It may seem like the ultimate insider topic, but thanks to a new Australian report, debates about how philanthropy is regulated just got interesting.

Most policy chat in recent years has focused on the US. The country’s 1969 policy settlement – which lays out rules for the management of endowed philanthropy – faces unprecedented challenge. Industry bodies like the US Council on Foundations are desperately trying to navigate a path through major political turbulence, while facing pressure from critics on the right and left who argue that the existing model is elitist and in need of reform.

Concurrently, but barely noticed, major action on public policy in philanthropy has been quietly unfolding elsewhere. A fascinating new report from Australia’s blandly named ‘Productivity Commission’ – the government’s official independent body to shape better policies – contains bold policy proposals to regulate a sector which is estimated to donate almost $30 billion each year to charity by the end of the decade.

The Productivity Commission recommendations stand a good chance of being adopted by the Australian government with backing from its philanthropy sector. As such, they should inform the development of philanthropy everywhere.

Here are several highlights:

1. Australia’s Government and its philanthropists should put up money and cede control to Indigenous people

It’s a good thing to acknowledge Indigenous ownership of land and respect for Indigenous languages and culture. But it’s far harder to part with public and philanthropic resources and place it in the hands of Indigenous peoples. The recommendation that the Australian Government should provide ‘lump-sum funding’ for an endowment ‘led and controlled’ by Aboriginal and Torres Strait Islander people is therefore striking.

What remains unclear is what the sum will be and whether Australian philanthropists and foundations will commit additional resources alongside government to support the new organisation proposed to take this work forward.

If they do, it could prove an exemplary model of state-philanthropy-Indigenous partnership and one to be picked up by philanthropy sectors in other countries seeking to redress comparable injustices.

2. Foundation payouts to 8%

An eye-catching recommendation for philanthropy watchers is to increase payouts from foundations – known as ‘ancillary funds’ – from 4-5 percent up to 5-8 percent. While this is conditional on ‘further consultation with the philanthropic and charitable sectors’ and sensibly advises that the figure should be calculated over a three-year period, this lays the ground for a radical move which could mean millions of extra dollars flowing from major foundations into Australian society. At an eight percent payout, Australia would leapfrog the US where debates about increasing the payout rate from five to ten percent and extending it to donor advised funds are stuck in Congress.

There are several notable elements to this proposal. The first is that the report recommends a consultation with Australia’s charitable sector to hear their preferences on the minimum distribution rate for ancillary funds. Given acute social needs, it is surely inevitable that Australia’s voluntary sector bodies – those charged with supporting the needs of charities across the country – will embrace this proposal to actively lobby for increased funding.

It is also striking that one of the three official commissioners, Krystian Seibert*, has just returned to a policy leadership role at industry body, Philanthropy Australia. He is therefore ideally placed to help the Australian government – acting on the recommendations of its Productivity Commission – deliver this reform. To its credit, Philanthropy Australia endorsed a four percent payout in 2011. Their backing for doubling the payout today would be an impressive act, one which would surely enhance the good standing of Australia’s philanthropy sector.

Beyond payouts, there are further proposals to increase foundation accountability including a recommendation for the Australian tax office to publish aggregate data on foundations payouts. In addition, foundations will be required to publish a ‘distribution strategy’ explaining ‘the causes they give to, the ways they provide support and how they evaluate their own effectiveness.’ This is a timely nudge for funders to explain the rationale for their grantmaking. As the report gently puts it, it is intended to ‘prompt them ‘to think about how they provide support for charities’.

3. No more charity to private schools?

There are interesting proposals on the charitable status of private schools.

In September 2023, the British Labour Party dropped its commitment to remove charitable status from private schools less than 12 months before it came into government.

In contrast, the Australian commission has recommended changes to what qualifies as a ‘deductible gift recipient’ (DGR) and the tax benefits that follow from such status. They argue that the DGR system ‘is not fit for purpose’, lacks any coherent policy rationale resulting in ‘inefficient, inconsistent and unfair outcomes for charities, donors and the community.’

They note several examples including that ‘charities that focus on prevention of poverty or distress face barriers to eligibility.’ They also highlight that many grassroots and volunteer-run charities such as community gardens or neighborhood houses are ineligible for DGR status.

Meanwhile, the report suggests that wealthy parents and alumni are using school funding to benefit their own interests rather than the interests of the wider community. Here, the proposal includes stripping the charitable status and removing the tax subsidy from donations to school buildings projects arguing that tax advantages should not be provided for this purpose. A lesson for the new British government, perhaps?

Elsewhere, there’s lots of sensible recommendations around growing giving, managing tax regimes, and improving the language of philanthropy (for example a suggestion to change the name of ‘private ancillary funds’ to ‘private giving funds’) all with the aim of modernising Australia’s charitable sector.

Philanthropy in Australia doesn’t always get the attention or praise it deserves. Yet Australia’s Productivity Commission deserve credit for its groundbreaking work. Let’s hope that sound public policy comes out of the process. Reformers in the US and elsewhere should pay close attention.

Charles Keidan, Executive editor at Alliance magazine

*Krystian Seibert serves on Alliance’s Editorial Advisory Council and guest edited our special feature on mental health philanthropy in 2022.