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By Roland Fritz
A few days ago, the Centre for Global Prosperity (CGP) at Hudson Institute presented a study that evaluates how easy it is to engage in philanthropic activities in different places of the world, thereby comparing 63 countries.
Generally speaking, there is a relatively clear relationship between a country’s GDP and the opportunities for philanthropy in it – that is why rich countries like the Netherlands, the United States and Canada lead the ranking.
Western Europe is one the most free regions for charitable activities. However, within that region, Austria – my native country – is one of the worst performers. The report criticizes the lacking possibility for online registration of philanthropic organizations, and the need for a quite complicated and time consuming registration process. Furthermore, Austrian tax law is not overly conductive to philanthropic activity: incentives for donations – in the form of tax-deductibility – are only present in the fields of science, research, education and the arts, but not for poverty relief or private social services. This is obviously somewhat absurd and turns the original meaning of the term philanthropy (from Greek: love for humanity) on its head, by promoting donations to fields that, even though very important of course, do not serve an immediate purpose for the improvements in the lives of society’s poorests. Moreover, even in the fields where deductions can be made, the situation is all but perfect. At present, only 10% of taxable income can be deducted for the purposes mentioned above, which constitutes quite a low ceiling compared to other countries.
When thinking about the reasons for Austria’s relatively weak performance one inevitably ends up at questions of politics. Changes in laws concerning philanthropy can be carried out quite easily, and the report also attests Austria with some progress on this over the last couple of years. However, I would argue that a discussion of this sort is – albeit important – not all that is relevant for the promotion of philanthropy. Ultimately, a people’s propensity for giving and caring for others will not be determined by a country’s institutions, but the underlying moral ideas and cultural norms in a society – in democratic countries the prevalent legal framework should merely be a reflection of people’s perceptions of these topics.
One can get an interesting hint about what promotes philanthropy in a country by looking at the relationship between philanthropic activity (as measured by the World Giving Index) and economic freedom. The five countries with the highest rates of philanthropy (New Zealand, Australia, Great Britain, Ireland, United States of America) are also amoung the 15 most free economies in the world (as measured by the Heritage-Foundation). Also the Netherlands and Canada, who were mentioned at the outset as having very favourable legal frameworks for charitable activity, maintain very free economies (17th and 6th, respectively) and experience –unsurprisingly – very high levels of charitable activities. Now, this relationship can of course be partially explained by material factors – the positive relationship between wealth and economic freedom is very well documented, and it seems quite reasonable to believe that people in high income countries can contribute larger amounts to charity. However, this is certainly not all there is to the story. It is very easy to see that civil-society institutions will simply be replaced by governmental agencies in more unfree economies. Welfare states definitely can, as the great Nobel-prize winning economist Milton Friedman had pointed out, “destroy private charitable arrangements that are far more effective, far more compassionate, far more person-to-person in helping people.” Not only will governmental redistribution crowd out better operating and financially sustainable private charity, it might also erode citizen’s sense for community and willingness to help each other out in times of hardship.
Austria is a country where the state takes up to 50% of citizens income from labour (from 2016 onwards, it will be even 55%). Consumption, capital gains and most other pleasant things life are heavily taxed as well. Generally speaking, around 53% of the country’s total GDP ends up in the government’s purse, half of which is spent for the provision of public services, defense, and frivolous subsidies to enterprises – some is of course also squandered in the bureaucratic process. The other half, however, goes to poor relief, redistribution and the welfare state more general. With over 25% of people’s average income going to to social services already, is it really a big surprise that people do not feel the imperative to engage in philanthropy on a grand scale? Not only does excessive taxation limit the funds available for charitable activities, it also limits the perceived need for these. “Why should I give anything? I already pay for the unemployed!” and “The state takes care of the poor anyway.” are sentences that will be all too familiar to Austrian ears. Now, this is not about blaming people for their costiveness. I am also not claiming that welfare state redistribution will inevitably ruin the moral fabric of a society. But it is imperative to understand that heavy taxation and pronounced government redistribution will necessarily have some sort of effect on a people’s propensity to care for and actively help their fellow man in a voluntary manner, and one should keep these effects in mind when conducting social policy.
Concluding I would say that the findings concerning the opportunities for philanthropic activity by the Centre for Global Prosperity are somewhat troubling for Austrian citizens. Compared to similar countries, our government provides too little incentives for charity and sometimes actively hinders its practice by imposing strict rules concerning the registration of philanthropic organizations. With respect to this the legal changes proposed by CGP are definitely desirable. In the long run however, more fundamental changes in the attitudes and perceptions of people will be needed. These will most likely not come about without some sort of reform and scaling-back of welfare state-institutes and a clear commitment to less state-enforced equality and more personal responsibility and freedom by Austrian policymakers.
Here you can find an online-version to the study by the Centre for Global Posperity
Here is a short video-clip of Milton Friedman arguing for private charity
Here The Index of Economic Freedom calculated by the Heritage-Foundation
Here The World Giving Index 2014
The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.