Charity Issues

Editorial: Are Charities Too Rich?

by Harald Breiding-Buss

October 2020

There’s a prevalent view amongst some circles within parliament and government that community organisations are forever holding out their hands and no money you give them is ever enough. Government, no matter the political leaning, is forever taken to task for not funding enough of this work or letting down that group, and it must seem to them like a bottomless pit. The fact is that some causes are seriously underfunded – but the fact is also that there is a lot of unused money in the sector already. The 28,000 or so registered charities are sitting on more than $30 billion worth of non-current assets (i.e. fixed assets and investments), more than a million dollars’ worth per charity on average. (The information is not as readily available for other NFPs).

A large chunk of these are buildings and other assets-in-use being used mostly for education and religious activities, and a few of those billions are held by funders, but there are also large amounts of investments and investment property. Cure Kids, for example, a high-profile charity funding research for childhood illnesses, and collecting $5m in donations from the NZ public each year, sports $5.6m in investment property and a further $31.8m in other investments on their 2019 balance sheet, a total of $37.4m. This figure keeps on growing – five years ago it was $34.8m, and $20.6m ten years ago. To put this into perspective, research grants and development expenses were $3.8m in 2019 for this organisation, meaning they have built a buffer of 10 years’ worth of research funding.

Just like in NZ Society overall, the wealth is very unevenly distributed. Secular social service-focused groups, as well as environmental groups of any size, are mostly struggling to make ends meet in the face of often growing demand, while some large charities and many faith-based organisations have large amounts of money tied up in investments. This is dead money for the sector, and I think it is ethically questionable to save it up in large amounts.

A lot of good work could – and should – be done with those millions, and legislative action may be needed, to bring this about. Forcing charities to actually use a portion of their wealth each year for charitable purposes is discussed in other countries, and may not be a bad idea, for example. Wealth-building could also be discouraged by removing tax exemptions from investments (including investment property). The government could put any money collected from such charity wealth taxation into a fund for not-so-wealthy groups to make sure this money remains in the community.

Meanwhile, I think groups with a lot of reserves should have a discussion with their committees about how much is enough, and what the ceiling should be. I also think philanthropic funders especially should take a closer look at a charity’s financial position, including investments held through other, controlled or controlling entities, and favour groups with fewer reserves – this is in their own interest, as it makes it more likely that their funds are used as intended rather than as a proxy to build more wealth from other sources, and also fits well with the spirit of philanthropy.

It always distresses me if I have to help wind up a small, usually social charity, that was useful, productive, often with a unique and pioneering approach, because they ran out of money, when I can see that large amounts of charitable money lies unused in other places. I think we can, and should, do this better and more equitable.

Editorial: Who Needs Charity Regulation?

by Harald Breiding-Buss

February 2021

Here’s a radical thought: let’s repeal the Charities Act and disestablish Charities Services.

We are told that New Zealand has the most charities per head of population in the world, which is seen mostly as a problem. But having the Gold Medal for charities registrations is a bit like winning the America’s Cup: The number of competitors is very small, and the event is of only mild interest everywhere else but here. Only New Zealand, Australia, Canada, the UK and a minority of States in the US seem to have a legal definition of ‘charity’ and something akin to our Charities Act. In my first language, German, there is not even a word that equates to our meaning of ‘Charity’ as an entity.

What do those countries do? They regulate the ‘what’, not the ‘who’. Practices that may be of concern, such as using tax exemptions for personal benefit, or accountability of organisations asking the public for donations in a big way, are regulated and covered by law. But the Charities Act in New Zealand imposes blanket regulation on a type of entity, regardless of what it actually does.

The type of organisation that can call itself ‘charity’ in New Zealand is incredibly wide. A worker in a homeless shelter recently expressed her incredulity to me that even a bowling club is considered a charity, which she felt was demeaning to her work. Charities on the register are also in the esteemed company of property trusts, created for the sole purpose of protecting churches’ investment assets from business risk, the Sanitarium food company, and historic aviation hobbyists.

Once we separate exemption from Income Tax from the issue of what is or isn’t charitable, charity regulation no longer has a leg to stand on. It is a rabbit hole that was first dug by Queen Elizabeth I, when she defined in a Statute from 1601 what she considers charitable. This Statute still guides modern NZ Charity Law, and, more than 400 years later, is still cited by Courts in charity registration cases. This Statute is also the reason why charity regulation only seems to exist in former colonies of the UK.

I think we need a discussion of what activities should be taxed, which practices we are concerned about, and when public accountability is actually called for without getting distracted by the word ‘charity’, which has become an almost arbitrary label. The present practice of brushing everything with the same stroke and virtually no differentiation with regards to public accountability is nonsensical, and costly.

Editorial: Illusions of Grandeur

by Harald Breiding-Buss

May 2021

In New Zealand we have a bit of an inferiority complex about our size and therefore status on the world stage. We frequently have to tell ourselves that New Zealand is ‘leading the world’ in this area or that, and usually it does not matter whether this is true or not [more…]

The ‘leading the world’ notion has been cropping up lately with respect to the strict reporting regime imposed on registered charities in 2016. New Zealand’s approach has sparked some professional interest in other countries, and this interest, rather than the day-to-day experience of community organisations, is seen as evidence that we are on the right track.

I think it extremely unlikely that New Zealand would have been the first to come up with the idea of imposing professional accounting standards on small not-for-profits, or the idea of mandating non-financial reporting, given how much more resourcing policy analysts have in larger countries. Small not-for-profit accounting standards are certainly not new, and variations of them exist in different places, but nowhere but here are they mandatory.

To this date there appears to be no research on the impact of the 2016 changes on the charity sector. We do not know if they have improved or reduced stakeholder understanding of a charity’s financial reports, and therefore do not know if they have improved or reduced accountability. We also do not know what the costs of these changes were to the sector, and how much accountants have financially benefited from them. We further do not know if stakeholders actually place any value on the non-financial parts of the report, or if the idea of ‘telling a story’ through this format has actually been furthered. I find it hard to believe that such a major policy change would have been conducted in any larger country without such data. NZ Charities have been experimented on.

I think there has been a certain recklessness about these changes, and the ‘leading the world’ narrative now prevents a humble and genuine reflection of the damage that has been done. I think New Zealand will still stand alone in 10 or even 20 years with this model of charity regulation. It has been a mistake, and the question is only how long we will have to wait before a courageous (and interested enough) minister comes along to say so.