Good news for Canadian charities today. Federal and provincial governments are signalling that they will make it easier for charities to run businesses and tap into financing normally reserved for corporations, as cash-strapped governments boost their reliance on the private sector.
Ottawa, Ontario and British Columbia have recently indicated they are looking for ways to bolster so-called social financing – essentially, what happens when money is invested to generate both a social and a financial return.
The willingness to explore the co-mingling of business and charity, and ways to use investor capital and capital markets for the social good, comes as governments look to cut expenses with minimal damage, and as charities face a decline in financing.
In its budget on Tuesday, the Ontario government said it will look for opportunities to use social venture financing through partnerships that will save the government money while maintaining or enhancing service levels. It noted that in some cases, social enterprises may be able to deliver services more efficiently and effectively than government, and that they may also be able to offer new products and services that help reduce fiscal pressure on government.
In last week’s federal budget, the Conservatives indicated they want to push forward on the issue (although those plans will hinge on the results of the May election). “All across Canada, citizens, businesses, charities and other groups, such as the Canadian Task Force on Social Finance, are working together to develop innovative ways to address local challenges,” the budget declared. “The government will take steps to complement community efforts by encouraging the development of government/community partnerships …”
This month, Human Resources and Skills Development hosted an event with other federal departments to look at social finance and related issues. Public Safety Canada also held a meeting this month to examine the idea.
Influential voices, including former prime minister Paul Martin, Macquarie Capital Markets Canada chairman Stanley Hartt and a variety of think tanks, are calling for governments to explore social financing.
“The financial reality is that governments … must respond to growing societal problems and the best way forward is to do that in partnership with the community and private sector,” Mr. Hartt said in an e-mail this week. “The old mentality of business making profit, while government funds social services is no longer tenable.”
A new report by the Toronto-based Mowat Centre for Policy Innovation recommends that the federal government change the Income Tax Act so charities and not-for-profit groups have more flexibility to generate money, as they do in the United Kingdom. The report notes that charities and non-profits rely on three core sources of revenue: government financing, philanthropy and earned income, and argues that only the last item offers any prospect for growth in the long term.
The Canadian non-profit sector is one of the largest in the world, with more than 161,000 charities and not-for-profit organizations. It accounts for 7.1 per cent of the national economy, the report notes. The sector is already doing work that might otherwise be done by government, the report said; for example, carrying out more than $3-billion worth of federal programs in 2009.