Faster giving, faster change: billions in philanthropy is moving too slowly to meet the moment

Australia has more than $11 billion sitting in philanthropic funds that have already received generous tax deductions. Much of that money is intended for public good, but only a small portion is required to reach charities each year.

Last month the Federal Government lifted the minimum distribution rate for these funds from 5 per cent to 6 per cent. Some in the philanthropy sector say that’s too high. From where I sit, working in climate philanthropy, the real question is whether 6 per cent is remotely enough.

Because the rules governing philanthropy don’t just determine how wealthy Australians give. They shape how quickly money reaches communities – and therefore how quickly social progress happens. Right now, the incentives allow capital to move slowly.

Most of us haven’t spent much time thinking about how philanthropy actually works in Australia. Until I started working in climate advocacy, I certainly hadn’t. We tend to picture gala dinners or someone’s name on a hospital wing.

In reality, philanthropy has quietly become one of the most important sources of funding for the work that shifts systems – advocacy, policy reform, litigation, community organising and narrative change – particularly on climate.

When philanthropic capital moves slowly, climate progress moves slowly too.

Here’s how the system works. When a wealthy Australian establishes a Private Ancillary Fund (PAF) – essentially a private charitable trust – they can donate a large sum of capital and claim an immediate tax deduction. Their tax bill drops straight away. This is especially attractive in high-income years, like when someone sells a company for millions.

Encouraging giving is important. Fewer than half of Australians earning over $1 million in taxable income claim a deductible gift in a given year. But once money goes into these funds, it doesn’t have to reach charities quickly.

PAFs are only required to distribute a small percentage of their assets each year – historically 5 per cent, now rising to 6 per cent. That means most of the money can remain invested for years, even after it has received tax deductions that reduce the donor’s tax bill.

The rest remains invested. Because investment returns often match or exceed the minimum payout rate, much of this capital can remain invested – and sometimes continue growing – while still complying with the rules.

The Productivity Commission modelled what this looks like in practice. In one scenario, a donor puts $1 million into a philanthropic fund and claims an immediate tax deduction. The Government gives up the tax revenue straight away. Yet it can take around 15 years before charities receive an equivalent amount of money.

Fifteen years.

In climate terms, that’s an enormous span of time – roughly the window scientists say we have left to avoid the worst impacts of climate change. Yet in Australia, climate mitigation and advocacy receive well under 4 per cent of total philanthropic giving.

There’s also a fairness question embedded in this system.

Australia’s tax system already favours capital – income from investments, assets and capital gains – far more than wages. Most people under 40 experience the opposite reality: income from labour, taxed every pay cycle.

Capital compounds. Wages don’t.

If you don’t own assets, you’re told to budget better and skip the avo toast. If you do own assets, there are structures where wealth can compound, tax-advantaged, for decades.

Philanthropic funds sit comfortably within that architecture.

Capital moves into a tax-advantaged vehicle, continues compounding, and with a 5 or 6 per cent distribution requirement the vast majority of the wealth can remain invested year after year – even though the tax deduction has already been claimed.

None of this means philanthropy is inherently flawed. At Groundswell, I work with many generous and committed donors who give boldly and well above the minimum. Some are deliberately spending down their funds over five, ten or fifteen years, recognising that certain challenges – especially climate change – cannot wait for perpetual foundations.

But regulation shapes behaviour. When the minimum distribution rate is 5 or 6 per cent, most funds cluster around that amount. It becomes the norm.

Labor’s decision to lift the rate to 6 per cent will direct tens of millions more to charities each year. That is a meaningful step. But it also raises a bigger question.

Back in 2009, when these rules were first being formalised, a 15 per cent distribution rate was originally proposed. It didn’t proceed. The sector successfully argued for 5 per cent instead.

That was 16 years ago – before record-breaking bushfire seasons, before repeated climate disasters, before inequality accelerated to today’s levels.

So the real question is this: if the baseline discussion was once 15 per cent, why are we now debating whether 6 per cent is too much?

If this truly is the decisive decade for climate action, philanthropy should rise to meet it – with more capital flowing, and flowing faster. Because in the end, the pace of capital shapes the pace of change.

Arielle Gamble is the CEO of Groundswell Giving.