The PM wants American-type tax breaks on charitable donations... but the British model that sees donations benefit the charity rather than the giver would be more our style

I'm currently on holiday at home and enjoying the end of what I am reliably informed has been the best summer in years. I’m also enjoying observing what’s rattling the cages of New Zealand’s politicians. Quite apart from the entertainment gleaned from the argument surrounding the New Zealand honours system and how a national cycle network is the answer to saving the New Zealand economy from ruin, I’ve taken a keen interest in the current debate that surrounds last week's plea by Prime Minister John Key, who has suggested that those who do not spend their imminent tax cuts, instead give them to charity in his drive to create an American style of philanthropy in this country.

Few would argue that charitable giving by individuals and a culture of philanthropy is anything but beneficial to the rich fabric of any society. Yet the role of what is described in Britain as the “third sector” – an all encompassing adjective that describes the work of registered charities, faith groups, campaigning groups, arts and cultural organisations, grass root community organisations and not for profit social enterprises, whose income is often reliant on charitable giving by individuals – is quite different from the role of the state, whose work is largely supported by taxation.

As members of society, we have a legally-enforced responsibility to pay tax, which in turn is spent by those in power, who we have democratically elected, as they see fit. By common consensus that means hospitals, schools and the like for all, no matter their wealth.

Charitable giving is not enforceable. It is freewill – determined by the individual, as they see fit. In the UK, evidence shows that the charities that benefit most from public freewill donations are medical research, followed next by children and young people, and then hospital and hospice charities.

Charitable fundraising is always hard work – but even tougher when your cause isn’t sexy. Ask any charity fundraiser who seeks to raise money to support the work of those affected by discrimination or domestic violence. Nor does everyone in society give. Evidence in the UK also shows that those most likely to be doing the giving are women and those aged 45-64. The poor, as a proportion of their income, give more of their income than those better off and only a very small number of men give generously. If those doing the giving in New Zealand reflect a similar profile, one doesn’t have to be a genius to conclude that those in receipt of the much talked about tax cuts aren’t those who have a propensity towards charitable giving.

Key is reported as having no apparent interest in dismantling the welfare state and leaving it to New Zealand’s voluntary sector to pick up the slack. I will be accused of reading dark motives into the Prime Minister’s quest for even suggesting that his enthusiasm for donating more to charities will lay the ground for him to reduce the role of the welfare state. However one can’t help but wonder. The American culture of philanthropy is driven first and foremost by generous tax breaks that benefit the individual, so it's worth pondering whether adopting such a culture might take us to a place where the welfare state safety net is left full of gaping holes because the free market style of giving means that only those organisations who work with those with cancer, the “deserving” poor and animals will attract the charitable dollar. Society is strongest when the state and the voluntary sector are supportive of, not in competition with, each other.

Key has floated several vague ideas. These have included making it easier for wage and salary earners to donate directly from their pay cheque and get an automatic tax rebate and the possibility that rebates might also be available for gifts of goods and time.

Outside of the US, where the tax system is utterly different from the one that we have in New Zealand, I’m not convinced that tax relief on charitable donations that benefits the individuals is a motivator for an individual to give, nor am I convinced that tax incentives encourage more regular donations, or donations of a greater value. In the UK, charitable giving schemes with tax relief benefits for the individual as their key selling point have generally, failed to thrive. 

Kiwis for the most part give because they believe in the cause – not because they are going to be rewarded financially. However, that’s not to say that tax relief doesn’t have a role to play in supporting New Zealand’s voluntary sector. Key’s suggestion that the tax on any charitable donation could be claimed back directly by the charity at the donors' direction could really invigorate the impact that donations to the voluntary sector have.

In the UK, the Gift Aid scheme enables charities to claim an additional 25p – which is the basic rate of income tax – from every £1 donated by UK taxpayers where permission has been given by the donor for them to do so. In other words, the tax break goes to the charity, not back to the giver.

Gift Aid can apply to one-off donations, or those over a specific period. It can be backdated for up to 6 years and in some circumstances, Gift Aid can be applied to sponsorship and membership fees. If permission to claim the basic rate of income tax back is not given by the donor, to the charity, the basic rate of income tax remains with the Exchequer. Latest figures from HM Revenue and Customs show that at present, Gift Aid payments to charities are in excess of £800 million.

Imagine what such an unrestricted cash injection could do to boost and enhance the role that the voluntary sector plays in New Zealand society. Mr Key, if you really are serious about making Kiwi’s donations count, it’s worth thinking about.

Comments (1)

by Raymond A Francis on March 26, 2009
Raymond A Francis

I have to admit to reading your contribution with a negative mind set

But the thought that the tax break goes to the charity of the givers choice seems a dam good idea

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