2019 Grace Groom Memorial Oration
Speech
Commissioner Stephen King delivered the 2019 Grace Groom Memorial Oration for Mental Health Australia at the National Press Club of Australia in Canberra on Monday 25 November 2019.
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Introduction
Dr Grace Groom was Chief Executive Officer of the Mental Health Council of Australia from 2002 to 2005.
She passed away in 2006, leaving an exceptional legacy of research and advocacy for mental health reform.
For example, I was reading back through a paper that Dr Groom wrote with Professor Ian Hickie and Ms Tracey Davenport in 2004 called “Investing in Australia’s future: the personal, social and economic benefits of good mental health”.1 The paper presents both a critique of the mental health system and discusses the need for an economic approach to reform. It is testament to the insight shown in that paper, and the slow pace of reform, that many of the criticism remain valid today.
And what of the economic approach to reform canvassed in the paper?
Well, fifteen years later, the Productivity Commission is considering this approach, looking at both the economic costs of mental ill-health to Australia and formulating a range of reforms that can underpin a consumer-focussed mental health system that includes, but goes well beyond, clinical care.
2006, the year that Dr Groom passed away, was also the year that the Better Access program was introduced in Australia.
It is worth remembering that in the early 2000s services by GPs and psychiatrists attracted the bulk of Commonwealth government mental health funding. Psychological therapies were not covered by Medicare. In contrast, today “[a]pproximately 1.3 million people … receive MBS-rebated sessions of face-to-face psychological therapy … each year”.2 That is 1.3 million people each year who can thank Dr Groom, among others, for successfully arguing for this reform.
However, it was recognised in the 2000s, as it is recognised today, that preventing mental illness and promoting recovery extends well beyond adding psychological strategies to Medicare.
In a 2004 article in the Sydney Morning Herald, Jo Lammersma, at that time the secretary of the Royal Australian and New Zealand College of Psychiatrists, is quoted as saying that:
"It is almost too difficult to grasp the enormous need out there ... the incredible burden of mental health on our population ... and the toll of that on patients, on their families, their friends, their workplaces, and the pressure they put on the health system".3
The same article quotes Dr Groom reflecting on the economic benefits of consumer-centred care:
"If people could access non-pharmacological care quite early in their disorder or illness, they won't be experiencing days out of the workforce ... there would be cost savings there for government, not just in the hospital system but also the welfare system".4
Tonight, it is an honour for me to present the 2019 Grace Groom Oration.
The Productivity Commission’s draft mental health inquiry report
The Productivity Commission released its draft report on mental health almost one month ago, on October 31st. Our focus is on consumer-centred care, on prevention and early intervention, and on providing support – both clinical and psycho-social support – for those who need it, not just through the health system, but where and when it is needed, with schools, tertiary institutions and workplaces providing effective gateways to support.
We have received significant feedback on our inquiry draft report, much, but not all, of it supportive. However, I want to emphasise the word ‘draft’. We welcome feedback on the draft report and acknowledge that we still have significant work to do before presenting our final report to the Commonwealth Government in late May next year.
In this talk, I would like to consider some of the issues raised in the draft report.
Do not worry, I am not about to start reading through the one thousand two hundred and something pages. Even going through our draft recommendations and findings in full would take far longer than my allotted time. But I do want to touch on some select areas raised in the feedback we have received so far.
Designing a consumer-centred mental health system
First, let me clarify where we, at the Productivity Commission, add value.
Our expertise is in system design, in incentives, and in the development of robust institutions that can underpin service provision, even when the relevant bits of the system cut across multiple sectors and reflect the approaches of multiple governments.
And that is what we have presented in our inquiry draft report.
Our draft recommendations start at the individual – the consumer – and build a system that will focus on that consumer. It builds outwards, including the support network for the consumer: family, carers and friends. It considers the range of services – both clinical and community – that can support the consumer, recognising that those services will differ between individuals and between regions. We consider the institutions to provide those services where and when the consumer requires them and the gateways to provide access to those services. We consider the institutions that can fund and govern those services, and the strategies and mechanisms to enable coordination across government.
Our draft report presents recommendations to build a consumer-centred mental health system.
Some organisations have been disappointed that the Productivity Commission – a group of people without significant clinical or psycho-social expertise – have not recommended specific clinical or psycho-social programs or approaches.
“The evidence is in” some claim.
“Good” we reply. “Then the evidence can be confirmed by an independent third party and the programs or approaches placed with a group of other verified approaches that can be implemented at a regional level if they are appropriate and best meet consumer needs”.
So, we have recommended that the National Mental Health Commission be expanded to evaluate mental health programs. We have presented alternative regional approaches to make sure the right programs are funded and available at a local level. And our draft recommendations aim to make sure that local decisions are consumer-led.
We think that this approach needs to extend to all programs over time, including those that are currently funded. No program should be exempt from evaluation. And any current program that is effective and meets consumer needs has nothing to fear from that evaluation.
Others wanted more radical change. “Where is the revolution?” they ask.
The desire for revolution, to tear down the existing system and start again, is understandable, and reflects justifiable frustration at the pace of progress in mental health reform. But I would suggest that we want strong foundations, not revolution. We want the base on which to build a sustainable, consumer-centred mental health system. That is what the Productivity Commission has tried to do in the inquiry draft report. By design, it is a foundation for the future.
The vision of a consumer-centred mental health system
Let me turn to the Productivity Commission’s vision.
In 2004, a remarkable economist, Jean-Jacques Laffont, passed away. I was fortunate enough to be taught by Jean-Jacques. He was an extraordinary technical economist who regularly provided policy advice to the EU.
I remember being in one of his classes. Jean-Jacques had just completed a board full of mathematics – and it was still blackboards in those days. A fellow student and I were sitting there puzzled. We had followed the mathematics and the result was startling. But we wanted more to help us understand the underlying principles of the result.
“Excuse me Professor Laffont” my colleague asked. “What is the underlying logic for that result?”
Jean-Jacques looked at us – brows furrowed. He looked back at the blackboard. He looked back at us.
“It is there,” he responded.
Following the release of our draft report, I think I better understand Professor Laffont’s reaction.
We have been asked on a number of occasions about our report, “Where is the vision?”. Like Jean-Jacques, I turn to our report and say “It is there”.
The vision is embedded in the two volumes of the draft report and summarised in the overview and recommendations.
But I think the question is a reasonable one. We should be clearer.
Let me try and rectify that.
Our vision is for a consumer-centred system. But what does this mean?
From an economics perspective, the answer is easy. Any service that is not valued by the consumer who uses that service has no value. Or to put it the other way, the only value of a service to support mental health is the value as perceived by the consumer.
That value can be reflected in measurable ways. For example, improved health, as perceived by the consumer, may be reflected through a lower need for health services in the future, by increased economic and social participation by the consumer and their support network, or by a measurable increase in quality of life. The value may be gauged by asking the consumer, for example by using patient-reported outcome and experience measures, PREMs and PROMs. Using some of these measures, the Productivity Commission estimated the cost of mental ill-health in Australia at around $180 billion per year, or $500 million per day.
But these are all imperfect measures. The value, the gain, is the outcome for the consumer.
For those outside economics, this approach can be confronting.
It means asking the consumers, and the carers who are chosen by the consumers, what they want. What are their aims and objectives? What do they want to achieve? It means advising rather than telling. It means ensuring that consumers have the information that they need about services, their effectiveness and quality, to enable them to make decisions.
And for people, often who have many years of training and experience, it means recognising that despite their expertise, their knowledge only has value to the degree that it achieves what the consumers want.
So how do we introduce consumer control and empowerment?
One approach would be to use an NDIS-style ‘package’ approach. But the NDIS experience shows the limitations with this approach, with the potential for significant transition issues. We have not recommended this approach for broader mental health – but are happy to hear from people who think that we should.
Instead, the approach the Productivity Commission has taken is to make draft recommendations that place the consumer at the heart of care.
This means recognising that consumers want a range of supports. A key element of these supports are carers, family and friends – the consumer’s support network. This network centres on the consumer and itself needs appropriate support. So, we have made draft recommendations to improve this support, for example, through advocacy and carer and consumer payments.
The availability of psycho-social and clinical supports is another element. Consumers should be able to choose the approach to care that best meets their needs. The options cannot be unlimited. So, as already mentioned, through the NMHC and regional commissioning, we recommend an approach that will provide consumers with access to a range of evidence-based services. We have also developed a stepped-care model that can help match consumer requirements with the necessary psycho-social and clinical services.
Consumers can only choose if they have options. So, we have a range of draft recommendations to increase the options available to consumers across the health continuum. These include low intensity treatment options through different modes of access including video, internet, text or face-to-face services. They include increased after-hours services – both peer-led and clinician-led — and service provision that takes account of the cultural diversity of Australians and the fact that many people who need help do not live within easy access of the necessary services and often need help outside of normal work hours. The draft recommendations also include increased options for in-community housing and supports to participate in education and employment.
Consumers can only choose if they are aware of the options and can access independent advice. So, we have recommended that consumers and carers have more information about their options. We have recommended formal care coordination, navigation and support to empower consumers. We have recommended consumer-centred care plans. And we would like more feedback as to whether consumers should have a formal right over their health data, to help them get independent advice.
Choice is only feasible if there is the workforce to deliver the services. So, we have a range of draft reforms covering workforce, including the clinical workforce and, more importantly, the peer workforce. And we recommend the creation of a workforce strategy, so that the development of tomorrow’s culturally capable workforce will begin today.
Some groups of consumers have specific service requirements, and our draft report recognises this. In particular, we recognise that Aboriginal and Torres Strait Islander people often want the option to choose services delivered by indigenous providers. Where possible, that option should be provided.
The best designed health system will fail if it is not accessible. Consumers access the mental health system through many doors. Our draft recommendations aim to ensure that these doors are effective. For many consumers, their GP is the door, and we have draft recommendations to improve GP services, including clarifying consumer choice and providing the means by which family and carers could be included in the conversation. But schools, tertiary institutions and workplaces are also doors. And the doorways extend back in a consumers’ life to perinatal and early childhood. Our draft recommendations consider each of these doors. These doors need to be responsive, focussing on prevention and enabling early intervention.
But doors provide no passage if consumers are dissuaded from using them. Unfortunately, that is exactly what occurs in Australian society. Stigma creates a barrier to care. It undermines choice and creates fear. It means that consumers who want care face explicit and implicit incentives not to seek that care. They will be labelled. They will face discrimination. They will be isolated. And through mechanisms such as our insurance system, they will carry these labels for life.
The Australian mental health system will never succeed if it is undermined by stigma and discrimination. So, our draft recommendations focus on stigma reduction at a national level, as well as raising awareness at a local level, for example through suicide awareness and workplace practices.
Are our draft recommendations perfect and complete? Of course not. It is a draft.
We thank the many people who have helped to identify gaps and limitations in our current draft recommendations. And we look forward to working together to improve those recommendations in our final report, with a shared vision of a consumer-centred mental health system.
The role of psycho-social supports
Finally, let me turn to the role of psycho-social supports in a consumer-centred mental health system.
Since the draft report was released, we have received feedback that our recommendations are too clinically focussed.
“Where are the in-community, psycho-social supports”, we have been asked.
And going back through our draft recommendations and findings, I completely understand that perspective. But it has led to the perception that the Productivity Commission places clinical treatment above other supports. Let me state quite clearly – that perception is false.
The consumer-centred system that we have designed in our draft report recognises that clinical supports and psycho-social supports are inseparable and interdependent. They are two sides of the same coin. They must be balanced and one cannot and should not be placed above the other. It is not an ‘either/or’ choice. Without both clinical and psycho-social supports, and the ability of the consumer to choose the services that best meet their needs, there can be no consumer-centred care.
For example, hospital care will fail without the psycho-social supports to enable consumers to access the services that they need to flourish in the community. Without those supports the consumer will end up on a clinical merry-go-round with no choice, no empowerment and no recovery.
Similarly, therapeutic care in community will not succeed if the consumer simply leaves the clinician to return to the stress and trauma that led to them requiring care in the first place. But equally, in-community supports will fail unless clinical care is available when and where it is needed, to minimise the clinical symptoms of mental ill-health, when the consumer wants assistance. Housing first does not mean only housing. Employment assistance will fail without the clinical safety net.
The Productivity Commission has made draft recommendations around support services, but I recognise that there are fewer of these than those relating to clinical care. The reason for this is simple. There is a clinical care system in place for mental health. It has many gaps. It has numerous failings. But it does have the key components of a coherent system and we have made recommendations to try and fill the gaps and eliminate the failings.
By contrast, there is no coherent psycho-social support system in place for mental health in Australia. Rather there are a disparate group of services that are funded and defunded with little logic, where service providers face numerous funders all with differing reporting needs and the only consistency is the short-term nature of the contracts. There is no coherent system where we can make draft recommendations to fill gaps. There are gaps everywhere. And we cannot make recommendations to fix specific failings. The failure is the lack of the coherent system.
So, our recommendations around psycho-social supports are to establish a system. Establish a national strategy that can underpin regional service commissioning. Establish systematic evaluation so that the right services can be offered in the right places. Coordinate local funding and work with consumers, carers and service providers to offer a stable set of supports.
The Productivity Commission’s draft recommendations for psycho-social supports are much broader than those for the clinical services. But they are at a different level and, as a result, they may be less obvious– because we need to establish, not simply reform, a system.
Conclusion
We are on a long journey to improve mental health in Australia. Tonight, we remember the work of Grace Groom and other pioneers who have been part of this journey. But there is much work to be done.
At the Productivity Commission, we are grateful to be part of this journey. We thank the many people who informed and inspired us as we prepared our draft mental health inquiry report. In particular, we thank the consumers and carers who have told us their stories, and in doing so, have helped us to understand both the many failings of Australia’s current mental health system and how things can be improved. And we thank Mental Health Australia for providing assistance, guidance and support during our inquiry process.
But we are not done yet.
We have already heard from many of you about our draft report, but we need to hear from many more.
Through our draft recommendations, the Productivity Commission has worked to develop the strong foundations for a consumer-centred mental health system. Now we need your feedback. Let us know where we need to do more work before presenting our final recommendations to government in May next year. In particular, what are the implementable recommendations that we need to make to the government that are missing in our draft report? And why will they improve the outcomes for consumers?
Remember, however, that the final Productivity Commission inquiry report is not the end of the long journey. It is simply a step on the journey. It is an important step, but it will come to nought if our recommendations are not accepted and implemented by government. And reform will only occur if those who will benefit get behind the reform process.
So, my colleagues at the Productivity Commission and I look forward to the next part of our inquiry. We look forward to hearing from you, through hearings, roundtables and submissions. We look forward to learning more, from your experience and knowledge. And we look forward to refining our draft report to create a set of final recommendations to government that will lead to a consumer-centred mental health system.
Thank you.
Hickie, I., G. Groom and T. Davenport (2004) “Investing in Australia’s future: the personal, social and economic benefits of good mental health”, Mental Health Council of Australia, Canberra, December
Footnotes
1 Hickie, I., G. Groom and T. Davenport (2004) “Investing in Australia’s future: the personal, social and economic benefits of good mental health”, Mental Health Council of Australia, Canberra, December Return to text
2 Productivity Commission (2019) “Mental Health, Draft Report”, Canberra, October, p.20. Return to text
3 Sydney Morning Herald (2004) “Change of mind” January 15. Return to text
4 Ibid. Return to text
Speech
Deputy Chair Alex Robson delivered a speech to the Queensland University of Technology (QUT) on the Philanthropy draft report.
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Introduction
Thank you for the invitation to speak today.
I want to begin by thanking Craig Furneaux and Wendy Scaife for their work in arranging this event. I would also like to acknowledge the value of the work of academic research centres like ACPNS and others - and how the work of people likes Myles McGregor-Lowndes and his colleagues at QUT has been so influential in informing policy development in this area.
Today I would like to discuss some of the analysis and recommendations in our draft Productivity Commission report on philanthropy, entitled Future Foundations for Giving.
The terms of reference for the inquiry are wide ranging: from tax deductibility of donations to regulation; from motivations and trends for giving, to the effectiveness of philanthropy. And all in the context of the Government’s goal of doubling giving by 2030.
It is certainly the most comprehensive inquiry into philanthropy undertaken by a government body in Australia, and quite possibly beyond Australia as well. It builds on the work of those before us – the Not-for-profit Tax Concession Working Group in 2012-13, and of course the Commission’s own 2010 study into the not-for-profit sector.
The draft report
There is a lot to cover, and I will not be able to discuss all of the recommendations in detail in the draft report.
Instead, I will discuss some of the report’s big themes and explore some of the “thinking behind the thinking” that the Commission has been engaged in over the past year.
I will begin with a quote from Steve Landsburg, author of The Armchair Economist, who has long been one of my favourite authors.
Landsburg once said: “A few lines of reasoning can change the way we see the world.”
That will be the spirit of my remarks today.
The draft report focuses on three main areas which are designed to establish firm foundations for the future of philanthropy so the benefits of giving can be realised across Australia. The three main areas of reform are:
- DGR system reform: refocusing which charities can receive tax-deductible donations to help donors direct support to where there is likely to be the greatest net benefits to the community as a whole.
- Regulation: bolstering the regulatory system by enhancing the ACNC’s powers and creating regulatory architecture to improve coordination and information sharing among regulators.
- Information: improving public information on charities and giving to support donor choice and accountability.
The Commission's draft report did not recommend removing the charitable status of any entity or class of entities.
Motives for giving are diverse, and religious faith matters
But first, stepping back a bit, it is important to note that philanthropy generally involves the voluntary giving of money, time, information, goods and services, influence and voice to improve the wellbeing of others.
Given this definition, one fact that immediately emerges from the research on giving is that people and organisations can have complex and multifaceted reasons for giving – and these reasons can change over time.
Some motivations for giving are highly personal, such as those associated with an individual or family experiences or connection to religious faith or culture; while others are broader, such as wanting to make a difference or out of a sense of obligation.
Contrary to some recent public commentary, our report explicitly recognises the fact that religious charities in their diverse forms play an important and valued role in the lives of many Australians.
We also very clearly and explicitly note the fact religious faith and values can and do provide inspiration for donating and undertaking a range of charitable activities.
And we firmly believe some of our recommended reforms will make it easier for religious charities to contribute to the community and building social capital.
Given this diversity of motives for individual giving, our draft report looked at broader structural policy levers that, given these motives, would potentially alter incentives for giving.
Information is king
Any consideration of a policy lever needs to acknowledge the fact that philanthropic giving is not a conventional market with price signals, or where goods and services are exchanged for financial benefit.
While donors motivations for giving are quite diverse, due to absence of conventional price signals, and in the absence of other institutional arrangements, donors lack the information about which recipients are in the greatest need.
Institutions – charities – have sprung up spontaneously in order to address these informational barriers.
From a pure economic point of view, the role of a ‘good’ charity is to act as an intermediary between donors and final recipients, reducing the informational barriers and matching donor preferences and dollars with the needs of final recipients.
In doing so, a charity combines all the different inputs involved – money, people (including volunteers, importantly), knowledge and expertise, to deliver impact and benefit the community through furthering its charitable purposes.
The broader point is that information is king, and philanthropic networks are very important.
Overall, the information flows in the Australian philanthropic sector seem to work pretty well. But sometimes, like any market in economics, things can go wrong. And this leads me to my next point.
There is a case for government support of philanthropy
One of the first questions we grappled with in the report was whether there was a case for government support for philanthropy.
The Productivity Commission is the Australian Government’s independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of Australians.
We apply robust, transparent analysis and we adopt a community-wide perspective. Our independence is underpinned by the Productivity Commission Act (1998) and our processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole.
So our primary ‘client’ – for want of a better term – is the government.
If there was no role for government in philanthropy, we would have written a very short report!
But for various reasons, we think that there is a clear role for government support.
One role relates purely to resource allocation.
Markets and governments provide many goods and services, but there will always be gaps.
Philanthropy can provide funding for activities that the community values and constraints on governments mean it would otherwise be underfunded, or not funded at all.
By supporting philanthropy, government is indirectly helping to fill some of these gaps. This enables governments to focus on other priorities.
Second, acts of philanthropy can contribute to social capital – capital that benefits the community but would otherwise be underprovided. Social capital can have public good characteristics, and this immediately raises the possibility of government support.
Finally, philanthropy can be a source of risk capital and patient capital, in many situations where governments cannot.
It can also be a source of policy and program innovation, an incubator for addressing social challenges which, if successful, can be replicated and scaled up by governments.
And, if the innovation fails, it can provide important lessons for government about why certain programs or policies may not have worked.
In that sense, philanthropy can make a broader contribution to how we grapple with complex issues we confront as a society.
Incentives matter
Accepting that there is a role for government support of philanthropy, what might that support look like?
The first thing to note is that in Australia, most charity revenue comes from government grants and contracts.
Of the nearly $200 billion in revenue received by the sector in 2021, only about $13 billion came from donations from philanthropic donations from individuals, corporates, giving vehicles and bequests.
Our report focuses on this $13bn slice, but it is important to keep the broader context in mind, particularly the interactions between government grants and donations and whether grants tend to crowd in our crowd out voluntary donations.
So what are the policy tools available to governments to influence individual donations?
The major policy lever is our deductible gift recipient (DGR) system.
Under this system, individuals can claim a tax deduction for a donation, as long as that donation is given to a charity which has been granted DGR status. In 2019-20, 4.4 million Australians claimed $3.9 billion in tax deductions for donations.
But not all charities have DGR status.
So the DGR system really consists of two policy levers:
- The design of the deduction. Under the current system, the benefit to an individual taxpayer depends on the marginal tax rate that they face. Under our graduated tax system, higher income earners face higher marginal rates, and so face a lower tax price. But this is unlike any other deduction, because the more that is given, the more benefit is provided to the more marginalised and disadvantaged in our community, and the more we build social capital. It also means that the government – actually, other taxpayers - are shareholders or silent partners in billions of dollars’ worth of programs each and every year. So one policy question is: does this system incentivise more giving than would otherwise be the case, and what is the cost to revenue?
- The scope of the deduction: which charities should be able to access DGR donations?
On the first question, our estimates, using a very large data set from the ATO, give a very clear answer: the DGR tax incentive works, in the sense that thanks to the deduction, there is more individual giving in Australia than would otherwise be the case.
Trade-offs matter: incentives are not free
One way of viewing the tax deduction is in the context of the incomplete, asymmetric information that I discussed earlier: government is providing a signal to donors, putting an explicit social value on donations where no such market price exists, as a way of guiding individual behaviour.
Given that the tax deduction incentives additional giving, the next question is: how could its design be improved?
And one of the main issues here is that each time someone claims a deduction, there is less revenue available for other government priorities.
This raises the question of treasury efficiency: when considering a change in the deduction, would the increase in giving outweigh the loss in revenue?
To take an extreme, hypothetical example: one very simple way of doubling individual giving would be to have a very high tax deduction of (say) 300%.
But while giving would undoubtedly increase under such a system, the risk is that this would come with a very large revenue cost.
Individuals facing higher marginal tax rates (a low tax price) might tend to give more, but the revenue foregone could be large. The net incremental gain could be very low - even negative.
The broader point is that a change in policy in this area – just like other areas – is not free. There are benefits and costs, there is no free lunch.
It is also important to note, however, whether a tax deduction for giving is treasury efficient or inefficient is not the only factor to consider when designing a policy to incentivise giving.
Treasury efficiency only considers the total value of giving relative to forgone revenue – it does not account for the costs and benefits of giving or the other uses of forgone revenue.
- It does not consider the benefits that may flow from additional philanthropic giving that is incentivised by the tax deduction, including improved social capital.
- In some cases, the efficacy of delivering support through government grants – as an alternative to a tax deduction – may be reduced by government having imperfect information and the administrative costs to government and charities of managing grants programs.
- Giving to some organisations or programs will generate greater net benefits to the community than others (although assessing this can be highly subjective).
Our statistical analysis, again using a large ATO data set, does not suggest a strong case for changing the basic design features of the deduction based on the concept of treasury efficiency.
Individuals are responsive to the deduction, but they do not appear to be so responsive that the increase in giving that would flow from a more generous deduction would outweigh the loss in revenue.
The DGR system is broken
This then led us to the second policy lever of the DGR system: its scope.
And it is here that we found a system that was not fit for purpose.
Our report finds that there is no coherent policy rationale for why certain charities are eligible for DGR status, while others miss out.
- DGR eligibility requirements can inadvertently limit access for some smaller charities, which also tend to be more reliant on volunteers.
- The complexity of the system continues to increase as new DGR categories are added in a piecemeal manner.
- Charities that have multiple purposes may need DGR endorsement for each eligible activity, so accessing DGR status can be complex.
On other hand, we have had some feedback that reforming the DGR system has little relevance to the goal of increasing giving.
With respect, the Commission firmly disagrees.
While we take no position on the goal of doubling giving as a policy objective, we do think that in a system which lacks firm policy foundations, should the doubling goal be realised, there is a material risk that the current inefficient, inconsistent and unfair outcomes for charities, donors and the community could also rise. Therefore – and particularly in light of the doubling giving goal – we think that reform of the DGR system is clearly needed.
The system could and should work in a much better way, and that the scope of the reformed DGR system should be based on the following principles:
- There is a rationale for Australian Government support because the activity has net community-wide benefits and would otherwise be undersupplied.
- There are net benefits from providing Australian Government support for the activity through subsidising philanthropy.
- There is unlikely to be a close nexus between donors and beneficiaries, such as the material risk of substitution between fees and donations.
The Commission used the principles to assess classes of charitable activities, not individual charities. Applying the principles means that most, but not all classes of activities, would be eligible for DGR status. We refer to classes of activities, rather than purposes, because governments subsidise activities rather than purposes.
The deductible gift recipient (DGR) proposed reforms would have four possible outcomes for charities:
- Charities retaining DGR status: Most charities that currently do have DGR status, including public benevolent institutions, health promotion charities, animal welfare, environmental, cultural and formal higher education charities. More than 20,000 charities are in this group.
- Charities not gaining DGR status: Charities undertaking activities including advancing religion, advancing industry, as well as some aged care, childcare and education charities would remain outside the DGR system. About 15,000 to 20,000 charities are in this group.
- Charities gaining DGR status: Charities that currently do not have DGR status, such as those focused on advocacy and prevention, a wider range of animal welfare charities and many local community-based grassroots charities run solely by volunteers. An estimated 10,000 to 20,000 charities could gain DGR status.
- Charities with DGR status withdrawn: Mainly charities that have DGR status for school building funds or to provide religious education in government schools. Fewer than 5,000 charities are in this group.
Initial responses to the draft report have predominantly focused on the reforms to the DGR system. We have received a high volume of feedback centred around entities that will have their DGR status withdrawn. There has also been support for broadening eligibility for DGR status, including those engaged in advocacy and prevention activities.
The Commission’s draft recommendation on school building funds would apply equally to government, non-government, secular and religious education providers.
While there are sound reasons for governments to support the provision of school infrastructure, the Commission’s preliminary view is that providing tax deductions for donations for school buildings is unlikely to be the best way to direct support to where it is needed most.
There are several possible alternatives that could be considered, including, for example:
- a new and separate capped tax deduction
- a system of government funded matching grants which give explicit regard to private donations
- a system of capital grants that are designed in a similar way to Gonski recurrent funding
- making more use of arm’s length entities that receive donations (which could be tax deductible under specified circumstances) and which distribute them according to equity and other criteria
- inserting a clause in school building funds to require providing access to facilities by community groups, to reduce the relative incidence of private benefits as occurred for Building the Education Revolution funding.
Submissions have also focused on the Commission’s recommendation that the status quo be maintained for entities whose sole charitable purpose is advancing religion. Currently these entities do not have access to DGR status.
As I said earlier, contrary to much of the media commentary, the Commission explicitly recognises that religious charities play an important and valued role in the lives of many Australians. Religious faith and values can and do provide inspiration for donating and undertaking a range of charitable activities.
The contribution that such entities make in the community is one reason why they are already able to access some tax concessions associated with their status as charities, such as an income tax exemption.
The Commission has not recommended any changes to these other tax concessions, nor to the charitable status of religious organisations. However, the Commission did not find a strong policy rationale, in terms of net additional community benefits, for changing the status quo and expanding DGR to charities with the sole purpose of advancing religion.
On the other hand, some charities with the advancing religion subtype already undertake additional, separate charitable activities (such as advancing social and public welfare).
Under the Commission’s proposed reforms, which would expand the scope of DGR, these entities could gain DGR status more easily for these other, separate activities, which are shaped by a religious ethos and values.
For example, a local community based religious organisation whose activities also include providing support for those experiencing disadvantage, could obtain DGR status for those activities which advance social and public welfare without the need to set up a whole new entity and obtain public benevolent institution status.
There are also charities with a religious ethos currently endorsed as DGRs, such as public benevolent institutions working to address disadvantage. They would continue to be eligible for DGR status.
Ancillary funds: what exactly do they do?
A related contribution of the draft report is our thinking on so-called structured giving vehicles, which enable donors to structure their giving over time.
One such vehicle, an ancillary fund, is a trust set up and maintained solely for the purpose of providing money, property or benefits to entities with DGR status.
These funds have been accounting for a large slice of philanthropic giving over time, so it is important to understand how they work and the policy tradeoffs that are involved in their design.
Giving into private and public ancillary funds has grown both in value (from $692 million in 2011-12 to $2.4 billion in 2020-21) and as a share of giving by individuals (donations to private ancillary funds have grown from 15% to 27% of individual giving).
As a result, ancillary funds have accumulated a pool of net assets that has grown from $4.6 billion in 2011-12 to $16.4 billion in 2020-21.
Although donations to an ancillary fund are tax deductible, it does not undertake charitable work itself.
Instead, it acts as an intermediary between donors and entities with DGR status that do undertake such work.
Ancillary funds encourage philanthropy by allowing donors to receive an upfront tax deduction for gifts that are distributed over time to entities with DGR status that undertake charitable work.
In the course of putting together our draft report, we found that hardly any good analytical thinking had gone into the tradeoffs involved in the design of the main policy lever that governments have to ensure that there is a reasonable and steady flow of money from ancillary funds to charities, so that it can be used to provide benefits for the community – the minimum distribution.
Guidelines made under the Taxation Administration Act 1953 (Cth) require funds to make a minimum distribution each financial year to type 1 DGRs. For private ancillary funds the minimum distribution is the greater of $11,000 or 5% of the fund’s net asset value.
One question is whether this minimum distribution rate is appropriate.
A key point in our draft report is that rules around distribution rates can potentially alter the timing of flows out of ancillary funds – in the draft report we noted that a higher minimum distribution rate will bring disbursements forward in time, with the opportunity cost that fewer funds are available for the future.
Charities with a certain purpose may prefer to receive funds earlier rather than later and others may prefer existing funds to build up over time to be deployed in later years.
And there is little information available on charities’ rate of time preference.
Given this, changing minimum distribution rates is likely to have both costs and benefits. In addition, changing distribution rates may alter incentives for people to donate, as well as the investment strategies of the funds themselves.
In the draft report, we discussed whether the current minimum distribution rate produces a reasonable flow of donations from the philanthropic sector to charities, but did not make a recommendation to raise or lower the rate.
Instead, we have sought further views on what minimum distribution rate would maximise the net benefits to the community, and the possible outcomes of a change to the minimum distribution rate.
Conclusion: the role of philanthropy
I will conclude with some reflections on the role of philanthropy.
Notwithstanding the case for government support, a major theme in the draft report is that government policy changes have their own limitations, and the philanthropic sector itself has an important role to play in shaping its own evolution over the years and decades ahead.
There is no doubt that government action has advantages in certain situations: it has big policy levers like tax and regulation.
But many proposals for government intervention could be replicated, at least in a partial sense, by philanthropy itself.
For example, throughout the inquiry we heard calls for governments to grant a tax deduction for costs incurred by volunteers – for example, a deduction for travel and other costs.
And there is no doubt that these costs can be significant and could deter some individuals from volunteering. But given the complexities, the integrity risks and the potential revenue cost, is such a change warranted? Again, it comes back to benefits and costs, about which we know very little.
During the public hearings I made the point that such a scheme could be replicated by an innovative philanthropist. A donor could say to a charity: I will give you a grant that explicitly covers the travel costs of your volunteers. The results of such a trial – the cost, whether it encouraged more volunteering, and so on – would be very interesting and informative for policy.
And remember, such a trial would not be without government support: as a result of the tax deduction available under our DGR system, the government – actually, other taxpayers – are shareholders or silent partners in billions of dollars’ worth of such programs each and every year.
Similarly, just as government and philanthropy can act alone to support giving, they can also work together to address complex social and environmental problems.
If government can engage with philanthropy in such a way as ‘crowd in’ funding for activities that government may not be able or willing to fund alone, then there would likely be clear benefits from such collaboration.
Conversely, philanthropy has an incentive to engage with government to leverage its ability to deliver programs at scale.
In light of these potential gains from cooperation, both government and philanthropy should consider how they can coordinate their respective contributions more effectively to enhance outcomes for the community, especially given the different characteristics of government and philanthropic funding.
The Commission is proposing, for example, that Australian, state, territory and local governments more actively consider how changes to policies and programs would affect volunteers.
We think that Governments should, for example, consider from the outset how major reforms (such as the NDIS) may affect the demand for – and supply of – volunteers (like in the disability sector), and what steps could be taken to facilitate or ‘crowd in’ volunteer contributions, rather than crowding them out.
The broader point is that philanthropy has important role to play, both in its own and in collaboration with government – it’s not just always about government action alone.
And it’s not just about the amount of giving, but also the way in which philanthropy is practiced – for example, more flexible or untied grants are likely to be worth more to a charity than a restricted one. The extent to which philanthropy evolves, changes its funding practices, looks at the way it innovates, and so on, will be important over the decades ahead.
Thank you for listening and I look forward to your questions.
