New report forecasts dire financial future for charities in Australia

A new report launched today by Social Ventures Australia (SVA) and the Centre for Social Impact (CSI) forecasts that more than 200,000 jobs in the charity sector could be lost as a result of the COVID-19 crisis if financial supports, such as JobKeeper and lease and loan deferrals, come to an end in October.

The report, Will Australian charities be COVID-19 casualties or partners in recovery? A Financial Health Check , models the potential impact on the financial health of Australia’s 16,000 registered charities with employees (excluding those run purely by volunteers) to better understand the effects and identify systemic solutions.

Charities strengthen the fabric and functioning of Australia’s society and economy with wide-spread benefits to education, health care, sports and recreation, aged care, religion, arts and culture, animal protection, and environmental protection. As a community, we especially rely on charities during crisis. Charities also employ 1 in 10 of our workforce.

Stronger charities will be well positioned to support the community, accelerating our collective recovery. But weakened charities, forced to cut jobs and services, will compound the collective challenges we face.

Modelling of 20% revenue cuts to the charity sector found:

  • 88% of charities would immediately be making an operating loss
  • 17% would be at high risk of becoming unviable and closing their doors within six months, even when taking their reserves into account
  • The cost-cutting and organisational closures in this scenario would result in more than 200,000 jobs lost as a result of the crisis, as well as reducing the ability of charities to provide services that Australians depend on

Due to pre-existing funding issues, an increasing demand for services during the COVID-19 pandemic and subsequent economic downturn, charities are facing an increase in delivery costs and struggling to secure funding to adapt to this new environment.

SVA chief executive officer Suzie Riddell said that we must act on these dire forecasts to ensure communities, people and governments continue to receive life changing support and services.

“Our financial analysis shows that thousands of charities are at risk of closing and more than 200,000 jobs lost at a time when we should be pump-priming charities to aid the recovery”.

“Charities provide services that people, communities and government rely on. They are the social glue in our communities. Without thriving charities, our productivity and wellbeing is at risk,” Ms Riddell said.

“They deliver vital services on behalf of governments and taxpayers. As a community, we also rely on charities during a crisis and to support a recovery – we’ve seen this over the past months, confronted by bushfires, a health pandemic and financial turmoil. That’s why almost half of our charities identify the general community in Australia as their main beneficiary.”

CSI's Professor Kristy Muir said that most charities already run with very tight margins and have little in reserve to fall back on in a crisis, which is why we need sustainable financial models to support the sector and continue delivering essential services to Australian communities.

This report is the first work to intersect with CSI’s Pulse of the For-Purpose sector and Building Back Better , a national, rapid-response research program to guide the for-purpose sector through recovery of COVID-19.

“This is about what’s right for Australian society. Governments, philanthropists, business, and and charities need to work in partnership to ensure viability and long-term financial support for the not-for-profit sector so they can deliver on their purpose. While most charities and not-for-profits are creative, agile and efficient, their funding models are often not viable for impact. They are often cross-subsidising, unable to invest in organisational capacity and innovation and were already on very thin margins before COVID-19,” Professor Muir said.

“For Australia to thrive, charities need financially viable business models (not just revenue growth) in the recovery phase and into the future. Stronger charities will be well positioned to provide the services needed to support the community and assist to accelerate our collective recovery.

“This impending crisis of an ‘October cliff’ could disrupt the provision of services to some of Australia’s most vulnerable, including those directly affected by the COVID crisis.”

Chair of Community Council for Australia Reverend Tim Costello said: “While this report highlights how many jobs are at risk, we are urgently asking government to understand that this is bigger than jobs alone. The charities sector is essential to create stronger communities. They advocate and support the needs of Australians. If the role of charities is diminished, it will heavily impact our communities.

There is also a big personal dimension to the job losses in the charities sector. Not only does it mean someone with skills is no longer employed supporting their community, it means there will be less capacity to offer support to the many people who sit on the outside of the lines of eligibility for support drawn by governments,” Reverend Costello said.

The report calls for governments to ensure resilience and viability of the charity sector through a range of supports:

  • Plan for a gradual transition of JobKeeper and other temporary supports for charities to create a ‘ramp’ not a ‘cliff’ in October, including temporary extensions of funding in sub-sectors facing long recovery times
  • 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
  • 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
  • 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
  • Make fundraising and philanthropy simpler by creating nationally consistent fundraising laws and offering incentives to encourage increased philanthropic giving
  • Support further research to better understand how to build back the charities sector so that it is funded for impact

CEO of the Australian Council of Social Service Cassandra Goldie echoed the need for ongoing support: “The community sector is vital at all times but especially in crisis. Community sector charities must have the resources required to meet the increased demand for their important services, including domestic violence and homelessness services. While the JobKeeper payment has been welcome, the road to recovery will be long and we must ensure those reaching out for the support of community service charities get the help they need to rebuild their lives.”

“The COVID-19 pandemic, which presents both a health and economic crisis, has had a twofold effect on many community sector charities. The pandemic has increased the need for some services delivered by charities, such as food relief and mental health services.

"Other services have had to adapt to new virtual modes of operation. At the same time, the crisis has reduced the revenue and capacity of many organisations, with decreased donations and fewer people being able to volunteer,” Ms Goldie said.

This report is the first work to intersect with CSI’s Pulse of the For-Purpose sector and Building Back Better, a national, rapid-response research program to guide the for-purpose sector through recovery of COVID-19.