In defence of civil society: The virtue of prescribed private funds

• John Humphreys
• Centre for Independent Studies

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03 March 2009In 2008 Australians donated about $13 billion to welfare, health, education, foreign aid, and other
philanthropic sectors.

Unfortunately, the government is suggesting new regulations that will limit the flexibility of charitable
funds and decrease the quality and quantity of philanthropy. This would be bad policy at any time,
but given the current economic situation it is especially important that we protect civil society.

The suggested policy changes affect Prescribed Private Funds (PPFs). The purpose of a PPF is to
allow donors to give tax-free money into a fund, which can then distribute that money later to approved
deductible gift recipients. Since 2001, more than 800 PPFs have been registered, with a total value of
about $1.3 billion.

The great virtue of PPFs is that they allow donors to distribute their money at the most appropriate
time in different financial years (called ?inter-temporal shifting?), which allows for more efficient and
effective distribution of donor money.

This flexibility allows donors to adjust to the changing circumstances over time. In some years
there will be many deserving charities looking for funds, and able to produce good outcomes. At other
times there will be fewer good projects.
For civil society to be most efficient and effective, we need the flexibility to shift money to times
of the greatest need?such as during a recession or a natural disaster.

In their discussion paper on PPFs, the government proposed to introduce a compulsory minimum
distribution, possibly at 15 per cent of the PPF capital amount. But there are various problems with
the government?s suggested changes.