The role of government in promoting access to finance for social economy
organisations and concluding comments
The role for government in promoting finance for social economy organisations
Traditionally, governments have been the central players in the social
economy sector through their grant giving. This inquiry is premised upon an
understanding that governments (and philanthropists) alone do not have the
resources to fund the sector adequately.
Accordingly, there is an emerging role for government to promote finance
options through taxation incentives and selective spending. As Diagram 4.1 (page
62) depicts, this emerging role for government cuts across the three layers of
a social economy capital market: mainstream financial organisations, institutional
and retail investors; financial intermediaries; and social economy
Diagram 9.1: Options for government
Diagram 9.1 is taken from the joint submission to this inquiry of the
Department of Education, Employment and Workplace Relations (DEEWR) and the
Department of the Prime Minister and Cabinet (PM&C). It shows a spectrum of
options for the government to assist investment for social purposes: from
command and control legislation at the far left of the diagram; to creating tax
incentives and funding support to build capacity; to combining resources,
convening dialogue and engaging with stakeholders; and at the far right of the
spectrum, gaining political support.
The final chapter of this report examines the evidence that the
committee has received during this inquiry on all these options to encourage
finance for the social economy sector. The committee has heard evidence that
more tightly regulate the banks and the superannuation funds to
ensure they provide funding options for the sector;
clarify and widen eligibility for deductible gift recipient (DGR)
provide top-ups, guarantees and franking credits to promote investor
confidence in the sector;
innovate with new policies, such as a variant of the National
Rental Affordability Scheme (NRAS) and a pilot social impact bond;
develop a framework to measure the performance of social
organisations as a guide to potential investors of the risks and returns of an investment;
use its convening power to establish a Social Finance Taskforce
and adopt a long-term perspective in developing strategic financing options for
the social economy sector.
The chapter has three parts:
the first part presents submitters' and witnesses' views on the
current regulatory environment and how it could be improved;
the second part of the chapter outlines submitters and witnesses'
views on the various taxation and spending arrangements that governments can employ
to encourage finance for social economy organisations; and
the final part of the chapter concludes this report, noting the
most appropriate role and mindset for government to promote access to finance for
social economy organisations.
The evolving framework to oversee and regulate the sector
This inquiry has been conducted at a time of considerable change in
terms of government oversight and coordination of the not-for-profit sector
(NFP). As chapter 1 of this report noted, this infrastructure of the reforms
has been established under the remit of two central departments: PM&C and
Treasury (see Diagram 1.4).
the Office for the Not-for-Profit Sector was established in
October 2010. The purpose of the Office is to drive and coordinate the policy
reform agenda flowing from the recommendations of Productivity Commission (PC);
the Not-for-Profit Sector Reform Council was established in
December 2010 for a three year term to provide support to the Office and provide
advice to the Government on not-for-profit (NFP) issues, including the role and
structure of the new national NFP regulator.
the new regulator, the Australian Charities and Not-for-Profit
Commission (ACNC), will be established on 1 July 2012. It will report to
Parliament through the Treasurer and will be staffed by around 90 officers
based in both Canberra and Melbourne. The Commissioner will have sole responsibility
for determining charitable, public benevolent and other NFP status for all
an advisory board to the ACNC will be established on 1 July 2012.
The Board will be chaired by Mr Robert Fitzgerald and will have legal,
accounting and NFP sector experts; and
an Implementation Taskforce for the ACNC commenced on 1 July 2011
to ensure the ACNC is ready for operation by 1 July 2012. The Implementation
Taskforce will also engage with state agencies to negotiate use of the portal
as a 'one stop shop' for reporting to state agencies. It will be disbanded when
it has completed its role of setting up the ACNC.
In its submission to this inquiry, Treasury explained that it is
responsible for policy and law design with respect to regulation and taxation
of the NFP sector. This includes developing legislation for the ACNC, developing
legislation for a statutory definition of 'charity', reviewing fundraising
legislation, implementing reforms to better target NFP tax concessions and restating
the 'In Australia' special conditions and implementing reform of public ancillary
funds. Treasury noted that as part of this process, it is engaging with the Australian
Taxation Office (ATO) and the NFP Sector Reform Council. The ATO is currently
working to separate and move its registration function to the ACNC.
In terms of tax matters, the PC explained that while the ACNC, as a
regulator, will administer the law:
...all regulators provide substantial input into policy
considerations, based on their experience the reason the commission is so
important, and the notion of a one-stop shop regulator is so important, is that
it will be the first time that we can actually look at regulation from
taxation, corporate governance and perhaps potentially fundraising in a
holistic way. At the moment all of these areas are looked at separately and, of
course, across the nine governments. I think the regulator will play a role in
helping to consolidate consideration of these issues. At the end of the day, at
the Commonwealth level, Treasury and Prime Minister and Cabinet will have
central responsibility for policy, not the commission itself, but I would
imagine it would be a significant imputer into those policy considerations.
Views on the current regulatory
The committee received a range of views on the adequacy and efficacy of
the current regulatory environment and how it might be improved. Some, such as
Dr Ingrid Burkett, praised the role of regulation and the positive effect
it has had in Australia. She told the committee that while there are:
...great possibilities in exploring regulatory change and
opening possibilities for innovation through such change, I do not see the
current regulation as an insurmountable barrier that is inhibiting the growth
of the not-for-profit capital market or other forms of impact investment. For
me this has been a real shift because 10 years ago I was on the board of
Foresters when it operated a superannuation fund and I truly believed that
regulatory change was the only way that such an innovative fund could operate.
But now I know a lot more about the need for social innovations to be grounded
in real structures that people recognise and trust.
This is particularly the case for those innovations involving
sectors such as finance or procurement, where regulations are ultimately
designed to protect people or public interests. In Australia I think we can be
extremely innovative within the current regulatory structures and we should
not, as is sometimes the case, use regulation as an excuse for not acting.
Others were critical of the effect of government regulation in promoting
investment in the social economy sector. Mr David Crosbie, Chief Executive
Officer of the Community Council for Australia, has argued that while:
The not-for-profit sector is bigger than other sectors of our
economy, including tourism, agriculture and communications...it has not
benefited from the kind of strategic investment and reform of these sectors. As
a result, there is an immense amount of wasted time, effort and energy in the
running of many charities and other not-for-profit organisations. Much of this waste
is driven by poor government administration imposing onerous reporting and
accountability requirements that serve very limited purposes. This is
compounded by the range of regulatory bodies at each level of government, and
the seemingly unquenchable thirst from bureaucracies and others for more information
about the outputs, rather than the impact, of not-for-profit organisations. Sector
reform has been on the agenda of federal and state governments for well over a
Complexity of the regulatory
The 2010 PC report highlighted the need for reform in the current
regulation for the sector. It argued that the current regulatory framework for
the sector is 'complex, lacks coherence, sufficient transparency, and is costly
It recommended that a national registrar for NFPs 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.
Several submitters and witnesses to this inquiry also commented on the
complexity of the current regulatory framework for social economy organisations.
In particular, they argued that current arrangements were not conducive to
smaller organisations gaining access to finance. For example, the National
Disability Services emphasised in its submission that:
Any initiatives to increase the not-for-profit sector's
access to capital should not unnecessarily add to the burden of red tape and
regulation that already exists in the not-for-profit sector. The Productivity
Commission has highlighted the difficulties already facing the not-for-profit
sector in effectively and efficiently delivering services on behalf of
Government with over prescriptive requirements, relatively short-term contracts
and excessive red tape.
PILCHConnect told the committee that:
...the legal and regulatory regime for the not-for-profit
sector is very complex. It can operate as a barrier to effective participation
by not-for-profit organisations, particularly those that are small or starting
up, and this includes in relation to finance options. Not-for-profit
organisations are grappling with the regulatory regime that has been
acknowledged as more complex than for business and is often characterised by
inconsistencies and duplication.
The need for a differentiated
Another aspect of the role of government discussed by the committee
concerned the possibility of a tiered approach whereby regulations vary
according to the financial instrument being used. Mr Christopher Thorn representing
Philanthropy Australia told the committee:
Our view is that, rather than trying to find one set of
regulations or structures that sits across the top, there is now with the
Office for the Not-for-Profit Sector, the ability to actually have a body that
has the visibility and understanding of that and, if you like, set areas of
benchmark where someone with TCC status comes along to create a new instrument.
The office could actually determine what class or sector of investment that is
to ensure the greatest, or the widest, body of investors could invest in that
The committee asked Philanthropy Australia whether the Office for the
Not-for-Profit Sector currently has the expertise to develop taxation and
regulatory regimes that offer incentives for both profit and not-for-profit
organisations. Mr Thorn replied:
No, it does not, but I think the point is...in terms of a
whole-of-government approach it is potentially the body that could coordinate
that response across government. We are arguing that if you have an instrument
coming forward that needs to be...regulated, or an appropriate benchmark
targeted, it would come to the appropriate government to coordinate that
classification, if you like, of where that investment should sit.
Social enterprises and
The committee also received evidence that the current regulatory regime
is not sensitive to the different structures, motivations and capacities of
not-for-profit organisation on the one hand and social enterprises on the
other. The Fundraising Institute Australia (FIA) was one organisation that
argued the need for Australian regulation to differentiate between social
enterprises and charities. The FIA suggested a better alternative would be the
UK model, which recognises this difference by regulating social enterprises as
Community Interest Companies (CIC) (see chapter 8).
Mount Buffalo Community Enterprise was also critical of the 'one size
fits all' approach to regulating the sector. It claimed that currently, the federal
and Victorian governments' funding eligibility criteria regards being 'not-for-profit'
as a pre-condition for being treated as a legitimate 'community enterprise' or 'social
enterprise'. The underlying public policy assumption, it argued, is that 'the
notion profit (of itself) and social, community and cultural goals are mutually
Mount Buffalo Community Enterprise described this assumption as flawed,
given that it largely eliminated the potential for socially motivated organisations
to access and raise private capital. This, in turn, has the effect of making
'the vast majority of socially-motivated organisations forever dependent on
government grants and philanthropy'. Moreover, the enterprise warned that this
policy setting runs the risk that the sector will be dominated by social
programs 'dressed up as social enterprises in order to access government
Tighter regulation of the private
Other submitters argued that government should be more prescriptive in
its approach to encouraging the private sector to invest in the social economy.
This approach was raised in two contexts: stricter investment obligations on
banks and mandating superannuation funds' product offerings.
Regulating the banks
Currently, there is no statutory requirement for Australian banks to
invest in the social economy sector: their investments are made voluntarily. Dr
Ingrid Burkett, Managing Director of Knode (and formerly of Foresters), told
the committee that there is a need to 'obligate structural, commercial interest
in a social capital market' rather than relying on the goodwill of companies. Dr
Burkett noted that while Australia is 'extremely lucky' to have some financial
institutions that are 'deeply committed' to contributing to a social capital
...this commitment is subject to commercial shifts so that
when the commercial environment shifts or the CEO changes, for example, then
those commitments can alter. This does not always happen and one or two have
built up long-term brand and financial commitments that would make it hard to
pull out, but the danger is always there.
That is why I would be in favour in the longer term of
structural incentives or obligations such as we see, for example, in the US
through the Community Reinvestment Act and the new market tax credit program
that enable the commercial sector, alongside government and not-for-profits, to
take their place permanently and structurally in addressing issues such as
building our social capital market.
As discussed in chapter 5, the United States Community Reinvestment Act
of 1977 (CRA) requires lenders to meet the credit needs of all communities they
are operating in. Lenders are given a CRA rating, which is then taken into
account by the regulators when approving new branches and mergers and
Amendments to the CRA in 1995 explicitly recognised loans and
investments to CDFIs as CRA activity. These changes 'served as an incentive for
banks to provide low-cost loans and investments to CDFIs, which were able to
leverage these resources to finance activities that mainstream institutions
found too risky'.
These measures, as well as the establishment of a government fund to provide
grants to the CDFI sector in 1994, promoted rapid growth in the sector.
In evidence to the committee, Mr Ian Gill, Chief Executive Officer of
EcoTrust Australia, reflected on some of the benefits and drawbacks of the CRA in
the US. He noted that while the Act was key to establishing the CDFI movement and
ShoreBank in the US, the fact that banks' contributions were legislated—rather
than made on a voluntary basis—was unpopular. Mr Gill suggested that:
[T]here could be a community reinvestment initiative where
banks, who are certainly profitable, would voluntarily put aside a portion of
their profits in some sort of structure that actually provides that ongoing
subsidy to the operation of CDFIs, because there are two things: where does the
capital come from and how do you pay for the operations going forward? Paying
for those operations is a problem, especially the further out you get, the more
remote you are and the further the distance is between your loans and servicing
those loans. Usually the further that is the higher the risk goes. So that
spread becomes the kind of spread that a bank does not want to talk about, but
it is something that needs to be paid for in some way.
The committee notes the apparent success of the Community Reinvestment
Act in the US in promoting investment in intermediaries. However, it is wary of
copying this approach. Australia's social economy sector is quite different to
that in the US both in terms of scale and the culture in which it operates.
Australia's banking system is also different, with the US system having many
more competitors. The committee believes it would not be appropriate for
Australia's competition regulator to take into account a bank's loans and
investments in CDFIs when considering merger proposals. The current merger
guidelines address the issues that are of direct significance to determining
mergers in the banking sector and the Australian economy at large.
Regulating the superannuation funds
The other suggested area for tighter regulation of the private sector to
promote investment in the social economy is to require that superannuation
funds offer a social investment portfolio. The idea is that, among the various
portfolios offering varying levels of risk in the open commercial market, funds
would also be required to offer an investment package weighted to social
investments. The return on this portfolio could potentially be at a lower than
This idea was put to the committee by Mr Toby Hall, Chief Executive
Officer of Mission Australia:
What I am talking about is a significant change. I do not
pretend it is easy. It is a question of saying to the super funds, 'We think
there is a requirement for you to invest in this kind of infrastructure
environment and, if you are not going to create the tool, then we would look at
legislation which would require you to do that.' Realistically you are probably
only talking about four to five per cent of superannuation funds being invested
in that way. Add to that that the type of returns I am talking about would have
outperformed every Australian super fund in the last 15 years, you would have
to question why they would not look at investment.
If we are serious we have to create a way to free up the
capital and, unless the super funds of their own volition start to do it, I
think the only way we will get change is through good tax instruments and then
a requirement that they invest in a certain proportion of their funds, or are
free to put a certain proportion, into social infrastructure, which actually in
the end benefits all of their members anyway.
Chapter 4 of this report discussed the issue of superannuation funds and
the sole purpose test. The sole purpose test, legislated under section 63 of
the Superannuation Industry (Supervision) Act 1993, requires
superannuation funds to have regard only for maximising the financial returns
for their members. They cannot consider potential social benefits.
The Association of Superannuation Funds of Australia (ASFA) told the
committee that within the industry, there is universal support for the sole
purpose test and any attempts to require the funds to invest in a particular
asset class would not be supported.
Chapter 4 also noted that superannuation funds can invest in social projects
that produce a return that is comparable to commercial rates of return.
Foresters Community Finance, for example, noted that it was able to operate a
superannuation fund with investments of a social nature (see paragraph 4.81).
Christian Super also downplayed the obstacle that the sole purpose test
poses to superannuation funds investing in social investments. Mr Tim Macready
told the committee that the fund carefully considers its values while ensuring
adequate risk-adjusted returns in making investment decisions. These values are
carefully communicated to its members (see paragraph 4.83).
However, other witnesses noted that engaging fully commercial
superannuation funds to finance the social economy may require a review of the
sole purpose test. Ms Kylie Charlton told the committee that from anecdotal
evidence, genuine engagement of superannuation funds:
...will require a rethink of the application of the sole
purpose test or an introduction of a mechanism that effectively levels the
financial return for such investors, recognising that the delivery of impact
typically carries a cost.
Ms Charlton added that being able to engage superannuation funds, which
need to be able to measure their investments and benchmark them against
something commercially acceptable, is 'probably going to be very difficult
under the current rules, the fiduciary duties and responsibilities they operate
under'. She also noted that superannuation funds are not currently asking for
more flexibility under the sole purpose test because social capital markets in
Australia remain nascent and there are not many products being developed which
may challenge the sole purpose test.
The committee underlines the imperative for government to encourage
product innovation in the superannuation industry so as to cater for diverse
retirement needs. This innovation will not be encouraged by mandating a
particular product or products. The committee therefore agrees with
recommendation 6.18 of the 2010 Super System Review that the government should
not mandate superannuation fund trustees to participate in any particular
investment class or vehicle.
In terms of the sole purpose test, the evidence that the committee has received
is that there is universal support for the test and that funds can currently
make social investments that are consistent with this test. The committee's
evidence, moreover, is that the social economy investments that may challenge
the sole purpose test have not as yet been developed for the superannuation
funds to trial.
That said, the committee does believe that there is a need for liaison
between government and superannuation funds to monitor any emerging issues in
terms of social investments that may require legislative or regulatory
solutions. This type of dialogue occurs currently between government and
superannuation industry representatives on issues relating to infrastructure
investment. The committee underlines its recommendation in chapter 2 that a
representative of the superannuation industry should be on the Social Finance
Taskforce and that the Taskforce should consider measures to encourage superannuation
funds to offer social investment products (see chapter 4).
Taxation and spending arrangements to support social economy investment
The committee has received considerable comment from submitters and
witnesses to this inquiry on the importance of the government's taxation and
spending arrangements to promote finance opportunities for the social economy
sector in Australia. This section presents some of these comments as they
relate to deductible gift recipient status (DGR), tax concessions for
investments into CDFIs, the use of 'top-ups', government guarantees and
franking credits, the National Rental Affordability Scheme (NRAS) and the
recent Unrelated Business Income Tax (UBIT) legislation.
Tax incentives are the main tool that governments have to encourage
investors into underinvested or disadvantaged communities.
They are used to good effect overseas. Ms Kylie Charlton told the committee
that the New Markets Tax Credit in the US and the Community Investment Tax
Relief in the UK are good examples of tax incentives used internationally to
encourage investment in the social economy (see chapter 5). She argued that the
Australian government should give consideration to this type of initiative
which 'would structurally encourage investors to engage'.
Ms Charlton also drew the committee's attention to the report by the
Canadian Task Force on Social Finance, released in late 2010. The Task Force
recommended that consideration be given to similar incentives and raised the
possibility of tax supported debt instruments similar to the tax-free municipal
bonds in the US.
Deductible gift recipient status
A key issue raised during this inquiry is the need for government to
address confusion and inconsistency around the issue of deductible gift
recipient (DGR) status.
DGR status is given by the government to certain NFPs to promote philanthropic
giving to these organisations. Donations of $2 or more to organisations with
DGR status receive a tax deduction. This status also allows NFPs to receive
grants from the majority of philanthropic intermediaries.
In Australia, the scope of eligible activities is narrow relative to
that in comparable overseas communities. Only 40 per cent of all tax concession
charities in Australia are DGRs.
There are two ways in which a NFP organisation or fund can obtain DGR
status: being listed by name in the Income Tax Assessment Act 1997 which
requires legislative amendment for inclusion (Item 1); and by being endorsed as
a DGR by the ATO (Item 2).
Importantly, failing to qualify for DGR status does not mean that people
cannot donate or invest in that organisation. The donor or investor will not
receive a tax deduction, but there is nothing stopping the donation or
Only certain charities and NFP entities are granted DGR status. A recent
report noted that as at July 2010, there are 24 290 organisations that are
Based on Treasury estimates, the total value of the concession is over $1.1 billion
in 2009–10 revenue forgone and almost $2.1 billion in income tax deductions
claimed by taxpayers in 2008–09.
Private ancillary funds (PAFs) cannot provide funds to an organisation
that does not have DGR status. As Mr Michael Hardy of the ATO explained to the
The reason is that when a person makes a donation into a
private ancillary fund it is a deductible gift recipient organisation and so
the donor receives a tax deduction. If it was then allowed to reinvest its
funds into some other charitable or socially desirable organisation that was
not a gift deductible organisation you would have circumvented the intention
that gift to that organisation directly will not be tax deductible, but if you
pass them through a PAF you would have received a tax deduction for it. It is
just an integrity arrangement.
Philanthropy Australia told the committee that in contrast to a PAF, a
private charitable trust receives 'no tax deduction for the money going in'.
Accordingly, these trusts can distribute to a much wider range of solely
charitable purposes because they are not constrained by the requirement to meet
the DGR rules.
There are several categories of DGR status.
The main categories are: a public benevolent institution; a harm prevention
charity; a health promotion charity; an animal welfare charity; an arts or
cultural organisation; an environmental organisation; an approved research
institute; and an overseas aid fund. For each of these categories, there are
various conditions that must be satisfied if DGR status is to be granted.
Most of these categories require an assessment by the ATO. The categories
related to overseas aid funds, environmental, harm prevention and cultural
organisations require an approval by relevant Ministers and the Assistant
The PC report considered the issue of DGR status in some detail. It
noted that access to DGR status is a major concern to NFPs where philanthropy
is or could be an important source of funding. In this context, it argued that
the use of public benefit interest (PBI) status is no longer an appropriate
basis for determining DGR eligibility for charitable endeavour.
The PC argued that the current DGR system distorts philanthropic giving
towards organisations with DGR status. It added: 'when all charities aim to
provide a community benefit and potentially provide spillover benefits for the
community, this raises questions as to the appropriateness of limiting DGR
status to less than half of all registered charities'.
The PC recommended that gift deductibility be widened to include all tax
endorsed charities in the interests of equity and simplicity. It recognised the
likely financial impact of this proposal noting that if all new eligible
donations were claimed, the impact on tax expenditures in 2006–07 would have
been an additional $577 million. The PC concluded that given the revenue
implications could be 'substantial', a progressive approach is warranted such
as incorporating each 'head of charity' separately.
The PC also observed that while widening the scope of DGR eligibility
increases the potential for rorting, this could be monitored through increased
reporting requirements for endorsed organisations.
Submitters' views of DGR status
This inquiry has also received various submissions that DGR status
should be widened as a key initiative to promote finance for the social economy
sector. The Department of Families, Housing, Community Services and Indigenous
Affairs (FaHCSIA) told the committee that the main legislative barrier to NFP
entities accessing capital is the limitations on DGR status which restricts the
entity's ability to attract philanthropic capital.
Mr Benny Callaghan, the Chief Executive Office of the School for Social
Entrepreneurs, told the committee that there is a:
...challenge...around DGR status for early-stage
entrepreneurs and innovators. It is a difficult thing to achieve, especially
when some of them do not necessarily fit within the PBI constraints, but also
because in order to attain DGR status you need to be operating as an
established entity and oftentimes in the early stages they are operating as
sole traders or under the auspices of other organisations or they are really grassroots
community programs. We are talking about 'mumpreneurs', mum-to-mum businesses,
grandparents or young people trying to do things at a very local level. DGR
status is very important because entrepreneurship is inherently risky.
Government funding will not be appropriate for a lot of the students that we
support and philanthropy is the most logical way for them to obtain funding. It
is beyond logic, though. Philanthropy is telling us all the time that they are
interested in funding early ideas but they are unable to because the people
that we support do not have DGR status. That is particularly around community
foundations. They are the group that are particularly interested in funding
early stage ideas. Also, other funds such as SEDIF are not appropriate for very
small entities. In order to participate in programs like SEDIF, you would need
to have a far stronger cash flow base and risk history to be able to convince
those entities to take on such a small initiative.
The FIA supported the recommendation in the PC's submission to this
inquiry of 'exploring options to allow philanthropic foundations and trusts to
invest in social enterprises, which is currently not allowed under the current
rules for deductible gift recipients'. It argued:
These foundations and trusts would have an interest in
supporting activities that have community objectives that they support, but
would also have the incentive and skills to monitor the investment. They may
also provide additional expertise, or assist in linking business
philanthropists with an NFP they invest in. Government support is indirect, but
still considerable, as the funds invested were exempted from taxation in the
accumulation phase for the foundation or trust.
Another perspective was put by Mr Nicholas Cox of YMCA Australia. He
told the committee that there is some confusion as to which organisations are
eligible for Item 1 DGR status and which are not. By way of example, he noted:
[W]e have a YMCA in Katherine that was providing direct
relief of young offenders through diversionary programs. The ATO deemed that it
was not providing direct relief of poverty, sickness or destitution, according
to the status, and was not able to obtain the DGR status, yet the YMCA up the
road, which was the Darwin YMCA, was quite able to provide evidence that the
service that it was delivering was in fact benevolent and therefore was
entitled to the DGR status. Perhaps just using that as a case study, internally
as part of a YMCA family one was deemed to be benevolent and therefore was able
to access the DGR status; another YMCA was not, even though the objects and the
intent behind what they were doing was very much the same. I offer that as a
bit of a case study whereby there is confusion even internally within our own
organisation let alone in various markets or various organisations across the
Further, Mr Andrew McLeod, the Chief Executive Officer of the Committee
for Melbourne, argued that Australia's tax arrangements discourage
philanthropic investment in Australia from international sources. He gave the
example of BHP Billiton which:
...currently has a philanthropic fund worth about $60 million
at the moment, which they had to place in London. They would have preferred to
have placed it in Australia, but the geographic limitation on DGR status
Indeed, Mr McLeod told the committee that the main policy change that he
would recommend to government is to remove the geographical limitation of DGR
Philanthropy Australia told the committee that there are 'a lot of
organisations' (175) operating overseas with DGR status to which Australians
However, it was critical of the system for granting DGR status noting 'there
are...seven different DGRs' with 'restrictions on which...you can make grants
to'. It also noted that less than half the tax concession charities are DGRs.
Philanthropy Australia suggested that in its view:
...part of the role of the ACNC hopefully will be to sort out
this distinction between DGRs, charitable status and eventually come up with a
much more coherent package. For instance, less than half the tax concession
charities—so charities that the ATO have said, ‘You do not have to pay income
tax’—are DGRs. Sometimes there is no logic.
Mr Callaghan of the School for Social Entrepreneurs suggested that given
the pace of change in early-stage innovation and social entrepreneurship, there
may be a system created whereby an applicant for DGR status does not
necessarily have to apply through the ATO.
In June 2011, the Australian National Audit Office released a report on
the ATO's administration of DGRs. The report made two recommendations, one
aimed at improving the ATO's decision-making in the DGR applications process,
the other focussed on improving the effectiveness of risk assessments of DGRs.
The ATO agreed with both recommendations and noted that it will implement them
as part of the required structural changes in the ATO prior to the commencement
of the ACNC from July 2012.
The committee supports the PC in its 2010 recommendation that the
federal government should progressively widen the scope for gift deductibility
to include all endorsed charitable institutions and charitable funds. However,
it believes that this should be done in a systematic and measured way. To this
end, it is important that in seeking to widen DGR status, the government
considers the proposed statutory definition of charity and carefully considers the
impact of extending DGR on federal government revenue. The committee agrees
with Philanthropy Australia that there is an important role for the ACNC to
clarify the distinction between DGRs and charities with charitable status.
Tax concessions for investments
into financial intermediaries
Chapter 5 of this report noted that the US and UK both operate tax
incentive schemes to promote private sector investment into community
development intermediaries, and that similar incentives could be utilised to
promote investment in CDFIs in Australia. In the US, the New Markets Tax
Credits program has attracted over US$29 billion in private investment to the
sector, while the Community Investment Tax Relief program in the UK has also
attracted significant capital to CDFIs operating in the UK. The main difference
between these schemes and the DGR system (which operates to offset the cost of
making donations to particular organisations) is that the tax concessions are
available to those making debt and equity investments rather than pure
donations. This means that investors receive their principle and interest back
in addition to receiving a tax credit, thus creating a strong incentive for
The committee recommended in chapter 5 that the proposed Social Finance
Taskforce investigate whether or not tax incentives are an appropriate means of
encouraging investment in CDFIs in Australia.
Another taxation-related option to promote finance for the social
economy sector is through the use of franking credits. Chapter 6 of this report
discussed this option in some detail. The idea is that a franked credit
returned to investors in a social economy organisation would bridge the gap
between a social and commercial bond offering. In addition to providing a
commercial return, the appeal of franking credits is that they are an
established form of tax relief and recognised by the ATO.
Chapter 6 noted the support of The Chris O'Brien Lifehouse and the
Benevolent Society for franking credits as a component of certain social bonds for
the acquisition of social purpose infrastructure. Lifehouse noted that a
neutral tax rate would not improve the return for the self-managed super funds
and the PAFs and that a return of six per cent is inadequate. It argued that a
franking credit would increase the return to about nine per cent, which would
be enticing to investors.
Chapter 6 also noted that Lifehouse and the Benevolent Society estimate that
the opportunity cost to government for the franking credit would be $122
million per annum for five years, and that the proposed bonds could inject $4.1
billion into social infrastructure.
The committee believes that the franking credit option is one that
government should examine. Treasury, in collaboration with the proposed Social
Finance Taskforce, should conduct its own cost-benefit analysis to verify the
appeal of a three per cent higher return to investors in social bonds as
against the estimated opportunity cost to government. This analysis should
inform a decision by government whether or not to pursue a system of franking
credits to catalyse a social infrastructure market.
Guarantees and top-ups
The issue of a government guarantee for the social economy sector was
raised as an option by several organisations. Chapter 6 of this report noted
the support of The Chris O'Brien Lifehouse for a government guarantee or a
system of franking credits to provide a catalyst to develop the social bond
market in Australia.
The Benevolent Society supported a government guarantee on the basis that if potential
investors could be completely confident of the return of their principal, then
there would be 'significant additional demand'.
Christian Super envisaged that a government guarantee 'drastically
improves' the risk profile of both the CDFI and the community sector
In its submission to this inquiry, it noted:
As a keen potential investor in the social economy sector, we
have realised the importance of government involvement especially through
direct funding and loan guarantees as well as heavy participation of CDFIs as
conduits to most of the government's efforts. Such collaborations between CDFI
and the government and the resultant innovation have allowed Christian Super to
seriously consider investments in the sector.
Another possible way that government can facilitate finance for the
social economy sector is through 'top-ups'. The idea is that government could
provide a payment to investors to supplement the finance they have already
received. By so doing, the financial return on social investment becomes more
attractive and viable. Indeed, in some cases, the investment may not be viable
without this additional government assistance.
The PC told the committee that the merit of a 'top-up' should be
considered on a case-by-case basis. Mr Robert Fitzgerald argued that if a
particular activity or program was in the public interest, 'it may well be that
on a cost-benefit analysis the government [may] determine that it would be more
cost effective for it to top up the initiatives of another party'. Indeed, Mr
Fitzgerald noted that a number of philanthropists are currently making their
payments conditional on pro rata government and NFP financial contributions.
While describing these arrangements as 'very exciting', he added:
We think the government has to be very careful about not
crowding out other initiatives. This is a term that people use very
dangerously, so let me be very careful. If it is the case that people believe
that the government will intervene and take all of the risk, then human nature
says that is exactly what they will allow to happen. We would not be supportive
of that in these initiatives. We believe that genuine collaboration between
government, philanthropists, for profit and not-for-profit is a very appropriate
way forward, each of those playing a discrete and important part. What part
that is will depend on the actual circumstances. Our report is open. It does
not say that you should and it does not say that you should not. It says that
you should look at it on a case-by-case basis.
The committee believes there is a role for government to offer top-ups,
guarantees and franking credits to encourage investment in the sector. Chapter 6
recommended that the proposed Social Finance Taskforce examine the use of government
top ups on coupons and the use of government guarantees to incentivise a social
bond market in Australia. The committee also believes these options could
encourage the superannuation funds to invest in the social economy sector.
The committee agrees that there is an important role for government to
facilitate financing opportunities in the social economy sector through the tax
system and its own payments. While government is well-placed to recognise these
opportunities, it must be careful not to crowd-out these opportunities through
its own involvement and subsidies. It agrees with the PC's view that wherever
the market is responding, the role of government is not to overly intervene.
Unrelated business income tax
On 12 May 2011, as part of the 2011–12 federal budget, the government
announced its intention to tax retained unrelated business income for not-for-profits.
This decision follows on from the High Court's recent Word Investments case:
This measure will tighten tax concessions for charities that
run businesses unrelated to their charitable work. This means that from July 1,
they will have to pay income tax on the profits they retain in any newly
created businesses that do not go back into their charity work. The move won't
affect op shops or small-scale fundraisers such as lamington drives.
The Government considers the reform 'an integrity measure to ensure that
the valuable tax concessions provided to NFPs are being used to further the
altruistic activities of NFPs'.
The Government's consultation for the measure was announced on
27 May 2011 and closed on 8 July 2011. The consultation paper sought
views on approaches to implement the reform.
Government intends to begin consultation on an exposure draft of the legislation
shortly. In addition, the government is consulting with States and Territories to
negotiate a coordinated approach to the reform.
Minister Shorten outlined that 'the reforms to NFP tax concessions will not
affect the use of tax concessions that support a charity's related commercial
Concerns raised about the unrelated
business income tax
A number of submitters to the inquiry have expressed concern that the
recently announced budget measures will reduce incentive for development of new
and existing social enterprise and reduce the ability for the sector to borrow
against its own equity. In addition, there are concerns that the measure will
act as a disincentive for investment in the sector and cause lenders to take a
more restrictive approach.
The final report of the inquiry Australia's Future Tax System
noted that the Word Investments decision has 'significantly increased the scope
for NFP organisations to undertake commercial activities'. The report noted
that the income tax and GST concessions generally 'do not appear to violate the
principle of competitive neutrality'. However, it observed that in some cases,
the rationale for exempting activities from income tax is weakened, such as where
NFP clubs operate large trading activities in the fields of gaming, catering,
entertainment and hospitality.
The National Rental Affordability
Scheme and engaging superannuation funds
This inquiry has received some evidence on the federal government's National
Rental Affordability Scheme (NRAS). The Scheme seeks to address the shortage of
affordable rental housing by offering financial incentives to the business
sector and community organisations to build and rent dwellings to low and
moderate income households.
The federal government aims to create 50 000 homes and apartments under
NRAS provides an annual tax free incentive called the National Rental
Incentive to businesses and community organisations that build and rent
dwellings to low and moderate income households. The rate is 'at least 20 per
cent below the prevailing market rate'. In July 2011, the annual income
tax-free incentive was $9524 per dwelling, and is indexed each year to the
rental component of the Consumer Price Index (CPI). The incentive comprises a
federal government contribution of $7143 per dwelling per year paid as a
refundable tax offset or payment, and a state or territory government
contribution of $2381 per dwelling per year in direct or in-kind financial
Submitters praised aspects of the scheme. Mr Andrew Tyndale from Grace
Mutual, for example, told the committee that it is:
...a generous incentive, it is a generous indexation and it
is very flexible. It was not too prescriptive, which provides a lot of
innovation and I think all of those are good factors.
However, the committee also heard that the NRAS had several flaws and
shortcomings. Mr Tyndale argued that the scheme has a 'design flaw' in that it
is a tax based program for which superannuation funds have no use. He emphasised
that the 15 per cent tax offers no incentive for wholesale institutional funders
to get involved.
Similarly, Christian Super told the committee that from its perspective:
The structure of the National Rental Affordability Scheme
provides a lot of the return to investors in the form of a tax rebate. As an
investor who is taxed at 15 per cent, we feel that we are not competitive
against investors who are getting a much more significant benefit. Retail
investors get a 30 per cent or a 40 per cent benefit from that tax rebate. We
have looked at a number of structures to seek to split the income and the tax
Mr Murray Baird, Director of the Australian Charity Law Association and
Chair of the National Housing Company, told the committee that there is a need
for government to provide more incentive for charities to participate in NRAS.
He criticised the ATO's approach arguing that when charities and PBIs intended
to get involved in NRAS, the ATO effectively said that 'their tax concessions
would be under threat because the beneficiaries of housing under the scheme
would not be poor enough to deserve charity'.
The challenge for housing associations generally is that they
enjoy tax concessions, because they have a social program. Often they enjoy
public benevolent institution concessions. However, should they show initiative
in projects such as NRAS, they are criticised for going outside the area where
the tax office considers them to be benevolent. So, should they help people who
are not abjectly poor, that is said to be no longer a benevolent activity and
then they have to argue to justify their concessions. It means that they are
always looking over their shoulder in doing anything that is entrepreneurial
lest they lose their concessions. I think that is an unhealthy way to be
working. There is a technical interpretation of matters that means that they
constantly have to get rulings on whether they can do the next thing they wish
to do. That takes time, it slows down the activity and it adds expense.
Mr Gregory Peel from Community Sector Banking also noted that NRAS
failed to garner support from institutional investor markets. He told the
committee that this was partly due to uncertainty in these markets about what
NRAS would look like as an investment proposition.
Mr Toby Hall from Mission Australia suggested that government needed to
develop a mechanism to encourage the participation of the superannuation
industry and the major banks in schemes like NRAS.
Mr Baird noted that the National Housing Company intends to use social bonds to
raise capital for constructing dwelling under the Scheme. He told the committee
that while the NRAS incentive will assist with cash flow in the long term,
there is a difficulty in attracting investors to the first layer of the bonds.
Other criticisms of NRAS
Mr Tyndale also criticised NRAS for its non-standard indexation. He
argued that an investor in the Scheme cannot hedge rental CPI. In other words,
an investor cannot bear the interest rate risk between the CPI and rental CPI. As
a result, investors cannot get bank finance against the rental incentive
because they cannot hedge the rental CPI.
A more fundamental criticism is that NRAS requires community housing
providers to secure substantial amounts of capital to build to become eligible
to receive the incentive. Mr Tyndale told the committee that raising $16
billion worth of capital in the sector 'is just not feasible' and as such
represents a structural flaw with the NRAS.
Grace Mutual's suggestion to the committee was that the government
should provide an interest free loan funded by government bond issues. Further,
it argued that superannuation funds would buy those bonds, thereby providing
indirect funding for NRAS. The loan process would be outsourced to a series of
approved professional lenders and paid for by the borrowers. In this way, Mr
Tyndale argued that the cost to government of NRAS would be significantly less.
The committee believes that while NRAS is a worthwhile initiative, there
are several lessons to be learned from the way the scheme was structured. In
particular, the committee emphasises that consideration of future schemes along
the lines of NRAS must better structure taxation incentives to encourage both
charities and superannuation funds to become involved.
The best approach for government to promote finance for the sector
During the course of this inquiry, the committee has received evidence
on the best approach for government is to assist social economy organisations
to access finance. Specific proposals to this end have been canvassed in Parts II
and III of this report. The final section of this chapter presents the key
elements of what the committee considers to be the best approach for government
to promote finance options for the social economy sector. There are five planks:
a general mindset of encouraging the market to develop its own
financing mechanisms rather than stepping in to regulate or to mandate a market
a long-term perspective, supported by stable administrative
arrangements, to work constructively with the various stakeholders;
a commitment to educating and creating partnerships with
stakeholders, recognising that in this role governments can, over time, develop
a culture of developing and accessing innovative financing options;
a commitment to developing a common measurement framework that
will allow social economy organisations to recognise their performance and
investors to recognise their risk and reward; and
a need for governments to design and implement innovative
policies to challenge both social economy organisations and investors to take
up new financing options.
Facilitating the market
Several submitters to this inquiry commented that the best policy
approach for government is to offer incentives for social economy organisations
and the private sector to build partnership opportunities. The role for
government, they argued, should be to facilitate this cooperation rather than
actively control this process.
Mr Robert Fitzgerald, the Commissioner with oversight of the 2010 PC
report into the contribution of the NFP sector, identified an important
supporting role for government to develop a capital market for social economy
organisations. In terms of the PC report, he told the committee that:
...there is a fundamental theme to our recommendations, and
that is that wherever possible the market should be able to be developed to
provide some of these financial inputs. We have not taken an approach where the
government should be the principal funder of the sector. We have certainly been
very clear that the sector must be the controller of its own destiny and,
thirdly, that wherever possible emerging market responses should be encouraged,
but in so doing we recognise that there may be a role for government.
Mr Fitzgerald identified Community Development Financial Institutions
(CDFIs) as a particular area that needed government support. He noted that in
the PC's view, government should provide CDFIs with access to capital as a
short-term arrangement in their establishment phase. Importantly, however, the
PC does not believe that government should provide an ongoing or permanent pool
of funding for the CDFIs.
In terms of social housing, Mr Fitzgerald similarly identified an
important role for government in collaboration with the private sector and the NFP
sector. He noted the PC report's case study on social housing which made the
point that if a model is to develop, it is critical that there is collaboration
between government, the private sector and the NFP sector.
Abbeyfield Australia, a community housing not-for-profit company, told
the committee that there is an important role for government to put funds into
the community housing sector. Residents of Abbeyfield Houses pay 70 per cent of
their pension or disability support pension, plus federal rent assistance. The
CEO of Abbeyfield told the committee that:
...the house generates quite little income. An Abbeyfield
House today will generate a surplus at the end of the financial year of about
$10,000 to $20,000...That is not much return on a capital investment of about
$2.5 or $2.6 million.
That is our dilemma and that is why, amongst a whole range of
responses that the government has to finance in the community housing sector,
Abbeyfield Australia would argue that within that whole broad range of
solutions there is a niche where we would argue that the government needs to
maintain some scheme to put government capital funds into the community housing
Christian Super told the committee that government has a crucial role in
ensuring that there are investible structures that provide a good risk-adjusted
return. It envisaged a stabilising role for government:
As this would be a new asset class for most investors,
ensuring some level of stability in the sector will go a long way in getting
private investors comfortable enough to participate. In our view, the government
is in the best position to take on the task of stabilising the sector. We have
seen the government use its balance sheet to great effect, with minimal real
cost, in the guarantee provided to approved deposit-taking institutions. The
deposit guarantee increased the competitiveness of smaller ADIs, ensuring a
better outcome for consumers by providing downside-risk protection. A similar
use of the government balance sheet in the not-for-profit sector through
investing, rather than just spending money in the sector and taking on the
riskier parts of the investment, will increase the competitiveness of the
sector and ensure an acceptable risk-adjusted return for investors. Again,
drawing from our experience in the SEDIF program, the government's commitment
to be a long-term subordinated co-investor significantly improved the risk
profile of the investment and made it investable for Christian Super.
The committee emphasises that government has an important role to play
in managing the shift from a sole emphasis on grant funding to creating finance
opportunities for the social economy sector. This role may encompass a range of
measures including tax incentives and concessions, top-ups and government
guarantees. Whatever mix of these measures is adopted, the committee emphasises
that the role of government must be to assist the market in the direction it is
moving, rather than intervene to control the market. The role of government
should not be to regulate the banks to require that they invest in the social
economy sector, nor require that superannuation funds offer social economy
The need for a long term
Another issue raised by various submitters was the need for government
to think less in terms of short-term grant funding, and more in terms of
offering long‑term strategic financing options for the social economy
sector. In its submission to this inquiry, for example, New Models New Money,
a coalition of organisations focused on creating financing opportunities for the
arts, noted the 'constant uncertainty about future funding and [the] considerable
effort expended in chasing support from government'.
Christian Super emphasised the need for long term funding of CDFIs to
assure community sector organisations that the CDFI will be able to perform its
duties throughout the investment. Its submission emphasised the importance of
CDFIs having 'reliable sources of funding in order to invest in long term
assets as well as meet short term operating costs to ensure overall business
viability'. In particular, it identified a role for government to:
subsidise staffing costs to ensure that CDFIs concentrate on
providing the services to community sector organisations; and
assist with the capital raising costs for CDFIs with funding in the
form of grants, performance based payments or loan guarantees.
Mr Gill of EcoTrust Australia also impressed the need for government to
adopt a long-term view to promote social economy projects in indigenous
communities. He emphasised to the committee the need for financing mechanisms
and government assisted social economy projects to outlive the political cycle.
Mr Gill noted his frustration at this short-term thinking from his experience
working in Canada:
...we had a CDFI running there that was provided loan-loss
reserves by the federal government, which was really the first time the
government did something constructive for us. They said, 'You're running a good
portfolio, we'll give you a loan loss reserve so you can go to investors and
say "80 per cent of any one deal you are doing will be guaranteed by this
up to 15 per cent of your total portfolio."' It was a very useful
mechanism. It ran for three years. The government changed and a new minister
came in and swiped that away not because of performance issues but because of a
political change in the wind. It is impossible to set up long-term economic
structural change in communities if you are still subject to the vagaries of
Social economy organisations themselves face a long-term challenge of
shifting their mindset to embrace different financing options. Mr Kevin Robbie,
the Director of Employment at Social Ventures Australia, told the committee
that based on the UK experience, the government has a long-term task of working
with specialist intermediaries and social economy organisations:
It is how you create a culture within the nonprofits
themselves so that they are willing to take on debt or take on different types
of finance. That was a 10- to 15-year job in the UK working through specialist
intermediaries to actually create that culture. Part of it is about managing
expectations, because even after a 10- to 15-year period in the UK there is
still only, a recent report said, 16 per cent of ideas coming forward that are
actually investment ready, and it is bearing the cost of educating the market
and having a long-term vision about what you want to do with this market and
where you want it to be.
The committee agrees that there is a need for governments to have a
long-term view to assisting the development of the social economy sector in
Australia. It believes that recent developments, such as the creation of the
Office for the Not-for-Profit Sector and the ACNC, provide a good platform for
successive governments to develop mechanisms for the development of a robust
capital market for social economy organisations. To this end, the committee
also highlights the long-term focus of the proposed Social Finance Taskforce
(see chapter 2).
Educating and collaborating
A major theme of this inquiry is the important role for government to
educate and connect stakeholders to the opportunities for investment in the
social economy sector. Clearly, if social economy organisations are to gain
access to finance, it is important that banks, superannuation funds, private
ancillary funds and other financial intermediaries understand these
organisations' needs and investment opportunities. It is equally important that
social economy organisations have an understanding of the investment products
that the private sector can offer. In both respects, government has an
Mr Peter Quarmby, the Executive Director of Community Sector Banking,
emphasised in his evidence to the committee the importance of developing
partnerships between the NFP sector, the private sector and government. As he
told the committee:
We believe that the non-profit sector has a role to play in
its own destiny, in managing its own capital. It has a huge amount of capital
running through it and by aggregating its demand we can create greater
efficiencies. But we also understand that there needs to be a partnership
relationship between the sector, the private sector and government. In a sense,
part of the reason for setting up community sector banking was not so much
about setting up a bank but changing the way in which the non-profit sector saw
itself and saw capital. I believe that this sort of initiative changes the
relationship between the sector and government from what potentially can be a
master-servant relationship to one of a partnership.
PM&C emphasised the importance of governments' collaborative efforts
in engaging social economy organisations and the private sector. Mr Paul
Ronalds, First Assistant Secretary of the Office of Work and Families, stressed
...government must become much better at using its convening
power to catalyse, promote and to encourage the private and not-for-profit
sectors as well as individual citizens to become active agents of a change that
we would like to see in our society. In our view, the work of this committee
can play a very significant role in assisting this change. A policy environment
that encourages more collaboration, like that achieved in the establishment of
initiatives such as the GoodStart Childcare initiative, the Social Enterprise
Development Investment Fund and the National Rental Affordability Scheme are
all very welcome beginnings to this.
The government has very significant convening power to get
different sectors to the table. You have heard evidence from a range of
different speakers about the need for these complex policy problems that we
face to have all three sectors there working them through. You essentially get
policy failure when any one sector, particularly government, thinks that they
have the full understanding and puts in train a solution without sufficient
consultation and engagement to get the perspective that it needs.
In this context, Mr Ronalds noted three particular initiatives that
could have particular merit: a social finance taskforce charged with leading a
national dialogue on social investment (along similar lines to that recommended
in chapter 2 of this report); social impact bonds; and measuring return on
The challenge of developing social purpose superannuation investment
products is a good example of where government can and must assist learning and
collaboration. Mr Fitzgerald of the PC told the committee that if
government is not going to mandate that superannuation funds invest a set
percentage in social investments, it has a role to assist the superannuation
industry to identify and develop appropriate social purpose products. He added:
This is why government is so essential. It can bring the
relevant parties together, identify the appropriate opportunities and then work
out those implementation pathways. I cannot give you advice as to how that will
happen. The fact is that it has not happened today....
The not-for-profit sector has not been completely dormant in
this area, but if you really want to get movement my suggestion is that a
proposal that involves at least the Commonwealth government is the first step.
The committee envisages that the role of government in promoting access
to finance for the social economy sector must at its core be focussed on
convening and encouraging collaboration. As chapter 2 of this report
emphasised, one of the main initiatives to this end should be for government to
establish a Social Finance Taskforce. As this report's various recommendations
make clear, this Taskforce will have an important role advising government and
the social economy sector at large of the best way to promote long-term finance
opportunities for the sector.
Government also has a crucial role to play in ensuring that social
returns on investment are measured accurately, consistently and transparently.
Chapter 7 of this report noted the particular importance of measurement and
evaluation in the context of developing market social impact bonds. The
government recognises the importance of evaluating the work of the social
Better measurement of social return on investment is critical
for establishing the transparency and accountability of social initiatives for building
credibility with investors, funders, donors and the like.
The PC report devoted two chapters to some of the challenges that NFPs
face in producing an evaluation of their activities that are meaningful,
comparable and cost-effective. It recommended that Australian governments
should adopt a common framework for measuring the contribution of the NFP
sector. During this inquiry, the PC returned to this theme of evaluation. Mr
Fitzgerald told the committee that:
In programs like social housing and others where they are
long term we need to have good evaluation processes that allow you to adapt the
program as the evidence warrants the adaptation. One of the difficulties when
you have the private sector involved is that they want certainty. One of the issues
with social policy is that often you have to adapt as you learn. Not only do
you need early intervention by the government in terms of bringing the right
parties together, you need good-quality evaluation frameworks designed at the
beginning. You need them to be used to inform and then you need an ability to
adapt as you go forward.
Innovating to catalyse the market
Finally, the committee believes that in seeking to develop a mature
capital market for social economy organisations, governments must be innovative
and should be encouraged to develop pilot programs that unlock the potential
for investment. It commends the federal government for its recent NRAS, Social
Enterprise Development and Investment Fund (SEDIF) and CDFI pilot initiatives. The
departments' joint submission noted that:
Such measures can only be seen as interim steps in market development
to provide a ‘buffer’ to early stages of development and test the market.
Succinctly put by the Monitor Institute, ‘someone needs to go first’.
The committee agrees. Government does have an important role in
catalysing the market and the NRAS, CDFI pilot and SEDIF initiatives are
exemplars of this 'going first' approach. Not only have these programs had a
direct impact on investors and social economy organisations, they have—and will
continue to—encourage the type of collaborative, longer-term approach that the
sector needs to develop a capital market. As Ms Belinda Drew, Chief Executive
Officer of Foresters, told the committee:
...in the last 18 months to two years of our organisational
life, it would be very silly to underestimate the power of government
intervention. I mean that in a positive sense. As we have seen government come
to the party, if you like, by not just providing funding but actually endorsing
the work, that step change has been very significant. In the not-for-profit
work that we have been doing in Victoria and Queensland, just by virtue of the
fact of the state government funding that front-end work speaks to those
sectors that this is something that government actively encourages them to get
involved with. That has an enormous and positive impact on how organisations
Certainly, there are more opportunities for pilot programs, most
interestingly in the area of social impact bonds (see chapter 6). The committee
emphasises that with all these new initiatives, it is crucial that outcomes and
performance are properly measured and where mistakes are made in program design
or implementation, lessons are learned and heeded.
Senator David Bushby
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