Thank you very much, Mr. Chairman.
I wanted to start with some comments on the scope of the charitable sector in general. Charities and non-profits are an important and expanding economic sector in Canada. Data collected by Imagine Canada and by the Johns Hopkins University Center for Civil Society Studies in the U.S. show that the charitable and non-profit sector in Canada, and in fact in most developing countries, has been growing somewhat more quickly than the gross domestic product has over the last decade or so. It's important to note, I think, that this rapid growth has been driven by demand and by value and generated by fundamental underlying economic and demographic trends. Basically, that is because as Canada's population ages and as it becomes more diverse, and as our economy becomes richer and more service-oriented, people want more of the things that charities do, such as health care and social services, recreation and culture, poverty alleviation, and the care of the natural environment, among many other high-value activities. We expect that growth to continue.
Today charities and non-profits account for roughly 8% of Canada's approximately $2-trillion economy. This means that they generate roughly $160 billion in income each year and employ over two million people. This makes an impressive contribution to Canada's well-being
Of course, it also means that they need $160 billion to finance their operations and if, as we expect, they continue to grow more quickly than the economy as a whole does to meet that growing need, we will need more resources. For example, if demand grows at 4% a year—a little bit more quickly than forecasts for GDP—charities will need an additional $4.8 billion next year, more than $5 billion the year after, and so on compounding. These are big numbers and it's a daunting challenge. The question is, of course, where will the money come from?
Imagine Canada's research shows that today roughly 50% of the revenue of charities—that's broadly defined charities and non-profits including hospitals and universities—comes from grants and payments from government, mainly provincial governments. Thirty-five per cent or so comes from earned income activities of charities, the sale of goods and services, memberships, newsletters, and so on. Another 10% comes from donations from individual taxpayers as claimed on their tax returns. A relatively quite small amount, less than one-half of 1%, comes from donations from the business community.
Looking forward, we can see a little bit of difficulty in many of these streams. Government, our main source of revenue, will be under pressure due to the common economic and demographic challenges we all face. Governments will likely struggle with fiscal pressures for the foreseeable future. Under these conditions, it's importance to stress the necessity of at least maintaining existing levels of financing for charities from government if Canada is to remain an economically successful and socially just country.
Second, charities will look to get more from donors and we will need to expand the population of donors, but donations from individuals are under some pressure. Donations as a percent of GNP have declined slightly but worryingly. Charities are also concerned that new younger donors are not replacing older donors as quickly as they might. This explains why charities have been focused on changes in tax incentives such as the stretch tax credit for charitable giving and why they vigorously continue to support it for the next budget.
Third, constraints on government spending and donations naturally turn charities' attention to the expansion of earned income activities and the exploration by charities and non-profits of what the committee is in fact looking at—new ways to finance their operations—and it assumes a growing importance over time. Growing these financial resources is going to be necessary to meet demand, even if donations and government support remain at existing levels. It's important from our point of view to note that social enterprise and social impact investment are distinct but related concepts.
Social enterprises are organizations or businesses within organizations that sell goods and services as a way of achieving a social good. Many charities and non-profits have been involved in social enterprise for decades and they may or may not take advantage of social financing tools. Social financing encompasses a wide range of instruments. We have a “social good” sector and social impact bonds, demonstration funds that some of the provinces have created, crowd funding and, in particular, debt crowd funding, impact investing, and tax incentives for below market return investments.
You'll note that social impact bonds—while very top of mind, a very topical topic—are only one piece of a larger puzzle. Imagine Canada has identified four things that we need to be in place for charities and non-profits to engage in these new forms of finance. One obviously is access to capital. The second is the human capital and skills to make good use of them. Third is market demand, and fourth is an enabling regulatory environment.
New investment tools may help to address capital needs, but this will only be true if the regulatory environment allows charities and non-profits to take advantage of them and to operate a broader range of revenue-generating activities. It will also be the case only if organizations have access to people with skills and ability and the capacity to navigate new financial instruments, understand their potential, and interact in new ways with governments and investors.
Getting all these fundamentals right will require investment and capacity building at a time when organizations are under severe pressure to reduce overheads to unrealistic levels.
The sheer size and scope of the financial challenges we all face means there will be no one solution, no magic bullet, to ensure financial sustainability of a large and growing and vital sector. Rather we'll all have to work hard to maintain existing levels of government support, maintain donations from individuals, develop partnerships with business, as well as explore and develop new tools such as social impact investment.
Our goal in considering social finance initiatives should be increasing the total resources available to charities and non-profits, not finding ways to move them around, say downloading from government to other sectors. In this picture government remains vital. It's the largest source of finance for charities, and maintaining its commitment to the charitable and non-profit sector is vital. It's also vital in assisting with capacity development and providing an enabling regulatory environment.
The issue goes well beyond the remit of one standing committee or one government department. Given the broad range of regulatory and possible legislative issues that need to be considered to ensure that social finance meets the needs and goals of government, the private sector, charities and non-profits, one could foresee that your colleagues in the finance and industry committees will take note of your work and consider how they can build upon it.
Thank you very much, Mr. Chair.