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Research Note no. 27 2005–06
Political finance disclosure under current and proposed thresholds
Sarah
Miskin
Politics and Public Administration Section
Greg
Baker
Statistics Section
23 March 2006
Proposed amendments to the Commonwealth Electoral
Act 1918 currently before parliament raise the thresholds for political
finance disclosure from $1500 to ‘more than $10 000’, raise the limit
on anonymous donations from $1000 to ‘exceeds $10 000’, increase
the tax deduction for donations, broaden the definition of associated
entity and widen the annual reporting requirement to include third parties.(1)
The Electoral and Referendum Amendment (Electoral Integrity and Other
Measures) Bill 2005 also provides for the indexation of the disclosure
thresholds and the tax deduction using the Consumer Price Index.
Proposals to increase the disclosure thresholds are
not new. In its majority reports into federal elections, the Joint Standing
Committee on Electoral Matters has recommended that the thresholds increase
to $5000 (1996), $3000 (1998) and ‘amounts over $10 000’ (2004).
The Liberal Party’s submissions to these successive inquiries have argued
for a $10 000 threshold. However, these proposals have not gone unchallenged.
The Australian Labor Party and Australian Democrats minority reports have
opposed the increase. Bills raising the thresholds to $5000 (1999) and
$3000 (2004) were passed in the House of Representatives, but not in the
Senate.
This Research Note examines political finance disclosures
under the current and proposed thresholds, using the annual returns of
the major parties (the Liberal Party, The Nationals and the ALP) for the
financial years 1998–99 to 2003–04. This information is available on the
Australian
Electoral Commission web site.(2) The Note does not examine
the tax deductibility or third-party reporting amendments.
The Note first sets the context for the figures, outlining
the disclosure requirements for political parties and the current difficulties
with the classification of receipts. It then examines the proportion of
a party’s total receipts for which details are disclosed under the current
threshold and recalculates this figure based on an increase in the threshold
to ‘more than $10 000’.(3) The Note then explains how
donors are able to make multiple payments to parties without triggering
the disclosure requirements. It concludes that, should the amendments
succeed in encouraging more people to make smaller donations to political
parties, the proportion of total receipts for which details are given
could decrease.
Disclosure requirements
Under s. 314AB of the Commonwealth Electoral Act
(CEA), all registered political parties, as well their state and territory
branches, must file an annual return to the Australian Electoral Commission
(AEC) within 16 weeks of the end of each financial year. This means
that a political party’s annual receipts are not contained in a single
return; rather, they are divided across the separate returns for the national
secretariat and the state/territory branches. As this Note looks to the
macro level of the disclosures rather than the micro level, the figures
discussed are calculated by adding the figures for each associated party
branch to give a total for what the AEC calls a ‘related party grouping’.(4)
The return for each party branch must show the total
amounts received and paid in the financial year, as well as the total
outstanding debt as at 30 June. It must also give details or ‘particulars’
(that is, names and addresses) for any amount of $1500 or more that is
received or owed.
Classification issues
It is important to note that the ‘total receipts’ listed
in a return is not the total for ‘donations’ to a party because parties
have to disclose all amounts received in a financial year (and supply
the details for those above the current $1500 threshold), irrespective
of whether or not the amount is a donation. The CEA uses the term ‘gift’,
rather than ‘donation’, and s. 287 defines a ‘gift’ as:
any disposition of property made by a person to another
person … being a disposition made without adequate consideration in
money or money’s worth.
This means that cash and non-cash (gifts-in-kind) receipts may
count as donations, but commercial transactions (such as returns on investments)
do not. The Act (s. 287) notes that an ‘annual subscription’ to a
party (for example, a membership fee) is not a donation, nor is public
funding.
The CEA does not require parties to distinguish donations from
other types of receipts. However, the AEC suggests in its guidelines for
political parties that they ‘may wish’ to provide ‘additional clarifying
information in those situations where disclosure does not provide a clear
picture of the underlying transactions’.(5)
The annual return form includes a ‘details’ column in which
parties can add such information, and the AEC suggests using the classifications
‘donations’ and ‘other receipts’. The latter category includes membership
fees, interest on investments, rents and share dividends. It also includes,
for example, any amount that the party receives as a refund from a company
to which it has paid for services in advance. (That is, if a party pays
for its electricity in advance, but pays more than it has to, then the
refund is an ‘other receipt’.)
Although the AEC asks parties to distinguish between ‘donations’
and ‘other receipts’, some party branches do not do so or they do not
do so for all receipts, in which case the AEC enters the term ‘unspecified’
in the ‘type of receipt’ field. A difficulty in calculating the total
‘donations’ for a ‘related party grouping’ arises in many of the years
under review because some branches of the same party may make the distinction
between types of receipt while other branches may not. That said, the
amount that is classified as ‘unspecified’ has declined—from a high of
$18.4 million (or 17.9 per cent of the total itemised receipts) in
2001–02 to $31 288 (or 0.03 per cent of the total itemised receipts)
in 2004–05, which suggests that more branches are choosing to categorise
their receipts.
An additional problem with calculating the total ‘donations’
is that the categories are open to interpretation and each party—and separate
branches of the same party—may interpret the categories differently. That
is, what one party (or branch) lists as a ‘donation’, another may list
as an ‘other receipt’. For example, some branches may interpret the payment
to attend a fund-raising dinner as a ‘donation’, while others may not.
Two other categories appear in the annual returns:
‘public funding’ and ‘subscriptions’. ‘Public funding’ includes Commonwealth
election funding and state election funding.(6) Since 2002–03,
branches of the ALP have categorised some receipts as ‘subscriptions’,
covering such payments as membership fees, parliamentary levies and affiliation
fees.
Interpretation and indistinct categories
To an extent, it does not matter how parties categorise
their receipts because they are required to give the details for all amounts
of $1500 or more, irrespective of whether the amount is a ‘donation’.
Thus, the system ensures a degree of transparency in that sources of all
receipts above the threshold are disclosed to the public.
However, the lack of clarity in the categorisation
of receipts limits the information that can be drawn from the returns.
An obvious difficulty is that it is impossible to know the exact relationship
between the source of an amount and the party. Given that some commentators
appear not to understand the distinctions and discuss the itemised receipts
as though all are ‘donations’, it may be that incorrect conclusions about
the relationship are drawn. For example, when the 2004–05 returns were
made public, media reports highlighted the ‘donations’ of, among others,
wheat exporter AWB, Robert Gerard and his companies, and tobacco giants
British American Tobacco and Philip Morris. Yet analysis of the returns
shows that the ‘donations’ totals are not as simple as was reported. In
some articles, ‘donations’ and ‘other receipts’ appear to have been conflated
to give a total for what is termed ‘donations’, despite the parties having
classified some of the payments as ‘other receipts’.(7) The
problem is that the returns provide insufficient information for the public
and the media to know the basis for the distinction and therefore the
nature of the relationship between the source and the party.
The lack of clarity in the categorisation of receipts
also makes it impossible to say with certainty that raising the threshold
to $10 000 ‘would not impact significantly on the dollar amount of
donations publicly disclosed’.(8) Such a claim cannot be made
because the current classifications may not correctly categorise donations.
That is, some donations may not be included in the ‘donations’ category
because they have been classified as ‘other receipts’ or they have not
been identified at all, in which case they are counted in the ‘unspecified’
category.
Raising the threshold
It is important to note the caveats over the categorisations
outlined in the previous section when interpreting the data in this section.
Table 1 gives the combined disclosure figures for the major parties (including
the Northern Territory Country Liberal Party) over the seven financial
years from 1998–99 to 2004–05, separated into the various disclosure categories
noted above. The table also gives an annual average based on the data
for the seven financial years.
Table 1 shows that, in 2004–05:
- the major parties declared total receipts of $143.7 million
- under the current disclosure threshold of $1500, they provided details
for $117.8 million (or 81.9 per cent) of the $143.7 million
- of the $117.8 million in receipts for which they gave details, they
classified $33.1 million (or 28.1 per cent) as ‘donations’
- if the ‘more than $10 000’ threshold had applied in
2004–05, the parties would have provided details for $100.7 million
(or 70.0 per cent) of the declared total receipts of $143.7 million
- of the receipts for which they gave details under the higher threshold,
they would have classified $25.2 million as ‘donations’, which
is 25.1 per cent of the total for which they gave details ($100.7 million)
or 17.6 per cent (less than one-fifth) of the total declared receipts
of $143.7 million
- the $25.2 million classified as ‘donations’ under the ‘more
than $10 000’ threshold represents 76.2 per cent of the $33.1 million
they identified as ‘donations’ under the $1500 threshold.
The last column of Table 1 gives the average for the
parties (based on the seven financial years). It shows that:
- under the $1500 threshold, details were given for an average 74.7 per
cent of the total declared receipts ($73.5 million of $98.4 million)
- of the receipts for which details were given, $23.6 million
(32.1 per cent) was classified as ‘donations’
- under the proposed ‘more than $10 000’ threshold, details for
64.1 per cent of the total declared receipts ($63.0 million
of $98.4 million) would be given
- of the receipts for which details would be given, $19.1 million
(30.3 per cent) would be classified as ‘donations’ (this $19.1 million
is 19.4 per cent of the total declared receipts of $98.4 million)
- the latter figure ($19.1 million) represents 81.2 per cent of the
‘donations’ listed under the $1500 threshold.
Thus, under the proposed increase in the threshold for disclosure,
the average proportion of receipts for which the Coalition and the ALP
would disclose details would drop from three-quarters of their total declared
receipts (74.7 per cent) to about two-thirds (64.1 per cent).
Table 1. Disclosure figures for the major parties, 1998–99 to 2004–05*
Table 2 shows the percentages of the receipts that the parties
classified as ‘donations’ under the $1500 threshold that they would disclose
under the new threshold.
Table 2. ‘Donations’ disclosed, 2004–05
| |
$1500 threshold |
> $10 000 |
> $10 000 as percentage of $1500 |
|
ALP |
13 930 195 |
10 974 470 |
78.8 |
|
Liberals |
16 438 982 |
12 212 460 |
74.3 |
|
Nationals* |
2 767 970 |
2 051 251 |
74.1 |
|
Coalition |
19 206 952 |
14 263 711 |
74.3 |
| ALP/Liberals |
30 369 177 |
23 186 930 |
76.4 |
* includes Northern Territory Country Liberal Party
Multiple donations and disclosure
According to s. 305B of the Electoral Act:
(1) If, in a financial year, a person makes gifts totalling
$1,500 or more to:
(a) the same registered political party; or
(b) the same State branch of a registered political party;
the person must furnish a return to the Electoral Commission
within 20 weeks after the end of the financial year, covering all the
gifts that the person made to that political party or branch during
the financial year.
However, as noted above, the CEA counts the separate
branches of a political party—state, territory and national secretariat—as
individual entities. For the purposes of the disclosure provisions of
the CEA, donations from the same donor to the individual branches of a
party are understood to be donations to separate political entities. That
is:
- multiple donations to the same branch of a political party
are cumulative for the financial year
- multiple donations where each donation is made to separate
branches of a political party are not cumulative for the financial
year.
Under the current disclosure regime a donor who makes
nine donations of $1499 to the same branch of a party is required
to lodge a disclosure because the total donation for the financial year
to that branch of the party is $13 491, which is more than the $1500
threshold. The branch of the party receiving the multiple donations would
not have to disclose the details of any of the donations because each
is under the $1500 threshold. (Under s. 314AC of the Act, a party
does not have to take amounts of less than $1500 into account when calculating
the total donation of an individual or organisation in a financial year.
If a donor makes three donations of $1499 and two donations of $4497 to
the same branch of the party, the donor has to disclose the total $13 491,
but the party has to disclose the details only of the two donations of
$4497; that is, the donations above the $1500 threshold.)
A donor who makes a donation of $1499 to each of
the nine ALP branches and the eight Liberal branches—a total of $13 491
for the ALP and $11 992 for the Liberals—is not required to
lodge a disclosure because the donations are not cumulative across
the individual entities and each donation is less than the $1500 threshold.
The individual branch does not have to give the details of the donation
because it is below the $1500 threshold.
In addition, the CEA makes no reference to ‘family
grouping’ in terms of disclosure, which means that, whereas for corporations
the calculation of donations is on a ‘corporate grouping’ (meaning that
the separate divisions of a corporation count as one), the calculation
for families is individual. Thus, a husband and wife could each give multiple
donations of $1499 to the branches of a political party and the ‘family’
would not have to lodge a return.
Multiple donations under the higher threshold
Under the proposed ‘amounts above $10 000’ threshold,
a donor could donate the following amounts to the major parties without
triggering the disclosure requirements:
- ALP: $10 000 x 9 branches = $90 000
- Liberals: $10 000 x 8 = $80 000
- The Nationals: $10 000 x 6 branches = $60 000.(9)
The amendments proposed in the Bill
link the $10 000 to the Consumer Price Index, which means that, over
time, these figures will be larger. As noted above, there is no reference
to ‘family grouping’, which means that a husband and wife could give $180 000
to the ALP and a combined $280 000 to the Liberals and The Nationals
without having to lodge a disclosure and without the various party branches
having to disclose the individual donations.
In addition, the proposed amendment raises the amount
in s. 314AC to ‘more than $10 000’, which means that parties
would not have to disclose individual amounts of $10 000 or less,
even where the cumulative total for a donor is above this amount. Thus,
under the proposed change to s. 314AC, a donor who gives the same
branch of a party two donations of $10 000 and two donations of $20 000
is required to lodge a disclosure for the total $60 000, but the
branch’s disclosure would show only the two donations of $20 000
(a total of $40 000). Such anomalies in the returns may confuse observers
and could limit the capacity of the AEC to
cross-check between donor and party returns.
Conclusion
Based on the average for the past seven financial years,
the major parties would disclose the details of about two-thirds (64.1 per
cent) of their total declared receipts if the threshold were increased
to ‘more than $10 000’. Under the current threshold, they disclose
the details for three-quarters of their total receipts (74.7 per
cent).
However, past figures may not be a useful guide to
disclosure under the higher threshold. A higher threshold may encourage
existing donors to change their behaviour; they may choose to split their
current contributions, thereby negating the need to lodge a return. If
all else remained the same, the proportion of receipts for which details
are given would decline.
The Joint Standing Committee on Electoral Matters argues
in its report into the 2004 federal election that a higher threshold would
encourage more individuals and small businesses to make donations to all
candidates and parties because it would:
- alleviate the burden of filling in a disclosure for relatively small
donations
- ensure privacy for those who wanted to support the party of their
choice, but who were afraid of repercussions if their support were made
public.(10)
The committee also supported the proposition that a
higher tax deduction would act as an incentive for more individuals and
small businesses to make donations.
If more people were to make donations of $10 000
or less, then the proportions given in Table 1 would change. If (say)
an additional $10 million were given in this way, then the percentage
of total receipts for which details would be given would drop to 58.2
per cent, or just over half.
On the surface, such a change would require 1000 donors
to make a donation of $10 000. However, many of the current rules
relating to financial contributions to political parties remain the same.
Thus, a donor could give multiple amounts of $10 000 to separate
party branches without having to lodge a disclosure and without each branch
having to give the donor’s details. Given that the Bill
proposes raising the limit on anonymous donations from $1000 to ‘exceeds
$10 000’, the branch would not even have to know the details of the
donor. Knowing that their details would not be known or disclosed may
encourage more donors to make anonymous multiple donations. This scenario
suggests that only a few hundred donors would need to make such donations,
or to change their behaviour, and the percentage of receipts for which
details were disclosed could decrease significantly.
- The wording for the higher thresholds thus excludes amounts of exactly
$10 000, but captures everything above this figure.
- The data used in this Note were accessed between 19 January and 2
February 2006.
- In this calculation, the Note excludes all amounts of $10 000
and includes any amount above $10 000.
- The AEC defines a ‘related party grouping’ as: ‘A group of Parties
that have registered with the Australian Electoral Commission as being
structurally related to each other.’
- Australian Electoral Commission, Funding and Disclosure Handbook
for Political Parties, Commonwealth of Australia,
Canberra, 2004, p. 21.
- Commonwealth election funding is an
amount paid per vote to those independent candidates, Senate groups
and political parties that receive at least 4 per cent of the formal
first-preference vote in the division or territory they contested. State
election funding schemes are in place in New South Wales, Queensland
and Victoria, but not in South Australia, Western Australia, the ACT
or the Northern Territory.
- See, for example, D. Crowe, ‘Gerard’s generosity increased’, Australian
Financial Review, 2 February 2006, p. 4;
M. Schubert, ‘Party incomes hit record high as donors dig deep’, The
Age, 2 February 2006, p. 8; and S. Burrell, ‘Digging deep: the backers
who came to the party’, Sydney Morning Herald, 2 February 2006,
p. 4. For comment on the difficulties of interpreting the returns, see
E. Sexton, ‘Attempt
at transparency leaves flow of funds decidedly muddy’, Sydney Morning
Herald, 2 February 2006, p. 4.
- Senator Eric Abetz,
‘Electoral reform: making our democracy fairer for all’, Address to
the Sydney Institute, 4 October 2005.
- Adding the Northern Territory Country Liberal Party to The Nationals
equation increases the total by $10 000.
- Joint Standing Committee on Electoral Matters, Report of the Inquiry
into the Conduct of the 2004 Federal Election and Matters Related Thereto,
Commonwealth of Australia,
Canberra, 2005, pp. 47–49.
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