Charity is big business. There are 25,500 registered charities. They hold $40 billion in assets. Their total income is $14.6 billion.
The industry is puffed up by $4.8 billion in government grants: government money is hardly charity. The charity business is further puffed up by its tax-free status.
Charitable donations create rebates totalling $350 million a year. In addition, tax breaks for charitable businesses are estimated as high as $1.5 billion.
The tax-free status is simple politics. Charities are up there with motherhood and apple pie. It would be political suicide for any party to start taxing them.
Politics aside, there’s no especial reason for charity to be tax free. There’s lots of good things we do with our own money, like feed and school our children. But none of these things are tax deductible. There’s no reason why spending on charity should be different.
It’s the same for trading. We trade for lots of good purposes but trading for charity escapes tax. It’s an oddity. It’s wrong. But it’s here to stay.
The government must climb all over charities to ensure their special tax position is not abused. That job falls to the Charities Commission.
It has gone to a great deal of trouble putting up the best government database on the internet. There’s every charity, with all their relevant information and, critically, the database is easily searchable by the likes of me and you.
That’s where all other government databases fall down. The information may well be there, somewhere, but who would know?
The charities database is important because it shines a bright light into the business. For example, a quick search shows that one charity one year raised a whopping $850,000 for a very good cause. But $650,000 went on telemarketing costs. Another $130,000 went on expenses. And then $21,000 was lost on some bad investments.
So for every dollar raised, less than six cents survived. I doubt armed with that information anyone would want to donate to this organisation. The critical information is easy to find because of the Charities Commission.
I would suggest anyone considering a reasonable donation to check the database first. It’s a great database once you get into it. One charity has assets of $66 million. It has an income of $1.5 million. The foregone tax on this business is almost $500,000 but its distributions by way of grants one year are only $50,000.
That’s not bad: give a dollar away to a worthy cause and save 10 in tax.
It’s not the only one. One charity distributes $350,000 and saves $5 million in tax.
But here’s the kicker: I am sure that $350,000 does more good than the $5 million to government ever would.
The commission is well respected here and overseas. But to save money and to provide for “joined up” government, ministers are planning to disband it and drag charity regulation into the Department of Internal Affairs.
Who would have thought? The problem with government is the cost of the Charities Commission and its lack of joined-upness!
But it’s typical of politics: take a small part of government — in this instance, a part that actually works — and fiddle with it. That way you keep busy and are seen to be doing things.
Meanwhile, the great morass of government failure sails on untouched. It’s the small things that keep Wellington busy. The big stuff is just far too scary to tackle or even comprehend.