Reasons to fund NGOs

Government funding allows NGOs to carry out important work in many areas, including health and welfare, environmental protection, arts and culture, sport and recreation.

Their staff and volunteers provide effective services to improve people’s lives and the wellbeing of communities - as evidenced in two reports from the New Zealand Federation of Voluntary Welfare Organisations (NZFVWO). Counting for Something: Value Added by Voluntary Agencies (2004) estimated that for every $1 provided to a voluntary agency, between $3 and $5 worth of services were delivered in the community.

Counting for More (2007) examined the outcomes of two organisations – Literacy Aotearoa and the Royal New Zealand Plunket Society. The pilot study provides the basis for understanding why value added by voluntary agencies builds on the contributions of volunteers and far exceeds the initial expenditure made by its funders, whether private or public. 

In 2007, Statistics New Zealand's Non-Profit Institutions Satellite Account: 2004 revealed that more than one million volunteers gave more than 270 million hours of unpaid labour to non-profit institutions in 2004. Non-profit institutions contributed 2.6 percent ($3.64 billion) to New Zealand’s gross domestic product (GDP) in 2004. When volunteer labour is included, this increases from 2.6 percent to 4.9 percent of GDP.

Consistent and transparent funding of NGOs helps to ensure services are delivered cost-effectively by the most appropriate providers. It also helps to build the strength and capacity of the community and voluntary sector.

There are a number of reasons why NGOs are often preferred providers.

• Many NGO services are cost-effective. They often have lower cost structures and access to a voluntary workforce.
• Because NGOs are independent, they are often better placed to reach people in marginalised communities. As a result, they may have a better relationship with a target group than a government agency.
• NGOs are not bound by the same restrictions as the public service, so have the ability to be more flexible and innovative.
• NGOs may have specialist local knowledge or expertise that is not readily available to a government agency.
• NGOs help to bring people together in constructive relationships. They work directly with communities to achieve shared goals.
• The non-profit nature of NGOs ensures funding is targeted to delivering effective services.

Contracting or funding arrangements can take a number of forms:

• either full or partial funding of the agreed services
• entitlements attached to the user of a service
• funding on the basis of outcomes achieved
• grants (funding provided so long as certain conditions are met)
• full or partial devolution of decisions on the allocation and use of funds to a community organisation.

The funding ranges from grants with few conditions attached, to highly specified contracts for services that are paid by instalments against pre-set milestones or after the required services have been delivered.

Read more about different funding arrangements in the Auditor-General’s report:

As the demand for government funds often exceeds supply, community and voluntary organisations may need to compete for limited resources. In this environment, government agencies need to make good decisions about who and what to fund.

Read more about funding NGOs through grants, contracts, and other forms of support in the section on funding options.

The government is committed to improving funding arrangements with NGOs. In 2001, the Statement of Government Intentions for an Improved Community-Government Relationship was signed. It states:

“Government acknowledges the valuable contribution made by community, voluntary, and iwi/Maori organisations to the achievement of shared social, cultural, environmental, and economic goals. Government agencies will, together with the community sector, undertake a programme of work to address concerns about funding arrangements, effectiveness, compliance costs, and related matters.”