By Mark Lyons, Adjunct Professor of Social Economy, University of Technology, Sydney

The Charity Inc feature in the BRW for 24 - 30 March, claimed that the turnover for the Australian nonprofit sector was $70 billion per year, twice that estimated by the ATO.  This claim, and the whole article, was confused in its terminology, but as a bottom line estimate for the third sector or social economy, it was probably correct.

The article also claimed that the nonprofit sector is inefficient and "dangerously unaccountable".  No evidence was offered for these somewhat hysterical claims, and it should be acknowledged that the ATO is trying to develop some knowledge, made difficult by this country’s strange reluctance to require tax-exempt organisations to file a tax return.

But the article was quite correct to point to a deep ignorance about the sector in political circles, and a lack of interest in sorting out the legal and regulatory mess that certainly adds a huge cost burden to the sector and to those wishing to begin a nonprofit venture.  It is precisely this issue that the National Roundtable of Nonprofit Organisations has taken up as a priority, hoping to develop some proposals through wide discussions within the sector http://www.nfproundtable.org.au.

How did the BRW do its sums? 
The core of the article is a list of what are claimed to be the 200 largest charities in the country.  The combined turnover of these is $22.8 billion.  They also estimate the turnover of the five largest churches at $21.8 billion.  This is an interesting exercise, although to treat the Catholic or Anglican churches as if they were economic enterprises is incorrect.  In fact most of the entities counted as charities are affiliated with one of the major churches (one presumes the BRW is not counting churches as well as charities).  In addition, the article refers to registered clubs, which it claims turned over another $8.9 billion and health insurance funds that add another $7.5 billion.  These three figures are fairly thin supports for the article’s main claim, especially as health insurance funds are not strictly nonprofits (and are excluded from the ABS estimates of the nonprofit sector).

How have other estimates been derived?
When Susan Hocking and I made the first estimates of the size of what we called the third sector of Australia’s economy, we drew some important terminological distinctions (Lyons and Hocking 2000).  The third sector or social economy (in the terminology of the European Union) can be seen as an onion.  At its core are charities, which in the legal definition consist of non-government nonprofit organisations that have as their purpose the relief of poverty, the advancement of religion or education or another public benefit. 

At the next level there are other nonprofit organisations.  Nonprofit organisations (including charities) are organisations that are prevented from distributing to members any annual profit or surplus assets on winding up.  Those nonprofits that are not charities are member owned organisations and include registered clubs, sporting groups, professional associations, political parties, and unions.  Many charities and all other nonprofits, in theory, are governed democratically.  This means that each member has a vote of equal value, unlike a firm where voting power reflects the level of funds invested.  This mode of governance and the prevention of profit distribution give these organisations different behavioural characteristics to an investor owned firm.

Finally, there is another set of organisations that are democratically governed but are not prevented from distributing a surplus to members (though most do not).  These include credit unions, industry super funds, a few building societies and large trading cooperatives.  They include some health insurance funds (though some of those are investor owned and the biggest Medibank Private is government owned).

Our original estimates for the 1995/96 financial year gave the nonprofit sector a turnover of $27 billion dollars and the whole third sector or social economy a turnover of $59 billion.  Following the ABS practice we collected data only from employing organisations, as these are economically the most significant.  There were 34 000 employing organisations in the third sector, including 32 000 nonprofit organisations.  However, the great majority of nonprofits are entirely reliant on volunteer labour.  Although they are not particularly significant economically they make a huge social contribution. We had earlier estimated that there were about 700 000 nonprofit organisations altogether, and about 320 000 of these were incorporated (in any of a dozen or more forms).

In 2002 the ABS published the first ever satellite account for the nonprofit sector.  By definition, this excluded organisations such as health insurance mutuals that do not have a non-distribution clause in their constitution (ABS 2002).  The ABS estimated that the nonprofit sector had grown at about the same rate as the economy and in 1999-2000 had had a turnover of $33 billion.  The ABS also estimated that the value of volunteer effort, including in the hundreds of thousands of non-employing nonprofits was just under $9 billion.  The nonprofit sector contributed 3.3% to GDP, and when volunteering effort was added in this increased to 4.7%.

In 2003, Andrew Passey and I used the BRW’s list of the largest 500 companies to note that 68 of these, more than one in eight, were in fact part of the third sector or social economy.  They included 15 trading cooperatives with a turnover of $7.4 billion, 25 mutuals turning over $10 billion and 28 nonprofits, mostly charities, turning over $5.5 billion (Passey and Lyons 2003)

What would a more comprehensive estimate look like?
Although the BRW's concepts and methods are shaky, the end result may not be far wrong.

If we assume a similar rate of growth as between 1996 and 2000, then in 2004 the turnover of the employing part of the nonprofit sector, including charities and registered clubs was probably $40 billion.  The turnover of the few additional third sector organisations that are not nonprofits are more difficult to estimate.  In 1995/96 we estimated it to be $32 billion.  Since then several of the largest of the group have demutualised.  On the other hand others such as the industry super funds have grown.  Overall, turnover of this part of the third sector/social economy is between $30 and $40 billion.  This gives a total for the third sector of between $70 and $80 billion.  If we add the value of volunteering (estimated by the ABS as $9 billion in 2000), and the turnover of the hundreds of thousands of nonprofits that have individual incomes of only several thousand dollars each, we can see that turnover of the third sector would not fall far short of $100 billion.

ABS (2002) Non-profit Institutions Satellite Account 1999-2000.  Cat No 5256.0. Canberra: ABS.
Lyons, M. and Hocking, S. (2000) Dimensions of Australia’s Third Sector. Lindfield: CACOM, UTS.
Passey, A. and Lyons, M. (2003) Social Economy Large Part of BRW Top 500 Australian Policy Online September 2003 http://www.apo.org.au

Mark Lyons
UTS