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Times 4 Sep 07
In aid of the poorer or richer?
By Willie Cheng
THE rich get richer, the poor get poorer. It is a hard reality of our capitalist world, but in an increasingly globalised world, the gulf is widening.
In fact, in recent years, the Gini co-efficient - a measure of income equality - has been rising in countries such as Singapore and the United States.
Charity is meant to help rebalance this uneven status between rich and poor. Yet even in the charity world, there are similar forces that favour the better-heeled over those less so.
This applies to both the supply (donors) and demand (charities and their beneficiaries) side of the equation.
It should be apparent that rich donors get better treatment from charities than those less well off. They are showered with attention because they have more to give and they also get more recognition because they tend to give more in absolute terms.
Most tax systems favour the rich when it comes to charity. In Singapore, there is a generous double income tax deduction for charitable donations.
The wealthier the individual, the bigger the benefit. Take the example of a taxpayer in the top income bracket of 20 per cent. For every $100 donation he makes, he actually pays only $60.
However, more than two- thirds of Singapore's working population are wage-earners who do not make enough to have any chargeable income, so they would have to fork out the full $100 donation. So a $100 donation actually sets the person back by $100.
The same situation is repeated in most countries where income tax systems are progressive in nature and donations are tax-deductible.
The difference in Singapore is that our income tax rates are generally lower, but then the tax deduction is doubled.
So who makes up for the $40 benefit that the wealthy taxpayer gets? Assuming total tax revenues remain unchanged, the shortfall must come from other taxation sources.
Where these include income tax, then the income tax net must be stretched wider to catch and thus penalise those earning less.
Alternatively, it could come from consumption tax revenue (such as sales tax, value-added tax, GST). In this case, the poor would shoulder a greater tax burden again.
Consumption tax is known as a regressive tax because the proportion of one's income paid out in such taxes goes up the lower one's income is. Yes, the rich can make up for this greater benefit by donating more. And they do give more, but in terms of absolute (not relative) dollars.
The 2006 National Volunteer & Philanthropy Centre (NVPC)'s study on The Giving Landscape suggests the lower-income earners give more as a proportion of their income compared to the higher-income earners, although the data is not conclusive.
Studies in other countries show similar results.
For example, a British study by Banks and Tanner found that the richest 20 per cent of households gave less than 1 per cent of their expenditure to charities, while the poorest 10 per cent gave 3 per cent. So, from the donors' standpoint, the better-off give proportionately less than those who are less well off, and yet are treated better by charities and government.
Let us now look at charities and their beneficiaries.
Not unlike for-profit organisations, charitable ones also compete for resources. The larger players within the charity sector tend to be richer and better off than the smaller ones, simply because they have more resources and reserves, attract funding more easily and enjoy economies of scale in their activities.
Size aside, charities serve a broad spectrum of beneficiaries. Those serving the poor and needy are classified under the social service sector. The other sectors - the arts, education, environment, religion, sports, etc - may have their share of poor beneficiaries, but their focus is on promoting their respective needs rather than alleviating poverty.
According to the NVPC study, the social service sector in Singapore gets about 25 per cent of tax-exempt donations, education gets 39 per cent and health care gets 20 per cent. For non-tax exempt giving from individuals, the bulk goes to religious causes.
So, the majority of charitable giving does not go towards benefiting the poor but to other community causes.
The experience is similar elsewhere. A recent study by the Indiana University Centre on Philanthropy shows under one-third of all charitable giving in the US is directed towards the poor and needy.
So, what then is charity? The dictionary defines it as the voluntary giving of money to those in need. Indeed, the man in the street is likely to define charity also as helping the poor and the needy.
For most donors, the National Council of Social Services (the umbrella body for the social service sector) and the Community Chest (which raises funds for NCSS members) are what come to mind first.
Legally, however, charity covers four areas: relief of poverty, advancement of education, advancement of religion, and 'other purposes beneficial to the community'.
Over time, the last purpose has been interpreted to include areas such as health, the arts, heritage, environment, animal welfare and sports.
When the meaning of charity is stretched from alms-giving to promoting the common good, quirky outcomes with respect to the precept of closing the gap between rich and poor can arise.
For example, the biggest donor in the country is the Singapore Totalisator Board. It gives more than $300 million (based on 2004 data) a year, representing a third of total philanthropic giving here. It also provided most of the $600 million funding to build the Esplanade Theatres.
The board's income comes from legitimate gambling operations of Singapore Pools and the Singapore Turf Club. A large proportion of gamblers is from the working classes, many looking for the windfall that can change their lives.
The arts, on the other hand, are associated with the higher end of the population.
Surely unintended, but this looks like it could be a case of the lesser-off helping to fund the more well-off. To its credit, however, the Esplanade has worked hard to make the arts more accessible to the masses. The Singapore Totalisator Board also channels a significant proportion of its giving to social services.
Singapore is not alone in its use of gambling proceeds to fund programmes of national interest. The UK government is seeking to fund part of the 2012 Olympics through its National Lottery.
With recent estimates of the higher cost of the Games and fearing that charities and community groups would lose out, the UK National Council of Voluntary Organisations is leading a campaign to tell the Chancellor of the Exchequer: 'Don't raid the lottery to fund the Olympics.'
The question of whether charity should be about narrowly helping the poor and needy or be broadened to serve the common good is one that goes beyond the matter of mere definition.
By putting them under the same umbrella of tax breaks and government support, charitable giving to the poor - rather than being preferentially enabled - has to compete with community schemes instead.
The degree of accountability is also affected.
The basis of charitable giving is, fundamentally, generosity. Despite calls for greater accountability of charities, the allocation of resources in the charity 'marketplace' will continue to be less driven by economic value than by relationships between donors and beneficiaries - and their fundraisers.
But the basis of government programmes is rigorous cost-benefit analysis and public accountability.
Having broad-based community programmes funded under the aegis of charity reduces that level of public accountability.
In sectors such as education and health care, some have questioned whether certain programmes funded through donations should not be funded by, and remain the responsibility of, government.
Education is a huge magnet for donations. In addition to tax exemption and the intrinsic appeal of education, there are opportunities for naming rights and the government's encouragement through matching grants (sometimes as much as 3:1).
Many universities worldwide have amassed staggering endowments and other donations from loyal alumni and philanthropists that will provide for current and future needs. For example, Harvard University, which has close to a breakeven net operating budget, has more than US$35 billion (S$53 billion) in its investment portfolio.
Thus the well-off are not just generally favoured in life but in the charity arena too.
To be true to the spirit of charity - as in providing for the poor and needy - we need to be vigilant about the forces that favour the well-off.
Reviewing what constitutes charity and who is more deserving of charity support mechanisms could be one big step towards this objective.
The writer is a director of The Lien Foundation Centre for Social Innovation. This article is in the July/August 2007 issue of SALT, a publication of the National Volunteer & Philanthropy Centre.
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