Charitable tax refunds will extend social and economic gaps

A seemingly positive and uncontroversial proposal to change taxation arrangements for charitable donations will return to parliament this week.

The change means wage and salary earners can have charitable donations made by automatic payment from their pay each week with the government arranging a quick tax refund of a third of the donation.

Legislation to do this was introduced last year and is being reported back to parliament this week from the Finance and Expenditure Select Committee.

It follows from Labour’s decision to increase the limit for tax subsidies for charitable donations and National’s follow-up announcement early this year to lift the limit much further so that a person can now donate up to the full value of their annual income and receive a third back as a tax refund.

For every $300 donated the government refunds $100 to the donor.

New charitable organisations are registering rapidly to take advantage of the policy. There are over 22,000 groups now qualifying, astonishing for a country of just four million.

So where is the downside? Isn’t this just a welcome explosion of kiwi support for charities? We like to think we are generous people and isn’t this just an example of the government encouraging that kiwi spirit of giving? And surely it will help reduce poverty?

Philanthropy New Zealand director Robyn Scott is reported as saying “It’s starting to feel to some of us that maybe we are starting to move into a new age. There seems to be an increased awareness of the needs of others at this time”.

However the implications of all this taxpayer subsidised giving has serious downsides. We are increasingly shifting the responsibility for funding social services from the government and onto voluntary organisations. This has two important effects. Firstly those groups which receive funding from well-off philanthropists are only ones of which the prosperous approve. So instead of what can be argued is a community decision to fund services via taxation without fear or favour we are left with funding based on the impulses and prejudices of donors. Secondly the government’s forgone taxation will effectively shift the tax burden further onto those on the lowest incomes.

Put another way these tax refund changes amount to increased social engineering with those with the ability to make large donations using their economic resources to steer society in a direction they approve at the expense of taxpayers.

So there is plenty to worry about here and yet there’s been no sign of a public debate.

John Key has made no secret of his desire to see New Zealand develop this American model of philanthropy but as we know from the US it does not help to reduce poverty. That country of great abundance has more than 30 million (and rapidly growing) of its citizens living below the poverty line.

Donations to religious organisations and to state and integrated schools also attract the tax rebate. We can expect to see fringe religious groups receiving a boost from the taxpayer with renewed ability to promote all kinds of socially destructive policies as they do in the US.

The effects on schools will also be profound.

Schools in higher income areas will benefit substantially because large donations can now be provided by parents with the government giving a third back to the donor. Auckland Grammar for example, a state school, has an Academic Endowment Fund which will qualify for rebates. The school says this fund is designed to “…attract, reward and retain quality teaching staff” and is a mechanism to “…address the gap between state and private school salaries”. How many public schools will be able to compete with the salary top-ups Auckland Grammar can deliver?

To date the Fund has distributed more than $500,000 to the school staff. Where is the fund for the hard working teachers at our neediest schools? Parents in these communities already struggle to pay the voluntary donations the schools seek. At one school in Otara the annual donations taken over the whole school amounted to an average of $1.30 per student. At Auckland Grammar the voluntary donation, paid by almost all parents, is $700. With families in low-income areas now bearing the brunt of the recession with growing unemployment there will be fewer donations than before. The same benefit from the tax policy will be absent.

So over time the policy will extend the social, racial and economic gaps across New Zealand just as the same policy has added to American woes.

New Zealand is already a sharply divided country and in a multitude of ways this tax rebate policy will exacerbate the divisions as the affluent indulge their whims and fancies at taxpayer expense.