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Will Australian charities be COVID-19 casualties or partners in recovery? A financial health check.

A recent study by Social Ventures Australia (SVA) and the Centre for Social Impact (CSI) highlights the risks faced by Australia’s charitable sector, due to the COVID-19 crisis and the economic slump. The study focuses on charities with paid staff, analysing past financial data and modelling the impact of the crisis to predict the impact on charities. It highlights the threat of the “October cliff”, when the JobKeeper program is scheduled to finish and makes a series of recommendations including:

  • creating a ‘ramp’ not a ‘cliff’ at the end of JobKeeper;
  • creating a one-off Charities Transformation Fund; and
  • making fundraising and philanthropy simpler through consistent national fundraising laws and incentives to increase philanthropic giving.

Even before COVID-19, charities were already lean, with many lacking a reserve buffer to call upon in tough times. Modelling a 20 per cent loss of income produces a grim outcome for the charitable sector results, with 88 per cent of charities immediately making an operating loss and 17 per cent at high risk of closing their doors within 6 months.

While losing income is a worrying trend at any time, the SVA and CSI report highlights the double-barrelled challenge for charities that face a greater demand for their services because of COVID-19 and the economic situation. The operating capacity of charities has been reduced by the shutdown and the need to maintain social distancing. Many volunteers have stopped giving their time. Charities that provide social services are in high demand, particularly by people who have been excluded from JobKeeper.

The demand for the services of environmental charities is different, but no less acute. Climate change and biodiversity decline continue and the Australian environment needs strong effective organisations running successful campaigns and restoring nature. Organisations need to be agile and respond to changing times, including opportunistic corporate interests that are using the crisis to call for weakening of environmental laws and to access important natural assets. 

A key concern that is highlighted by the study is the fragility of the income streams of charities across the board. Charities fund their activities through a mix of government funding, philanthropic and donor funding, fee for service activities and fundraising initiatives. Every source of income is now either in decline or at risk. Medium sized charities are particularly at risk of losing financial viability.

Our report on environmental giving trends shows that environmental charities tend to be smaller than other charities (even the big environmental charities are relatively small). Environmental charities are less reliant upon government funding than other charities, and more reliant upon fundraising and philanthropic income. However, environmental charities get a small slice of individual donor funding.

Environmental organisations that do rely upon a level of government funding are unlikely to be using these funds to build their reserves. The report describes how charities often need to cross subsidise government funds with other income streams to meet the terms of government contracts. Government funding for the environment may decrease further in the next round of budgets. 

Environmental organisations that run events to generate income will already have experienced a sharp, unplanned for drop in income. The support of ‘mum and dad’ donors for appeals is extremely important for campaigning organisations and this may reduce as people in the community have less disposable income and a stronger inclination to save rather than spend. Recent research by Philanthropy Australia shows that philanthropic corpuses have declined, reducing the amount that some will be granting this year and likely next year. 

In light of these challenges, Philanthropy Australia is calling for the Commonwealth Government to create a 150 per cent tax deductibility incentive for individual donors, capped at $25,000. Running until mid 2022, this incentive would increase the response to the fundraising appeals which many environmental organisations rely upon, bringing in much needed untied funding.

One of the problems going into the crisis highlighted in the report is the challenge charities face in resourcing core costs (sometimes called administration costs). They report an unwillingness for individuals, governments and philanthropic foundations to contribute funds required to “keep the doors open”. Our members understand that many environmental organisations already run very tight operations and lack the resources needed to innovate and build capacity. 

Starting with the Black Summer bushfires, 2020 is likely to go down in history as one of the toughest ever faced by environmental organisations. Philanthropists have a very important role to play in supporting the environmental movement to keep up momentum, while navigating the obstacles thrown their way.