Ideology begets shoddy workmanship and bad outcomes

I have previously, on these pages, commented on developments and issues concerning the regulatory framework for what some people call the third sector and others call the not-for-profit sector (see here and here and here and here).

Most recently, and in light of the Abbott Government’s resolve to abort the Australian Charities and Not-for-profit Commission (ACNC), I reflected on the arguments in favor, and against, some such move giving particular attention to the fact that the ACNC has been in operation for more than a year. I pointed out that there is a considerable scientific literature out there that speaks to the issue of appropriate regulatory frameworks for third sectors, that we can draw on considerable experience from other jurisdictions, and that there is plenty of insights to draw on from areas such as environmental or tax compliance. But it seems the government and the many journos and “policy advisors” who currently do its bidding seems bent on ignoring that evidence.

Notwithstanding its promise that it would consult with the stakeholders, and what looks like considerable support from the sector in favor of the ACNC, and notwithstanding emerging facts that the ACNC really helps us understand the lay of the not-for-profit landscape and its deplorable intransparency and inaccountability, the Abbott Government recently introduced an ACNC repeal bill. Well, part 1 of some such bill, with a second part, said to contain all the details, promised for later delivery. That in itself is a rather questionable set-up obviously meant to prevent robust debate of the nuts and bolts of the arrangements that the Abbott Government might eventually come up with. Indeed, this Federal Government Repeal omnibus was so obviously flawed that the Selection of Bills Committee referred it to the Senate Standing Committee on Economics for inquiry; the latter is not expected to report back to Parliament until June 16 2014. The Senate Standing Committee on Economics subsequently asked for submissions to start the process “to thoroughly consider the impacts on Australia’s charitable sector of the repeal of the Australian Charities and Not-for-profits Commission and ensure adequate stakeholder consultation”.

May 2 was the deadline for submissions and as of this past weekend 16 submissions were shown on the Committee’s  website; one would hope that there is some delay in the process of listing, for such a low number of  submissions would not exactly endorse the alleged support of the sector for the ACNC. (Update Monday early afternoon: Currently there are more than 50 submissions; update Tuesday very early morning: More than 50 submission added since weekend. Stay tuned.)

Among the contributions currently available there are a couple of real gems.

The Queensland Law Society, for example, in an eminently readable six-page brief has identified as problematic the adoption of the two-stage legislative process; it points out that informed debate on Bill 1 is effectively impossible “as many of the issues necessarily raised cannot be considered in isolation, and cannot be adequately addressed without analysing the No.2 Bill.” The Society has also stressed that the current unclear situation, apart from generating considerable uncertainty for charities, “makes good administration by the current ACNC extremely difficult, which is surely an unnecessary outcome.” (p.2) Yes, an unnecessary outcome it is but, as I pointed out here, quite possibly one purpose of the exercise.

The Queensland Law Society rips bluntly into several factual misrepresentations in the regulatory impact statement (RIS), calling the RIS “less than rigorous, and not meeting the usually high standards and disciplines of Commonwealth legislative process.” (p. 2) It alleges, in other words, shoddy workmanship. Among other things, it identifies the failure to assess “the regulatory gaps and inconsistencies that were associated with regulation by the Australian Securities the Australian Taxation Office and makes no assessment of the consequences of returning regulation, piecemeal, to these agencies.” (p. 3) It recalls the ATO’s own earlier position on the need for something akin to an ACNC  and documents the efficiency of the ACNC relative to the ATO (p.4). Last but not least, the Society re-iterates “the inherent conflict of having the arm of Government charged with maximizing the tax revenue as also determining the entitlements to tax concessions”. (p. 6) These are all important issues that a legislator who would care for what is good for the sector, and for Australia for that matter, should pay attention to.

Another important submission is that by Creating Australia which, as I did here, points out that building something like the ACNC takes time and that attempts to gauge its performance after one year are at best dishonest. It also points out that the ACNC has already dealt with more than 500 complaints and investigated more than 240 of them.  It then goes on to ask

“If the ACNC were abolished, would charities and not-for-profits revert to the previous disparate regimes with ASIC and state-based incorporation requirements? 10% of charities and not-for-profits are companies limited by guarantee, 40% are incorporated. The sector will lose the benefits of a regulator which understands the challenges and opportunities which a single regulator can provide.

In the absence of the ACNC:

– Who will investigate complaints against charities and not-for-profits?

– Who will support the additional costs required to unpick one regulatory format for another?

– Indeed what form of regulation will replace the ACNC? [it is a challenge for the sector to respond to the proposed repeal as there are no details of the arrangements to replace the ACNC.]

– Who will have powers to investigate issues relating to financial management, breaches of governance procedures, the risk of fraud?

– Where will the public go to make complaints?

– Isn’t it going to be expensive to develop yet another ‘agency which succeeds the Australian Charities and Not-for-profits Commission’? Why wouldn’t you then retain the ACNC?

– We understand that ASIC can deal with governance but what will happen to the 40% of incorporated charities and not-for-profits? The 10% which are cooperatives? We cannot speak for the 40% unincorporated organisations which are mainly community focused.

– How will the powers vested in the ATO support the credibility of the charitable and not-for-profit sector?”

Good questions all. The government seems blinded by its ideological anti-regulatory stance. It makes disingenuous arguments about wanting to get rid of red tape when in fact its actions undermine and slow down the process of reducing it. The government also seems to not understand that the red tape exist because the kind of arrangements that were in place previously were, and will be, not up to the specific task (as acknowledged by the ATO and documented in the brief of the Queensland Law Society). Fact is that ATO and ASIC, pre-ACNC, were unable to produce the kind of transparency and accountability of the third sector that the third sector and society at large need and are entitled to qua the considerable tax concessions bestowed directly or indirectly on the sector. The resultant lack of transparency and accountability cost society literally billions of dollars in outright fraud and regulatory compliance costs. In light of the important – and indisputable — deterrent function that a functioning ACNC has, 15 million dollar seems a small price to pay.

It is unfortunate and deplorable that in an area where we can draw on considerable knowledge to engineer good policy outcomes, ideology and shoddy workmanship are likely to produce some bad, and very costly, policy outcomes.



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