“If the tax advantage for the donor was more immediate…this may subconsciously cause larger donations”
Response to Research on the 2013 Tax Change
Recent research commissioned by Philanthropy Ireland highs that the 2013 change in the tax treatment of charitable donations has not been effective in mobilising large scale philanthropic giving.
Here Dr Martha O’Hagan Luff, Assistant Professor of Finance — Trinity College Dublin gives her insights via the behavioral finance lens on how the findings can inform the development of philanthropy in Ireland.
This report (commissioned by Philanthropy Ireland) by BDO is hugely important as it gives a detailed picture of the situation of philanthropic giving in Ireland as well as international comparisons, and an overall description of the role of and incentives for philanthropy. While it is widely recognized in behavioural finance that individual decision making is not always purely rational, and is often driven by behavioural factors, I believe that this knowledge can be applied in this context to motivate larger scale philanthropic donations.
In the current tax system, Ireland stands in contrast to other countries by having no direct tax incentive for donors. Instead the tax benefit must be applied for by the recipient. By not making the tax benefit directly observable to the donor, this added benefit of philanthropic giving is not being felt by the donor. Although the effect to the exchequer may in theory be the same, if the tax advantage for the donor was more immediate and obvious this may subconsciously cause larger donations.
The government seem to be encouraging recipients of philanthropic funding, but I believe that they need to provide greater incentives to donors. In addition, given the low take-up by charities of the tax benefit, while the cost to the exchequer may be lower, this is missing the central point that less giving may be occurring as a result, which is a huge lost opportunity for the improvement of our societal aims and goals.
Dr Martha O’Hagan Luff, Assistant Professor of Finance — Trinity College Dublin