The God dividendby Listener Archive
Should non-believers pay more tax to help fund the often secretive "charitable" work of religious organisations?
Wallace isn't a mean-spirited man.
He knows city missions rattle their buckets in the streets to raise funds for poverty relief programmes, he's aware some clergy live on a shoestring and that parishioners fill their cake stalls on the smell of an oily apron.
What bothers him is that - despite undiminishing poverty and growing secularisation - many churches and religious groups sit on a largely undisclosed stash of property holdings, investment funds and trading revenues as part of a valuable portfolio made all the more valuable by their tax-exempt status as charitable organisations.
"Why should a non-religious taxpayer subsidise these churches to become exponentially richer? It's a mechanism for proselytisation, a massive shift from public money to religious organisations. True charity work is providing relief from poverty."
Over a cooling coffee in a Christchurch café, Wallace - director of the Australian National Secular Association - describes the untaxed legacy of gifted lands, donations, bequests, grants and trading revenue that has added considerable wealth to many a church's financial portfolio.
This largely unassessed prosperity is the subject of Wallace's recently published book, The Purple Economy: Supernatural charities, tax and the state, an analysis of church wealth protected by ancient legislation and a raft of more recent case law. (He defines the Purple Economy as "the wealth generated by the eternal mass-exemption from taxation of religious organisations, their subsidiaries and their charitable arms".)
According to Australia's Business Review Weekly, the 10 largest religious groups in Australia had a staggering $A23.3 billion of revenue in 2005. The Sydney-based Hillsong Community Church (a Pentecostal Christian church affiliated with the Australian branch of the Assemblies of God) is reported to earn, Wallace writes, a cool tax-free $A50 million a year.
In New Zealand, religious groups and churches sit alongside sports groups, heritage societies, environmental groups, schools, hospitals and health support groups as tax-exempt charitable organisations. Among the 25,000 estimated charities that get a direct subsidy from the state by being tax-free are the Wellington City Elim Church Trust, the Combined Cook Islands Seventh Day Adventist group, the Anglican Catholic Church Trust, the Breakthrough Faith Worship Centre, the Jesus Is Lord Church, the New Frontiers Church, the Church of Scientology, the Raetihi Open Brethren Trust and the River of Life Church. They also get an indirect subsidy through rebates given to those who make donations.
For churches and other religious groups, all non-business income is exempt from tax so long as it is not for the pecuniary profit of any individual. Similarly, any business income is exempt so long as the trust, society or institution involved carries out its charitable purposes in New Zealand and no one with any control over the business is able to direct or divert monies derived from that business to their own advantage.
Should the state, on behalf of believers and non-believers alike, support religious proselytisation?
Wallace says no. "Supernatural charities can have their belief systems and proselytise to their hearts' content. What they should not have is unqualified tax-exempt income to promote these beliefs at the expense of that nominally secular democracy comprising an increasing number of citizens who have no interest in the ideational culture of religions."
The wealth of these groups deemed to be religious charities is largely unrecorded. Statistics New Zealand's 2004 income and expenditure figures for not-for-profit institutions show religious charities - about 10 percent of the estimated 97,000 not-for-profit groups in this country - received $534 million in donations. Such groups, the report says, "also have substantial investment income".
But that figure does not include the many separate health, education and social services initiatives set up by religious bodies. Add in trading revenues and gifted lands, and the potential savings from tax exemptions are huge.
Details are hard to come by: churches do not have to file detailed information about the properties they own, money they make or how they spend it. Information on the Church of England's land holdings, investment property and share portfolios is freely available online in the UK but such information is rarely available here. Neither the Anglican nor the Catholic churches responded to questions about their property holdings (to its credit the Presbyterian Church does have a record of if its income, expenditure and assets freely available online). Auckland-based Trust Investments Management manages a property portfolio for Anglican Church charitable trusts and tax-exempt charities said to be valued at some $400 million.
Statistics NZ's report noted that, for religious groups, any surpluses generally go towards funding new capital projects to build and improve land and buildings. "Many churches," a footnote added, "have permanent long-term building programmes."
And other expenses?
Wallace: "If a religious organisation is earning $50 million a year in income, it's not clear whether their expenditure of relief of poverty is equivalent to that. How do we know that the scale of their charitable work is comparable with their income? How much of that income is used on relief of poverty?" And how much on Harley-Davidsons, private yachts and prime rental properties?
Paul Morris, professor of religious studies at Victoria University, agrees - a tremendous amount of grassroots work is undertaken by the voluntary sector, including religious groups - but if organisations receive a subsidy from the state in terms of tax exemptions, they should open their books.
"If you're not paying tax that's a privilege and everyone should have transparent and audited accounts. All their public expenditure should be publicly available. There's no earthly reason why there shouldn't be complete transparency."
If these figures are hard to come by, the cost to the state is equally difficult to gauge.
A 2000 inquiry by the city of Melbourne concluded that its property rates were 10 percent higher than they needed to be because of non-rateable church property (the Catholic Church, Wallace says, is Australia's largest private landholder).
What is the cost of such exemptions to the New Zealand pocket? An Inland Revenue spokesperson says no data is available about the fiscal cost to the government of tax exemptions to the charitable sector.
Such concerns have prompted the establishment of the new Charities Commission, run by chief executive Trevor Garrett, with a brief to register and monitor charitable organisations.
PhD student Michael Gousmett, researching the history of the charity sector, says it is a mammoth undertaking but there are issues that need to be addressed. Gousmett cites religious hospitals and emergency services set up to attend to the needy but now charging for their services while also keeping their tax-exempt status.
"You get what the English call 'mission drift'. When there's been no scrutiny of the trust deeds, you'll find that what charities are doing today is not what their trust deed says. Now you have to ask: what public benefit are these groups providing? And how do you quantify that?"
The commission plans to distinguish between those using their tax-free status to help others, and those wanting to use it for advocacy purposes.
Elizabeth McKenzie, president of the NZ Association of Rationalists and Humanists, agrees with this intention. "Lobbying or any sort of political involvement should not be tax-exempt. The reason why the NZARH is not a charity is because we want to have the freedom to have political viewpoints."
But Family First, already registered with the Charities Commission, lobbies loud and hard ("Keep Signing the Petitions!" its website urges) on issues such as the so-called anti-smacking law and the Electoral Finance Act.
National director Bob McCroskrie says advocacy was originally a secondary goal for the organisation but "now it's up there with education and research". Advocacy, he says, is part and parcel of charity work.
And if the commission draws the line at such work? "We'd get together with other advocacy groups and kick up a stink. This affects groups like Plunket and Barnados. People doing the work at ground level - they're the ones who want to speak up. It's a cloudy area but separating advocacy and charity is just too difficult."
Garrett argues that protests such as Plunket's objection to the proposed axing of its telephone advice service in 2006 falls into the ancillary category. Even with a Charities Commission in place, there is little suggestion that one of the main areas of concern - tax exemptions on business income - will be addressed.
In not paying taxes, says McKenzie, businesses associated with religious groups are given an unfair competitive advantage.
"This discriminates against people who have businesses who simply want to make money for themselves. They have to pay all the taxes."
Take Sanitarium Health Food Company. An arm of the Seventh-day Adventist Church, its income from Weet-Bix and other breakfast foods is "applied solely for church-related purposes". As such it has all the tax advantages of a charity (in Australia in 2001 rival company Kellogg's argued that the "non-transparent and non-accountable" tax concessions enjoyed by Sanitarium on its commercial products violated "competitive neutrality principles").
Last year the Melanesian Mission Trust, with a property portfolio in Auckland's prime eastern suburbs valued at $212 million, was granted special tax-exempt status.
The outcry was immediate.
"Even the poorest people in New Zealand pay tax," the NZARH snapped. "Yet this multi-million-dollar trust doesn't want to pay tax like the rest of us. If religious trusts such as these paid tax and property rates like the rest of us, it would reduce the individual tax burden considerably."
The government has already looked at the issue.
Ten years ago a report to Treasury on tax compliance questioned tax exemptions for charities earning business income. The committee recommended the government review the tax-exempt status of entities engaging in regular, ongoing commercial activities "unrelated to their purposes".
In 2001 an IRD discussion document on charity tax suggested that trading operations owned by charities could be subject to tax like any other business, but with an unlimited deduction for distributions made to charitable purposes. Though this would impose compliance and administrative costs - a burden perhaps on charities with small-scale trading activities - such a system would not penalise charitable work.
Wallace agrees with such suggestions - religious charities, he says, should pay taxes like anyone else, with deductions made for "legitimate and proven welfare works".
Another way of looking at what some see as a growing loophole in tax law is to question whether religion should be deemed a charitable cause at all. Could charitable work be covered by other existing criteria, such as the relief of poverty or the advancement of education?
Peter Lineham, head of Massey University's School of Social and Cultural Studies, says this is unworkable.
"I don't agree with that at all. Tax concessions are there in order to assist in those things that might be penalised through a tax regime. One of the reasons why government does give tax exemptions is because of the social capital generated by religious bodies. We have to have some parameters on what constitutes religion but let these be religious parameters."
Lineham agrees that church revenue is increasingly coming from tax-exempt gifts of property from the past rather than present-day tithes or donations but, as he says, if a religious organisation has gained an asset through donations, what is it supposed to do?
"Presumably they've got to manage it appropriately, and so long as they manage it within religious tenets, surely it's not inappropriate to manage it within a non-profit context."
Wallace argues that it is inappropriate if such undertakings are conducted outside of public scrutiny or if such earnings are not being used for charity.
As he writes in The Purple Economy, tax exemptions for religious groups do not come from an abstract god. They come from taxpayers. As such, he says, giving up on his now stone-cold coffee, "religious charities should be fiscally accountable for the income they earn. Questions do need to be raised. The whole issue needs to be reviewed."