A comprehensive analysis of giving trends and motivations, and a detailed assessment of policy options, the report determined that the deductible gift recipient (DGR) system is not fit for purpose, and recommended a major overhaul focused on broadening its scope and making the framework simpler for charities and donors.

In relation to building funds set up by non-government schools to pay for capital works, the report found that they did not meet the appropriate criteria for DGR status, which allows donors to claim a tax break of up to 47 cents on the dollar.

In a statement, ISA CEO Graham Catt said it is “extremely disappointing” that after asking for feedback, the Commission has “ignored the hundreds of schools and parents who provided input, and recommended a tax change that would punish thousands of families and their school communities”.

“Schools rely on communities and parents to fund the building of classrooms and provision of scholarships,” Catt said.

Independent Schools Australia and 12 other representative bodies made submissions, including Independent Schools Australia, Independent Schools Victoria, the Association of Independent Schools of South Australia and the Association of Independent Schools of New South Wales.

In a statement, Andrew Leigh, Assistant Minister for Competition, Charities and Treasury, said the recommended changes to tax settings for donations to school building funds were not being considered by the Government. 

“A world‑class education system is essential to tackling inequality, driving economic growth and supporting well‑paid, secure jobs and our school system is a key part of it,” he said.

The draft report released last November was met by a furious non-government lobby response. Donations in 2020/21 to school building funds totalled almost $230 million, providing a tax break to donors of around $100 million.

Catt, however, said submissions refuted what he called 'the flawed arguments' put forward by the Productivity Commission to support the recommendation, particularly the perceived risk that donors to school building funds could derive a private benefit from a tax-deductible donation.

“We still have not seen any real evidence to support the Commission’s views,” Catt said.

The report, however, did note that “donations to school building funds ... used in non-government primary and secondary schools are relatively small compared with the total annual revenue of these schools”.

There are currently about 5000 DGR endorsements for school building funds, and the Productivity Commission says, “of these, three-quarters are charities and the remaining quarter are government entities, such as public schools”.

The report did not, it should be pointed out, advocate removing all forms of tax deductibility for donations to schools – just those that skew towards the privileged.

There are other categories of the DGR system, it suggested, under which they might still be made, including schools catering to poorer communities, particularly Indigenous communities, where they might still be funded as public benevolent institutions.

It also said there is the potential for a donor to be able to directly or indirectly convert a tax-deductible donation into a private benefit.

“Potential donors are most likely to be people directly involved with the school and benefit directly from donations, such as students, their parents or alumni,” it stated.

“Evidence from participants is that the share of parent contributions relative to those from alumni and other donors vary widely. The transaction here is closer to a market exchange of donations for lower fees and this could incentivise recipients to make tax-deductible donations to lower the non-tax-deductible price they are charged for the good or service.

“In these circumstances, it is unlikely that including school building funds or school education in general within the scope of the DGR system would provide net community benefits.”

Another sobering reality reflected in the Future Foundations for Giving Inquiry Report is the trend of Australians becoming less likely to volunteer their time or give money to charities.

Whilst in 2021 donations totalled $13 billion, an increase of 26 per cent in real terms since 2017, and the expectation that that figure will more than double by the end of the decade, almost half of all tax-deductible donations are made by people in the top 1 per cent of income-earners.

The Opposition, meanwhile, has demanded that the Government immediately rule out the abolition of tax-deductible donations for religious education in schools, which the report has also recommended.

It says at least half of all faith-based Australian families including those of Catholic, Jewish and Muslim faith, send their children to a government school.

“While Labor has ruled out abolishing school building funds, there is stony silence over the vital role that public donations play in funding religious education programs in government schools,” Shadow Minister for Education, Sarah Henderson said.

“Thousands of Australian families rely on specialist religious education at government schools which would be at risk if this callous recommendation was adopted.”

Henderson said whether a family is of Catholic, Jewish, Muslim or Hindu faith, it is vital that the government supports parental choice and the right of children to receive specialist religious instruction no matter where they go to school.

The report stated that “in addition to the removal of access to DGR status for school building funds for religious education purposes, an implication of this proposal In is that DGR status for religious education (as well as alternative ethics education) in government schools would be withdrawn.

“While the organisations with these DGR endorsements provide important services to the community, the way they operate and the costs they incur in doing so are largely driven by state and territory government policies and priorities, and may be more appropriately funded by those governments, rather than by the Australian Government via the DGR system.”

Shadow Treasurer Angus Taylor said the Productivity Commission’s recommendations reflected an ideological attack on faith-based charities.

“At a time when Labor is taxing Australians at record levels, Jim Chalmers’ own review is calling to increase taxes,” Taylor said.

“This is a cynical, political, and divisive proposal from a government which has spent years dividing Australians with ideological distractions.

“Rather than address cost-of-living, Labor is focused on attacking religious education and faith-based charities.”

The report aims to boost donations to charities to help achieve the Government’s target of doubling philanthropic giving by 2030.