Last year, Australians gave more than $12.5 billion to charity. This sum reflects millions of individual acts of goodwill that complement our social safety net and strengthen the bonds of civil society. It is a venture we ought to encourage.

However, there’s mounting evidence that improved regulation of charities could better ensure our generosity reaches its most valuable use.

Charities are licensed by a process of Government registration that confers two key privileges. First, registration serves as a mark of legitimacy and trustworthiness in the eyes of the donating public. Second, if endorsed by the tax office, registration incentivises donors by allowing their gifts to be deducted from their tax bill – a concession that costs public revenue $1.4 billion a year.

These arrangements recognise the benefits philanthropy provides to the community. In return, the public is entitled to expect such concessions are only extended to organisations whose core business is performing good works.

This is why the growing ranks of charities that moonlight as political bodies are cause for serious concern.

Although charities are not allowed to promote a party or candidate for public office, they may engage in advocacy in aid of their cause. In theory, this is fair enough: a charity with expertise in a particular area – for example, the Cancer Council – will often be well-placed to contribute to policy-making and public debate on their chosen cause. That altruistic purpose is less apparent, however, when it comes to electioneering aimed at changing how people vote.

Yet in recent years, this distinction has been wholly ignored by highly prominent environmental charities that have become permanent fixtures of state and federal election campaigns.

For example, at the 2015 Queensland State Election, the Wilderness Society distributed election material instructing voters to ‘Put the LNP last.’ The Australian Conservation Foundation – which shares the Melbourne office building it calls its national base with Samantha Ratnam, leader of the Victorian Greens –as also a repeat offender, using tax-deductible funds to stage advertising campaigns aimed at unseating several Coalition ministers.

Charities inclined to activism are quick to argue that any move to limit their involvement in politics would be an attack on free speech. They are wrong on two counts.

It is not a restriction on free speech to simply decline to use taxpayer funds to subsidise activism. The right of free speech attaches to individuals – not organisations – and political speech funded by registered charities is not free, but subsidised by the state. According to the Minerals Council of Australia, deductible donations to seven large environmental organisations who regularly campaign and engage in ‘lawfare’ against mining projects and the agriculture industry total $71 million a year.

The balance between environmental protection and economic development is a question on which large sections of the public have strongly held views, and disagreements. There’s nothing charitable about taxpayers underwriting just the left side of the argument, and the lop-sidedness of this approach distorts the democratic process.

Charities which engage in political shadowboxing also enjoy a range of dubious advantages over established political parties. Whereas donations to parties are deductible only up to $1,500, the same tax break for charities is uncapped. This loophole has been used to bankroll allies of environmental activists whose political allegiances are well known. In 2014, Friends of the Earth passed on tax-deductible donations of $262,000 to GetUp!; a political lobby group with no charitable status. What’s more, while parties must disclose the source of all donations greater than $13,200 charities are again exempt, opening the door for foreign actors to pour undisclosed millions into Australian politics without ever being detected.

This is concerning, not least because there’s good reason to believe the actual amount charities are spending on politics is far larger than commonly believed. Greenpeace, for instance, declared only $28,592 of spending on political advocacy to the Electoral Commission in 2015. Yet in the same year, Greenpeace’s annual report revealed $9.4 million in ‘campaign expenditure.’

One proposal for curbing activism among environmental charities would be to mandate a set portion of funds which must be allocated to genuine ‘good works’. A more comprehensive solution would be to adopt Canada’s former political activity rule, whereby charities could spend no more than 10 per cent of their total resources on political advocacy directly related to their core business.

Curbing the politicisation of charities aligns squarely with the sector’s long-term interests. The perception that charities are being used as a vehicle for partisan politics can only sully public confidence in their integrity.

Democratic distortion happens in a second sense: many charities lobby fiercely, but only for causes that align entirely with their ability to secure government grants, and the growth in staff and influence that comes with it. This is not to say these charities-cum-Government contractors do no good. But measuring that good is more art than science. In terms of accountability, the problem is that these charities soon become powerful vested interests. They use public funds to grow their influence, and campaign fiercely against any Government that tries to clip their wings.

On a broader level, improved transparency and accountability is needed to help prospective donors navigate and compare Australia’s 56,000 registered charities.

The market for charitable donations suffers from what economists call an information asymmetry. Because the donor is not the recipient of the charity’s end product, quality and value for money can be hard to judge. Since 2013, the Australian Charities and Not-for-Profits Commission has made good progress on this front, establishing a register that provides would-be donors with useful but basic information. It will tell you whether the governance of a charity is up to scratch, but it won’t tell you what you really need to know: does, for example, a charity for homelessness actually make a meaningful impact upon permanently getting people off the streets and into shelter? Nothing on the ACNC’s register would help answer that question. Measuring impact is critical to accountability. As a cynic might observe, it would not be lost on well-paid charity executives that achieving their organisation’s end goal could see them out of the running for government grants, or even out of a job.

Ideally, donors should be able to compare basic information about charities servicing the same cause. Government grants, in particular, should be conspicuously disclosed. Finally, where a charity’s activities have been investigated by the regulator, the outcome of that process is currently cloaked in secrecy. All such investigations and the reasons for any action taken by the Commissioner should be freely available for public review.

That said, the most promising avenue for not-for-profit reform is in the growing field of social enterprises. These are not-for-profit businesses that harness the power of the market to achieve social goods. These enterprises teach skills, and foster independence and dignity for people facing challenges such as disability, mental illness, homelessness or recovery from addiction. As they seek to make profits to reinvest in their work and have a culture of self-sufficiency that they impart to their beneficiaries, social enterprises are far less likely to become part of the government grant chorus. The current regulatory arrangements are not set up to facilitate, let alone encourage, this kind of charitable work.

It is folly to think wrapping charities in red tape will lead to superior outcomes. As in the private sector, Government’s focus should be to cultivate a market for philanthropy where funds are allocated by donors on an informed and outcomes-driven basis.

Amanda Stoker is a Liberal National Party Senator for Queensland

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