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Rash financial deals dilute philanthropy


Charitable giving is being used to enrich private financiers.

'Does the leverage available to the rich distort charitable and philanthropic priorities?'

'Does the leverage available to the rich distort charitable and philanthropic priorities?'

DAME Elisabeth Murdoch can be reasonably described as the doyenne of Australian philanthropy. The only figure I have seen placed on her direct contribution was a guesstimate by The Australian Financial Review that the present-day value of her lifetime contribution to philanthropic causes was in the order of $100 million.

As I understand it, her favourite charity was the Royal Children's Hospital Foundation which, thanks to her active involvement, became a formidable vehicle for raising money for the hospital.

In 2011-12 the foundation raised $36 million. About $5 million or 13 per cent was spent on fund-raising, so that $31 million was available for the hospital.

But the net $31 million raised publicly through the front door is not enough to compensate for the $50 million a year taken out the back door by rent-seeking private financial institutions that persuaded the Bracks/Brumby government to finance the project though the vehicle of a public-private partnership, rather than public borrowings at a fraction of the cost.

The $50 million is the annual difference between effectively financing the $1 billion capital cost of the hospital by borrowings over 25 years costing 13.7 per cent, and the government financing the hospital with public borrowings with an interest rate of 5.5 per cent (which they could have done when the deal was set up in 1998).

I described the Royal Children's public-private partnership deal as a rort in this column last year. Nobody disagreed. They couldn't.

Victorian public hospitals are in crisis now because from next year the government will have to pay $658 million a year for 28 years to private partners in the Wonthaggi desalination public-private partnership. To do this, the government has to cut $606 million out of the health budget, effectively cost-shifting behind the $900 million increase in Commonwealth funding for state hospitals.

The Royal Children's Hospital Foundation stresses that the net money it raises is for specific projects associated with making a better hospital, rather than an opportunity for private or government cost-shifting to the foundation.

This is true, up to a point - but it is also true that money is fungible. An equally valid way to look at the relationship is that last year's foundation contribution of 62 cents in every dollar goes to the economic rents extracted by financial engineers and their backers who profit from the Royal Children's PPP.

To point out that there is an even bigger bucket ripping resources out of the Royal Children's than the bucket pouring money in is not to criticise the foundation. It is simply to point to the cynicism of the Brumby government and the stupidity of the Baillieu government for using the same public-private partnership model to build the $630 million Bendigo hospital. This will create another $20 million drain on the state health budget due to the difference between the cost of PPP financing and the cost of public borrowing.

Philanthropy should be harnessed to supplement health services, among other worthy social objectives, rather than supplement the incomes of the big end of town. More generally, philanthropy should be directed at enhancing public benefit, not private benefit.

Philanthropy is public business when donations are tax deductible because the revenue forgone must be offset by tax increases elsewhere or by cuts in other services provided by government.

Apart from special charity drives such as the Royal Children's Good Friday Appeal, charitable and philanthropic donations disproportionately come from the rich on the highest marginal tax rate, so that the general taxpayer provides a subsidy of 45 cents in each dollar donated.

Philanthropy is big business. The best guess is that the not-for-profit sector consumes about $4 billion a year in tax expenditures. According to a 2010 Productivity Commission report, the sector is growing at twice the rate of the Australian economy, partly in response to pressure from the rich to wind back the welfare state and outsource government social services.

The question is: does the ordinary taxpayer get value for money for these subsidies? Does the leverage available to the rich distort charitable and philanthropic priorities in the directions favoured by the rich and, most importantly, does the funding provide a public, as distinct from a private benefit?

Ordinary taxpayers may have their suspicions. Do the tax deductible donations for opera or ballet or elite private schools benefit the majority who are effectively excluded from these activities by lack of income? The short answer is we don't know because most of the information is unavailable or difficult to find.

The federal government managed to get through Parliament legislation setting up the Australian Charities and Not-for-Profit Commission, in the face of opposition from the Coalition. The commission will create a register to provide the information on which sound policy can be based. The Coalition has promised to abolish the commission if it wins next year's election.

It looks as if the not-for-profit sector has plenty to hide.

Kenneth Davidson is a senior columnist at The Age.

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