Charity Issues

Editorial: Are Charities Too Rich?

by Harald Breiding-Buss

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.