Tirohanga Whānui | Overview
The New Zealand Council of Christian Social Services (NZCCSS) recommends:
- that this proposal does not proceed. It risks significant negative impacts on vulnerable New Zealanders by removing community supports.
- if it does proceed, that it is carefully scoped to avoid reducing the resources available to deliver community social services.
Careful analysis is recommended:
- The proposal could cost New Zealand in replacement investment for social services or in future social costs if gaps in support are created.
- It is possible that the proposal fails to increase government tax revenue but imposes significant compliance costs on charities.
Whakaaro | Discussion
The proposal would harm vulnerable New Zealanders
New Zealand has high rates of social need that are increasing due to the current cost of living pressures and increasing unemployment. This has very real impacts in terms of human suffering and reduced life chances, including for children and the elderly.
Ministry of Health data show that in 2024, 1 in 4 children often or sometimes go without food. This is not acceptable.
Every day, community social services walk alongside thousands of struggling New Zealanders. This is only partially funded by government. Many charities create income through op-shops and other businesses. The lack of income tax on these allows charities to maximise their charitable activities and minimise their reliance on government contracts and public donations.
The proposal would remove resources from charities delivering social services.
The proposal would reduce the resources available to social sector to feed the hungry, house the unhoused, comfort the grieving, support those experiencing mental illness and family violence, help parents avoid their children going into state care and help low-income older people live lives of dignity. This would harm the most vulnerable New Zealanders.
The proposal would likely harm the taxpayer
The government’s social investment approach is building towards better decision making about where to invest for the best possible outcomes. The proposal would remove resources from charities delivering social services in a way that is very ad hoc and not in line with the social investment approach.
Government funding for social services is frequently below the true cost of both contracted delivery and the scale of delivery needed to meet community needs, relying on charities to be able to bring their own resources, including volunteers, to respond to social problems.
There is a broad literature suggesting that social services can deliver positive returns on investment in improved outcomes and avoided future social costs. Whether this is the improved life chances support can achieve for a child born into a struggling family, or aged care effectively keeping the elderly out of expensive hospital beds.
If charities have reduced resources to deliver community support, this will require some replacement activity by government increasing short-term costs to the taxpayer. However, the total amount of support available would likely decrease, increasing future social and fiscal costs.
The proposal will result in compliance burdens and low revenue gathering
The proposal aims to increase tax revenue. However, the paper notes that ‘unrelated business income’ may to be able to avoid tax by distributing it for charitable purposes (2.30 – 2.35). This distribution already happens in most cases.
We have also received advice that charities may be able to move their ‘unrelated business’ income into a company structure and reduce taxable income from unrelated business income by some combination of charitable donation deductions, interest payments and management fees back to the charity.
It therefore does not seem as though the proposal is likely to achieve its purpose of increasing government tax revenue.
The proposal is likely to create compliance burdens on a wide scale. The increased compliance will require time and money, reducing the resources available to help struggling New Zealanders. Smaller charitable entities will bear the brunt of compliance costs.
Ingoa whakapā | Contact Name
Alicia Sudden [email protected]
Daniel Campbell