A new report looks at the financial health of charities and recommends measures to ensure their viability when COVID-19 support ends later this year.

October cliff

An income drop of 20% would have a devastating impact on charities in Australia.

More than 200,000 jobs could be lost across the charity sector when COVID-19 support such as JobKeeper and lease and loan deferrals come to an end in October. This sobering statistic comes from a new report by Social Ventures Australia and the Centre for Social Impact: Will Australian charities be COVID-19 casualties or partners in recovery? A financial health check.

Charities already operate on a knife edge. Most have wafer-thin margins, little reserves, and their financial and operational flexibility is often limited by the conditions placed on funding streams. Building organisational capacity and a financial buffer are hampered by a number of factors including societal expectations that all funds go into service delivery. And unlike corporates, charities cannot raise capital by issuing shares or taking on debt.

So just like the beneficiaries who rely upon their services, charities are especially vulnerable to any crisis, let alone one with the repercussions of a global pandemic.

The report models the potential impact of COVID-19 on the financial health of the 16,000 charities in Australia that are also employers (rather than purely volunteer-run).

What could happen to charities?

According to the report, 60% of charities included in the analysis were already in a precarious financial position before COVID-19, with a deficit or very low level of surplus. Now they face more financial pressure as demands for their services rise.

Without transitional support beyond October and based on a modelled income drop of 20%, alongside the job losses representing more than 16% of the 1.22 million employees, 88% of charities would make a loss and 17% would risk becoming unviable in the short term.

As a result, charities capacity to maintain paid staff and volunteers and to deliver their mission is severely at risk.

“We must act on these dire forecasts to ensure communities, people and governments continue to receive life-changing support and services. Charities are the social glue in our communities. Without thriving charities, our productivity and wellbeing is at risk,” said Suzie Riddell, Social Ventures Australia CEO .

The October cliff outlined in the report will be driven by three factors: 1. the end of JobKeeper; 2. the withdrawal of other crisis support (increased JobSeeker, deferred lease and loan payments coming due, etc); and 3. a desire by governments to reduce expenditure in their budget.

As the sector approaches the precipice, what can be done to ensure charities are partners in the COVID-19 recovery rather than casualties of the pandemic?

Charities need a ramp not a cliff

The report calls for governments to put in place a range of supports, including:

  • Gradual transition of JobKeeper and other supports to create and ‘ramp’ not a ‘cliff’ in October.
  • One-off Charities Transformation Fund to help organisations transition to the ‘new normal’ including operating online, restructuring etc.
  • Maintain funding for government contracted services delivered by charities to reflect the true cost of delivering services.
  • Retain JobSeeker at the higher level to mitigate the increase in service demand while also stimulating the broader economy.
  • Simplify fundraising and philanthropy with nationally consistent fundraising laws.
  • Support research to better understand how to build back the charities sector.

“We all need Australia’s charities to make it through to the other side of this crisis in a more financially sustainable position than they came into it. Governments, philanthropists and charities need to work in partnership to ensure that this happens,” the Report concludes.

Read the full report

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