Investing in our social fabric or paying the price of social dislocation?

The latest ABS figures show 7.1% are now unemployed across Australia – the highest it’s been in 19 years. 227,700 jobs have been lost. With the economic downturn predicted to worsen and when there are competing priorities of how to spend limited resources, should we prioritise our charities?

By Professor Kristy Muir and Dr Ioana Ramia

The value of charities

Charities are the strong threads in our social fabric that stitch together the patchwork quilt that is life. They are the binds that connect us, that hold individuals, friends, families, communities and societies together. They keep the ties strong in good times and stitch them back together again when they come unstuck.

They support the most vulnerable, but they also do so much more (some of which we notice, and some which we sometimes take for granted).

Our charities:

  • Care for our kids in playgroups, day care, pre-school
  • Care for our aging parents, grandparents, family members
  • Enable independence and inclusion for people with disability
  • Support and improve the mental health of our teenagers
  • Educate us
  • Improve our health and cure diseases
  • Research to solve our most pressing problems and develop our newest innovations
  • Rescue our puppies and care for our injured wildlife
  • Organise our weekend sports – the ones we play in and the ones we watch
  • Run our museums, our cultural institutions
  • Organise our community choirs and art groups
  • Are our places for prayer
  • And are our points of social connection

The value of our charities to our social fabric and on our quality of life is immeasurable. They are also critical to our economic productivity: the ACNC 2020 report found our registered charities alone employ 1 in 10 of us, account for 8% of our GDP and engage over 3.7 million volunteers.

In November 2017, Deloitte Economics valued the economic contribution of the charity sector at $129 billion and estimated that formal volunteers contributed 328 million unpaid volunteering hours, worth the equivalent of $12.8 billion in wages.

Our charities at risk

As the economy becomes more fragile, demand for the goods and services provided by our charities will increase at the same time as their revenue decreases. Some will struggle to survive, irrespective of their value to society.

The cracks, some seismic in nature, have started to appear. Cancellation of services and events due to physical distancing requirements, limited capacity to move activities online , loss of volunteers , decreased donations and income shocks have left some charities unable to pay their staff or deliver their purpose .

Prior to the COVID-19 crisis, charities were already operating on thin margins while facing increasing demand for services . While a for-profit business would expect an increase in income with an increase in demand, this is not the case for charities. While registered charities’ revenue increased in 2018 by 6.4%, their expenses grew by 8.5% .

The average net income ratio – the size of an organisation’s operating surplus or deficit as a percentage of their total income – was 6.3% , much lower than the 2017 figure ( 8.7% ) and the lowest in four years ( 8.7% in 2015 and 8.9% in 2016).

The decreasing net income ratio shows that charities’ finances were getting ‘closer to the bone’ prior to the COVID-19 crisis. In a survey of the community sector in October 2019 , only 5% of staff said their service was completely able to meet demand and one third of organisations had stopped delivering one of their services or programs due to financial constraints in the past year.

Charities have limited discretionary funding, limited ability to invest in capacity-building and infrastructure and are unable to easily access new capital to smooth out the impact of a shock. During the COVID-19 crisis charities have already started reporting drops in untied revenue , which is particularly concerning as flexible funding is what gives charities the capacity to meet existing needs and respond to crisis.

CSI’s recent report in partnership with Social Ventures Australia modelled that if the revenue of charities fell by 20% almost nine in ten charities (88%) would immediately be making an operating loss, over one in six (17%) would be at high risk of closing their doors within six months and more than 200K jobs could be lost as a result of cost-cutting and organisational closures.

Many of these employees (previous research shows this could be up to 85% ) are women and low to moderate income earners. Losing these jobs could further widen gender inequality and remove the disposable income of households that is often going directly back into the economy.

Jobkeeper has been a useful tool to keep charities operating and reduce job losses in the sector, but the ‘October cliff’ is nearing. October could see the grim scenario of 200K jobs lost and many charities shutting their doors. This has serious implications, not just for the charity sector and the direct economic implications, but also the cost of not doing business.

The cost of not doing business

The risk that so many charities close their doors begs the question, at what cost? Just looking at just a couple of areas, the costs of social dislocation and not intervening early are already staggering.

  • Australia spends $15.2 billion each year because children and young people experience serious issues that require crisis services (Teager, Fox and Stafford, 2019). This figure includes annual costs of late intervention in Australia of $5.9bn for child protection, $2.7bn for youth crime, $2bn for youth unemployment, $1.5bn for youth and adult justice, $1.4bn for youth homelessness, $1.3bn for mental health, $1.1bn for physical health, $0.3bn family violence.
  • The average person who is homeless costs the government $25,615 per year , totalling to almost $3bn per year (based on 116,000 homeless people on census night in 2016). Mental health services already cost Australia $9.9 billion a year (AIHW 2020).
  • Poor educational performance and educational inequity directly affects long-term GDP growth. The fall in school performance between 2009-2015 in Australia was estimated to have cost us $118.6 billion , of which $20.3bn was due to the increase in inequality (students in the bottom fall more than those at the top).

The government is already incurring large costs of unresolved social issues and these costs are on the rise. Since before COVID-19 charities were struggling to meet the needs across communities. Without further support to charities, the cost to the government and the cost to society is likely to further increase now and in the future far beyond increased unemployment.

So what can we do?

To avoid this, our report has six recommendations for government:

  1. Create a ‘ramp’ not a ‘cliff’ for the end of JobKeeper and other temporary supports for charities to plan for a gradual transition after October, including temporary extensions of funding in subsectors facing long recovery times.
  2. Create a one-off Charities Transformation Fund to help organisations transition to the ‘new normal’, including operating online, restructuring their organisation and investing in the capability of staff.
  3. Maintain and, where needed, increase funding for government contracted services delivered by charities to reflect the true cost of delivering services for impact and meeting increased demand, particularly given the sensitivity of the sector to changes in government funding.
  4. Retain JobSeeker at a higher level (do not revert to previous Newstart amounts) to mitigate the increase in service demand on charities while also stimulating the broader economy.
  5. Make fundraising and philanthropy simpler by creating nationally consistent fundraising laws and offering incentives to encourage increased philanthropic giving.
  6. Support further research to better understand how to build back the charities sector so that they are funded for impact.

We need charities to be partners in recovery, not COVID casualties. The cost of social dislocation is too high and the benefits of investing in our social and economic fabric, too great. Besides, there’s a spare $60 billion ready to be invested in a stronger, economically and socially viable society.

This article was first published in The Mandarin .