the proposed registrar.
    • NFP revenue sources would also be expanded by the promotion and support of payroll giving arrangements.
  • There is potential for greater social innovation but the business planning capabilities and  incentives for collaboration need to be strengthened. Further, there is a need to strengthen the capacity for NFPs to access debt financing for social investment.
  • NFPs and others delivering community services face increasing workforce pressures and long-term planning is required to address future workforce needs.
    • For NFPs, less than full cost funding of many services has resulted in substantial wage gaps for NFP staff. The challenges in retaining staff threaten the sustainability and quality of services. Greater clarity about funding commitment is an important step in addressing these issues.
    • Volunteers play a critical role in delivering NFP services but rising costs are affecting the viability of their engagement. Streamlining of mandatory vetting requirements and investigation of portability between agencies and across jurisdictions would reduce one source of costs.
  • The efficiency and effectiveness of delivery of services by NFPs on behalf of governments is adversely affected by inadequate contracting processes. These include overly prescriptive requirements, increased micro management, requirements to return surplus funds, and inappropriately short-term contracts. Substantial reform of the ways in which governments' engage with and contract NFPs is urgently needed.
    • Australian governments should choose the most appropriate model of engagement, ensure consideration of all costs associated with use of the lead agency model, align the length of contracts with the period required to achieve agreed outcomes, review and streamline their contracting processes and ensure staff involved with NFPs have the required relationship management skills.
  • Some current approaches adopted by governments to the management of the different risks involved in the delivery of services on their behalf are not cost-effective. An explicit risk management framework should be prepared by Government agencies in collaboration with service providers as part of their contracting process.
  • Implementation of government and sector reforms will be best facilitated by a central policy and implementation unit within the Australian government such as through the establishment of a specific Office for NFP Sector Engagement.

Background information

Jenny Gordon (Principal Adviser Research) 02 6240 3296

Paul Lindwall (Assistant Commissioner) 02 6240 3380

Wide Ranging Reforms Needed to Strengthen the Not-for-Profit Sector

There is a need for wide-ranging reforms to remove unnecessary burdens and costs faced by the not-for-profit sector and improve its accountability. This is the key message of a research report released today by the Productivity Commission. Better regulation, improved funding arrangements and enhanced opportunities for innovation would improve outcomes for the community and the public's confidence in the sector.

Putting the Commission's case for reform, Presiding Commissioner, Robert Fitzgerald, said 'the proposed reforms would directly address concerns about the multiplicity of regulatory requirements, poor collaboration between the sector and governments and emerging capacity constraints. They would thereby create a much stronger foundation for this expanding sector'.

To consolidate regulatory oversight and enhance transparency, the Commission proposes a 'one-stop shop' for Commonwealth-based regulation in the form of a Registrar for Community and Charitable Purpose Organisations. An Office for Sector Engagement should also be established to drive reform and policy development at the Commonwealth level.

Associate Commissioner, Dennis Trewin, said 'Australia has 600 000 not-for-profit organisations which contributed $43 billion to Australia's GDP, growing at an annual rate of 7.7 per cent since 2000. If you count the contribution of 4.6 million volunteers, with an imputed value of $15 billion, this would make it a similar contribution to the retail industry'.

The report makes a number of other recommendations aimed at:

  • building a better knowledge base, through a national measurement framework and a Centre for Community Service Effectiveness to act as a clearinghouse to promote best practice evaluation
  • smarter regulation, including a more coherent endorsement process for tax status, to be administered by the proposed Registrar, and a new definition of charities
  • promoting giving through broader scope of gift deductibility, the promotion of planned giving and nationally harmonised fundraising regulation
  • facilitating innovation and sector development through a variety of initiatives
  • reforming government purchasing and contracting arrangements.

The research report was submitted to the Australian Government at the end of January 2010.

Background information

Leonora Nicol (Media, Publications and Web) 02 6240 3239 / 0417 665 443

  • Preliminaries
    Cover, Copyright, Foreword, Terms of reference, Disclosure of interest, Contents, Abbreviations, and Glossary
  • Overview - including key points
  • Recommendations
  • Summary of Recommendations
  • Chapter 1 Introduction
    1.1 What the Commission has been asked to do
    1.2 Context for the study
    1.3 What are not-for-profit organisations?
    1.4 The Commission’s approach to the study
  • Chapter 2 Not-for-profit organisations
    2.1 Are not-for-profit organisations different?
    2.2 Implications for efficiency and effectiveness
    2.3 What drives sector growth and development?
  • Chapter 3 A measurement framework
    3.1 Why measure the contribution of the sector?
    3.2 How do not-for-profits contribute to wellbeing?
    3.3 The proposed measurement framework
    3.4 Techniques for valuing the contribution
  • Chapter 4 Trends and perspectives on the not-for-profit sector
    4.1 What information is available?
    4.2 What does the sector look like?
    4.3 Measuring direct economic contribution
    4.4 Employment
    4.5 Volunteers
    4.6 Funding sources
    4.7 Not-for-profit expenditure
    4.8 Other information on the sector
    4.9 What can be learned?
  • Chapter 5 Improving the knowledge base for the sector
    5.1 Populating the framework for 'macro' measurement
    5.2 Improving approaches to evaluation
  • Chapter 6 Regulation of the not-for-profit sector
    6.1 Is the current regulatory environment working?
    6.2 Is a single national regulator needed?
    6.3 Are legal forms for not-for-profit organisations adequate?
    6.4 Reporting requirements for not-for-profit organisations
    6.5 Fundraising regulation
    6.6 Responsibility for determining concessional tax status
    6.7 Self-regulation
    6.8 A way forward
  • Chapter 7 Taxation, philanthropy and access to capital
    7.1 Taxation arrangements affecting not-for-profits
    7.2 Philanthropic support by individuals and business
    7.3 Access to capital
  • Chapter 8 Competitive neutrality issues
    8.1 Why is competitive neutrality important?
    8.2 Which concessions to not-for-profit organisations raise competitive neutrality concerns?
    8.3 Fringe benefit tax concessions — hospitals
    8.4 Clubs and mutuality
  • Chapter 9 Promoting productivity and social innovation
    9.1 Are NFPs fully productive?
    9.2 What can be done to stimulate productivity growth?
    9.3 Is social innovation constrained?
    9.4 What can be done to stimulate social innovation?
  • Chapter 10 The not-for-profit workforce
    10.1 Volunteers and volunteering
    10.2 Can not-for-profits attract and retain employees?
    10.3 Building the leadership capacity of not-for-profits
  • Chapter 11 Direct government funding
    11.1 What should government fund?
    11.2 How does government fund the sector?
    11.3 Improving the funding relationship between government and not-for-profit organisations
    11.4 Funding not-for-profit organisations for service delivery: is change required?
    11.5 Minimising the costs of funding processes
  • Chapter 12 Delivery of government funded services
    12.1 What are the trends in the delivery of human services?
    12.2 What concerns has the not-for-profit sector raised?
    12.3 What needs to change?
    12.4 Maximising the contribution of NFPs to the delivery of government funded services
  • Chapter 13 Building relationships with business
    13.1 The nature of business engagement with the sector
    13.2 Are there barriers to collaboration?
    13.3 Is there a role for government?
  • Chapter 14 Implementation
    14.1 Institutional change is necessary
    14.2 Sequencing of reforms
    14.3 Cultural change is needed for long-term success
    14.4 State and territory governments need to commit to implementing the government-sector reforms
  • Appendix A Conduct of the study
  • References

Please note: The following appendices are only available online and are not in the printed copy.

  • Appendix B Techniques of social evaluation
  • Appendix C Data on the sector
  • Appendix D Survey of government agencies engaging not-for-profit organisations in the delivery of government services
  • Appendix E Tax concessions
  • Appendix F Definition of charity: charity law
  • Appendix G Taxation treatment of charitable giving
  • Appendix H The impact of extending deductible gift recipient status to all charities
  • Appendix I A case study of social housing
  • Appendix J Not-for-profit sector feedback: government funded services
  • Appendix K Recommendations from previous reviews

Printed copies

This report is available only on the website.

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