Pro Bono Alert: Removal of Government 'gagging clauses'

On 8 January 2008, the new Federal Labor Government announced the removal of confidentiality clauses in contracts with the not for profit sector. It is hoped the removal of these clauses, termed by the Government, the Australian Council of Social Service and others as 'gagging clauses', will encourage constructive and open debate and ultimately lead to better policies for disadvantaged Australians. Not surprisingly, the Government's decision has been applauded by not for profits.

Previous Government's confidentiality clauses

Under the previous Government's contracts, the Government reserved the right to censor the public statements of not for profit organisations in contracts for delivery of government-funded welfare services. The confidentiality clauses required not for profit organisations to provide copies of their media releases, submissions, reports and campaigns to the Government before being issued publicly.  These restrictive clauses also gave the Federal Government the right to insist that the organisation change staff members. These conditions which may have been intended to prevent political criticism, stifled public debate and prevented the release of research on social issues.

When announcing the removal of these clauses, Julia Gillard, the then Acting Prime Minister, criticised their effect on the advocacy functions of not for profit groups, saying that the gagging clauses resulted in 'a climate of fear that meant they were anxious about speaking out and advocating for those that they worked with'.

For example in recent years, many charities and not for profit organisations have sought advice regarding their ability to make public comments on racial issues.  Due to the significant impact of defunding under the so-called gagging clauses, many not for profit organisations have been advised to adopt a conservative approach.

How will this announcement affect current and future contracts?

Julia Gillard promised on 8 January 2008 that the Government will scrap the clauses in future contracts, in order to facilitate freedom of speech. In addition, all existing agreements will be reviewed and audited with a view to removing any restrictive confidentiality clauses. According to Ms Gillard, this will lead to robust debate, a better ability to hear the voices of those who work with the most disadvantaged, and ultimately the best public policy.

Many not for profits in Australia, have welcomed this initiative. The Australian Council of Social Service has congratulated the Government’s early attention to the removal of gagging clauses in contracts, and UnitingCare Australia has said that the removal of the clauses will encourage organisations to speak out in the interests of vulnerable people: 'A strong and articulate community services sector is crucial for the delivery of quality services and to ensure the best quality of life outcomes for disadvantaged Australians.'

What is the impact on tax deductibility for charities engaging in political activities?

While the removal of restrictive confidentiality clauses takes a positive step towards recognising the independent voices and experiences of the not for profit sector, many organisations that have charitable status may still be reluctant to engage in activity which could be construed as being political in nature due to the fear that the Australian Taxation Office may withdraw their Deductible Gift Recipient (DGR) status. 

This is because the Australian Tax Office will not consider an organisation to be eligible for DGR status if the charity 'is primarily for political, lobbying or promotional purposes'. However, it should be noted that the Australian Tax Office has issued rulings and publications stating that political programs and activities may be incidental to the charitable purposes, and many charities legitimately undertake activities to affect or change particular government policies or decisions as part of carrying out their charitable purpose. A charity is thus able to engage with government in presenting its views to the public and in participating in the democratic process in a non-partisan way.

Therefore, in order for a charity to be considered a charitable institution and retain DGR status, it must ensure that any political or lobbying comments that are made are only incidental activities to the primary charitable purpose of the charity. Despite this consideration, the removal of these 'gagging clauses' remains a significant move in permitting charities to engage in political comment and public debate  especially on issues and government activities affecting their aid programs and beneficiaries.

For further information, please contact:

Nicolas Patrick, Pro Bono Director
Tel +61 2 9286 8378
nicolas.patrick@dlaphillipsfox.com