Overall giving might have been down in the 2009 tax data, but John McLeod explains the anomaly behind the decline and why the future of Australian giving looks bright.

Overall giving might have been down in the 2009 tax data, but John McLeod explains the anomaly behind the decline and why the future of Australian giving looks bright.

Despite recent economic uncertainty, newly released information from the Australian Tax Office (ATO) shows that tax deductible giving by Australian individuals – excluding private ancillary funds (PAFs) – continued its strong growth in 2009, rising 12%. This was due to both a greater number of donors, which was up 3.7%, and a greater average gift size, which climbed 8.5%.

Giving from PAFs also reached a record $153 million, up 18% in 2009. Giving to or establishing PAFs, however, saw its first decline since 2002, as many potential donors waited for the new PAF rules to be finalised. It would seem Australia’s history of generous support in tough times, whether they be natural disasters or economic ones, continues.

The growth in giving

Total tax deductible giving in the year to June 2009 was $2.09 billion, which represents an impressive average 11.8% annual increase over the past 10 years. While it was the first year to show a fall in total donations, this was due to donations into PAFs declining from their record $728 million in 2008 to $272 million in 2009, due to uncertainty around the changeover from PPF to PAF rules. As these have now been finalised, we would expect to see another significant jump in giving in 2010.

The only year to show a fall in donations, before including PAF giving, was 2006, following the generous jump in giving to the Asian tsunami in the previous taxation year. It is felt that this event, along with other recent disasters, has encouraged new donors who have continued supporting charities in subsequent years. Figure A shows tax deductible giving from 1993 to 2009, separating amounts given directly to charities and those given to PAFs since their establishment in 2001.

Figure A – Annual Tax Deductible Donations in Australia

Equally encouraging has been the increase in amounts that individuals gave, which has jumped to almost $400 per person, before including PAF donations, greatly exceeding the annual increases in the consumer price index (CPI). The increasing frequency of natural disasters, both domestically and overseas, from 2004 has been one of the main reasons for this jump in levels of individual generosity.

Many charities had become worried about “donor fatigue” due to these disasters, yet even despite the global financial crisis, this has not occurred. Figure B shows the growth in giving per donor from 1993 to 2009 being well ahead of CPI over the period. It also shows the boost to these averages from the introduction of PAFs in 2001.

Figure B – Tax Deductibe Giving in Australia per person

Of the 12.3 million taxpayers in Australia in 2009, 38% claimed a deduction for giving, the same record level reached in 2005 for the Asian tsunami and well above the average since 1993 of 34%. Across tax brackets, the proportion of donors varies with a plateau of around 60% for high income earners. Figure C shows this change over tax brackets and compares it to the USA where the plateau is around 90%, demonstrating that Australians are moving in the right direction.

Figure C – Proportion donating

A more interesting comparison with the USA comes when we look at the proportion of income given. Prior to the introduction of PAFs, Australia didn’t show a turn up in giving at the high income end. The strongest signal that potential donors were looking for other ways to structure their giving is demonstrated in the three-fold increase seen from high income donors after PAFs became available. Figure D shows this moving from around 1% to 3% of income donated in the highest tax bracket. Again, the gap with giving levels in the USA is slowly closing.

Figure D – Proportion of Income

The new data from the ATO also shows that 60% of the dollar value of gifts comes from the top 6% of donors, and this is without counting donations to PAFs. While it is clear that larger donors have embraced giving through PAFs, those donors giving above $1,000 per year haven’t yet begun to utilise other giving structures such as community foundations or charitable endowment funds. It is expected over coming years that a ‘trickle-down effect’ in the use of philanthropic structures will accelerate as knowledge of their availability spreads.

The evolution in giving

Recent years have seen an increase in the proportion of people giving and an increase in the average amount each has given, but the biggest change has been in the way people have begun to organise their giving. There were 858 PAFs established at June 2009, but this is estimated to grow to 1,100 by June 2011.

While small compared to the number of donating taxpayers in Australia, its dollar value represents a significant and growing pool of philanthropic funds being given to charities.

The value of this pool is now around $2 billion, and the cumulative distributions stand at approximately $600 million. The recent slowdown in the growth of this pool was due to a combination of weaker investment markets and the regulation uncertainty for new PAFs, suggesting an increase in growth rates of giving into and distributions from PAFs may now recommence.

A pleasing aspect of this large number of PAFs has been the diversity in charitable causes they have supported. We can now see a real democratic spread of recipients as would be expected by the growing number and diversity of PAF donors.

While education, arts and culture causes do a little better from PAFs when compared to broader giving support to similar causes, welfare still commands the greatest share at over one third. Interestingly, environmental causes are one of the fastest growing areas of PAF support representing almost 10% of distributions.

Australian philanthropy’s future

With growing numbers of donors, growing gift sizes and an increasing understanding of the available philanthropic vehicles that can help donors best structure their giving, the future is looking bright for giving in Australia.