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Charities’ role in economic recovery - SVA and CSI report review

Charity role economic recovery report

“In the context of the COVID-19 crisis, there has been great concern about the future of the Australian charity sector and the people it supports, given the economic, health and social crises currently unfolding.

Charities’ capacity to respond to financial and operational shocks will vary drastically.

It will be some time yet before there is sufficient data to be able to determine the full impact. However, decisions made now will strongly affect whether charities are COVID-19 casualties or partners in recovery, and those decisions need to be based on the best available information.”

Back in June, we reviewed a report published by Social Ventures Australia (SVA) and the Centre for Social Impact (CSI). That report modelled the potential impact of COVID-19 on the financial health of Australian charities.

This month, SVA and CSI have released another report that emphasises the important role that charities play in the Australian economy – and how a sustainable sector is vital for national economic recovery once we are past the current health crisis.

We take a closer look at this new report and highlight some of the key points.

Volunteers teaching a senior how to use a computer

Critical role of charities

It is widely recognised that charities play a critical role within all communities around Australia. The services they provide are essential for thousands of people and both state and Federal Governments rely heavily on charity resources to deliver services on their behalf. They are at the heart of our functioning society, and their ability to respond to increases in need surpasses that of any corporate or government entity.

From an economic perspective there are approximately 58,000 registered charities in Australia.

In 2018, the sector’s contribution was “equivalent to 8.5% of Australia’s GDP, and they employ more than one in ten employees in Australia – 1.3 million people. That’s around the same number of people as retail trade (10.0% of people employed, our second largest employing industry after health care and social assistance), and more people than the construction (9.2%), professional, scientific and technical services (8.6%) and manufacturing (7.2%) industries.”

As we experience the economic impact of the global pandemic, we are witnessing a dramatic increase in unemployment and underemployment. National GDP is dropping and the idea of a budget surplus is a long distant dream. But the Federal Government is firmly focused on employment being central to economic recovery and an eventual return to growth. With the charity sector employing such a large number of people, it makes sense that it will be a key part of the solution.

Australian Currency

Revised JobKeeper support

The Government’s JobKeeper payment program is providing many charities and their employees vital wage support. Without these subsidies, there’s no doubt that a large number of not for profit organisations would already be untenable. The recently announced extension and changes to the program have been welcomed, but the SVA/CSI report modelling still indicates some concerning figures.

“We modelled a fall in revenue over 18 months from the start of the crisis (a 20% fall for the first six months, then gradually recovering to a 10% fall), plus the impact of JobKeeper, and found that:

  • 44% of charities would be making an operating loss in September 2021, compared to 83% without JobKeeper
  • 8% would be at risk of being unviable by September 2020, compared to 17% without JobKeeper
  • More than 100,000 jobs are at high risk by September 2020 as a result of cost-cutting and organisational closures, compared to more than 250,000 without JobKeeper.

While this is promising, it will not be enough to prevent significant damage. 14% of charities – employing more than 180,000 people – will still be at risk or at high risk of becoming unviable by September 2021 under the new JobKeeper arrangements. The economic consequences of job losses on this scale would be dramatic, especially in an ongoing recession.”

Charity healthcare

Another critical part of this equation is that there are a high number of charities within the healthcare and education sectors. Both of these sectors are recognised as having significant job growth opportunities over the next five years. So it is imperative that charities maintain their financial viability and ideally increase their sustainability well into the future.

“We all need Australia’s charities to make it through to the other side of this crisis in a financially viable position. Our economy and our communities depend on it. Governments, philanthropists and charities need to work in partnership to ensure that this happens.”

Woman writing on white board during

Recommended reforms

After assessing the challenges being faced by the sector, the SVA/CSI report has outlined six recommended reforms that are separated into three specific directions.

These reforms seek to reduce the risk of diminished viability and leverage the contribution charities provide to the Australian economy.

“Ensure financial viability of charities so they can continue their contribution

  • Monitor the impact of the JobKeeper ramp-down, and be prepared to extend and/or alter the policy settings if needed to provide ongoing support for charities, and minimise negative effects on the broader Australian community
  • Maintain and, where needed, increase funding for government contracted services delivered by charities. Service funding for charities should reflect the true cost of delivering services for impact and meeting increased service demand
  • Make fundraising and philanthropy simpler, to encourage increased giving. Creating nationally consistent fundraising regulations would reduce the red tape burden on charities seeking to fundraise in a changed environment.

Build capability to improve impact

  • Create a Charities Transformation Fund to transition organisations to the ‘new normal’. Most charities do not have much financial margin or flexible untied funding, and so are unable to invest in capacity building and organisational transformation to prepare themselves for the post-crisis world. Setting up a one-off, time limited, Charities Transformation Fund could help aid this transition without requiring ongoing government outlays
  • Support further research to better understand how to build back the charities sector so that they are funded for impact.

Decrease demand for charity crisis services

  • Retain JobSeeker and other payments at a higher level (do not revert to previous Newstart amounts) to mitigate the increase in service demand on charities while also stimulating the broader economy.”

Again, we hope that the government listens to the needs of the sector… and prioritises the necessary support to make sure organisations can continue delivering valuable community services.

Fundraising report

A final note on the national giving report

In addition to the SVA/CSI report, early insights from the national ‘giving report’ were released at the beginning of August. QUT’s Australian Centre for Philanthropy and Nonprofit Studies (ACNPS) produced the report based on tax deductibility data sourced from the ATO and is specifically looking at the 2017-18 financial year so is not providing any insights into the current environment.

The figures in the giving report indicate that charitable donations are “still an important way that many Australians express their values and tangibly support their communities.”

The ATO data shows that donations as a percentage of taxable income “have increased to 0.43% up from 0.42% in 2016-17. This is the highest since 2007-08. This figure is particularly high for female donors (0.46% of their taxable income).” However, the report acknowledges that it is likely we will experience a drop in giving in the 2019-20 period.

“With the drought, bushfires and in 2020 COVID-19 joining the trilogy, giving is in uncharted waters.

The hope is that all who can share more have been doing that, and that giving has been a pause for others, not a full stop.”

A number of our clients rely on fundraising to support their work and the typical March to June events season was all but brought to a halt this year. Fundraising revenues from major events have been hit hard in 2020, but we see amongst our clients a small glimmer of positivity with some evidence that individual donations have increased a little.

We know it is a challenging time for the not for profit sector. Here at Accounting For Good, we are committed to supporting our clients as they navigate complex issues and find new solutions. Please contact us if you have any questions or concerns. We are here to help.

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