Current Issues Brief no.5 2003-04
Redefining NGOs: the emerging debate (updated May 2004)
Dr Ravi Tomar
Foreign Affairs, Defence and Trade Section
31 May 2004
On 22 July 2003, Treasurer Peter Costello
announced 'the release of an exposure draft of legislation defining
a charity for the purposes of all Commonwealth legislation,'
(Charities Bill 2003).(1) He stated that this
proposed redefinition of a charity closely followed the definition
that had been determined by over four centuries of common law but
that the new definition would provide greater clarity and
transparency for charities. The proposed legislation covers the
entire range of non-government organisations (NGOs) ranging from
those which are active in poverty reduction to organisations
('think tanks') which carry out 'research directed towards
expanding human knowledge'. By definition, they will all be
considered to be 'charities'. Appendix 1 illustrates the size and
complexity of the non-profit sector in Australia. Appendix 2
provides a select list of overseas aid NGOs, Australian NGOs and
'think tanks' which fall into the category to be captured by this
legislation.
If this legislative proposal comes into
effect, from 1 July 2004 an organisation endorsed to access tax
concessionsincluding tax exemption as a charity and deductible gift
recipient statuswill need to be endorsed by the Australian Taxation
Office (ATO), have its charity status attached to its Australian
Business Number (ABN) and be able to be publicly accessed through
the Australian Business Register (ABR). The aim of these changes is
to enable greater government scrutiny of charities and improve
public confidence in charities. The Treasurer also announced that
the draft legislation had been referred to the Board of
Taxation(2) for consultation with the charitable sector
to determine 'whether the public benefit test in the exposure draft
should require the dominant purpose of a charitable entity to be
altruistic, as recommended by the Report of the Inquiry into
the Definition of Charities and Related Organisations'. Under
its Terms of Reference the Board 'should consult primarily with
organisations intended to fall within the new definition of a
charity'.(3) Submissions were to be provided by 30
September and the Board was scheduled to provide its
recommendations to the Government by 1 December 2003. This deadline
has been extended and the Board is now expected to submit its
report to the Treasurer by 19 December.
NGOs/charities expressed serious reservations
about some provisions of the proposed legislation. Section 8 lists
what would disqualify an organisation as a charity for taxation
purposes. Sub-section (2c) provides for the disqualification of an
organisation if it conducts activities for 'the purpose of
attempting to change the law or government policy; if it is more
than ancillary or incidental to other purposes of the entity
concerned'. The explanatory note to this provision stipulates that,
while NGOs can make representations to government which are
incidental to their declared purpose, 'the independence of
charities from government and from political processes is an
important component of their role in serving the public
benefit'.
Stakeholders generally have criticised this
proposal on two grounds. Firstly, the ATO, which would be
responsible for administering this legislation would also have the
authority to determine if an organisation was in breach of it. This
would be 'unworkable and inappropriate' and the judicial system
should be responsible for making such determinations. But,
defending their charitable status through the judicial system could
be 'potentially devastating to charities in terms of the financial
costs'.(4) Secondly, on the basis that the
'disqualifying' definitions have given rise to the apprehension
that the Government is 'seeking to restrain some charitable
organisations or at least their peak bodies from critical comment.
Aid agencies, for instance, regularly call for an increase in
Australia's commitment to overseas assistance, now at its lowest
percentage of GDP'.(5)
These criticisms were dismissed by the
Treasurer, who stated that the proposed reform 'does not attempt to
restrict criticism of public policy by recognised charities. There
is no change from existing practice'.(6)
The Australian Council for Overseas Aid
(ACFOA), with 80 overseas aid agencies as members, has also
commented on the conflicting messages emanating from the
government. Firstly, the government's aid agency, AusAID, lists
governance (promoting democratic and accountable government and
effective public administration) as one of the five key themes that
guide Australia's aid program. The objective should be to
'encourage the development of robust, representative and capable
civil society to create demand for good governance'. Secondly, it
cites the current negotiations for NGOAusAID cooperation agreements
for Africa in which the priority for AusAID 'includes the capacity
building of the partner NGO and relevant staff, in policy
development and engagement'.(7)
Over one million Australians give their time
or money to overseas aid each year and in 2002, contributed $358
million to overseas aid agencies. This represented more than 60 per
cent of the aid agencies annual income. Community donations and
other income increased at an average annual rate of 15.24 per cent
during the period 19982002 compared to an average increase of 1.1
per cent of funds sourced from AusAID during the same period. ACFOA
argues that if activities that the agencies undertake to achieve
their organisational objectives are curtailed, 'their ability to
satisfy community expectations will be hampered because the work
they undertake will become less effective'.(8) In other
words, the advocacy role of charities should not be singled out as
a cause for disqualification. The table below is indicative of the
public support for NGOs. Funds from the Australian community
continue to provide the largest proportion of money for overseas
work undertaken by Australian NGOs.

It should also be emphasised that charities
and other not for profit organisations make a substantial
contribution to the Australian economy. In 19992000 for example,
this sector accounted for 6.6 per cent of Australians in employment
and contributed 3.3 per cent of the GDP. (For details see Appendix
1). Philanthropy Australia, a peak body representing 217
philanthropic trusts, foundations and individuals, in its
submission to the BoT has also been critical of the Charities
Bill:
To exclude lobbying, advocacy, or
activities designed to achieve changes in government policy or
legislation, is to take charities back 40 years. Such an exclusion
would severely limit the effectiveness of many organisations,
including the RSPCA, Cancer Councils, and environmental groups such
as the Australian Conservation Foundation. (9)
The organisation is of the view that
deficiencies in the Bill in its present form render it unworkable
and that it should be abandoned.
Review by the Institute of
Public Affairs (IPA)
Since the announcement of these planned
legislative changes, the debate about the appropriate role and
responsibilities of NGOs has become more heated, with the
revelation that the Federal Government has appointed the Institute
of Public Affairs (IPA) to audit how NGOs lobby or work with
government departments. This move is controversial mainly because
the IPA, a 'think tank' NGO, is perceived to be 'a trenchant
critic'(10) of the practices of many other NGOs,
particularly environmental groups and those involved in foreign aid
delivery.(11) The IPA audit is to cover eight Government
departments and agencies which have substantial dealings with NGOs.
Although the Departments themselves have not been named, they are
expected to be 'those responsible for immigration, the environment,
communications, forest and fisheries, foreign affairs and
AusAID'.(12) The audit is due to be completed in
December 2003.
Although no public announcements were made by
the Government or the IPA at the time, the two had been involved in
discussions on this issue since 2002.(13) The
appointment of the IPA to conduct this audit was reported in
The Weekend Australian on 2 August 2003, nearly a
fortnight after the Treasurer's announcement of the BoT inquiry
into the redefinition of charitable status. The newspaper report
indicated that NGOs 'could be forced to prove they are legitimate
representatives of community groups after the review', and stated
that the Government had offered $2.5 million to fund a peak body
for non-profit NGOs to be able to 'speak with one voice'.
The IPA has published a series of papers
calling for greater disclosure and accountability by NGOs receiving
funding from and working with Government agencies. The IPA's
position is that NGOs represent a challenge to elected governments
in democracies, because the electorate has no direct control over
these organisations, their activities or finances.
In its January 2001 submission to the
Inquiry into the Definition of Charities and Related
Organisations, the IPA argued that a 'tight and watertight'
statutory redefinition of charity was necessary. According to the
IPA, organisations and activities not falling exclusively within
the definition should not qualify. The IPA also recommended that
the Australian Tax Office should supervise the application of
definitions.
In June 2003, Gary Johns a Senior Fellow at
the IPA, addressed a conference on NGOs organised jointly with the
American Enterprise Institute (AEI) in Washington. He revealed that
the IPA was currently undertaking a project for the Australian
Government that could result in legislation similar to that
existing in the US, under which the Government could 'ask that the
credentials of NGOs who want access and who want money and
resources be tested ' (14)
Interestingly, the US legislation itself is
not without flaws. As one commentator has observed, while the 'so
called Gucci crowd' can spend as much as it wants to lobby
government, yet, 'legally speaking, disability groups, hospices,
community health centres and other(s) are regarded as something of
a threat to the integrity of our political process. This is too
large a price to pay for tax deductibility'.(15)
On 7 August, prominent Australian NGO, Oxfam
Community Aid Abroad, 'condemned the government's decision to
appoint the IPA to conduct a study of NGOs 'in light of the
Institute's own NGO status and ongoing smear campaign against
charities, welfare and aid agencies'. It also stated that, in
contrast to many other NGOs criticised by the IPA, the IPA itself
lacked transparency with its board members not being democratically
appointed and the Institute making no public disclosure of its
corporate funding.(16)
Following further media coverage of the issue,
on 8 August 2003 the IPA announced it had been awarded a contract
by the Commonwealth Department of Family and Community Services to
undertake a study entitled 'The Protocol: Managing Relations with
NGOs'.(17) The objectives of the study are to make
publicly available information and awareness about NGOs that have
'relationships' with the government. To capture the scope and
nature of the GovernmentNGO relationships the study will cover the
eight Government departments that have substantial dealings with
NGOs. The report will contain:
-
a comprehensive assessment of the links between
key Commonwealth Departments and their client NGOs
-
a framework for assessing the role and standing
of NGOs, based on the information requirements of those Departments
and Ministers
-
a framework for a database of NGOs, including
their standing, and
-
a proposed trial Protocol that requests NGOs to
supply information about their organisation that will be publicly
available.
On 8 August 2003 The Age newspaper
published an article by Mike Nahan, executive director of the IPA,
endorsing the Government's draft charity legislation and accusing
the non-profit sector of 'aversion to accountability'. On 10 August
the Sunday Age quoted Gary Johns of the IPA as saying that
the US system 'is the sort of direction in which we're headed'. He
reportedly stated, 'It's up to government, but I'd like to see a
system of disclosure'. Catholic Health Australia (which represents
some 680 Catholic organisations) is of the view that the IPA audit
'only gives more credence to the view that there is an agenda to
restrict charities either through less benefits or through 'big
brother' tactics to gain compliance rather than permitting strong
public advocacy'.(18) Other commentators argue the issue
is not whether the IPA's views on NGOs are right or wrong, rather
that the IPA is a player (with vested interests) in the very debate
upon which it's been asked to adjudicate. One commentator claims
that appointing the IPA to this role is 'akin to appointing the
ACTU or the Australian Chamber of Commerce and Industry to conduct
an inquiry on behalf of a government about labour-market
laws!'.(19) Arguably, too, the IPA is itself potentially
susceptible to charges of insufficient transparency and
accountability. NGO 'think tanks' like the IPA also have
traditionally been the recipients of some forms of tax relief and
have been criticised as reticent about disclosing the range of
their sources of funding. The IPA itself intends for the first time
to publish a list of donors in its next annual
report.(20)
The debate about the accountability, funding
and the ability of NGOs to lobby for their causes without losing
their charity status is now on the public agenda. The redefinition
of a charitable organisation currently being explored by the Board
of Taxation, along with the IPA contract to enable the government
to refashion its relations with NGOs, has already generated heated
debate.
The response by ACFOA made it clear that the
draft legislation is perceived as an attempt to curtail what the
NGOs consider to be legitimate means of achieving their objectives.
However this debate is resolved, questions about the definition and
accountability of NGOs are a legitimate matter of public
concern.
The Board of Taxations Consultation on the
Definition of a Charity received a total of 267 written submissions
as well as inputs at meetings with key groups. The Report was
submitted to the Treasurer on 19 December 2003. The Government
responded to the Report on 11 May 2004.
The Government
announced that the common law meaning of
a charity will continue to applyThe Government has decided not to
proceed with the draft Charities Bill.
The Government has taken advice from the
Board of Taxation that the draft legislation does not achieve the
level of clarity and certainty that was intended to be brought to
the charitable sector. (21)
While charities can currently self-assess
their eligibility for a tax concession, it has been proposed that
they will now be required to satisfy the Commissioner of Taxation
that they are eligible for the tax concession. Legislation to give
effect to this decision was introduced into Parliament as part of
the Tax Laws Amendment (2004 Measures No. 1) Bill 2004 on
19 February 2004 and was expected to be effective from 1 July 2004.
Since the Bill has yet to pass through Parliament, the Government
has decided to delay until 1 July 2005 the date by which charities,
public benevolent institutions and health promotion charities need
endorsement by the Commissioner of Taxation. This will also ensure
that charities do not face unreasonable compliance costs and that
they will have sufficient lead time to comply with the new
arrangements'.(22)
There is another, more practical reason for
the delay. As of May 2004, application forms for endorsement were
not yet available. Commenting on the endorsement process, the
Senate Economics Legislation Committee observed that:
The Committee recognises that the
application process for the current measure must provide the
Commissioner (of Taxation) with sufficient information to ensure
the integrity of decision-making. However, the application process
should not become so onerous that eligible organisations,
particularly those reliant on volunteers, are deterred from
applying. (23)
Endnotes
- Press Release No. 59, 22 July 2003.
- The Board of Taxation comes under the
Treasury portfolio and provides advice to the Treasurer on taxation
issues.
- Board of Taxation, Press Release No. 12, 22
July 2003. The Report of the inquiry was released in August
2002.
- Australian Council for Overseas Aid,
Submission to the Board of Taxation on the Draft Charities Bill,
September 2003, pp. 4, 8.
- The United Nations Association of Australia
in its newsletter UNity, No. 345, 1 August 2003.
- Press Release No. 66, 30 July 2003.
- ACFOA Submission, pp. 67.
- ACFOA Submission, p. 7.
- Philanthropy Australia, Submission to the
Board of Taxation On The Draft Charities Bill, October 2003, p.
5.
- Greg Barnes in the Canberra Times, 12 August
2003.
- See, for example, IPA's Don D'Cruz in the
Australian, 13 May 2002 and Mike Nahan in the Age, 8 August
2003.
- Sunday Age, 10 August 2003.
- ibid.
- Transcript. We're Not from the Government,
but We're Here to Help, Conference organised by the AEI and the
IPA, Washington D.C., 11 June 2003.
- Professor Jeffrey M. Berry in the New York
Times, 30 November 2003.
- News Release, 7 August 2003.
- Press Release, 8 August 2003.
- Sunday Age, 10 August 2003.
- Greg Barnes in the Canberra Times, 12 August
2003.
- Sydney Morning Herald, 12 August 2003.
- Treasurer's Press Release No. 031, 11 May
2004.
- ibid.
- Senate Economics Committee Report, Tax Laws
Amendment (2004 Measures No. 1) Bill 2004, May 2004, p. 22).
For an excellent overview of the Non-profit
Sector in Australia, see Philanthropy Australia's Factsheet on the
topic, which is available on the web at:
Source: Philanthropy Australia: http://www.philanthropy.org.au/factsheets/7-05-03-nonprof.htm
Adventist Development & Relief Agency
Australian Baptist World Aid
Australian Foundation for the Peoples of Asia
and the Pacific
Australian Legal Resources International
Australian Lutheran World Service
Australian People for Health, Education and
Development Abroad
Australian Red Cross
Australian Volunteers International
Australians Caring for Refugees
Burnet Institute
CARE Australia (CARE)
CARITAS Australia
Christian Children's Fund of Australia
Credit Union Foundation Australia
Fred Hollows Foundation
International Women's Development Agency
Leprosy Mission
National Council of Churches Australia
Oxfam Australia
PLAN International Australia
Salvation Army
Save the Children Fund Australia
UNICEF Australia
World Vision Australia
World Wide Fund for Nature
Anglican Board of Mission Australia
Anglicans Cooperating in Overseas Relief and
Development
Archbishop of Sydney's Overseas Relief and Aid
Fund
Australian Conservation Foundation
Australian Cranio-Maxillo Facial
Foundation
Marist Mission Centre
Medecins Sans Frontieres
OzGREENGlobal Rivers Environmental Education
Network (Aust)
Select Australian NGOs
Smith Family
St Vincent de Paul
Leukaemia Foundation
Heart Foundation
Cancer Council
Salvation Army
Australian Conservation Foundation
RSPCA
Think Tanks
There are a few but growing number of
privately funded think tanks which conduct research on foreign
policy, social and other issues. A number of them also enjoy some
form of tax concessions. For example, donations to the Centre for
Independent Studies and The Australia Institute are tax deductible
while the Institute of Public Affairs enjoys tax exempt status
under Section 505 of the Income Tax Assessment Act.
For copyright reasons some linked items are only
available to Members of Parliament.
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