News Articles
FEB 09 Foresters e-News
FEB09 Story 1 - Foresters response to Treasury Discussion Paper - Improving the Integrity of Prescribed Private Funds
FEB09 Story 2 - A stimulus plan that would achieve double benefits by investing in the Not For Profit Sector
Welcome to 2009, a year for optimism and the pursuit of new opportunities. Although there is a lot of talk about the gloomy economic outlook there are also new opportunities emerging.
These opportunities are reflected in a number of emerging trends which include a renewed interest on the part of the broader community in investments that are lower in risk, ethical and local. An increasing interest in the benefits of building local economies that are resilient and sustainable and growing focus on the power of communities acting locally in relation to global issues.
Let’s not ignore the realities of the world we live in but instead use our understanding to explore the power of mobilising local resources, both economic and human, to solve the challenges we collectively face. To achieve this together we must find inspiration from within our community and from further afield.
Building Community Centred Economies, a conference being held in Brisbane between the 17th and 20th of June 2009, is a great opportunity for people to get together, explore ideas and move to action. The keynote for this conference, Michael Shuman, is a leading thinker in the area of local economy and will provide us all with great inspiration, and cause for optimism about the many exciting opportunities that will come our way in 2009.
Belinda Drew
CEO
In the 2008 Budget the Treasurer announced that the Government would look to legislate guidelines to improve the integrity of Prescribed Private Funds (PPFs). This was followed by the release of a discussion paper by the Assistant Treasurer in November.
PPFs were established in 2002 as a tax effective vehicle for individuals, families and corporations to establish a foundation. The sole purpose of PPFs must be to provide money, property or benefits to eligible funds, authorities or institutions that are qualified as a deductible gift recipient (DGR). To date nearly 800 PPFs have been approved by the Assistant Treasurer and the collective value of these is estimated at over $1.5B. From 2002 to 2007 PPFs had distributed a total of $301.3M with a considerable increase in latter years.
The discussion paper outlines a number of changes to the current PPF guidelines with the commitment that, following public submissions, legislation will be passed later this year. The proposed amendments include a regular valuation of assets, increasing the size of compulsory distributions, bringing the full administration of the PPF regime under the authority of the Commissioner of Taxation, establishing a minimum size for new PPFs, introducing a public database record of the contact details of all PPFs and several other modifications.
While some of these appear valid and others quite contentious the glaring gap that is not mentioned within the discussion paper is how the large corpus of capital ($1.5B) is managed. These funds are typically deposited with mainstream financial institutions and/or invested through capital markets, fund managers, broking firms or institutional investment products with the only philanthropic focus being applied to the income being generated.
There appears to be some passionate debate in responses to the paper all geared toward what should be the most appropriate level of income distribution.
The importance of this is paramount however in parallel to this debate there needs to be significant attention given to the capital base that continues to grow. The appropriate investment of this significant wealth directly into the community sector itself would have measurable and lasting positive impacts as Foresters have witnessed for many years.
Foresters’ response to the discussion paper suggests the following:
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To encourage funds that have been allocated for ‘community benefit’ to be invested directly in the community sector
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Incentivise PPFs to invest in Social Investment (SI) products for the increased benefit of civil society
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Allow up to 50% of the total value of PPFs to be invested in SI products without having to compulsorily dilute capital
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Any capital invested in SI products up to a maximum of 50% must only distribute the income generated from this investment
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Any capital invested in SI Products above 50% of total value of the fund must distribute in line with new agreed guidelines
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Assist with building the education and awareness of SI opportunities among the PPF arena
Foresters’ submission is available for people to view, by clicking here and we encourage people to provide any feedback they may have.
All other responses to the Governments discussion paper can be viewed from the Treasury web site.
Peter Ball
Social Investment Business Manager
Recently the Government released its ‘$42B Nation Building and Jobs Plan’ to invest in future long term economic growth. The immediate plan is to inject $12.7B into the economy within the next six months predominantly by distributing cash payments into the hands of families and low and middle income earners.
If you add the $9.75B that the Government pumped into the economy in October through its Economic Security Strategy the total money directed to individuals this financial year is significant. Many argue this is an absolute necessity to try and attain prompt growth through consumption and thereby protect job losses. When you also factor in that the Reserve Bank of Australia cut interest rates by 1 percentage point on the same day there is certainly some relief filtering through to individuals and families.
The ‘Long Term Nation Building Investments’ announced as part of yesterdays plan have received a reasonably positive response from analysts, media and specific industries including infrastructure, business, education and building who have all seen fair attention directed their way. The community sector has received some benefits but it is specifically targeted at the provision of more social housing which could be argued to be more about jobs for builders at least in the short term.
This is certainly not a complaint directed at builders. The importance of ensuring that there are not massive job losses in the building sector is certainly important. The obvious assessment is of course that this would also ring true for all industries and across all sectors. That raises the question of what the potential impact of the financial crisis could be on the non-profit sector.
Certainly there could be impacts on jobs in community organisations. Community Organisations are one of the largest employers in Australia and much larger then some industries that have been more nurtured through this Government plan. Any loss of jobs in community organisations however really equates in many ways to a double loss. Job losses in this sector not only impact individuals and their families, but they impact communities as a whole – the loss of youth workers, care workers, community development workers, counsellors or social workers has ripple effects beyond the individuals concerned.
Currently there are concerns that unemployment in Australia may increase which will inevitably impact levels of poverty and it is the non-profit sector that is often charged with ameliorating the effects of this poverty in our communities. The flip side of this is that a smart investment into community organisations would see multiple benefits particularly as the potential group of people that require assistance is likely to grow in such difficult economic times. An article written in The Boston Globe recently identified a similar opportunity in the United States.
Further, we could see funding cuts or increased pressures for ‘efficiencies’ on small to medium community organisations, who are very often locality focussed and whose reach extends to the most marginalised in our communities. This issue is of growing concern and has been of concern to many even before the current financial crisis. In terms of increasing the resilience and diversity of community organisations as a whole, and in terms of ensuring that needs of the most marginalised people and communities in our society are adequately met, ensuring the long term viability of small to medium community organisations in Australia is absolutely crucial. Just as the financial crisis is likely to impact most severely on small to medium businesses in Australia (of which the government is very aware), we are concerned also that the small to medium community organisations may face more pressures in coming months and years.
Finally, while we have heard about how the financial crisis has impacted most severely on large corporations, industries and investors, what has not been adequately discussed is the effect on the future of already disadvantaged and underinvested communities in Australia. This is most obvious when we hear of communities ‘losing’ large employers such as mining companies, car manufacturing industries and others we’ve heard about in recent times. But what about the regions across Australia in both urban and regional environments that have lost small employers, are not able to attract basic services, have more ‘for lease’ signs than occupied shopfronts, already have the highest rates of unemployment and disadvantage, and have few community assets? What further ripple effects will the financial crisis have on these communities?
The financial crisis offers us an opportunity to take a new look at the way in which we see our economy and how we think about financial services and big economic concepts such as ‘growth’. It could create a pause in which we could reflect about how we could effectively invest in our community organisations, in building the strength and sustainability of our small to medium sized community organisations, in how we could recreate an investment paradigm that values communities and civil society and that funnels wealth into underinvested communities, enabling people who live and work in these communities to build a positive future. This is the potential of Social Investment. It is investment that is concerned with building the future of communities that does not cost the earth and that believes that civil society is worth investing in, and that values the strength and resilience of small to medium sized community organisations.
Foresters have seen firsthand the impact of Social Investment and we continue to drive the growth of this critical work. While the current size of Foresters Community Investment Fund does not quite match the figures of the Nation Building and Jobs plan it is certainly growing. There are a mounting number of community organisations looking to develop strength in their financial position, increase their social impact and secure a more sustainable future. Many of these community organisations are themselves investors, taking seriously the proposition that aligning their investment strategies with their values extends their capacity to reach their community objectives. Coupled with a demand from investors who want to see their money invested wisely for capital preservation and fair income returns but we are seeing the emergence of a significant growth and strength building strategy in Australia.
If investors can see that this is a an opportunity to drive wealth creation as well as social impact, surely the government would direct investment capital to spur growth, create jobs and build a stronger civil society. Let’s see…
Peter Ball
Social Investment Business Manager