Charities, Funding and the Broken Pyramid

Why Australia Needs to Rethink How It Supports Community Impact

Charities are often described as the heart of civil society. They feed people, educate students, support families, provide aged care, assist people with disability, protect the environment, advance medical research, support faith communities and step into gaps that neither markets nor governments fill well.

But in Australia, charities are more than a symbol of goodwill. They are part of the country’s social and economic infrastructure.

In the 2025 report, Australia’s registered charity sector reported more than $222 billion in revenue, employed nearly 1.54 million people, and drew on the efforts of around 3.77 million volunteers. More than half of operating charities reported having no paid staff, showing how much of the sector still depends on volunteer effort.

That raises an important question: who pays for charity and who should?

Australia gives, but not as deeply as some comparable countries

Australia has a strong culture of community participation, but the financial depth of giving is more modest than many people assume.

The Charities Aid Foundation’s World Giving Report 2025, as summarised by Philanthropy Australia, found that Australians gave an average of 0.73% of income, behind New Zealand, Canada and the United States. The United States was reported at 0.97%, Canada at 0.80%, New Zealand at 0.76%, and Australia at 0.73%.

This distinction matters. A country can have many people who give something, while still having a relatively low level of giving as a share of income. Australia appears to have a broad culture of generosity, but not the same philanthropic depth seen in countries with stronger giving traditions, larger private foundations or more embedded tax incentives.

The biggest misconception: Australian charities are not mainly donation funded

A common public assumption is that charities are mostly funded by public donations.

In Australia, that is not correct.

In 2023, 48.4% of Australian charity revenue came from government, while only 8.5% came from donations and bequests. Revenue from goods and services made up 33.3%.

This means the Australian charity sector is not simply a philanthropic sector. It is also a major public service delivery system. Many charities are delivering services governments want delivered but do not necessarily deliver directly themselves for example: disability services, aged care, health, education, housing, employment, family support, community programs and emergency relief.

This is not necessarily a problem. Government funding gives charities scale, stability and reach. But it does create a structural tension: charities that rely heavily on government contracts can become highly compliant service providers, while their capacity for advocacy, innovation and local experimentation can be constrained.

Australia compared with other countries

Australia’s charity sector is more government-funded than some comparable countries.

In the United Kingdom, NCVO estimates that government income represented about 26% of voluntary sector income in 2021–22, with close to half coming from the public.

In the United States, Urban Institute research found that the average nonprofit in its 2023 panel generated about one-quarter of revenue from government grants and contracts.

Australia, by contrast, reported 48.4% of charity revenue from government.

So Australia sits closer to a government-partnered service model than a purely donation-led philanthropic model. That is not wrong, but it affects how charities behave, how they grow and which organisations can compete for funding.

The broken pyramid

Small charities do the local work, but large charities control the money

The strongest insight from the attached analysis is that the Australian charity sector looks like an inverted pyramid. The number of small charities is large, but the money is concentrated at the top.

ACNC data supports this pattern. Extra small charities those with annual revenue under $50,000 made up 30.3% of charities in the 2023 data but generated only 0.1% of total sector revenue. Extra-large charities those with revenue of $100 million or more made up only 0.5% of charities but accounted for 56% of total sector revenue.

That is not just a size difference. It is a power difference.

Large charities are more likely to have professional fundraising teams, government relations capacity, compliance systems, tender-writing expertise, brand recognition and the ability to absorb reporting costs. Small charities often have local trust, volunteer commitment and direct community knowledge, but they may lack the administrative machinery needed to compete for major grants.

Donations are also concentrated

The same concentration appears in donations.

In 2023, donations and bequests rose to $18.9 billion, but the increase was heavily affected by a single $4.9 billion donation to the Minderoo Foundation group. Excluding that gift, donations rose by less than 0.4%, or only $54 million, compared with the previous year. The top 30 charities accounted for roughly 40% of all donations and bequests.

This is the key paradox: public concern and community need may be rising, but the flow of donations is not evenly distributed. Large, highly visible institutions attract a disproportionate share of public giving, while thousands of small organisations compete for what remains.

For small charities, donations can be existential. ACNC data shows donations comprised around 40% of extra small charities’ revenue, compared with just over 8% for large charities.

Government funding also favours scale

Only 35.5% of charities reported receiving any government revenue in 2023, down from 41.2% the previous period. ACNC noted that while government revenue is growing, it is being distributed to a smaller number of charities.

The size pattern is clear. Only 13.2% of extra small charities reported receiving revenue from government, compared with 94.8% of extra-large charities. Extra-large charities also reported 51.8% of their total revenue as coming from government, compared with 8.1% for extra small charities.

This does not mean large charities are undeserving. Many deliver essential services at national scale. But it does mean government funding systems tend to reward scale, process and compliance capacity not necessarily local embeddedness or community proximity.

Tax incentives: Australia’s DGR system is a gatekeeper

Australia’s tax system also shapes who receives support.

In Australia, donors can generally claim a tax deduction only when giving to an organisation endorsed as a Deductible Gift Recipient. The ACNC describes DGRs as organisations entitled to receive donations that are deductible from the donor’s income tax.

The Productivity Commission’s 2024 inquiry into philanthropy found that reform was needed to strengthen the foundations of giving and support the Australian Government’s goal of doubling giving by 2030.

This is where Australia differs from some other countries. The United Kingdom’s Gift Aid system allows eligible charities to claim an extra 25p for every £1 donated by a UK taxpayer, at no extra cost to the donor.

In the United States, charitable deductions have traditionally been most useful for people who itemise deductions, but from the 2026 tax year non-itemisers may deduct up to US$1,000, or US$2,000 for joint filers, for cash contributions to certain qualified organisations.

Canada uses a charitable tax credit model. Donors can claim a tax credit for gifts to qualified donees, including registered charities, generally up to 75% of net income, with carry-forward rules available.

Australia’s DGR model is therefore clear, but narrow. It can work well for charities that qualify, but it can leave many small, local or emerging charities outside the most powerful donor incentive system.

Secular and religious charities

The data does not give a clean split.

The question of government funding for secular versus religious charities is important, but the public data does not provide a simple clean split.

The ACNC reports that “Religion and faith-based spirituality” was the most common activity classification in the 2023 charity data, representing 20.3% of activity classifications, followed by human services at 15.7% and education at 15.1%.

However, many religious charities are Basic Religious Charities. More than 7,700 Basic Religious Charities did not provide financial information in their Annual Information Statements, because they are not required to answer the financial questions or submit annual financial reports.

There is also an important limit. A charity cannot be classified as a Basic Religious Charity if it receives more than $100,000 in Commonwealth, state or territory government grants in the current reporting period or either of the previous two reporting periods.

This is a classification rule for Basic Religious Charity status. It does not mean religious charities cannot receive more than $100,000 in government grants; it means that if they do, they do not qualify for the reduced reporting category of Basic Religious Charity.

That means large-scale government funding to faith-based organisations usually flows through service-delivery entities such as schools, welfare agencies, health services, aged care or disability providers rather than through entities whose only purpose is advancing religion.

So, the better policy question is not simply: how much money goes to religious versus secular charities?

Or the better question might be: is public money funding public services, and is the reporting transparent enough for the community to see how that money is used?

The real funding challenge

Funding follows capacity, not always need.

Australia’s charity funding model has a structural bias. Funding tends to follow organisations that can manage complexity. This is the “broken pyramid” problem.

That means large charities are often better placed to win government contracts, attract major donors, manage compliance, invest in fundraising and absorb regulatory cost. Small charities, by contrast, may be more directly connected to community need but less able to navigate the system. They may be volunteer led, locally trusted and highly efficient, yet unable to access DGR status, government grants or major philanthropic capital.

At the top are large institutions with scale, systems and revenue. At the bottom are thousands of small organisations with trust, proximity and practical community knowledge. Australia needs both. But the current funding architecture does not support both equally.

What should change?

A stronger charity funding system would not simply move money away from large charities. Large charities often deliver essential services that smaller groups cannot provide alone.

The goal should be to build a more balanced funding ecosystem.

That could include five reforms:

1. Australia should simplify and broaden access to DGR status so more community charities can attract tax-deductible donations. DGR should not be a “golden ticket” available only to organisations that can navigate complex categories and legal advice.

   
   

2. Government grant processes should be tiered by size and risk. A local group seeking $15,000 should not face the same compliance burden as a national provider seeking $15 million.

   
   

3. More funding should be multi-year and operational, not only short-term and project based. Small charities need to pay rent, insurance, technology, transport and coordination costs. Impact does not happen without operating capacity.

   
   

4. Major government-funded providers should be encouraged to partner and, in some cases, required to partner with grassroots organisations that already have local trust.

   
   

5. Australia should improve funding transparency around how government funding flows through the charity sector, including clearer reporting by activity area, charity size, region and service purpose. This would also help answer public questions about secular and faith-based service delivery.

Conclusion - Charity funding is a design problem.

Australia does not have a charity problem. It has a funding design problem.

The country has thousands of committed organisations, millions of volunteers and a public that still believes in helping others. But the money does not flow evenly. Government funding, major donations and tax incentives tend to reward size, visibility and administrative capacity.

A healthy charity sector needs large service providers, but it also needs small, local, trusted organisations. It needs government funding for scale, philanthropy for independence, tax settings that encourage giving and reporting systems that build trust.

Charities are not a substitute for government. They are not a luxury add-on to society. They are one of the ways a modern country turns compassion, expertise and public purpose into practical action.

If Australia wants stronger communities, it needs to fund the whole charity ecosystem not just the top of the pyramid.

Charities In Australia Infographic:

Charities In Australia Infographic 2026

Author:

John Debrincat FACS MAICD

Shapedlogic