September 2007

Election 2007: Campaign finance reform

Carmen Lawrence, Parliament of Australia

The minimum requirement of any representative democracy worthy of the name is that governments should be elected, that all adults should have an equal right to vote, and that all votes should be of equal value. Despite recent changes to the Electoral Act, which may disenfranchise several hundred thousand voters in the coming election, in broad terms these requirements are met in the national jurisdiction: we have (near) universal suffrage, electorates of roughly equal size (Tasmania excepted) and an independent electoral commission to determine electoral boundaries and prevent gerrymandering.

What we have not achieved is a more equal distribution of the power to influence government decisions between elections; we cannot claim that all citizens enjoy an equal opportunity to participate in the political processes and decisions which affect their wellbeing and status. Nor are all candidates and parties equally able to present their credentials and policies to the electorate, and some of this inequality derives from the way we fund political parties and election campaigns.

PARTY FUNDING

In Australia we have a mixed system of public funding of election expenses (based on the size of the party vote) and private donations (partially disclosed). Although the data on sources of party revenue are compromised by limitations in the disclosure provisions and difficulty in categorising the type of donor, it would appear that an increasing proportion of donations comes from large individual, corporate and institutional donors—so-called ‘plutocratic’ financing—as opposed to ‘grass roots’ sources such as membership dues and donations from party members and supporters. Analyses of party finances from 2001–02 indicate, for example, that the Liberal Party derived around 74 per cent of their private funding from corporate sources in that election year, a rise of approximately ten per cent from the previous election year (1998–99) (Jaensch, Brent & Bowes 2004). The introduction of public funding of elections was supposed to reduce the parties’ reliance on private corporate and union donations: all that has happened is a blow-out in both public and private funding as parties engage in an increasingly expensive bidding war at elections. All the parties now rely heavily on private funding—approximately 80 per cent for the major parties, most of it spent on advertising and electioneering.

All political parties now rely heavily on private funding.

At a recent Democratic Audit of Australia (DEA) roundtable discussion on political finance, a simple, but fundamental, question was posed to the participants: How democratic is the way political parties are funded in Australia? The answer has to be, ‘not very’. In the first place, it is arguable that the current system bestows an unfair advantage on existing parties and incumbents. If we measure how private funding compares with electoral support, for instance, it is obvious that the current system is unfair: the ALP gets roughly $22 a vote; the Liberals, $18 a vote; the Nationals, $28 a vote; the Greens $8.50 a vote and the Democrats $6 a vote. This dramatic inequality reinforces the two-party system at the expense of other possible players. The DEA Focussed Audit on campaign finance (Young & Tham 2006, p. 49) concluded that because our system of public funding is proportional and retrospective it exacerbates political inequality by disadvantaging new and minor parties. Easier access to unlimited private funds and uncapped expenditure entrench the interests of the major parties, deny electoral choice and reduce the competition of ideas; new parties and individuals simply cannot raise the money to run sufficiently visible campaigns to attract voters.

BUYING INFLUENCE?

Well-funded lobbying and campaign donations do more than reduce electoral competition; they also strip average voters of equality at the ballot box. Those who can afford the big donations (often made without the agreement of shareholders or members), the flights to Canberra, the permanent lobbyists, and the hospitality may well drown out other less well-funded voices. There is a strong likelihood that, without constant public scrutiny, political decisions will be distorted to favour party financiers, especially those who follow up with targeted lobbying to further their own objectives—so-called ‘corruption as undue influence’. Australian Election Studies (2001) data show that almost half voters already believe that it is the preferences of big interests that determine policy, not the preferences of voters. Despite the otherwise general equality in voting power, many are suspicious that not all citizens are equally able to influence their representatives. This breeds cynicism and a belief that the ordinary voter’s needs and views are ignored, while preference is given to the interests of the wealthy, to big business and to political cronies.

Several features of our political system contribute to these attitudes. Substantial campaign donations to the major parties by corporations and large organisations such as unions and business foundations foster the perception (and perhaps the reality) that it is possible to buy privileged access to MPs and ministers and that this influence is in proportion to the amount of money donated. The same companies and organisations are able to employ lobbyists seeking to influence the policies and decisions of the Parliament. They are also likely to be the ones who purchase ministerial contact through high priced fundraising dinners and cocktail parties where attendees can pay thousands of dollars for a place and may even bid for exclusive access to a minister’s time. And none of this is required to be disclosed under current regulations. When access to ministers and MPs is sold, as it now so often is, there is a very real possibility of corruption.

Major corporate donors expect a return for their money.

The substantive problem is the possibility that donations can purchase influence. Reliance on donations may also create a strong inducement for political parties to bias their policies toward business and high income earners who provide the bulk of the funding, thus conspicuously undermining the promise of democracy that we all share equally in political power. Such reliance also increases the risk that such funds could be misused for personal benefit or for the benefit of partisan allies. The recent furore over the nomination to the House of Lords of big donors to the British Labour Party is a case in point as was the appointment to the Reserve Bank of a Liberal Party benefactor (Ramsay 2005). Reports on the extraordinary level of—secret—access the Prime Minister afforded to the CEO of the Manildra Group, Dick Honan, and the favourable treatment of his ethanol producing company (over $20 million in taxpayer funded subsidies) sparked controversy not least because Mr Honan had been a generous donor to the Liberal Party (Gettler 2004).

While I know of no comparable Australian data, surveys of major corporate donors in the United States (some of whom donate in Australia) show that they do so not because of charitable impulses or civic duty—they expect a return for their money. A Business Week / Harris Poll surveyed 400 senior executives from large public corporations to explore their reasons for donating to political parties. Over half nominated as the main reason securing access to law-makers to ensure consideration of matters affecting their businesses. A further 27 per cent indicated that gaining access was at least part of their rationale, while 58 per cent nominated losing influence to the unions or to environmental organisations as a relevant consideration. A worrying 41 per cent said that at least part of the reason they made political donations was to the hope of receiving ‘preferential consideration on regulations or legislation benefiting our business’ (Bonus & Regan 1997, p. 34). The promotion of these special interests may be inimical to the public good, especially if other, contrary, views are not given the same access or weight.

In the 1999–2000 Peltason Lecture at the University of California at Irvine, retired US Senator Paul Simon observed that ‘anyone who has been a candidate for major public office and says “Campaign contributions don’t affect you” is simply not telling the truth’ and that ‘the financially articulate have inordinate access to policy makers.’

DISCLOSING AND CONCEALING

Disclosure laws require the sources of donations over $10,000 (raised from $1,500 in the federal jurisdiction 2006) to be identified, but there are still major loopholes and transactions are generally far from transparent. The latest changes allow for multiple donations to be made to separate branches of the parties so that donations of as much as $90,000 a year (double if made by a couple) can be made without triggering disclosure.

Donations are often dressed up as loans and made through ‘foundations’, dummy trusts and celebrity fundraising dinners which do not identify individual donors. Through such fundraising organisations, companies can be sponsors and the cost need not be publicly specified. For their sponsorship, they get a variety of entitlements that are not available to ordinary citizens, including access to ministers, briefings and so on. There is no public information about who is contributing and how much.

Existing disclosure provisions fall short of desirable standard.

The existing disclosure provisions fall short of desirable standards including the fact that disclosure is not timely. Voters are entitled to know before an election, not after, whose promises are being funded. Both the DEA and the Australian Electoral Commission (AEC) have also pointed to a lack of compliance by the major parties and the AEC has expressed concern on a number of occasions about a culture of evasion (Australian Electoral Commission 2004). They are concerned that the parties are not according sufficient priority to disclosure and are siphoning large sums through associated entities.

Democratic Audit of Australia researchers Sally Young and Joo Cheong Tham (2006) concluded that the effectiveness of the disclosure regime is limited by a general failure to specify the nature of contributions and delays in that disclosure. It is also clear that parties inevitably attempt to exploit loopholes, actions which do not appear to be sufficiently counteracted by robust enforcement and regulation. In short, the current disclosure system is a leaky sieve that easily permits the spirit of the legislation to be perverted.

OPENING THE BOOKS

There is little doubt that the disclosure regime for political donations in Australia is far from satisfactory. Apart from the political inequality inherent in the system, the possibilities for corruption and influence peddling are real. At the very least decent legislation should be crafted to reveal relationships between politicians and donors, not hide them; to enable scrutiny of their subsequent relationships and to prevent graft. If large donations are to remain a feature of the Australian system, comprehensive transparency is fundamental to preventing abuse: we need to know who is donating, in what form and how much, as well as the uses to which such funds are put. A preferable alternative, in my view, would be a regime which limits the possibility of the ‘purchase of influence’ by providing for:

  • the proscription of any donations from corporations or large organisations, such as unions
  • a limit on the size of individual private donations to $1,500 or thereabouts
  • the immediate and public declaration of all donations, including in kind and entertainment expenses
  • a requirement to identify the original sources of all donations
  • the prohibition of any donations from foreign entities
  • reform of public funding to assist emerging parties and independent candidates—for example, by providing for at least some public funds to be paid in advance of any elections
  • better resourcing of the AEC’s enforcement capacities
  • more substantial penalties for breaches of the Act.

Such a system would ensure that large corporate and individual donors could not, through their donations, unfairly influence electoral outcomes. And it could be anticipated that the inducement for political parties to bias their policies toward business and high income earners would be reduced. We might, in this way, come closer to fulfilling the promise of democracy: that we all share equally in political power.

REFERENCES

Australian Electoral Commission 2004, Funding and Disclosure Report Election 2004, Canberra, Australian Electoral Commission [Online], Available: http://www.aec.gov.au/pdf/political_disclosures/2004_report/electoral_report2004.pdf [2007, Sep 9].

Bonus, M. & Regan, M. 1997, ‘The backlash against soft money’, Business Weekly, March 31, p. 34.

Jaensch, D., Brent, P. & Bowden, B. 2004, Australian Political Parties in the Spotlight, Democratic Audit of Australia Report No. 4 [Online], Available: http://democratic.audit.anu.edu.au/papers/focussed_audits/200501_jaensch_parties.pdf [2007, Sep 14].

Gettler, L. 2004, ‘Can power be bought?’, The Age, February 8.

Ramsey, A. 2005, ‘A little dirty laundry in Adelaide’, Sydney Morning Herald, December 3.

Simon, P. 2000, The Future of American Democracy, 1999–2000 Peltason Lecture, eScholarship Repository, University of California [Online], Available: http://repositories.cdlib.org/csd/00-02 [2007, Sep 9].

Young, S. & Tham, J-C. 2006, Political finance in A skewed and secret system, Democratic Audit of Australia Report No. 7 [Online], Available: http://democratic.audit.anu.edu.au/papers/focussed_audits/20061121_youngthamfin.pdf [2007, Sep 9].

Dr Lawrence entered politics in 1986, serving at both State and Federal levels for 21 years. She was at various times WA Minister for Education and Aboriginal affairs, Premier and Treasurer and Federal Minister for Health and Human Services. She has held various portfolios in opposition and was elected national President of the Labor Party in 2004.

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