One important aspect of the growing Social Entrepreneurs Network and the related interest in social enterprise, has been the encouragement it has given to nonprofit organisations, particularly those working with disadvantaged groups, to look at ways that they can generate revenue for, and thereby expand, their core services by initiating business ventures.

For some nonprofits, this is far from a new phenomenon. The Smith Family has run the largest non-woven goods manufacturing business in Australia for two decades - an outgrowth of its used clothing collection. Other nonprofits have operated orchards, produced videos, run radio stations and so on. Specialised firms, once known as sheltered workshops, now as business services, providing employment for people with disabilities, have operated alongside small and medium enterprises in highly competitive markets for decades. And, of course, the Seventh Day Adventist Church runs Sanitarium Foods, which, among other products, manufactures Wheetbix, loved by Aussie kids, Aussie cricketers and many more.

However, the desire to generate revenue that is independent of government is leading many more organisations to look at how they can generate profits from business ventures. The ideal approach is to find ways to generate revenue by a business-like extension of an existing service, rather than doing something entirely different.

Some for-profit enterprises have always found these attempts at revenue generation by nonprofits challenging. Their objection is to the tax advantages that most nonprofits receive and which, for-profits claim, give those nonprofit competitors an advantage in the market place. Every time there is an enquiry into charities, up pops the US multi-national, Kellogg, claiming to be disadvantaged in the breakfast food market by Sanitarium.

While it is true that public serving nonprofits pay no tax on their annual profit, those that apply any surplus from business ventures to their other activities will generate little surplus, anyway. Before the introduction of the GST (which replaced sales tax), those nonprofits that were public benevolent institutions were exempted from sales tax on their inputs. That may have advantaged some, but since the GST, the GST free category is defined by industry not organisational type and is shared by nonprofits and for-profits alike. Even if nonprofits were forced to operate their business arms as separate entities, provided the nonprofit was a deductible gift recipient (DGR) - ie could give an exemption to donors, then the business arm would not pay any company tax provided it passed all its surplus to the nonprofit. A moment's reflection makes it clear that the purpose of these ventures is to generate a regular stream of revenue for the nonprofit. As the Productivity Commission found when it investigated these matters a few years ago, these nonprofit business ventures are price-takers, not price-makers.

However, that has not stopped some interests from generating a cloud of misinformation.

The government's response to the most recent inquiry affecting nonprofits, coordinated by Mr Justice Sheppard, into the definition of "charity" and related terms, is due to be released by the Treasurer shortly. Although that inquiry was prevented by its terms of reference from canvassing taxation matters, it is widely anticipated that the government (as part of a deal done with the Democrats over the GST), will foreshadow setting up a further enquiry, this time into the tax advantages enjoyed by nonprofits.

Two articles in the Sydney Morning Herald on the 4^th and 6^th of April can be seen as preparing the ground for that announcement. They make it clear that those critical of nonprofit tax advantages will not let accuracy or common sense stand in their way.

Written by Laura Tingle, a senior journalist in the Canberra Press Gallery, the first article spoke wildly of these tax concessions costing the taxpayer $ 9 billion annually. Two days later the figure had grown to $11 billion. The article offered, as an example of unfair competition, a Canberra based turf company that has been arguing for months that a church group that runs a turf farm to provide opportunities for disadvantaged kids to gain work experience, is putting it out of business. It claimed ominously (but later retracted), that the gherkins on McDonald's hamburgers had been grown tax-free by the Mormon Church.

The article also claimed that the ATO's submission to the definitions inquiry had argued that all tax concessions should be replaced by direct government grants. Interestingly, this was not in the ATO's submission but in the transmittal letter signed by Michael D'Ascenzo, Second Commissioner. The submission argued for nothing of the kind.

The estimates of revenue lost as a result of tax concessions are wildly exaggerated. Based on data on the dimensions of the nonprofit sector collected for 1995/96 (Lyons and Hocking, 2000), concessions for that year, provided by all levels of government, might have amounted to between $1 and 1.4 billion. Since then, GST changes have reduced the scope of exemptions going exclusively to nonprofits, so for 2001/02, revenue foregone is probably less than $1 billion.

Of course, the actual benefit to the government of removing these concessions is likely to be less, for if they were removed, some nonprofit organisations would collapse and others would arrange their affairs to reduce the tax they have to pay.

Tingle managed to get a comment from the Minister for Revenue, Helen Coonan, indicating that the Minister is looking at ways to stop "charities" abusing their tax status. This would involve closer scrutiny of charities (and other nonprofits). One step, the article speculated, might be to make their business operations subject to normal income tax. However, as noted above, this would be difficult, unless the government wanted to treat do