Contribution of the not-for-profit sector
Productivity Commission Research Report, January 2010

ACOSS analysis and priorities for future advocacy, February 2010


Purpose

This analysis has been prepared for the benefit of national, affiliate and associate
members of ACOSS; for the Councils of Social Service in each state and territory;
and for their members. It provides an overview of the Productivity Commission’s
recent report on the not-for-profit sector and sets out ACOSS priorities for future
advocacy in this area. ACOSS invites comments and input on these priorities from
our colleagues and members in the sector.


Contents

1. Introduction: the context of the Productivity Commission’s report....................... 2
2. Contribution of the not-for-profit sector................................................................ 2
The contribution of the sector in economic terms ................................................... 2
Value in non-market terms ...................................................................................... 3
3. Regulation ........................................................................................................... 4
National Registrar ................................................................................................... 4
Charities definition................................................................................................... 5
Taxation .................................................................................................................. 5
Other regulatory reforms ......................................................................................... 6
4. Improving knowledge and evaluation.................................................................. 6
5. Workforce, sector development and sustainability .............................................. 7
6. Future directions ................................................................................................. 9
7. Further reading.................................................................................................. 10
ACOSS.................................................................................................................. 10
Other organisations............................................................................................... 10






For further information and to provide feedback on ACOSS analysis and priorities for
advocacy on the contribution of the not-for-profit sector, please contact:

Tessa Boyd-Caine, Senior Policy Officer, ACOSS
Tessa.Boyd-Caine@acoss.org.au, ph 02 9310 6200
Productivity Commission report into the contribution of the not-for-profit sector
ACOSS analysis, February 2010

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1. Introduction: the context of the Productivity Commission’s report

Two key aspects of the Productivity Commission’s (PC) study into the contribution of
the not-for-profit sector are important for this analysis of its recommendations and
priorities for social service and welfare organisations. The first is that this is a report
about the not-for-profit sector in its entirety. The sector spans a vast range of
activities, including culture and recreation to education and research, philanthropy,
religion, professional associations and unions to name a few. Within that broad
sector, social services comprise less than one-fifth of the sector being studied, at
16%. Health services make up even less of the not-for-profit sector, at 8%. In other
words, social and community services comprise part of the subject of this report but
are by no means its sole focus.

The second key aspect is the role of the Productivity Commission itself. The
Commission describes its focus as being ‘on ways of achieving a more productive
economy - the key to higher living standards’. This focus requires particular attention
to market values and quantifiable activity. Yet many organisations in the not-for-profit
sector operate in ‘non-market’ areas as well; and some do not operate in the market
at all. While such activities might exclude these organisations from most measures of
economic activity, they are also definitive elements of the not-for-profit sector, for
instance, when the mission of a not-for-profit is to support their local community. The
fact that such a contribution may be hard to calculate within a market-based
framework of economic activity does not make it any less valuable, least of all to the
not-for-profit sector. The PC acknowledges this and it is an important consideration
for welfare organisations planning future advocacy on the recommendations in this
report.

2. Contribution of the not-for-profit sector
The contribution of the sector in economic terms

The report provides a range of useful estimates about the size and economic
contribution of the broad not-for-profit sector. Out of 600,000 organisations across
the sector, around 440,000 of them are small and unincorporated. This leaves only
160,000 with incorporated structures. 4.6 million Australians volunteered with non-
profit organisations in 2006-2007, only half of whom volunteered for organisations
who also employed staff. Thus small organisations comprise the majority of
organisations in the sector; and they rely heavily - and sometimes exclusively - upon
substantial support from volunteers. Less than 60,000 organisations are classified as
having an active tax role, for instance by employing staff or accessing tax
concessions. Employment in the not-for-profit sector has grown from 6.8% in 1999-
2000 to 8.5% in 2006-07.1 Around 50% of the sector’s income is self-generated; 33%
comes from government; and 10% comes from philanthropic sources.




1 As a percentage of total employment.
Productivity Commission report into the contribution of the not-for-profit sector
ACOSS analysis, February 2010

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Social services make up 16% of the not-for-profit sector and contribute 15% to its
growth.2 The NFP sector has an average annual growth rate of 7.8%, with social
services contributing 15% to that total growth. The PC estimates income sources for
social services as 55% from government, 5% from philanthropy, 35% self-generated,
and 5% from other sources. These estimates contrast with ACOSS’ data for the
same period which estimated government funding levels were as high as 77% of
community organisations’ income, with own sources at 14% and client fees
contributing some 8% of income. Social services are the largest category of
employers within the NFP sector, contributing 25% of overall employment in the
sector. But the employment rate in social services masks high levels of casual and
part-time workers, a decline in volunteer hours and increasing difficulty in attracting
and retaining volunteers; and employment growth was stronger in other areas of the
sector.

Health services comprise 8% of the broader not-for-profit sector and include hospitals
and rehabilitation, nursing homes, mental health and crisis intervention and other
health services. They make up 17% of the sectors’ value3; and contribute 18% of the
sector’s employment, with an average annual growth of 8.1% from 2000-2007.
Compared with social services, health services attract higher levels of government
funding (almost 70%) but lower levels of funding from philanthropic, self-generating
and other income sources. Unlike social services, the health sector saw a growth in
volunteer hours.
Value in non-market terms

The not-for-profit sector makes a significant contribution beyond market-based
economic activity. ‘Non-market’ contributions include the promotion of social
cohesion and cultural, environmental and other community benefits. While these
aspects of the sector receive less attention, the report also implicitly acknowledges
the sector’s role in strengthening civil society, for instance by recognising that not-for-
profit organisations are trusted more than government or corporate organisations.

While these elements are acknowledged, the lack of economic data through which to
evaluate their contribution means they receive less attention than they might
deserve. There is little analysis of the support provided by non-profit organisations for
individuals, or their role in fostering community cohesion. For representative
structures and peak bodies like the Councils of Social Service across the country,
policy development and advocacy are also major aspects of the sectors’ work that,
while difficult to quantify within a framework of market-based values, nonetheless
constitute important contributions of the sector.


2 Growth calculated on the basis of gross value added. See 4.2 at page 62 of the Report for full
explanation.
3 Gross value added, see above.
Productivity Commission report into the contribution of the not-for-profit sector
ACOSS analysis, February 2010

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Notwithstanding the limitations of a market-based approach, the report is a thorough
and detailed account of the range of activities across the sector. The PC conducted
extensive consultation with the not-for-profit sector throughout its study and social
and community services made a significant contribution to the report through oral and
written submissions. It is a testament to the value of these contributions that the
report draws heavily from the many submissions made by non-profit organisations
throughout its discussion.

3. Regulation
National Registrar

Perhaps the most important recommendation in this report is for a national Registrar
to bring together regulatory functions across the sector. Operating as a ‘one-stop
shop’ for regulation, those functions would include endorsement and registration for
Commonwealth tax concessions; the submission of corporate and financial
information; and registration for national and/or inter-jurisdictional fundraising
activities. The establishment of a national regulator has been a major platform of
community sector advocacy for more than a decade and it remains an absolute
priority to ensuring effective regulation of the sector.

The PC’s recommendation for a registrar notes that this body could be situated within
ASIC. In line with the recommendations of the 2001 Inquiry into the Definitions of
Charity and to ensure the effectiveness of regulation in the sector, it is vital that a
national Registrar be independent. Having expertise on the sector will determine the
regulator’s capacity to support the sector, particularly to ensure that the sector is
accountable to its members or clients, funders and the community; and that the
sector understands and complies with its regulatory responsibilities. While there
might be some opportunities for cost-sharing and other efficiencies with existing
regulators, ACOSS maintains that a truly independent body is essential for the
success of a national regulator of the not-for-profit sector.

We support the PC’s recognition that capacity building and sector development are
important objectives but must remain separate to the functions and structure of a
regulator. The role of the states and territories in sector development is extremely
important and we support the PC’s recommendation that they maintain primary
responsibility in that regard. However, the regulatory and registration functions of a
national Registrar for the not-for-profit sector should not be duplicated at other levels
of government. The PC argues that small, local and unincorporated organisations are
better regulated at the level of states and territories; and that a national regulator
should exist alongside the current structure of state-based regulation such as
Incorporated Association Acts. ACOSS does not support this proposal for a dual
regulatory structure. The creation of a national Registrar would not preclude a simple
regulation structure for smaller organisations, including the vast number of
unincorporated organisations in the sector. Most importantly, a single regulatory body
would be able to improve consistency, effectiveness and compliance in the regulation
of the sector across the broad not-for-profit sector.
Productivity Commission report into the contribution of the not-for-profit sector
ACOSS analysis, February 2010

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Charities definition

We strongly endorse the PC’s recommendation that the Commonwealth adopt a
statutory definition of charitable purpose in accordance with the recommendations of
the 2001 Definitions of Charity Inquiry. Such a reform would significantly improve
clarity surrounding the role and contribution of the not-for-profit sector. The
recommendations of the 2001 Inquiry have widespread support from social service
and community organisations and their adoption is long overdue. The 2001 Inquiry’s
recommendations can be found here.
Taxation

The prospects of taxation reform have been another major concern for social and
community services. The review of Australia’s Future Tax System (Henry review)
holds prospects for reform of both the taxation and transfers (payments) systems that
could have extensive implications for social services and their clients. ACOSS has
undertaken extensive policy development and made a range of submissions on the
taxation and transfer systems, with a view to ensuring that Australia has a simple,
adequate and fair taxation system for all.

For many of our members, the potential reform of tax concessions for the sector has
attracted the greatest interest in the Henry review. The PCs study took place within a
similar timeframe to the Henry review and there was some speculation across media
and sector organisations that the PC’s recommendations would intersect with the tax
reform agenda. Importantly, the PC was given a taxation reference specific to
considering whether tax exemptions for not-for-profit organisations affect the
competitive neutrality of the market.4 In this regard, the PC concluded that current tax
concessions on gaming income provided to clubs by governments breach
competitive neutrality.

Beyond that, the PC commented on the way the not-for-profit sector is taxed, but
stopped short of making specific recommendations for reform. The PC observed that
tax concessions mask the true funding needs (or deficits) of the not-for-profit sector
and are complex, costly and distorting. Such concessions include the fringe benefit
tax exemption, which many sector organisations rely upon to top-up salaries that are
otherwise inadequate. Yet the PC report provides no further detail about possible
directions for reform in this regard.

In the absence of the release of the Henry report, the lack of direction or clarity from
the Commonwealth government about its priorities for tax reform have caused
significant uncertainty and instability amongst our membership, especially in the face
of persistent and unsubstantiated rumours. While the Government has sought to
reassure ACOSS that it understands the importance of many of these concessions
for the sector and would not make significant changes without consultation, this has
not assuaged sector anxieties.

4 Competitive neutrality is ‘a principle that promotes the equal treatment by governments of competing
organisations to achieve a “level playing field”’ (Productivity Commission 2010:197).
Productivity Commission report into the contribution of the not-for-profit sector
ACOSS analysis, February 2010

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Moreover, Commonwealth government has noted that it has not wanted to pre-empt
the PC’s recommendations in terms of the taxation of the not-for-profit sector. While
the PC has confirmed that it met with the Henry review to discuss the scope of the
two studies, it had no knowledge of the framework being considered by the Henry
review and so could not make recommendations about the taxation of the sector
(beyond those in relation to competitive neutrality).
Other regulatory reforms

There are a number of specific recommendations to aid the removal of onerous and
unnecessary ‘red tape’ contained in the report. This is particularly important for our
sector, as more than one-third of ACOSS members report that red tape adversely
affects their ability to deliver services. The first step in this agenda has been the
development of a standard chart of accounts (see ACOSS analysis). While we
support such initiatives, the most important steps towards reducing red tape and
ensuring effective regulation of the sector would be achieved through the
establishment of an independent, national Registrar.

4. Improving knowledge and evaluation

ACOSS welcomes the PC’s recommendations to improve knowledge about the
sector and to develop a common framework for reporting on and evaluating the
contribution of the sector. The PC recommendations set out a basis for determining
knowledge and evaluation in terms of the sector’s inputs, outputs, outcomes and
impacts. In particular, the PC has recommended a reporting framework based on the
identification of ‘mission’ classifications that would encourage the development of
common measures and indicators. The proposed classifications are ‘service
delivery’, ‘exerting influence’, ‘connecting the community’ and ‘enhancing the
community endowment’. The use of such classifications would establish a framework
capable of recognising the range of activities that not-for-profits engage in, from
service delivery to policy development, advocacy and community development.
ACOSS proposed such an approach in our submission to this study and there is a
significant body of work within the community services and welfare sectors that could
inform its approach. These measures could also aid the sector in improving its
contribution and effectiveness, through the results of evaluation and its implications
for improved policy development and service delivery.

The PC recommendation to establish a Centre for Community Service Effectiveness
would provide the mechanism to collect meaningful and comparative data consistent
across all levels of government. The report recognises that current reporting
requirements set by governments do not lend themselves to the accumulation of
useful data for the sector and often are an onerous burden on non-profit
organisations. A Centre along the lines of the PC’s recommendation would have the
potential to improve the information available about not-for-profit organisations and to
take further important steps towards reducing red tape across the sector.



Productivity Commission report into the contribution of the not-for-profit sector
ACOSS analysis, February 2010

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The structure and functions of such a Centre receive far less attention in the report.
The relationship between research, policy and practice will be important aspects of
its structure and will determine its effectiveness. Resolving these questions may also
present opportunities for sector organisations interested in the intersection between
research and action. Some in the sector have also expressed concern that, while a
Centre for Service Effectiveness has a lot of merit, there is also a risk that adopting

national approaches to measurement and evaluation would impose rigid, one-size-
fits-all conditions on the sector. That approach would not address the needs and
capacities of the huge range of community service organisations; and might fail to
ensure adequate resources and support for organisations to learn from and
implement new approaches. The network of Councils of Social Service will be
engaged in the process of establishing a Centre for Community Service
Effectiveness to guard against such concerns.

In addition to the introduction of a Centre with implementation and coordinating
functions, we remain committed to improving the capacity of existing operations that
can support the collection and analysis of information about the sector. In particular,
research undertaken by the Australian Bureau of Statistics (ABS) could be improved
to provide a more useful set of data on the sector. ACOSS advocates that the ABS
should:

a. increase its sample size significantly to allow it to produce a breakdown of the
nine or 12 (preferably 12) ICNPO categories into sub categories and by State
and Territory;

b. undertake the Not for Profit Organisations Survey (with the increased sample
size) every 3 years and also release the data in the Australian and New
Zealand Standard Industrial Classification (ANZSIC) Class;

c. be funded by the Commonwealth Government to undertake these two
operations above; and

d. undertake the Community Services Industry Survey at five-year intervals.

5. Workforce, sector development and sustainability

The PC’s recommendation that government funding include market wages is a vital
step towards addressing the growing disparity in pays between workers in social and
community services and comparable roles outside the not-for-profit sector. ACOSS
strongly supports this recommendation and sees it as another step towards ensuring
adequate and appropriate wages for sector workers, alongside the equal
remuneration case to be run in 2010.

Another key recommendation for the sector’s sustainability and capacity to develop is
that the intention of government funding be clearly identified in terms of whether it
constitutes full funding of services or a contribution only. This recommendation flows
from the PC’s finding that governments generally fund only 70% of the cost to the
Productivity Commission report into the contribution of the not-for-profit sector
ACOSS analysis, February 2010

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sector in providing services, with the remaining costs being covered by fees and
organisations’ own resources. Better clarity and transparency around government
funding arrangements would increase organisational capacity to identify where and
how its own income should be directed.

We welcome the PC’s support for several key ACOSS recommendations, including
the dedication by governments of a small proportion of their program funding for
innovative approaches and projects within the sector. Funding for innovation would
provide support for organisations to test and refine the programs they offer to support
low income Australians and their communities.

Much of the PC’s report considers the nature of relationships between nonprofits and
those outside the not-for-profit sector, primarily government. As the PC
acknowledges, processes such as financial reporting are informed by relationships
with the sector but they can also determine these relationships. Social services are
already well-aware of this and ACOSS submissions to the PC study discussed this at
length.

ACOSS supports the PC’s recommendation for an Office for not-for-profit sector
engagement within a central agency of the Commonwealth government. We
advocate that this should be located within the Department of Prime Minister and
Cabinet for two reasons: to reflect the importance of relationships with the sector
across many government departments; and to strengthen the leadership of the
Deputy Prime Minister in achieving social inclusion.

An Office for NFP sector engagement would play a pivotal role in striking a more
even balance in relationships between the sector and government. That balance
needs to be informed by greater levels of understanding about respective roles and
responsibilities and a greater sense of common purpose. The sector is more than
keen to share its expertise with government in the design of programs and contracts
to achieve more responsive and innovative service outcomes. This re-engineered
relationship needs to acknowledge the value and independence of the community
services and welfare sector. Governments should consult meaningfully through
representative structures (including appropriate lead times and times for responses)
around program and policy implementation and to appoint peak body representatives
to relevant Inquiries.

Relationships can also be improved through better understanding between
individuals working in the different sectors. This could include public servants
undertaking voluntary work in the community services and welfare sector and a
program of secondments between the two. Leadership programs such as Sydney
Leadership run by the Benevolent Society and the Leadership Victoria Program bring
together leaders from government, not for profit and business sectors and are
another practical way to enhance better understanding.

Productivity Commission report into the contribution of the not-for-profit sector
ACOSS analysis, February 2010

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6. Future directions

The PC’s report lays out a clear agenda for reform. The study received extensive
submissions from social and community service organisations and draws heavily on
these in its report. ACOSS will be seeking to work closely with the Commonwealth
government and, through the COSS network, with all governments to ensure that this
historic opportunity for reform is not lost.

ACOSS priorities for advocacy arising from this report are as follows:

i.
The establishment of a national, independent regulator of the not-for-profit
sector, in line with the PC’s recommendation for a Registrar. Its function
would be to drive the development of reforms and their implementation
across the sector.

ii.
A legislated definition of charitable status based upon the 2001 Inquiry
into the Definitions of Charity.

iii.
Recognising the important contribution by the sector in the areas of policy
development and advocacy, as well as services and programs.

iv.
Consulting appropriately across the sector in the identification,
introduction and implementation of any reforms.

These priorities provide an opportunity for a collaborative approach across the not-
for-profit sector on key proposals that have strong and widespread support. The first
two priorities are reforms that have long been supported throughout the sector and
are based on extensive work over many years. The second two priorities relate to the
relationships and context within which the sector undertakes its work and are areas
that require constant and ongoing attention both within the sector and in its external
relationships. Beyond these priorities, ACOSS will be working with our members and
colleagues in the sector to support sector reform across a wide range of areas,
including the further development of ideas such as the recommendation for a Centre
for Community Sector Effectiveness.

ACOSS invites comments and feedback from our members and colleagues in the
sector on the analysis and conclusions we have drawn from the PC’s report. The
priorities for advocacy that are set out in this document will guide ACOSS in future
work with the sector and government. These are open to suggestion, addition, or
further refinement and we welcome your comments.

Productivity Commission report into the contribution of the not-for-profit sector
ACOSS analysis, February 2010

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7. Further reading
ACOSS
 Submission to the PC draft report (November 2009)
 Initial submission to the PC study (June 2009)
 Submission to the Inquiry into the disclosure regimes for charities and not-for-
profit organisations (September 2008)
 National Compact - Discussion Paper (August 2008)
 A charity by any other name (August 2003)
See also the websites of the Councils of Social Service in each state and territory for
further information.
Other organisations
 Productivity Commission research report into the contribution of the not-for-
profit sector, January 2010
 Submission by PilchConnect, a service within PILCH (Vic)
 A question of balance: principles, contracts and the government-not-for-profit
relationship (PIAC and Whitlam Institute, 2009)

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