This is a slightly longer and more generalised version of a presentation I made to the Reset arts conference (with a caveat that these are personal views, not a policy of my employer). My presentation was part of a series of seven-minute pitches of provocative ideas.
The Pitch
My provocative proposal today is to remove tax deductibility for donations to the arts, and to charities generally – because it will increase public accountability and fairness in funding.
Piketty
The idea is raised by French economic rockstar, Thomas Piketty, whose work has been pivotal in highlighting growing inequality around the world. Famously, in his best-selling Capital in the Twenty-First Century, he warned that processes of capital accumulation were leading western countries on a path to a level of inequality not seen since before the First World War. Yet while the argument, and the focus of the wealth of the top 1% has been celebrated, there has been less attention to or support for the policies he and his collaborators propose to promote greater equality. These proposals, contained in his later book, Capital and Ideology, are principally around controls on capital, taxation of wealth and progressive income taxation.
Most relevantly for the charitable sector, Piketty argues for the removal of tax deductibility for charitable donations because such donations empower and reward the preferences of the rich. He was focused on the large endowments to French and American elite educational institutions that promote inequality in education and opportunity, rather than on my $20 a month donation to whoever – but the argument is basically the same.
Tax deductions for charitable donations represent public money which is theoretically paid in taxes to the government, but handed back to be directed and expended by private individuals and corporations on programs which fit their personal priorities.
To be clear, in supporting this proposal, I am not suggesting that private donations to charities should be banned, just that those donations should not be tax deductible and that the extra tax revenue gained from this should be used to fund the same areas of activity through transparent public funding processes.
How Much Money?
Federal Budget papers suggest that the amount of tax forgone due to deductions for philanthropy in 2020-21 was around $1.6bn across all charities. That is about 32% of all Federal government grants to not-for-profit organisations.[1] In the arts, my back of envelope calculation is that it would be about $50m (based on the $132m donated to ROCO arts/cultural organisations in 2018-19). That is equivalent to around 20% of the funding of the Australia Council, or five times the Creative Partnerships program.
So, we are talking about a fair bit of money that could go into peer assessed, publicly funded programs.
Of course this assumes that the total amount of tax deductions simply switches from private philanthropists to public funding. Economists will tell us that this won’t happen, but the key question is, what is the net impact on funding for the not-for-profit sector as a whole?
It is possible that total funding could increase if donations do not drop by as much as the tax revenue gained. If donations drop by the same amount of the tax deduction, then there is net zero impact on overall sector funding.
But the bigger question is: if we oppose removing tax deductions because we think philanthropists will stop donating, what does that say about our view of philanthropists and about how we value art or the work of charities? Are we really just a tax avoidance plan? Are our donors really that self-serving – or is there a different value proposition at play? How confident are we in the public value of our work?
A side benefit
Removing tax deductibility for charitable donations also has an important side benefit. For the last 20 years, conservative governments and think-tanks have used the tax-deductible status of charities to threaten or curtail advocacy. This has been most prevalent in the environment movement where tree-planting is seen as charitable, but protesting is not.
However, the threat is broader, but it disappears if no donations were tax deductible. Organisations would then be freer to decide how best to pursue their charitable purpose without concern over government attacking their tax status or the need to fit into often arbitrary DGR categories. And advocacy/peak bodies would be able to fundraise on the same footing as the rest of the sector.
Caveats and Questions
Obviously, there’s devil in the detail of such a proposal.
- tax deductible donations would need to be removed for all charities (so nobody was choosing between charities with tax deductibility and others without [which is the current situation]);
- any extra tax revenue must actually go to the arts/charitable programs, not be “lost” to general revenue; and crucially
- government funding processes must be transparent and peer-reviewed (not a Catalyst for more sports rorts, dodgy car parks, or what seems like systemic corruption and pork-barrelling).
But these are implementation issues, not reasons to continue privileging the preferences of corporations and individuals over democratic public processes.
This proposal is radical, and for those who currently receive substantial philanthropic donations – don’t panic! It is not going to happen in the foreseeable future. But it should provoke big picture questions:
- about the role of arts and charity,
- about who we serve and are accountable to, and
- it should challenge those neoliberal views that government funding is a social cost/dependency while private funding is somehow more worthy.
And mostly, we should be asking: are we happy that our sectors are funded in a way that reflects and increases inequality?
[1] The 2020 Tax Benchmarks and Variations Statement shows deductions for gifts to deductible gift recipients (including private ancillary funds) at $1,655m. Budget Paper 1, Statement 10 shows total grants to NFPs at $5,198m.