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Wednesday, 29 October 1997
Page: 8303


Senator MacGIBBON(11.24 a.m.) —I wish to limit myself by concentrating on one section of the Taxation Laws Amendment Bill (No. 4) , and that is the measures to address tax avoidance through tax exempt entities distributing funds offshore.

This bill, as it relates to charities, proposes measures which were announced in the 1996-97 budget. The Treasurer (Mr Costello) announced that the government intended to introduce legislation to counter tax avoidance through the use of tax exempt bodies distributing funds offshore. When the exposure draft of this legislation was released, there was a great deal of concern from this sector; however, changes were made where possible to take account of those concerns.

The reason I want to speak on this bill is because, together with my staff, I have taken a very active role on behalf of the charitable sector in presenting their case to the Treasurer and Treasury officials. Those efforts have resulted in changes that the government has made to this bill.  I want to put on record publicly my thanks to the Treasury officials for the very willing cooperation they gave me on this matter. They could not have done more.

The government has made it very clear that any distribution of funds received from donations, gifts, offerings, `plate money' and donations of that nature will not affect an organisation's tax exempt status. That has removed a most valid concern which was held by quite a number of organisations and churches.

The other area of great concern was in relation to charitable trusts. In terms of charitable trusts, the government has taken the necessary steps to ensure that as far as possible bona fide organisations will not lose their tax exemption. The charitable trust sector is a very important sector operating under the philanthropic umbrella. Trust law at the best of times is complex, and it is very necessary that in taking steps to curb avoidance we do not at the same time make it unattractive for people to become involved in the provision of funding through this particular vehicle.

The bill also makes it clear that organisations based in Australia will not be affected by the measures proposed as long as they incur their expenditure and pursue their objectives principally within Australia.

This clear statement of the intention of the legislation again should serve to allay the concerns of many organisations around the country who, in the course of their activities, undertake or are involved in some overseas work.

This legislation is about stopping tax avoidance. It is not about curtailing the donation of moneys to overseas causes. It is about ensuring that the causes to which a trust donates are real and bona fide—causes that are recognised by this and other governments through section 78 of the tax act.

Having given those assurances, I will certainly be watching this legislation to ensure that its effect in practice washes over only those for whom the bill was intended. These elements are a small part of the philanthropic activity in Australia, an area which is very wide and in which we make a great national contribution.

When people think of philanthropic activity they tend to think of the compassionate element—the relief of suffering, pain and distress in members of the community—and that, I think, is at the heart of philanthropic activity in Australia. But philanthropic activity covers a much wider field now. It covers a great part of education, it covers the arts and it covers sports. Those last three elements are a larger part than the compassionate element of philanthropy which most people associate with the philanthropic sector.

The philanthropic sector is very important to Australia. As Rousseau said:

Compassion is a natural feeling which, by moderating the violence of love of self in each individual, contributes to the preservation of the whole species. It is this compassion that hurries us without reflection to the relief of those who are in distress.

Philanthropy is an area where we do make a great national effort, and very few people recognise the scale of the effort that Australians put into it. It is an industry that involves over $5 billion per year, and probably the major part of that—over 50 per cent—comes from governments at all levels, both directly through tax concessions for donations, wholesale sales tax exemptions and fringe benefits tax exemptions and indirectly in the form of rate concessions and other concessions by local governments. So the government does have a direct interest in the philanthropic sector as a donor, and it has a duty of care to those who support philanthropic activities in ensuring that funds play a worthwhile and effective role.

We have over 100,000 employees in the philanthropic sector in Australia, and Australians collectively contribute more than 95 million man-hours of voluntary labour each year to philanthropic activities. From this, we derive very great social benefits.

I would argue that, for very small changes in the way we approach the philanthropic sector, we could get even greater benefits. I believe it is the one great area for social change that is open to Australia for the generation ahead.

All I am saying is that for the effort we make we could get better outcomes. To bring those about there are four simple things we need to do. We need to educate the community. We want to make it simple and easy for people to give either their time or their money. We want to reward or recognise those who are involved in philanthropic activities and we want to do as much as we can to have an assurance of value within the system.

I believe it is a responsibility of government to educate the community on the obligations they have to voluntarily support those who are less fortunate than themselves. That will fall on barren ground in some cases, but it is possible to get more people involved in philanthropic activities as a result of government persuasion in this matter. It can be quite pleasantly and honourably done.

We also have got to make it much more simple and easy for people to give of their time and their money. We have got a huge legislative muddle out there. Over 70 pieces of Commonwealth legislation relate to charities alone. There are hundreds of pieces of state legislation relating to charities. A lot of those are in conflict. World Vision Australia some years ago estimated that it cost them a million dollars a year just in compliance costs coping with different state legislation in their fundraising. We have got the nonsense of capital gains tax. If I die and leave a million dollars to a charity, it is assumed that that gift was made before my death occurred and therefore that gift attracts capital gains tax. That will be taken out of the residue of my estate before it passes to whomever I leave my money to. That is clearly a counterincentive to people supporting charities.

Another thing we have got to do is recognise and reward those people. Not everyone wishes to be recognised or rewarded. Some people do like to work privately for charities, but most people like a pat on the back in some way. I am not saying we give them the Order of Australia or anything like that but there should be some public recognition of those who serve the community in a voluntary way.

The final thing we have got to do is have an assurance of effectiveness in the whole of the charitable sector. Most charitable organisations are extremely honest and if they were not honest they could not come back year after year and raise tens of millions of dollars from the public. The word would get out. But there are small operators in the field which are not endowed with great integrity and they ought to be controlled and removed from the scene.

For example, there is no qualification at all for anyone to go onto the market and raise money for a charity. You do not have to publish a prospectus; you do not have to say what you are going to do with the funds. Again, if you want to raise $2 million to build a ward at a hospital and you raise only $1½ million, there is no obligation on the person raising that $1½ million to pay that $1½ million back because they cannot meet their target figure.

There are no agreed auditing standards for charities and, except in the state of New South Wales, there is no legislation covering the overheads, how much money it costs to raise funds and what the residue going to philanthropic groups should be. So there is a great need for reform and streamlining of the legislative approach here.

We do need to try to develop efficiencies. Some charities are very efficient. Some regrettably are not, with the best will in the world. Other charities surprisingly are not even effective. They do not ever get around to doing what they set out to do. Again, most of them set out with the best will in the world but they do not get there.

Then there is the problem of what the Americans call self-inurement. If you have got a big charity that has a budget of $10, $20 or $30 million a year, the chief executive running that fund has got to be a very experienced and able person and they attract a high salary. But then the widow who is being appealed to, to give a donation of a dollar or $2 out of her pension for that fund, does not like the fact that a chief executive gets a salary of $100,000 or $200,000 a year. That is a matter that has got to be looked at and dealt with carefully.

But to return to my original theme: the place of philanthropic activity in Australia is very large. It is not recognised by the country collectively for the size and the contribution it makes. I am not saying at all that we want to move away from the welfare programs that governments have. My belief is that, irrespective of the parties in government in Australia, the level of government welfare for the community will by and large continue at the level that it is today. But by reforming the philanthropic sector we can deliver very great changes for the next generation for the benefit of the Australian community. It is something that we can do with minimal legislative change and minimal social dislocation. I believe the benefits that would come from that are really quite enormous. I see that this bill makes a contribution towards that path and that is why I wish it a speedy passage through the Senate.