Understanding and responding to the decline in charitable donations
In 2018, French people gave less to charities: a fall of 4.2%. Although many organisations had already been seeing a decline in donations over several months, this figure from the France Générosités association is striking in its scale. Indeed, it was the first recorded drop in a decade. And it may well be due to recent changes in the French tax landscape. Here is an explanation.
The rise in CSG for certain retirees
On 1 January 2018, a portion of retirees saw their CSG rate increase (the generalised social contribution — a French payroll tax).
Concretely, for retirees living alone with annual income above €14,375, this compulsory levy increased. The same applied to couples with income above €22,051.
For example, a retiree living alone and receiving a monthly pension of €1,500 saw this levy increase by approximately €25 per month.
Since retirees are among the main and most loyal donors to not-for-profit organisations, many of them reconsidered their generosity as a result.
The shift from the ISF to the IFI and its reduced tax-relief opportunities
On 1 January 2018, after nineteen years in existence, the ISF (wealth tax) departed. The king is dead, long live the king: the IFI (real estate wealth tax) took its place.
Regarding charitable donations, this had some notable effects. Why? Because the tax-deduction possibilities provided by these two taxes — ISF and IFI — are not exactly the same. And, above all, they do not affect the same number of people.
Under the ISF, it was possible to obtain a tax deduction of up to 75% of donations, capped at €50,000. Under the IFI, however, these exemption possibilities are more limited. They now correspond to those permitted by income tax: a deduction of between 66% and 75%, capped at 20% of taxable income.
In short, tax relief on donations is still possible but less advantageous for those who were previously subject to the wealth tax.
Another important point to note: around 350,000 taxpayers were subject to the ISF, whereas the brand new IFI concerns approximately 180,000. There are therefore fewer households in a position to claim such substantial tax relief on their donations as under the old regime.
It is worth noting that ISF-related donations accounted for 10% of the total volume of donations. Of this share, a 50% decline has been recorded since the introduction of the IFI. That represents a loss of around €150 million, as indicated by Pierre Siquier, president of the France Générosités association.
It is also worth noting that since 2005 and the introduction of income tax deductibility, charitable donations had grown by 70% over 10 years. As noted by the Observatoire de la philanthropie and the Fondation de France, in 2015, approximately €250 million was donated under the ISF deductibility scheme.
Pay-as-you-earn tax collection
At first glance, the links between pay-as-you-earn tax collection and the decline in charitable donations may not seem obvious. Yet it is undoubtedly a central issue.
Indeed, under pay-as-you-earn, an employer cannot deduct the tax credits received by an employee. This can create uncomfortable cash-flow gaps for donors.
To be more concrete, let us look at how tax credit payments currently work. A first advance of 30% is paid in January by the tax authorities, based on donations made the previous year. This means that for a donor entitled to €1,000 in tax credits over a year, €300 is paid in January.
These €300 correspond, in a sense, to the anticipated tax credits associated with donations made in January, February, and March. The remaining 70%, i.e. €700, will not be paid until… August. This is what can cause problems.
While waiting for summer to end, the tax credits associated with April, May, June, and July donations are not immediately received. Of course, they will subsequently be compensated. But in the meantime, a cash-flow gap weighs on the budget. And it is this temporary reduction in purchasing power that can deter some donors from following through.
By comparison, under the previous system, when individuals paid their income tax, for instance, they effectively deducted their tax credit directly from the amount owed. This immediacy had the advantage of simplifying the process. It also made it more tangible in donors' eyes.
How large are these declines in donations?
As France Générosités indicates, the overall decline across 2018 was 4.2%.
For the charity Les Petits Frères des pauvres, Olivier Loock, Head of Fundraising, reports a shortfall of €3 million in 2018 compared to 2017.
France Générosités also notes that nearly a third of taxpayers indicate they wish to change their donations following the introduction of pay-as-you-earn collection.
In general, fiscal stability and generosity often go hand in hand. This means that, conversely, fiscal instability can limit donations. The lack of visibility and understanding of the changes introduced is unsettling for a proportion of donors.
So what can be done?
At a broader level, various avenues are being considered. One involves drawing inspiration from the home services sector to adapt the payment of tax credits. Another involves the possibility of paying these credits on a quarterly or monthly basis.
To limit this loss of funding experienced by part of the charitable sector, a modification of the tax treatment of bequests to charities has also been envisaged. Its aim would be to more widely encourage individuals and SMEs to make use of this option, as large companies already have specific arrangements in place.
Finally, closer to you and your day-to-day work, a communications effort tailored to your donors can make a real difference. This can be done via your newsletter and directly on your website, or through a communications campaign specifically dedicated to the topic.
And because the subject is broad, we encourage you to focus on what is considered the most important element: pay-as-you-earn collection and its effects. By explaining that it does not alter the total amount of the tax credit associated with donations but merely the timing of its payment, you will reduce misunderstandings and the resulting decline in donations.
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