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Regular version of the site

Who Finances Charities

Each year, charitable foundations in the US and in Europe spend around 54 billion dollars in each region to address social need. But where do foundations get their money to spend?


Natalia Ivanova, 
Senior Research Fellow, 
HSE Centre for Studies of 
Civil Society and Non-Profit Sector.

The belief that the non-profit sector is mainly supported by private donations is nothing but a myth. According to Ivanova's study Foreign Experience of Government's Impact on Philanthropy and Its Applicability in Russia, government support accounts for a substantial part of charity budgets.

Sources of Charity Budgets

Almost 96% of people in the US make donations. In the UK, people spend an equivalent of 11.5 billion euro (almost half of all individual donations in the European countries) each year on charity.

However, private donations are not the main cogs in the mechanism of financing non-profits either in the US or in Europe, and account for just 8% of such organisations' budgets, with most of their funds coming from fee-based services (52%) and government financing (40%).

Government support affects non-profit organisations in different ways: it can stimulate them, but it can also discourage activity. The effect largely depends on the form of support, the author argues, and lists a few most common types of government-mediated funding:

  • fiscal incentives;
  • government lotteries;
  • income tax deduction for the benefit of charitable organisations;
  • government matching charitable donations;
  • using proceeds from privatisation to set up charitable funds;
  • partnerships between the government and charities.

Incentives for Philanthropists

Tax deductions of varied amounts depending on the country are a popular form of fiscal incentives. For example, in the US, tax deduction for charitable contributions can be up to 50% of total income for individuals and 10% of the tax base for companies. In Germany, possible deductions stand at 20% and 0.4%, respectively.

In Canada, charities are exempt from income tax, but they are not allowed to engage in political or commercial activity.

Gift Aid and Payroll Giving are government support schemes that have proven effective in the UK. The former allows charities and amateur sports clubs to claim an additional 25% in tax to the value of any donation made to them by UK taxpayers under Gift Aid. Payroll Giving allows employees to give to a chosen charity by having their employer make a deduction straight from their gross pay, effectively making the donation tax-exempt.

From Lottery to Partnership

Government lotteries bring substantial income to non-profits in countries such as the UK, the Netherlands, Belgium and Germany. In the Netherlands, six lotteries donate a total of 500 million euro to charities. In the UK, 40% of all proceeds from the National Lottery are contributed to a dedicated grant-making fund.

In Germany, Italy, Spain, Sweden, Switzerland and Poland, citizens are permitted by law to channel some of their income tax payments to charitable causes; this is usually a fairly small percentage, e.g. 1% in Poland and 0.5% in Italy and Spain.

The US, Canada, Singapore, Hong Kong, United Kingdom, Australia, New Zealand, Norway and Finland all have schemes whereby private donations to universities are matched by the government. The amount of matching funds can vary depending, e.g., on a given university's fundraising track record: in the UK, the government can contribute from 200,000 pounds for novice fundraisers to 2.75 billion pounds for universities with an extensive fundraising experience. In total, the UK government's matched funding scheme has brought some 580 million pounds from individuals and 143 million pounds from the government to 135 universities.

Worldwide, 21 countries have set up more than 500 charitable funds using the proceeds of privatisation. In recent years, partnerships between foundations and the government have emerged. In the US, the country's first office for developing partnership projects with foundations was set up by the Governor of Michigan13 years ago, and by 2010, similar offices were up and running in 18 states.

Barriers to Government Support in Russia

In Russia, most universally accepted forms of government support of charities are uncommon or non-existent. According to the researcher, government support is hindered by economic problems, lack of non-profit organisations' professional skills and their underdeveloped infrastructure. In addition to this, the government has not been investing sufficient effort in promoting a culture of philanthropy – such as raising public awareness, creating incentives, introducing schemes to facilitate charitable giving, etc.

According to Rosstat's estimates, in the early 2016, some 11,000 charitable organisations were registered in Russia, of which 85% (9,350 entities) were charitable foundations. This number appears very low compared to worldwide statistics, e.g. more than 130,000 charitable foundations exist in Europe and about 100,000 in the US.

The Russian government began providing consistent support to non-profits in 2006, when the federal centre allocated nearly 500 million rubles to be distributed to NGOs. Since then, the allocated amount has been increasing each year. However, according to the HSE Monitoring of the Status of Civil Society (2015), only 11% of Russian NGOs have accessed federal funding and 18% have received regional and municipal support. A large part of Russian non-profits are financed by private donations by individuals (38%) and companies (23%).

February 01, 2017