Tax incentives that strengthen charitable behaviour

The Melbourne Institute provides insight on how the tax treatment of charitable donations can encourage greater giving and increase support for communities in crisis following natural disasters.

A volunteer carrying a charity collection bucket approaches you with a benevolent smile, appealing for a small donation to help a community struck by natural disaster. It’s a scenario you have probably encountered before. You riffle through your pockets, car glove compartment or handbag to give what you can to help the victims in need.

At these times of giving, how often have you thought about the tax treatment of those donations? Would you donate more if you knew there was a way to lower the price of giving through our tax system?

Researchers from the Melbourne Institute: Applied Economic & Social Research have explored how adjustments to the tax treatment of donations can strengthen charitable giving among citizens and, subsequently, increase monetary support for disaster relief efforts.

Professor Abigail Payne
Paper Co-author Professor A. Abigail Payne, Ronald Henderson Professor and Director of Melbourne Institute

The study examines the impact of a tax policy change in Quebec, Canada, that was put in place after the devastating 2010 Haiti earthquake. The local Government in Quebec adjusted the tax treatment of charitable contributions so that residents could claim the tax deduction – which lowers the out-of-pocket cost of all donations – almost immediately after donating. This allowed residents to receive the tax benefit a year earlier than the tax system would typically permit.

With this policy in place, Quebec residents donated more per household (up to 9 percentage points) compared to other regions of Canada. Having an awareness of the tax incentive meant that not only did the residents of Quebec donate a greater amount, but they were also two per cent more likely to donate to the disaster relief in the first place.

How Australian policy could adapt to these findings

“With the increasing incidence and severity of natural disasters in Australia leaving more and more people vulnerable each year, there could be a case for adapting our own policies to provide better support to Australians in need,” said Professor A. Abigail Payne, Ronald Henderson Professor and Melbourne Institute Director.

“The Australian Taxation Office (ATO) data tells us that the proportion of Australians claiming tax deductions on charitable donations increases following a major natural disaster. However, there is always more we could do to support charities and the great work they do.

“By increasing awareness of tax benefits, reducing the tax price of giving and changing the timing of when tax deductions on charitable donations are claimed, the Australian tax system could increase the impact of national generosity,” Professor Payne added.

Read the full paper: ‘Can tweaking the tax treatment of donations support disaster relief?’

This analysis is part of the Melbourne Institute’s new publication series: Research Insights. Published regularly, each Research Insight will address a question related to contemporary economic and social issues in Australia. Backed by the Melbourne Institute's well-established reputation for conducting high-quality applied research and rigorous evaluation, they have been designed to make sense of complex issues and enable evidence-based decision making for policy and practice.