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Fair Trading (Soliciting on Behalf of Charities) Amendment Bill — Second Reading

[Sitting date: 04 April 2012. Volume:679;Page:1668. Text is incorporated into the Bound Volume.]

Fair Trading (Soliciting on Behalf of Charities) Amendment Bill

Second Reading

  • Debate resumed from 21 March.

KANWALJIT SINGH BAKSHI (National) : Sat sri akaal. The media on multiple occasions have reported that charitable organisations end up paying large amounts of their donations to the companies or individuals who generate these donations. One must acknowledge that collecting donations for a cause is not an easy task and that there are costs involved in raising donations. However, of equal importance is the acknowledgment that the people who donate money have the right to know where, how much of, and for what worthy cause, their money has been used. The Fair Trading (Soliciting on Behalf of Charities) Amendment Bill seeks to address these areas.

The bill is not about regulated charitable organisations, as these are covered under the Charities Act. It is reasonably easy for anyone to undertake an audit or examination of the financial statement of a charity if the fund-raising and subsequent spending was undertaken by the charity itself. However, issues arise when the process of raising funds is handled by a third party on behalf of the charitable organisation. Activities of the third parties, such as how much donation is actually collected, and how much is then given to the charity, are not open to public scrutiny. This bill seeks to specifically address this issue. The bill requires that the third party undertaking donation collections should make a complete disclosure of their activities.

The bill is by no means a restriction on the way charities operate. The charities should be able to contract out their fund-raising operation and this certainly will attract cost. The focus of this bill is clear: we want transparency and disclosure in this area. I commend this bill to the House.

Dr RAJEN PRASAD (Labour) : I am pleased to take a call on the Fair Trading (Soliciting on Behalf of Charities) Amendment Bill. I spoke very positively about it during the first reading, because it addresses a real concern that a number of us have heard about, and have seen examples of, relating to donations for charitable purposes where all of the money intended for the charitable purpose or organisation did not get there. It is also refreshing. If we consider the juxtaposition of these two bills—this one and the one before—this one is remarkable for the passion that the Hon Amy Adams, when she first introduced her member’s bill, brought to it, whereas the one preceding this, the Military Manoeuvres Act Repeal Bill, which we have discussed, seemed to be going through the motions. As others have quite justifiably said, it seemed to be one of the worst ways of addressing what ought to have been addressed in an omnibus bill. Therefore, this is a good bill.

It comes at a time when many charities rely to a large extent on donations from a very giving New Zealand public. Currently, there are no rules. There are no rules about what needs to happen to make sure that the money collected actually gets to where it was assumed the money would go, so the potential for abuse in the current system is enormous. Indeed, abuse has occurred. This particular area has become a big business. In 2002 Consumer magazine conducted an inquiry into the Children At Risk Education Foundation—CARE—and found that 75c in every dollar of donations was going to the telemarketing company. I mean, that is enormous. It can only be described as a rort that such a small fraction of what was raised actually ended up with the particular charity, yet it was feelings for that particular charity that generated the donations in the first place.

The issue was again raised in the media as a result of Epilepsy New Zealand’s decision to cut ties with fund-raiser the Epilepsy Foundation. In the last 3 years, according to Epilepsy New Zealand, the Epilepsy Foundation gathered $2.82 million in donations on its behalf through telemarketing, and approximately $2.1 million of this went straight back to the telemarketers. I mean, that is a rort in anybody’s language. It is a business, it is unconscionable behaviour, and so the pleasure that this side of the House has, and we all have, in supporting this bill and its provisions is there.

The telethon on TV3 for the benefit of the KidsCan charitable trust was also in the spotlight because of claims that less than 20 percent of the amount raised was passed to disadvantaged children. So 80 percent there went to telemarketers. Television New Zealand’s show Dancing with the Stars was also caught up in controversy when just 60 percent of the money raised for charities by the contestants actually made it to the recipients.

What this bill does is address a very, very real problem. It is good to see this bill come back from the Commerce Committee. The select committee process is the next bit I want to address. It fundamentally changed the bill. Obviously, quite a lot of detailed thinking by officials and by the advisers to the select committee went on in that select committee. Where the original bill was about disclosing how much was retained, clearly, an appropriate mechanism had not been thought through as to how that could actually happen. The select committee in the proposals it has come up with in the bill’s amendments actually has addressed that. Perhaps it is not unusual that a member’s bill does not think through the nitty-gritty of how an idea or an intent is unpacked into legislation. The select committee in this case has done a great job in putting its mind to the task, and it has thought through how the bill’s purposes could be achieved.

The select committee has amended the bill to enact regulation-making powers relating to disclosure by those who raise funds. It will be regulations now that determine exactly how it is, and the bill sets the framework for that. When the regulations come out, they will direct how in a particular case the rules are to work out. So, essentially, what the select committee has done in the amendments is to design a system for the purpose of the bill to be met. I congratulate the select committee on doing that work, and on thinking through the purposes of the bill in that particular way.

But there are two other matters I want to refer to. One is that some matters are so important that they ought to be Government measures, and this is one of them. The last bill that went through here was also such a matter, and there are other areas of fair trading that are currently being looked at. One would have thought that these matters would be put together, and that the Government would take charge of the whole package of rules, regulations, and laws that needed to be amended, and the system that needed to be redesigned, and would bring them back together in a comprehensive kind of way. I think there is another member’s bill—it is before a select committee, where it has been parked—introduced for very, very similar reasons. So it could have happened in this particular case. Sometimes it is useful for Ministers to think that through, particularly Ministers with responsibilities in the area. That has not happened in this particular case. But, fortunately, this bill will go through the Committee stage, so we will have an opportunity to go through it, have a look at it, understand it, and make amendments as the Committee of the whole House. Interestingly enough, it was not commented on that the last bill did not have a Committee stage. That also kind of reflects the irony of the situation of the bill we discussed prior to this one.

Finally, I want to raise one other matter that is on my mind. I note that the provisions of the bill show the framework for the regulation-making powers, but as I read through them I just wondered what the sanctions were if somebody did not comply with those particular regulations. At some point, maybe in the Committee stage—or perhaps the next speaker or the member in charge of the bill—someone might just clarify for me as to what the process is by which non-compliance is dealt with, and what the sanctions are. Are they to be in the regulations? If so, should that not be in one of the amendments or the clauses? Is it something taken as read, or should there be a particular clause which we look at in the Committee stage, where the sanctions are discussed?

This side is very pleased to be supporting this bill. It is a genuine member’s bill from somebody who feels passionately about these kinds of things. They have, obviously, come before the Hon Amy Adams, since she has brought the bill here and given us the opportunity to discuss it. We all as members of Parliament have had this experience. Here we are, at a fairly advanced stage now, taking the bill through its processes. I think that what the select committee has done is a great job. I hope the final piece is addressed, and I am sure it will end up being a very good piece of legislation.

MICHAEL WOODHOUSE (National) : I find myself in the unusual position of being the member in whose name the Fair Trading (Soliciting on Behalf of Charities) Amendment Bill is being read, but of not having spoken on this bill at either the first reading, the deliberation by the Commerce Committee, or until slot 10 or so of the second reading. The reason for that is—

Hon Trevor Mallard: What a lazy member.

MICHAEL WOODHOUSE: He may well be right, but not in this case. In fact, the bill was introduced by the Hon Amy Adams, who is now in Cabinet and cannot continue with the bill, and I am very grateful to her for passing the bill on to me for its safe passage through the House. I also want to acknowledge and thank Louise Upston, my junior whip and friend, who because of my inability to be able to do so last members’ day, moved that the bill be read a second time.

I also want to acknowledge Dr Prasad’s very thoughtful comments on this bill, because I think he does articulate a widely shared view about the importance of this issue as it relates to members of the public, and that was clearly set out in the advice given to the committee by the Commerce Commission, which said that in its research it found widespread public support for greater transparency in the amount of money that was collected by those collecting on behalf of charities. It is worth stressing that the purpose of this bill is not to reduce that very strong charitable streak that is in all New Zealanders, but merely to give them more information with which to be able to make decisions about where that charitable effort could be put. As members know, I am the liaison person for the Arthritis New Zealand parliamentary support group, Parliamentary Friends for Arthritis, and I am also a member of the one that supports diabetes. Both of those organisations rely very heavily on public funding, public charity, for their financial well-being, and I am sure that nobody would want to see those organisations and others like them disadvantaged in any way.

But I was very aware of a recent article in a Sunday paper on the amount of money that is retained by these organisations. In one case involving annual giving or monthly giving, which is becoming quite the norm, a particular fund-raising group kept the full first year’s donations by members of the public for itself. It would be a full year before any 1c of that money is ending up in the charity’s bank balance. That may well be perfectly appropriate; I am not suggesting for a moment that there is a rort, which I think is the word that Dr Prasad used. I am not sure whether I would agree with that, but I do think that much greater transparency and informed decision-making is appropriate.

I just want to touch on another couple of issues about the use of the initial clause that was proposed to be amended. That was described as an inappropriate mechanism, and I think that is a little harsh on the member introducing the bill. Indeed, I am a little surprised that there has not been some concern by some members about the use of regulation, which is usually the response—

Hon David Parker: I’m yet to come.

MICHAEL WOODHOUSE: Oh, very good. Well, we will hear a little bit about that, but I think that is a valid question to be asked about whether regulation should be used in this way. But that was carefully considered by the select committee, and it was felt on balance and in the context of the Fair Trading Act review, which is going on, to be the best way in order to deliver the policy intent of this bill. I would not call either of those two options an inappropriate mechanism, but the very important thing is that the Minister prior to passing those regulations consults very carefully with the sector before such regulations are passed.

Two other things were raised, including the issue of whether this should be a Government measure. There are two aspects in what I would say to that. One is that the Government has a very busy legislative programme—far more is required to go through to deliver its plan than hours are available. Members’ days can be used for things that could otherwise be used for Government legislation. But the other inference is that somehow members’ days are only for Opposition members, and I do not think that is appropriate, as a backbench Government member. Mrs Adams and others on this side of the House have come up with very good ideas for how legislation can be passed or improved, and I think it is entirely appropriate that Government backbench members also have this day to be able to advance their ideas.

The last thing I want to say, and I think it was a very good point raised by Dr Prasad, is on the issue of non-compliance. As the member in charge of this bill, although I cannot address that specific issue today, I will say that it has been something that I have been reflecting on and when we do return to examine the bill in more detail at the Committee stage, I would be very happy to answer any questions in respect of that and what the appropriate response is to ensure that compliance is encouraged first, and then what sanctions may be necessary for non-compliance. I thank the member for raising what I think is a very good point that I share. Other than that, I commend the bill.

Hon DAVID PARKER (Labour) : I take a call on the Fair Trading (Soliciting on Behalf of Charities) Amendment Bill. I was on the Commerce Committee at the time that this bill was referred to it, after it had its first reading in the House. I think it is fair to say that the select committee members were very charitable in our dealings with the bill, because it turned out that the bill that came to the select committee was completely impractical and did not work. This is recognised in the commentary from the select committee, which notes: “We received submissions from some large and reputable charities who submitted against the bill.” That is shorthand for saying that some of New Zealand’s most reputable, longstanding charities panned the bill as being wrong, overreaching, and one that would not work. That is effectively what they said.

Michael Woodhouse: That’s not what they said.

Hon DAVID PARKER: They did say that. I was actually—

Michael Woodhouse: They generally endorsed it.

Hon DAVID PARKER: No, actually they did not. They came along and said: “Hey, look, this is silly.” They gave the example of where someone is employed to get a donor who becomes a repetitive donor donating an amount every week or every month to the charity. They said: “Well, how can you tell what percentage of the commission that might be paid to that person to help the charity in its efforts is attributable to donations over a period of time?”. They pointed out that it was just impractical. Indeed, the report from the select committee said: “We”—this is all of us on the committee—“concluded that the complexities involved could not be dealt with in primary legislation …”. That means that the purpose, which is an admirable purpose—to stop money being unduly taken or hived off for people who are ostensibly there for charitable purposes, but lining their own pockets—could not be dealt with in primary legislation. Not only that, but we found that a lot of the mischief that existed was already covered by other legislation, and that again is sort of averted to in the select committee report, which says that under the Fair Trading Act “provisions regarding unfair practices provide for prohibitions” on certain sorts of conduct. So, if you are acting in trade under the Fair Trading Act, and you are out there for financial reward, pocketing the money yourself but pretending that it is for a charity, that is a breach of the Fair Trading Act, and we should not be surprised by that. That part was already covered by the law.

We found out that, in the end, the only bit that really was not covered by the law, and that could be perhaps better dealt with, was that there are no positive obligations of disclosure upon people before they seek a donation. So, faced with a choice as to whether we just reported this bill back as being a useless attempt at a good purpose, we chose to take the charitable view, actually fixed the bill, changed it from that which arrived at the select committee, and did what Amy Adams had not been able to do in advance of the committee. The officials, who were struggling to try to help address the underlying issue, said: “Well, let’s come up with these regulations that could be made by the Governor-General about prescribing disclosure requirements for people who are seeking charitable donations.” This bill does not do that; it just creates some future right of a Government department to do it, so another layer of bureaucracy is being put upon the charitable sector, which I suspect will end up being disproportionate to the ill that is being claimed to be fixed.

Actually, I think the reason we went along with this at the select committee was that we found Amy Adams reasonable to deal with and we did not want to rub her nose in it. So we did not. We came up with this regulation-making power, which is pretty harmless. It does not really advance a lot, nothing will change tomorrow as a consequence of the passing of this legislation, but Amy Adams gets a member’s bill going through initially in her name, and now in the name of the member from Dunedin, who has taken it over to see it through to the end of its process. So we are voting in favour of the bill, but I thought that history should be put on record.

DENISE ROCHE (Green) : Tēnā koe, Mr Speaker. It is my pleasure to rise on behalf of the Greens to support the Fair Trading (Soliciting on Behalf of Charities) Amendment Bill. Donations are the lifeblood of the charitable and not-for-profit sector, and many of New Zealand’s 23,000 or so registered charities, and a fair few of the ones that are denied registration because of the narrow definition of “charitable purpose” in the Charities Act, rely on the goodwill and philanthropy of ordinary New Zealanders digging into their pockets to keep them afloat. The Greens have welcomed this bill, because as funding rounds with local authorities and contracts with the Government get clawed back and become more difficult, more and more charities have moved to professional fund-raisers. These third-party fund-raisers undertake the appeals for the charity, either through collections or through telemarketing, and either charge a straight fee or, as is more prevalent, take a percentage of all the donations that are pledged. Like many in this House we have felt concerned about the lack of clarity over these arrangements. We have been concerned that good-natured, philanthropic New Zealanders did not know how much of their donations were being diverted to a private company when most donors give to charity thinking that the intention is for the charity to use their money for the purposes of the charity’s activities.

We, the Greens, are great believers in transparency in all things, and so of course we have supported this bill. However, we have been concerned about how this bill would develop, as originally it suggested that donors would get to know exactly how much of their donation was being diverted to a fund-raising company only if that company was retaining more than 50 percent of the donation that they pledged, and that the donor would know that a proportion was being diverted to the company only if the company was taking between 20 percent and 50 percent of the donations.

We note the report from the Commerce Committee, which heard the submissions on the bill, and its comment that there is some complexity involved in setting a threshold that would trigger that transparency, and we do welcome the bill’s move to shift the responsibility of the detail around a bit, either through amendments in this House as the bill proceeds through to the Committee of the whole House, or through the Minister. These complexities include the fact that some large charitable organisations do spend more money on fund-raising initially as they sign people up on automatic payment forms, and that is recouped later on as time progresses, and I note that several members have already mentioned this. I know that this happens with Greenpeace New Zealand. It does not use third-party fund-raisers, and, as a good, prudent safeguard, it actually keeps an eye on the wages it spends on fund-raisers compared with the amount of funds it is fund-raising.

To my mind it is a great shame that we have to have a bill like this at all, and that good and worthy charitable organisations are forced to rely on the services of some potentially unscrupulous fund-raisers to make ends meet. We recognise that in times of recession, the generosity of New Zealanders is under pressure and that not-for-profit organisations are competing for the charity dollar. So it is doubly disturbing that unscrupulous fund-raising companies do exist. That pressure also forces good, worthy charities into the arms of the Devil. As the charity dollar reduces and Government funding dries up, more and more not-for-profit organisations face the prospect of becoming addicted to funding that is generated through the addiction of others. They start to rely on grants from those pub charities or, if they are lucky—and it is a lottery, excuse the pun—from Skycity. I just note here that Skycity casinos allocate only 2.5 percent of their profits from gambling to community grants, compared with pub pokie machines, which are required by law to allocate 37.1 percent for community purposes—despite this and the fact that the Prime Minister said yesterday during question time that pokies in casinos are three times more addictive that the ones in pubs.

The trouble with the unscrupulous fund-raising companies is that they bring all fund-raising into disrepute, and that is why we welcome this bill. We also note that there is more work to be done on the thresholds and around regulation, and we agree with the honourable member Rajen Prasad that there is more conversation to be had. In the meantime, however, the Green Party will be supporting this bill. Nō reira, tēnā koutou katoa.

JONATHAN YOUNG (National—New Plymouth) : Tēnā koe, Mr Speaker. I am very pleased to stand in support of the Fair Trading (Soliciting on Behalf of Charities) Amendment Bill.

New Zealanders like to be generous, without a doubt, and it is very important that we place reasonable protections around that generosity if we want to see it continue. We have a giving spirit in many regards. Seventy-seven percent of New Zealanders are planning to make a donation to charity in the next year, a recent survey has found. Many of our community organisations, as the previous speaker, Denise Roche, has mentioned, rely upon the generous donations of New Zealanders. What we find time and again are stories that come through the media of people who have been scammed or ripped off in the name of some good charity or good event.

Hon Clayton Cosgrove: Are you talking about ACC?

JONATHAN YOUNG: That is coming up. So it is very important that we do have in place the measures to protect New Zealanders.

We are in fact the second most charitable nation in the Asia-Pacific region. According to MasterCard’s survey of about 6,000 people across 14 countries, the only nation that was more charitable than us was Indonesia. We came second, and we even beat the Australians. We do have 25,500 organisations registered with the Charities Commission, and that organisation exists obviously to bring credibility, accountability, and transparency to our charitable sector. This is exactly what this bill is seeking to do.

It must be said that the Commerce Committee, which viewed this bill, did receive varied comments from different submitters, and some did say that they felt they would be adversely caught. So that was a reason why there was a move to put regulation-making powers in this bill—to create regulations that will work for all charities, rather than put it into primary legislation.

As stated before, some reputable charities in our communities—people who do great work for our communities, whether they be rescue helicopter trusts or the like—do rely upon full-time professional fund-raising organisations. Some of those organisations rely upon them only because the work they do, on many counts by volunteers, is totally immersed in doing the work of the charity, so they do not have the capacity to be fund-raising as well. It is important that the public have faith that their donations to charities are going to the charities. I do not think anybody here would be happy or comfortable to know that 100 percent of what they have donated is not going to the charity they thought it was going to.

That aside, we realise some of the complexities and some of the pragmatic aspects around fund-raising, but I think that when a fund-raising organisation is faced with the necessity to disclose what portion of the donation it receives is for its own administrative or salary costs, then it is actually going to be a challenge that will cause the reputability and the quality of the charity to once again stand up in its own right. So people will think that although 20 percent might be going towards the administration, the cause it is raising funds for is worth that, whether it be a rescue helicopter trust or the like. I think New Zealanders see the real relevance and necessity for those sorts of organisations, and realise that there has to be that fund-raising capacity behind them in order to maintain their costs and keep flying.

This bill is going to be, I think, a bit of a sorting ground. I think that through this legislation there will be some fund-raising organisations that may not survive, but we are also aware that there are many organisations out there that ought not to be there in terms of the amount that they do take from the charities that they seek to raise funds for.

I think, once again, that New Zealanders are very generous, and we must protect that generosity. We do not want to see a cynicism rise in the community, but we do want to see New Zealanders continue to contribute and continue to see the vast majority of what they donate get to the charities that they give to. Thank you very much.

  • Bill read a second time.