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Tax link to charity giving ruled out

Hugo Greenhalgh | Wealth Correspondent | Financial Times | 02 Feb 2016

The amount people donate to charity is not affected by whether they live in a high-tax or low-tax country, the Charities Aid Foundation has found.

The foundation, which analysed tax returns and statistics from 24 countries representing 75 per cent of world gross domestic product, found no correlation between tax levels or government spending and donations.

“A good example is the Netherlands, which is a fairly high-taxation country, as is Italy, and they both outperform countries that are low-tax, such as China and Mexico,” said Adam Pickering, international policy manager.

Other factors, including religion and the state of the individual countries’ charitable sectors, clearly influenced levels of giving, Mr Pickering said.

The UK leads Europe in individual giving as a percentage of GDP but at 0.54 per cent ranks fourth behind the US at 1.44 per cent, New Zealand (0.79 per cent) and Canada (0.77 per cent).
While the tax rates that people face may not be correlated with charitable giving, Mr Pickering said specific incentives in the tax system for donations did have an effect. A 2014 report from the foundation in association with Nexus, a global youth movement, and McDermott Will & Emery, a law firm, noted that countries with higher levels of tax relief saw correspondingly high levels of donations.

George Osborne, the chancellor, proposed a cap on tax relief on charitable giving four years ago but backed down in the face of pressure from charities, saying he had “got it wrong”.
Questions have already been raised over the implications of the report, particularly in terms of government policy. Austerity measures have seen governments pull back from funding projects, particularly in the arts, leaving charities to step into the breach.

“There is confusion at present about where the welfare state ends and charitable giving starts,” said Charles Mesquita, senior director at Stanhope Capital, a global investment office. “I think some definition [from the government] would bring clarity. Just keep it simple.”

Any further analysis of giving must also take in the changing nature of philanthropy, said Jo Ensor, director of the Philanthropy Workshop. “Giving is much broader than just money,” she said. “There’s a whole generation of new entrepreneurs who don’t necessarily see themselves as philanthropists in the traditional sense as they give their skills and [tap into their] social networks to achieve change.

For philanthropists themselves, tax is often a benefit, but not the main reason for giving.

“The biggest problem is not the tax rate but the fact [wealthy people] don’t want to part with their money,” said Richard Ross, philanthropist and chairman of the Rosetrees Trust, which funds medical research. “Why does America give more pro-rata than anyone else? It’s all down to culture.”

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