Total transparency? Perfect privacy? Beneficial balance?

 
Vanessa Meachen

Vanessa Meachen

As part of Australia’s current regulatory reforms, many charities which have not previously had to lodge financial reports will be required to report to the new Australian Charities and Not-for-profits Commission (ACNC). Among these newly reporting entities will be a number of charitable trusts. And not for the first time, Australian philanthropy is facing an issue which has been the source of hot debate: whether private foundations should have to report their activities, finances and officers to the public.

While the US, UK and Canada have already been through this debate, here in Australia there is no consensus. I wish it had been dealt with before I came into the sector, because every time the question is raised I am uncomfortably torn between opposing viewpoints. I have never seen an issue polarize our sector more.

Australian charitable foundations operate in a tax-free environment, leading to the argument that once money is donated to a foundation, it is no longer private money and therefore the public has a right to know about it. The first is true, the second – in my opinion – up for debate.

Australia’s philanthropic giving is lower than that in the UK, the USA and Canada, particularly in high net worth cohorts. One of the many historical reasons for our small philanthropic culture was the lack of an attractive private trust structure. In 2001 that gap was filled with the establishment of a new structure, now called the Private Ancillary Fund or PAF. This structure, at first referred to as an ‘American-style foundation’, has been on the crest of a ‘golden age of philanthropy’ which has seen the creation of over 950 new foundations within a decade.

Now many of these PAF founders are anxious that this class of private trusts may suddenly come under public scrutiny. Some donors are sensitive about their families knowing how much money is in their foundation, preferring that their children make their own way in the world. Some are concerned that public disclosure of the size of their trust could endanger the safety of their families, not wanting to live behind barbed wire. Still others have gone to great lengths to hide their identities as the founders of their PAFs, because they believe giving should be anonymous, or even because they are volunteering for one of the charities their PAF is supporting and don’t want to be treated differently to other volunteers.

All those people could, of course, spend down their PAFs and support charities through making large donations so that they can retain their privacy – and a number have stated that they will do so. Individuals who make tax-deductible donations must report them to the Tax Office but are not required to report publicly. They could then retain perfect anonymity. However, the major difference is that the corpus of a PAF is irrevocably sequestered for the benefit of the community into the future. We can guarantee that a PAF will continue to make grants. We have no guarantee that a private individual will do so.

I feel strongly that transparency does not automatically lead to accountability. The Bernard Madoff affair in the US, where philanthropic transparency is so dominant, has demonstrated this – a situation which I believe would be less likely to occur in Australia where unrelated ‘responsible persons’ are required to sit on most boards to provide an external perspective. Transparency alone won’t prevent misuse of charitable money. There has to be purpose behind reporting, and the information collected has to be used.

At the same time I confess to a secret longing to at last have comprehensive data about Australian philanthropy. How many foundations are there? How much are they giving? Where are the gaps? I know that mandatory reporting would answer those questions. It is frustrating to represent a sector whose size and activities are largely unknown. But those questions could also be answered if all foundations reported to the Tax Office or ACNC, which then made aggregate figures available for analysis rather than making figures about individual foundations publicly available.

So, transparency or privacy? It may sound as if I’ve made up my mind but I actually can’t decide where my personal opinion lies. What I do know is that I’m wary about anything happening which might truncate the growth of Australia’s philanthropic culture before it reaches full flower – particularly among high net worth individuals, who give here at substantially lower levels than their overseas counterparts. There has to be some kind of balance between the two – but where?

Vanessa Meachen is director of research and policy for Philanthropy Australia

Tagged in: australia Private trusts Reporting Tax regulations Transparency


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