Spotlight lurks on non-profit sector

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This was published 14 years ago

Spotlight lurks on non-profit sector

By Adele Ferguson

The Rudd Government was thrown a hot political potato yesterday when its economic adviser, the Productivity Commission, recommended the country's $43 billion non-profit sector fall under ASIC's supervisory tentacles. It also recommended an end to the massive tax lurks being ripped out of the system by hospitals and big sporting clubs, which enjoy almost $1 billion a year in tax breaks.

Doctors and nurses and other staff get more than $260 million a year in fringe benefit tax exemptions because they work for hospitals and aged care homes owned by charities and religious groups such as Catholic Health.

The news will undoubtedly be welcomed by private hospital groups including Ramsay Healthcare, which doesn't attract such these tax breaks. It will also be welcomed by the private hotels and casinos, which compete with some of the bigger clubs but do not get the same tax privileges.

The reality is the non-profit sector, which represents almost 5 per cent of the economy, 600,000 organisations and 8 per cent of the work force, is a mess. It is dangerously unaccountable, lacks transparency and is inefficient.

It is the black hole of Australia's economic system and nobody really knows how big it is. The $43 billion mentioned in the report is a stab in the dark. Even the amount of tax it is exempt from paying is impossible to track. The report says it could be $4 billion or double that.

It is no surprise then that the sector, the many volunteers and donors, have been crying out for better regulation and more transparency for decades.

The Productivity Commission should be congratulated for recognising this, along with understanding the sheer size and importance of the sector and the need for clearer governance and accountability. However, it fell short in some key recommendations.

The most important shortcoming was its decision not to create a separate regulator, or charities commission. Instead, it recommends the creation of a national register to act as a one-stop-shop to bring together current Commonwealth regulatory functions, including tax endorsement and the incorporation of not-for-profits.

This is all good but to house the register inside ASIC is disappointing. So too is the recommendation that ASIC try it out for at least the next five years and appoint just one separate commissioner and set up an advisory panel.

Canada, New Zealand, Britain (and Scotland) are just a few of the countries that have gone much further and created a separate charities commission. ASIC has little understanding of the sector and is already bursting at the seams.

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Over the past 14 years, five reviews into the sector, including one by the Productivity Commission in 1995, came to nothing. It is not hard to see why. Most parts of the sector understand the need for change but many of the changes required are a political time bomb.

To follow the latest recommendations would be political suicide in an election year. Clubs, nurses, doctors and religious groups have a lot of political clout. It is likely to be one more report to be tucked away for another year.

The whopping $260 million in tax breaks to non-profit hospitals is a violation of competitive neutrality. The decision years ago to give FBT breaks to hospitals owned by religious groups and the public sector has long been a bane of the private sector, which regards it as distorting the playing field.

The report outlines some of the tax lurks. For example: Peter, a doctor in a non-profit hospital, has dinner with 10 friends. The bill comes to $200 each, or $2200. Peter pays the bill with his public benevolent institution credit card and collects $2000 from his friends. Peter has a salary of $250,000. This transaction reduces his after-tax income by $1023. He received $2000 from his friends, had a free dinner and increased his after-tax income by $823.10.

If that isn't enough to get the blood boiling, there is the example of Jane, who decides to package her $40,000 wedding. Jane has a $90,000 salary. By packaging the wedding, Jane reduces her tax payable from $23,000 to $9050. Effectively the taxpayer has contributed $13,950.

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