Progressing Not-for-profit Sector Reform
Address to CPA Australia Not-for-Profit Conference
Parkroyal, Darling Harbour Sydney
17 May 2012
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- Sharon Portelli, CPA NSW President
Thank you Kegan (Kashian) for that kind introduction and thank you to CPA Australia for organising this series of conferences to update your members on the Government's historic reform agenda for the not-for-profit (NFP) sector.
I'm delighted to be here today, because as Assistant Treasurer in the Gillard Government, one of my priorities is working closely with the charitable and NFP sector to deliver what is a comprehensive and transformative reform agenda.
As an elected representative of my local community in Western Sydney for the last 13 years, I have seen first-hand the very valuable work of charities and NFPs that operate at the grass roots level supporting the vulnerable, the disadvantaged and the disenfranchised.
But of course, while many of us have seen the good work of charities and NFPs in our communities, the breadth and diversity across the sector is also evident in the fact that many of our charities and NFPs are also integral to national and, even international, efforts to help those in the greatest need.
Charities and NFPs create opportunities for Australians to participate in work, engage in life-long learning, participate more fully in society and live their lives with dignity and respect.
The work of the sector has a profound impact upon the lives of so many individuals and the communities that we all comprise. The sector not only plays an important role in extending a helping hand to the disenfranchised and the marginalised, but also plays a key role in helping them walk along the path to greater empowerment and participation in our economy and our society.
The charitable and NFP sector is estimated to consist of around 600,000 entities, of which 400,000 are estimated to have access to Commonwealth tax concessions.
The NFP sector contributes about 4% of Australia's GDP.
It is also an expanding sector, growing at an average rate of just under 8% a year in the seven years to 2006-07. This is more than double the real growth rate of the economy as a whole.
The Government recognises the important contribution of charities and NFPs in Australia, and provides support through tax concessions designed to support their altruistic activities. In 2010-11, Commonwealth taxation concessions to the NFP sector amounted to almost $3.3 billion. Of course, the Government also provides funding for the direct provision of important services by our charities and NFPs.
The Gillard Government is committed to working collaboratively with this important sector to implement a series of important regulatory reforms to support and strengthen the sector for the future.
These regulatory reforms, and particularly the establishment of the Australian Charities and Not-for-profits Commission (the ACNC), is something that I would like to speak about today.
Background to the Reform Agenda
Over the last 17 years, there have been six separate reviews of the charitable and NFP sector.
These have included the comprehensive 2001 Report of the "Inquiry into the Definition of Charities and Related Organisations", the 2009 "Review into Australia's Future Tax System" and the Productivity Commission's (PC) 2010 report, "Contribution of the Not-for-Profit Sector".
These reviews have recommended simplifying and harmonising taxation and regulation for the sector, with a national regulator and a statutory definition of charity.
In its 2010 report, the PC found that the current regulatory framework governing the sector is "complex, lacks coherence, sufficient transparency, and is costly".
Other problems identified by the PC included a lack of consistency and comparability in financial reporting requirements, and significant differences in fundraising legislation between jurisdictions, which added to the costs incurred by the sector.
In line with earlier reports into the sector, the PC report concluded that reform would be best implemented through a central body within the Australian Government.
The Government's Not-for-profit Reform Agenda
Responding to the PC report, during the 2010 election the Gillard Government committed to a number of actions including:
- Establishing a new Office for the Not-for-profit Sector supported by a new Not-for-profit Sector Reform Council made up of representatives from across the sector;
- Undertaking a scoping study for a national regulator for the not-for-profit sector to remove the complex regulatory arrangements currently in place and streamline reporting arrangements;
- A focus on greater harmonisation and simplification between the Federal, State and Territory Governments on not-for-profit sector issues, including regulation; and
- Reducing red-tape for government funded not-for-profit organisations.
Following on from this, in the 2011-12 Budget, the Government announced a series of reforms to strengthen and support the viability and reputation of the sector.
The cornerstone of the Government's reform agenda is the Australian Charities and Not-for-profits Commission (ACNC).
The Australian Charities and Not-for-profits Commission
While the ACNC will initially regulate charities only, it is intended that the framework be extended more generally to NFPs in the future.
As we approach the commencement date for the ACNC, this initial phase of the reform will maintain a focus on building its capabilities as a regulator.
There are many compelling reasons for the establishment of a national regulator for the charitable and not-for-profit sector.
A new national regulator will allow certain existing Commonwealth Government regulatory functions to be better performed.
For example, it has often been noted that under the current arrangements, the Australian Taxation Office (ATO) has the dual and potentially conflicting duties of determining an entity's charitable status as well as the responsibility to enforce the taxation law.
The Government has decided that it is more appropriate to have an independent regulator, with a greater focus on the particular needs of the sector, to have the role of determining an entity's charitable status.
Second, having a national regulator will also ensure that the sector can consolidate its standing in the community through improved transparency and accountability.
As Tim Costello, speaking as the Chief Executive of World Vision Australia, recently remarked:
"It is our hope that the ACNC will bring about a new level of governance and transparency and expose the tiny minority of unethical fund-raisers that can sully a sector's reputation."
A new national regulator will also provide important support to the sector in managing the transition towards an enhanced level of transparency.
Over time, the ACNC will provide a public information portal to enable donors to make informed choices and will support sector participants through education and guidance.
A new national regulator can also assist Government to drive reform to reduce the regulatory burden on the sector.
With the establishment of the ACNC, we will also have a platform for delivering a national approach to NFP regulation. The Commonwealth is committed to working cooperatively with the States and Territories to bring a greater harmony to the often overlapping and inconsistent regulations across jurisdictions.
Previous experience shows that the existence of a national regulator can be an important step along the road to a more harmonised, national approach to regulation.
I am encouraged by the strong support from the sector for the establishment of the ACNC and the constructive input that you have all provided as we progress through the implementation of the reform process.
The implementation of the Government's NFP sector reform agenda, including the setting up of the ACNC, has involved wide-ranging consultation.
I know that the timeframes for the consultation processes have been demanding on the sector.
I wish to take this opportunity to publicly thank those in the sector who have actively engaged in the consultative processes. I know that many within the sector are enthusiastic about the reform agenda, but the rapid pace of change and the demanding timetables for consultation periods have tested this enthusiasm.
I know that every minute spent reading a discussion paper or preparing a submission means the diversion of precious resources away from vital service delivery; or the selfless donation of time above and beyond the call of duty.
Since my appointment as Assistant Treasurer, I have been meeting with stakeholders and have been focused on developing a close relationship with sector representatives.
Throughout these consultations, the Government has listened to the concerns of the sector, and accommodated its views wherever possible.
Responding to feedback, the Government has extended the start date of two elements of the reform agenda.
As Minister Butler and I announced on 30 March, the better targeting tax concessions measure will now apply from 1 July 2012. We have deferred the commencement of this measure to allow further time for consultation on its design.
The ACNC will also now start from 1 October 2012.
This three-month extension will provide more time for the sector and the Government to continue working closely together to finalise the legislation.
Transitioning to the New Regulatory Framework
These are major reforms and we are determined to take the time needed to get the detail right.
The great sense of partnership that has developed between Government and the sector will be crucial to delivering a regulatory framework that reflects best practice and is responsive to the needs of the sector and the community.
Given the enormous task at hand and the importance of our partnership, I believe that it is imperative that we provide the sector with sufficient time to make the transition to the new regulatory framework.
Therefore, today I am announcing a two-staged approach to the introduction of the ACNC and the regulatory framework that it will administer.
Through my discussions with stakeholders it has become clear that there is still significant concern about the pace of reform.
In particular, many stakeholders have expressed the view that more work needs to be undertaken on the governance standards and the financial reporting framework that the ACNC will administer.
Stakeholders have also expressed concern about a lack of time and notice for charities to make the transition to the new regulatory regime.
The Government has listened to stakeholders.
I am announcing today that charities that come under the initial phase of ACNC regulation will not be required to comply with the governance standards and financial reporting framework until 1 July 2013 with the first financial reports now beginning to fall due after 1 July 2014.
The Government will proceed with establishing the ACNC by 1 October 2012 as previously announced as we are determined to deliver these reforms and we want to maintain the momentum that has been built around our reform agenda.
As part of this staged approach, I am proposing to implement the governance standards and the financial reporting framework through statutory instruments, after close consultation with the Government's NFP Sector Reform Council and additional public consultation to enable all sector participants to provide their input and views.
By setting up the ACNC by 1 October 2012, the ACNC will be able to assist the Government to further develop the governance standards and the financial reporting framework by providing a valuable perspective on how they could be effectively administered.
In addition, once the governance standards and the financial reporting framework are finalised, the ACNC will be able to work with the sector and provide guidance and information to facilitate the transition to the new regulatory framework.
In terms of the detail of implementation, the Government also wants to ensure there is further public consultation on the ACNC legislation as well as appropriate Parliamentary scrutiny.
Therefore, the Government is proposing to continue to undertake further targeted consultation on the ACNC legislation throughout May and early June.
The Government will refer the draft ACNC legislation to the House of Representatives Standing Committee on Economics, for an inquiry over the Winter Parliamentary break.
The Government will then consider any recommendations the Committee makes, before introducing the legislation later in the year, ahead of the ACNC's 1 October 2012 start date.
I would like to thank CPA Australia for the opportunity to address your conference today.
As a major professional organisation, with members active in the NFP sector, you play an important role in terms of your input into policy change and regulatory reform, but also by communicating changes to your members.
I thank you for the contribution you have made up until now and look forward to continuing to work together with you and all stakeholders as we progress the Government's not-for-profit reform agenda.