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The case for giving – why it’s time the wealthy did the right thing

Just because you don’t want to donate money to charity doesn’t mean that society can’t require you to give back, says the founder of AirTree Ventures.

If you have been successful in life it is your obligation, not your choice, to give back – and venture capitalist Daniel Petre says many wealthy Australians have been shirking that responsibility. Ryan Stuart

Daniel Petre

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Before moving to the United States in 1990 to work as a vice-president of a product group at Microsoft, I had not spent any time thinking about the concept of philanthropy. My wife, Carolyn, and I had made annual small donations to a range of well-known charities but I had never given much thought to the concept of the very wealthy allocating serious money to address issues in society.

When I arrived in Seattle, where Microsoft is headquartered, I quickly learned that America, for all its ills, has a deep culture of philanthropy. If you are wealthy and do not give considerable amounts to charities you are seen as a pariah. Dinner party conversations are more likely to be about what charities you support and less about the price of your house.

Not long after I joined the company, on a flight between Seattle and New York to do a quarterly analyst briefing, I sat next to Bill Gates and I asked him about his approach to philanthropy. At this point he had not made any major public announcements regarding his intentions.

He told me that his mother, Mary Gates, had a guiding principle which went along the lines of: “If you have been successful in life it is your responsibility, not your choice, to give back.”

Gates told me he was planning to give away more than 90 per cent of his wealth to philanthropic activities to try to move the dial on major issues – something he has done in spades.

However, he explained, he wasn’t going to do anything material in the philanthropic space until he could allocate the time and energy. He felt it important to bring the same intensity of intellectual rigour and time that you bring to work to doing good in the world.

Daniel Petre (right) with Bill Gates and then prime minister Paul Keating in Canberra in 1994. Heide Smith

This all made sense to me and when Carolyn and I returned to Australia two years later, we established our family foundation, moved more than 30 per cent of our net worth into it, and then started trying to do some good.

Having now allocated a non-trivial amount of our net wealth to philanthropy over more than 20 years, I can honestly say that we get an incredible sense of fulfilment and joy from being able to help others. Giving actually provides a marvellous feedback loop.

The Australian Financial Review recently ran a story stating that charitable donations from Australia’s wealthiest philanthropists were up 29 per cent year on year in 2020 and had doubled over five years. If you say that really fast it sounds good, but in reality something doubling over five years means it grew at a compound rate of 13 per cent a year.

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Overall, our most wealthy citizens do not allocate much of their wealth to philanthropy when compared to their fellow wealthy travellers in the US, Canada, UK or New Zealand.

There are tens of thousands of very wealthy Australians who could allocate at least 20 per cent (probably a lot more!) to charitable giving and in doing so they would help address a vast array of needy causes. Today.

It is very hard for anyone to suggest that if they made a ton of money in their job that they do not have a responsibility to do one of two things: allocate non-trivial amounts of money (and perhaps time) to trying to address suffering or need in our world, or admit they don’t really care about anyone outside their immediate family/friend circle and let it be someone else’s responsibility to help those less fortunate.

A rich person should leave enough for his/her children so that they can do anything but not enough so that they can do nothing.

Warren Buffett, billionaire

There is a lot of good that could be done with all the capital sitting around enriching our wealthiest citizens. If they’re unwilling to redistribute their money, perhaps it’s time the government enacted some policies to make the prospect more appealing.


So why should anyone give any of their money to charity?

Berkshire Hathaway’s Warren Buffett has talked at length about how the genes you get from your ancestors (and the inherent skills and abilities these provide the basis for), where you were born and live, and what careers you fall into provide a base for wealth to accumulate.

A girl born in a remote village in Uganda, who ends up parentless due to tragedy at an early age, does not have the same chance as a white boy born in Sydney to wealthy, smart and hard-working parents. Yet both deserve the opportunity to live a fulfilled and happy life.

“I do not believe in inheriting your position in society based on which womb you came from,” Buffett says. “I think a rich person should leave enough for his/her children so that they can do anything but not enough so that they can do nothing.”

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It seems obvious that, generally, the people who accumulate the most wealth are the ones with equity (businesses or funds/shares). Jobs that accumulate the most wealth (outside of being a business owner) are those involved with making money for others – whether directly (fund manager, investment banker) or by providing a service that helps a business be more productive by increasing profitability (lawyers, consultants), or by providing products that help an individual or business be more productive.

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway, co-founded the Giving Pledge with Bill and Melinda Gates in 2010. Daniel Acker

The fact that super talented and hardworking people choose to be teachers, nurses, care workers, engineers and similar roles that add value while not attracting high salaries is something we should all be grateful for.

The idea that wealth comes with hard work is a truism. But it would be super hard for any fund manager or company founder to suggest they work harder than many GPs, tradies, storemen, nurses or hospitality workers. Money does not map to hours worked or effort put in, especially when you get beyond the bottom quartile of salaries.

The wealth gap is becoming a talking point. Recently the Financial Times ran a story that included this interesting comment, which seems to indicate that some people are noticing that economic inequality has downsides.

“You are a successful capitalist and pride yourself on getting rich by investing your capital better than most. You are also politically savvy enough to see which way the winds are blowing: not necessarily to your advantage.

“So you agree that something has to change to make the economy work for everyone, or at least to keep the pitchforks locked up.”

When I suggest to rich people that they should give a considerable amount of their winnings to charitable causes, those who don’t agree tend to cite one of the following: charities are a waste of money; Australia has a big social safety net; or that they work in a voluntary capacity rather than give cash.

Of course 100 per cent of all charities are not super efficient (just as most businesses are not efficient users of capital). So rather than using this as an excuse not to give they could use it as a motivator to search out the charities efficiently using capital and give them more resources to do good work.

Australia’s social safety net isn’t that big. The total tax take is around 27 per cent of GDP. In the UK it’s 34 per cent and in Sweden it’s 44 per cent. We are not being overly taxed to pay for a raft of social services.

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If you are financially struggling and your only real resource is time, then volunteering is a wonderful way to give back. Multi-millionaires choosing to allocate a few hours a month as volunteers but not giving any money away is not impactful: allocating decent chunks of money will have far more impact.

In a report just released by Philanthropy Australia there is a chart comparing giving rates for Australia, New Zealand, US, Canada and the UK.

Overall, Australian giving is slightly behind the UK and Canada but we are well behind New Zealand and the US.

Petre visits a project in Uganda funded by his philanthropic trust. 

Individual giving by Australians as a per cent of GDP is dramatically lower than their peers in the other countries. Even when we pop our clogs the amount going to bequests is also very low.

If we look at the proportion of people claiming a tax deduction for charitable donations, we find 54.5 per cent of people earning more than $1 million do not claim any deduction (and nor do 52.7 per cent of those with incomes between $500,000 and $1 million).

Only three things can be driving this.

Those with incomes above $500,000 are making big donations but are reluctant to claim a tax deduction (OK, hilarious, I know); or they are making donations so small they can’t be bothered to keep the receipts and claim the tax break (more likely); or our wealthiest are not giving anything to charities (highly plausible).

My best guess is option two or three.

One explanation could be that wealthy folks do not give from personal income but, rather, have set up charitable foundations which then give to needy charities.

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Over recent years, many wealthy Australians have moved some assets into private ancillary funds (PAFs) or public ancillary funds (PuAFs). While these are definitely having an impact, overall this has not yet led to a huge increase in giving.

PAFs and PuAFs donate around $800 million a year from a corpus of around $10 billion.

At an individual giving rate of 0.38 per cent of GDP, it will take quite some time for Australia to catch up to the UK, US or New Zealand (0.96 per cent, 2.1 per cent and 1.84 per cent respectively).

If we look at the Financial Review Rich List in 2015 you needed around $286 million to be in contention. The top 20 wealthiest Aussies had around $186 billion between them and the top 10 had $63 billion.

In 2020 you had to up your game and have at least $540 million (which is 97 per cent more than the entry requirement for 2015).

Further, the top 10 wealthiest Aussies had amassed $145 billion (an increase of 130 per cent over the 2015 data). And on it goes.

Another way to calibrate giving by the wealthy using Financial Review data is to look at the Philanthropy 50 List vs the Rich List.

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The 50 wealthiest Australians have a net wealth of $273 billion and the top 50 donors gave $968 million last year, which represents around 0.35 of 1 per cent of the wealth. Just let that sink in – noting, also, that the largest donation (around $150 million of the $968 million donated) came from a dead guy (the Paul Ramsey Foundation) and not living, breathing gazillionaires.

Actually, a number of the “top givers” are estates of dead people but for simplicity as we delve deeper let’s assume the money came from the living.

To make it into the top 50 donors you had to give at least $4 million. To be a top 50 wealthy Australian you needed a wealth of just shy of $2 billion. Giving $4 million a year from a wealth of $2 billion means you are giving 0.2 of 1 per cent of your wealth away annually. Do this for 20 years and you might have given away maybe 4 per cent of your wealth; in technical terms, bugger all.

Andrew Forrest gave away $88 million last year. 

Bill and Melinda Gates and Warren Buffett started the Giving Pledge in 2010 as a way to motivate people with net wealth of more than $US1 billion to give more than half of their wealth to charity before or when they die. Over the years, people from outside the US have made this pledge and today there are 211 billionaires who have committed hundreds of billions of dollars to charity.

A couple of Australians – former Fortescue Metals chief executive Andrew Forrest and Aristocrat Leisure founder Len Ainsworth – have made the pledge.

Interestingly, while Forrest (wealth $23 billion) has committed to move more than half of his assets into charities before he dies, his current rate of giving indicates there is a way to go. Last year, he gave away $88 million. This equates to 0.38 of 1 per cent of his wealth. If he had moved half of his wealth to a PAF (from where you have to give away 5 per cent each year) then his giving last year would have been $575 million or roughly 650 per cent of his current giving rate.

Probably the most giving Australian ever (in terms of dollars and per cent of net wealth) was Paul Ramsey. In his will he left around $4 billion to the Paul Ramsey Foundation and it has the firepower to make a difference to some major social issues.

Would it be unreasonable to assume that someone with a net wealth of $10 billion could live exactly the same life they live now if they had “only” $8 billion?

If you accept the premise that you should allocate some proportion of your net wealth to philanthropy (more than likely to a foundation in your name that then gives money away each year) what should that number be?

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Research I funded about 15 years ago showed that the average high net worth Australian allocated around 1 per cent of their net wealth to charity, at a time that the average wealthy American allocated 15 per cent.

I am funding an update to this study and my guess is maybe the 1 per cent has become 2 per cent but we are light years away from double digits.

There are some other ways to triangulate the “what should we give” debate.

You start with how much you need to spend every year to ensure every aspect of your life is as you want it to be, forever.

If you spend $500,000 a year on all your expenses then you would need a corpus of around $30 million (if you assume a tax-effective vehicle and a drawdown of 2.5 per cent of the corpus a year, the corpus would retain its net value for at least 40 years).

It is important to note at this point that generally speaking everyone’s yearly spend peaks around the time their kids are at school and then gradually declines from there. So even if you were spending $500,000 a year at your peak, it is highly unlikely you will need to spend that amount for the rest of your life to maintain your lifestyle.

If you spend $1 million a year you “need” maybe $50 million, and if you spend $10 million a year you “need” $500 million.

We have over 100 Australians with a net worth north of $1 billion. You could argue that any wealth over $400 million is probably surplus to needs and could be moved into a charitable foundation. If all 100 of them did this they would be proud members of the Giving Pledge community.

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Another way to look at this is to go top down.

Would it be unreasonable to assume that someone with a net wealth of $10 billion could live exactly the same life they live now if they had “only” $8 billion? What about the struggling individual who just scraped into the Financial Review Rich List with wealth of $540 million – could they live a life unchanged with only 80 per cent of this? That’s $450 million. Probably.

Where does this thesis run out of puff? It is probably fair to say that someone with $10 million in net assets would have to make some changes if they had “only” $8 million. Only because some people do like to live (as is their right) to the edge of their income/asset allocation level and if you live in Sydney a lot of your net worth may be in the family home (it is not easy to allocate a percentage of your family home to a charitable trust).

A recent Australian Council of Social Service report tried to unpack wealth in Australia. In this report, and a recent one by Oxfam, we discover that the amount of wealth in Australia that sits in the hands of just a few people is staggering: 1 per cent of Australians hold close to 24 per cent of the wealth, with the top 10 per cent holding around 70 per cent of the total wealth of all Australians.

With total Australian wealth sitting at around $11.3 trillion it means that around 250,000 Australians hold $2724 billion of wealth, or an average of around $11 million each.

It is not enough to say that you pay your taxes and look after your family and friends. Societies only hang together because of collective effort and values.

As a society we need to do two things going forward: Firstly, make it super easy for our wealthy to allocate serious money to philanthropy. PAFs are an example. Secondly, we also need higher tax rates for the wealthy (income and capital) and to reduce capital gains tax relief for certain asset classes and over certain asset values.

Here’s a third option: introduce an inheritance tax. (OK people, breathe.) Nearly all OECD countries have some form of an estate tax. I like this idea the best and here is my idea for one.

If you have net wealth over $20 million you need to move assets equal to 20 per cent into a PAF (or PuAF) from where you can annually donate to whatever causes touch your heart (noting that once money is in a PAF or PuAF you can’t get it back and you have to donate 5 per cent of the value each year to registered charities).

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If you don’t do this then on your death 30 per cent of your estate will be taxed. The money will go into an Australian philanthropy evergreen fund. This fund will be at arm’s length from government (a la the Future Fund) and will allocate 5 per cent of its corpus each year to registered deductible gift recipients (DGRs). The selection of DGRs that receive funding can be agreed by an eminent group of advisors, covering all areas of social need.

If you have set up your PAF at least five years before you die and it has 20 per cent of your assets then you will not be subject to the 30 per cent estate tax.

So give less while you are alive or give more when you are dead. Either way you are not keeping it all and nor should you.

In the end, all of us have to put our head on our pillow at night and deal with our thoughts. If you can sleep soundly in the knowledge that you could have helped those in need today while not changing your life one iota, but decided not to, then good for you. But just because you don’t want to give it doesn’t mean that society can’t require you to give back.

It is simply not enough to say that you pay your taxes and look after your family and maybe some friends. Societies only hang together because of collective effort and collective values.

Hopefully, more of us will choose to reflect on our responsibility to society in general, how luck has played its role in our lives, what we really need to live, how much we should pass on to our children and then work out how to put more capital to work in helping those in need.

If more of us do not give back at appropriate levels then I hope governments of all persuasions develop some spine and bring in tax reform to address what is now a massively distorted landscape of multi-generational inequality.

Daniel Petre is the co-founder and chairman of AirTree Ventures.

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