5. Economic benefits of an income tax exempt entity with DGR status


This chapter considers the economic benefits for Indigenous communities that could arise from an income tax exempt entity with DGR status. This chapter also seeks to identify possible second tier benefits.

5.1 Economic benefits

An income tax exempt entity with DGR status, such as an ICDC, could provide economic development benefits for Indigenous people for a number of reasons. Tax exempt and DGR status would maximize total funds available and could secure further private sector funds.

Properly designed and managed, an ICDC could empower Indigenous people to make informed decisions about their priorities and how they want to use land-related payments and other income. In particular, Indigenous people could be encouraged to take a longer-term approach to the investment and management of funds.

It could also reduce levels of welfare dependency, as private income streams from land-related payments and income from investing in business and employment activity are used more effectively. Over time, this could help create real economies in remote locations.

Future fund

In particular, Indigenous people could be encouraged to take a longer-term approach to the investment and management of land-related payments and other income. An important purpose of a tax exempt entity would be the accumulation of payments towards a future fund to support ongoing activities where income allows. This fund would enable private monies derived from land-related agreements to be applied for community benefit, and could help people:

  • develop sustainable income streams for both current members of communities and future generations; and
  • build local and regional businesses and social ventures that create flow-on economic and social development opportunities, particularly job creation.

The future fund concept is particularly important in the native title context where traditional owner corporations must continue to fulfil statutory and cultural obligations received and recognised through native title determinations and agreements. The ICDC could improve the capacity of corporations to meet these obligations on an ongoing, long term basis.

It could also encourage cooperative approaches in which holders of land payments can work as co-investors alongside government and other players in delivering holistic regional development projects.

New DGR category

Many native title-related organisations, particularly those that do not necessarily receive native title benefits from mining and related activity, are keen to pursue alternative sources of funding, in addition to and beyond funding derived from Government sources. The directors and members of these organisations are determined to move beyond Government and welfare dependency to achieve economic independence and to grow their native title-based activities, including through empowering philanthropic partnerships.

To enable these organisations to obtain and enjoy available tax concessions and to attract donations from the private and philanthropic sectors so that they may achieve those aims, they invariably seek to be endorsed as DGRs.

As noted in Section 3.4 above, the Income Tax Assessment Act 1997 requires entities seeking DGR endorsement to fit primarily within one of the prescribed DGR categories. Often these entities fit into more than one category.

The difficulty of not fitting within the scope of only one DGR category is particularly pronounced in the case of many native title-related organisations. For Indigenous peoples, there is an inextricable link between the environment and culture, and native title-based organisations are established in large part to protect and sustain those links, and at the same time to provide 'direct relief' (to use PBI-related language) to constituent members.

Together, these concepts represent and embody fundamental values and aims of Indigenous peoples. Because of these inextricable links, it is wholly artificial to require an Indigenous organisation to focus on cultural activities to the exclusion of those which are environmental and/or those which provide direct relief to members. However, the result under current legislation is, inevitably, that these organisations with a holistic focus can neither secure entry on the Register of Cultural Organisations nor on the Register of Environmental Organisations and generally aim to be endorsed as a PBI. This is far from ideal.

Further, it is important that the process by which endorsement is sought is straightforward to ensure that the limited resources of such organisations are not unnecessarily wasted. Currently, seeking DGR endorsement for Indigenous organisations, many of which are small, resource-stretched entities, can be a time consuming, confusing and costly process.

Generally speaking, persons who hold or may hold native title as a community seek to leverage off their native title benefits for communal good, and to do that by establishing corporations or trusts with a range of interrelated and connected aims and objectives in mind. The entities then aim to engage or assist to engage in real economic activity and to create conditions for future economic success through, for example, the improvement of education and health outcomes. In some cases they also seek to establish or assist related organisations that provide community assistance in various forms, ranging from general business guidance to information sharing about 'caring for country', generally arising in the context of native title determinations having been made in their favour.

The proposal to make such entities DGRs would very likely assist to foster more confident private sector involvement in Indigenous economic and community development. Part of the anticipated private sector attraction to donating to ICDCs is that like-minded philanthropists will feel more confident they are contributing to the success of entities that are carrying out activities that truly reflect those sought to be undertaken by many Indigenous communities as they work to improve outcomes for their peoples, leveraging off native title gains.

Such a new DGR category would avoid Indigenous organisations having to find ways to fit their activities into more narrowly defined and constraining current DGR categories, and through private sector involvement would help to build the economic independence of Indigenous communities.

5.2 Second tier benefits

A substantial body of research demonstrates that effective forms of economic development improve standards of living and deliver substantial second tier positive social outcomes for disadvantaged people, including in the areas of health, education, housing and community safety. In particular, employment may enhance an individual's self-esteem and reduce social alienation and enhance a sense of wellbeing.

Conversely, the worst outcomes across the wellbeing spectrum are present in communities lacking any real economic activity. For example, aggregate-level quantitative studies have shown that, in comparison to those who are employed, unemployed Indigenous Australians and those not in the labour force are more likely to experience ill health.

To give one example, Thamarrurr is a poor socio-economic region of the Northern Territory which includes the Aboriginal community of Wadeye. In 2005, academics Taylor and Stanley undertook an analysis of the cost to the Indigenous population of Thamarrurr, and the Australian nation, in maintaining the status quo as opposed to raising the Indigenous population's socio-economic status to reflect the Northern Territory standard.13

Two types of costs are implicit in their analysis: the costs due to foregone production, and the costs due to the remedial actions necessary to compensate for low socioeconomic status. To put it more fully, the cost to the Australian nation can be calculated as 'the full impost to government of sustaining the sta
tus quo of low labour force participation, low employment and occupational status, low income status, low educational participation and outcomes, high housing occupancy rates, high crime and custody rates and high morbidity rates against a background of expanding numbers'.14

To provide a quantitative measure, Taylor and Stanley compared Thamarrurr and a region of equivalent remoteness in Queensland, Longreach. Their calculations suggest that if Thamarrurr's employment outcomes equalled those of Longreach, Thamarrurr's average annual employment income would increase by $14.2 million per annum, and its contribution to GDP would increase by $23.7 million per year.

Research also shows children are more likely to have good health and education outcomes if their parents are participating in the economy. This can lead to important inter-generational change.

13 J Taylor and O Stanley, The Opportunity Costs of the Status Quo in the Thamarrurr Region Working Paper No. 28/CAEPR, ANU Canberra.

14 Ibid, p 2.