New Government guidelines for private giving vehicles will help sustain philanthropy in Australia, writes Simon Mumme.

It takes a lot of money to set up a private ancillary fund (PAF): about $500,000 is the accepted minimum. But committing this capital is only one part of philanthropy. Trustees running PAFs, formerly known as prescribed private funds (PPFs), soon learn that philanthropy involves more than giving money away. It is also the structured giving of time, skills and other resources.

“Capital gets you to the table,” says Gina Anderson, chief executive of Philanthropy Australia, explaining how PAFs and other private giving structures, such as charitable endowment funds and community foundations, help cultivate a culture of philanthropy in Australia. Many PAF trustees are successful businesspeople; and alongside their money, they often bring organisational skills and experience to a sector that can lack these attributes.

“Once they have put a significant contribution into a PAF, they then bring everything else with it,” Anderson says.

“This makes sense to them as business people.”

Such private giving is helping to deepen the practice and culture of philanthropy in Australia that emerged with the recent, but now almost forgotten, economic boom.

Using PAFs and other vehicles, private donors can fund riskier projects, targeting social problems that governments can’t, and perhaps shouldn’t, support.

“People who have PAFs understand risk and social innovation,” Anderson says.

But when Treasury proposed a compulsory annual distribution rate for PAFs, amounting to 15 per cent of their capital, this was seen as a threat to the long-term viability of many vehicles, because the high rate would have eroded some funds to the point of no return. Philanthropy Australia and many PAF trustees lobbied the Government, advising that a lower rate of 5 per cent would enable sustainable growth of PAF assets and, therefore, distributions for generations to come.

Another problem with a considerably higher rate is that it would dissuade people and businesses from entrusting large amounts of money to the community. “It would curtail this movement in creating a culture of philanthropy,” Anderson says.

The opponents won out. Last month, Treasury released new guidelines for PAFs, effective from October, prescribing an annual 5 per cent compulsory distribution rate, prompting many would-be benefactors to put philanthropic plans into action.

The head of philanthropy at National Australia Trustees, Tim Hardy, says: “We have seen significant demand on the sidelines. Now that there is some certainty, we can get into planning mode with some clients, as the 5 per cent rule makes it clearer to them what their responsibilities are.

“It also provides a greater degree of certainty for charities. Previously, some people who managed PPFs weren’t distributing every year.” The debate over the distribution rate stalled the injection of capital into philanthropic projects. Louise Walsh of Artsupport, a division of the Australia Council for the Arts, says the organisation was struggling to meet its fundraising targets for the year.

“Our targets have taken a hit, not because of the global financial crisis (GFC), but the Government review,” Walsh says But the money should flow in again – and not always at the 5 per cent annual minimum.

“On the day the guidelines came out, two members were giving away more than 10 per cent,” Anderson says.

Walsh says: “It’s a very low minimum – all the people we know will donate way more than that.” During the downturn, the philanthropists should provide “an automatic stabiliser effect” for the community, as some of the wealth generated and invested in PAFs in the good times is channelled into the community, said Bruce Bonyhady, president of Philanthropy Australia, in an address to the organisation’s annual general meeting in May.

In doing so, philanthropists should always aim to maximise their resources by maintaining or ideally growing foundation assets over time, in addition to their commitments of time, information, goods and services, voice and influence, since these attributes “contribute to making philanthropy distinctive”, Bonyhady said, and will help generate an “all-weather philanthropy” in Australia. To cultivate this, foundations must not demand too much from organisations already pressured by the downturn, or over-commit to some at the expense of others, he said.

As a community stabiliser, philanthropy is a marathon commitment – projects should not be dropped or passed between foundations, Bonyhady said. Philanthropy must also target the underlying causes, rather than symptoms, of social problems, while “never losing its generosity and compassion towards those people who fall through government safety nets through no fault of their own”.

If it meets these aims, philanthropy will be positioned as “a catalyst to sustain, nurture and build community confidence, resilience and cohesion”, Bonyhady said. The sector is confident that the Government’s new PAF guidelines support this approach.

Join the discussion