There is a (N)ational irony in the recent debate about state-funded “free” education and “voluntary” donations. The irony is that it was a National government which introduced the concept of a rebate, now known as a tax credit, for donations “to approved charitable, educational, and welfare institutions.” That was back in 1962, just over 50 years ago, and the rationale for the rebate as stated by Keith Holyoake when he was on the election campaign in 1960 was “to encourage a greater degree of community self-help and initiative.”
When debating this concession in Parliament in 1962, Holyoake stated that the rebate on donations of up to £25 a year would be “an incentive to our people to give.”
Another National MP, a Mr Rae, declared that he believed that “if people are given a little incentive great things will be done privately, and fewer demands will fall on the Government plate. I look forward to this concession growing with time.” In other words, don’t expect the government to bail out the community; it’s up to the community to sort out its own problems.
And so, in 2016, this is precisely what we are now seeing in education.
Rae was certainly right about what he said about the concession growing over time, but that was because of a Labour/United Future initiative in 2007 which now has the Government seriously worried, because of the annual cost of the tax credit. How do we know that the government is worried? In 2012, the Minister for the Community and Voluntary Sector, Jo Goodhew, announced that the Government would not be undertaking a review of the Charities Act 2005 because of “the probable tax implications of any widening of the definition [of charitable purposes]. … I will consider a review of the definition once the fiscal situation has improved.”
The tax implications were the cost of the tax credit, therefore allowing more charities to be created for which tax credits for donations could be claimed would increase that cost.
Further, Inland Revenue are currently seeking submissions on when a donations receipt may be issued for the purpose of claiming a tax credit. After all, it is the job of Inland Revenue to protect the revenue, not to pay it out.
The meaning of a charitable or other public benefit gift for which refundable tax credits may be claimed for monetary gifts of $5 or more paid to entities whose funds are “applied wholly or mainly to charitable, benevolent, philanthropic, or cultural purposes within New Zealand” is found in section LD 3 of the Income Tax Act 2007.
Tax credits can also be claimed for donations made to entities listed in Schedule 32 of the Act, being entities whose activities are undertaken overseas. The list of 110 organisations has grown considerably since 1962 when the list contained only four charities: Red Cross, CORSO, The Mission to Lepers (now Leprosy Mission), and the Lepers’ Trust (now Pacific Leprosy Foundation).
In 2007, the Labour/United Future coalition removed the cap on donations to allow tax credits to be paid to the extent of a donor’s taxable income. Since 2003 the cap had limited tax credits to $630 on donations of $1,890. This is where Rae’s predication came true. Between 2001 and 2008 tax credits were costing the government on average $98.5 million a year. After the cap was removed, statistics released by Inland Revenue reveal a steady increase in the amount being paid each year, with the average now $186 million a year.
The Budget 2015 forecast is $236 million, with $230.3 million paid for the 2014 tax year. What is also interesting is the breakdown of the $230.3 million: $20.7 million for donations to schools and kindergartens; $142.7 million for donations to religious organisations; and $66.9 million for other donations.
In the Press of 23 January (A11) Duncan Garner claimed that in 2015 parents paid $161.6 million in “voluntary donations” towards their children’s “free” education. If that amount is solely for “voluntary” donations, and if all of those donors claimed their entitlement, potentially the total tax credit pay-out on those donations alone could be as high as $54 million. And that is only for state-funded schools, because claims can also be made for donations to private schools.
Hence my advice to make a claim for a tax credit from the IRD, which would then send a very strong message to the government about the cost of “free” education in New Zealand, and the extent to which parents are subsidising that cost, supported by other taxpayers.
Dr Michael Gousmett is an independent researcher and public historian, and an Adjunct Fellow in the School of Creative Arts and Humanities (History) at the University of Canterbury.