Referral
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On 17 June 2020, the Commonwealth Electoral Amendment (Banning Dirty Donations) Bill 2020 (the bill) was introduced to the Senate by Senator Larissa Waters.
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On 18 June 2020, pursuant to the sixth report of 2020 of the Senate Standing Committee for the Selection of Bills, the bill was referred to the Senate Finance and Public Administration Legislation Committee (the committee) for inquiry and report by the second sitting day of March 2021 (16 March 2021).
Conduct of the inquiry
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The committee agreed to open submissions on 18 September 2020 and set 6 November 2020 as the closing date.
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Details of the inquiry, including links to the bill and associated documents, were published on the committee's website.
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The committee wrote to a range of key stakeholder groups, organisations and individuals drawing their attention to the inquiry and inviting them to make written submissions.
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The committee received 19 submissions, which are listed in Appendix 1.
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The committee completed its inquiry on the basis of these submissions and on other publicly available information regarding the bill.
Acknowledgement
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The committee thanks those organisations and individuals who provided written submissions to the inquiry.
Purpose of the bill
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The bill seeks to implement the following two recommendations of the Senate Select Committee into the Political Influence of Donations (2018 Donations Select Committee):
Recommendation 7: that the Australian Government amend the Commonwealth Electoral Act 1918 (Electoral Act) to introduce a cap on donations to political parties, candidates and associated entities to a maximum value of $3000 per parliamentary term. Donations made by the same donor to the same recipient should be aggregated for the purpose of the cap.
Recommendation 9: the Australian Government amend the Electoral Act to introduce a ban on donations from developers, banks, mining companies and the tobacco, liquor, gambling, defence and pharmaceutical industries to political parties, candidates and associated entities.
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Labor Senators and Liberal and National Senators on the 2018 Donations Select Committee inquiry produced Dissenting Reports highlighting the constitutional and ethical concerns around selecting particular industries which would be banned from donations while allowing others to continue donating.
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The bill proposes to amend the Electoral Act to prohibit political donations from certain industries and impose a cap of $3000 on all other donations (from any source) per electoral term.
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Specifically, the bill proposes to ban donations from the following industries:
tobacco industry business entities;
liquor or gambling industry business entities;
mineral resources or fossil fuel extraction industry business entities;
defence industry entities; and
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The bill's Explanatory Memorandum (EM) argues that the bill is necessary to address the 'potentially corrupting influence of large donations, irrespective of their source' especially from 'certain industries that have used, or have a strong public perception of using, political donations to influence policy decisions'.
Background to the bill
Disclosure requirements for political donations
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At the Commonwealth level, political donations, gifts and electoral expenditure are regulated under Part XX of the Electoral Act. Part XX provides that political parties, candidates, groups, political campaigners, third parties and associated entities must disclose gifts and other financial matters such as political donations to the Australian Electoral Commission (AEC).
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Relevantly, the Electoral Act defines 'gift' as:
[A]ny disposition of property made by a person to another person, being a disposition made without consideration in money or money's worth or with inadequate consideration, and includes the provision of a service (other than volunteer labour) for no consideration or for inadequate consideration.
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However, 'gift' does not include payments under Division 3 of Part XX regarding election funding; annual subscription fees paid to a political party (including a State branch or division of a State branch); or visits, experiences or activities provided for the purposes of a political exchange program.
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The disclosure of gifts and political donations by donors is voluntary at or below a minimum threshold and is required above that threshold. Recipients have separate obligations, with parties required to report the value of all donations (however small) and disclose any donations above the disclosure threshold. The threshold amount is indexed annually according to the Consumer Price Index. Currently, the threshold amount for the period 1 July 2020 to 30 June 2021 is $14 300. The AEC can look at the accounts of donors or recipients to:
identify discrepancies between their respective returns;
identify if larger amounts have been properly reported as discrete transactions where required; and
check if both large and small amounts are included in totals.
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Persons and entities who make donations and gifts exceeding the disclosure threshold must lodge annual and election returns with the AEC. Donations from a single donor to the same branch of a political party have to be disclosed, where the total exceeds the disclosure threshold.
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Electoral returns must be lodged within 15 weeks of the polling day, while annual returns must be lodged within 20 weeks after the end of the financial year. Returns must set out the value of each gift, the date on which the gift was made, and the name and address of the recipient.
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Failures to lodge annual and election returns in accordance with the Electoral Act attract civil penalties, which are based on the value of the donations or gifts that are not disclosed to the AEC. The disclosure regime uses an annual reporting cycle based on financial years, to align to the natural cycle in which most organisations prepare audited annual accounts.
Prohibiting donations
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The current Commonwealth political finance regime does not exclude any industry groups from making political donations. In her second reading speech, Senator Waters commented on the 'undue influence' of key industries and the 'proximity of donations and policy outcomes that boost [such] industry profits'.
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The bill's amendments prohibiting donations from certain groups echoes the sentiments expressed by the 2018 Donations Select Committee chaired by Senator Richard Di Natale, which was of the view that banning donations from certain industries 'proven to be inimical to public health and the broader public interest' would 'enhance the perceived integrity of a revised [political] finance regime'.
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Senator Waters also noted that the bill would 'extend' prohibited donor schemes legislated by Queensland and New South Wales (NSW) into 'the Federal arena'.
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For example, Queensland prohibits political donations from property developers. The maximum penalty for a person found to breach Queensland's prohibited donor laws is 400 penalty units or two years imprisonment. The High Court of Australia (High Court) upheld that Queensland's Prohibited Donors Scheme––in Spence v the State of Queensland [2019] HCA 15––did not infringe upon the implied freedom of political communication.
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Similarly, NSW prohibits political donations from property developers, tobacco businesses, liquor and gambling businesses and their close associates. The maximum penalty for a person found to have participated in a scheme to circumvent NSW's prohibited donor laws is ten years imprisonment.
Capping donations
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The current Commonwealth political finance regime does not place any limitations on the amount or value of a political donation.
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Some States have introduced caps on political donations to limit the influence of 'big money' in State election campaigns. For example, the cap for political donations in Victoria is currently $4160 from one donor to one recipient in a single four-year election term. Additionally, donations to registered political parties in Queensland are capped at $4000, but increase to $6000 for candidates participating in an election.
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Further, in NSW donations are also capped (with provisions for numerous types of exemptions) according to the type of entity. NSW's caps are currently set at $6600 for registered parties or groups of candidates, and $3000 for unregistered parties, elected members, candidates, third party campaigners and associated entities. The maximum penalty in NSW for a person who makes a donation in contravention of the cap (with the intention for that donation to be accepted) is 400 penalty units or imprisonment for two years, or both.
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The High Court deemed NSW's donation caps constitutionally valid in McCloy v NSW [2015] HCA 34 and held that such caps were a justified and legitimate tool of preventing corruption of the political process. The judgment found that:
… while the impugned provisions effectively burden the freedom [of political communication], they have been enacted for legitimate purposes. They advance those purposes by rational means which not only do not impede the system of representative government provided for by the Constitution, but enhance it.
Provisions of the bill
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The bill consists of one Schedule and four Items which propose amendments to a number of aspects of Part XX of the Electoral Act. The following section summarises the bill's key provisions.
Items 1 and 2—Expanding the definition of 'gift'
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Items 1 and 2 of Schedule 1 to the bill seek to repeal and replace the definition of 'gift' under subsection 287(1) of Electoral Act.
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Proposed replacement section 287AAA would extend the definition of 'gift' given by subsection 287(1) of the Electoral Act to include:
a gift of money or property;
provision of a service for free or less than market-value;
tickets or entry fees for fundraising events;
membership fees for political parties, associated entities and political campaigners over $1,000; and
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The EM states that this expanded definition would 'close a loophole that has allowed … significant sources of campaign income to remain undisclosed and unaccounted for'.
Item 3—Prohibiting donations from certain industries
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Item 3 of Schedule 1 to the bill would insert a new Division 5B relating to prohibited political donations.
Prohibited donors
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Proposed section 314AI defines donors prohibited from making political donations, which, as stated above, include:
tobacco industry business entities;
liquor or gambling industry business entities;
mineral resources or fossil fuel extraction industry business entities;
defence industry entities; and
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Close associates and industry representative organisations of the prohibited industries listed in the bill under proposed section 314AI would also be banned from making political donations 'to prevent donations being funnelled through industry bodies to seek to influence polices that would impact on industry members'.
Meaning of 'political donation'
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Proposed subsection 314AJ(1) would define a 'political donation' as a gift made to or for the benefit of a political party (including a State branch of a political party), members of Commonwealth Parliament, candidates, political campaigners or associated entities.
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Proposed paragraph 314AJ(1)(g) considers a loan that would have been a gift, and which was not made by a financial institution, as a political donation.
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Gifts made to an individual in a private capacity for personal use are not considered a political donation under proposed subsection 314AJ(2). However, if any part of a gift is used to incur electoral expenditure in relation to an election, that part would be considered a political donation.
Political donations by prohibited donors unlawful
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Proposed section 314AK would make it unlawful for a prohibited donor to make a political donation, and unlawful for a person to accept a donation from a prohibited donor. This also applies to a person acting on behalf of a prohibited donor.
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The bill also provides that where an unlawful gift or political donation is accepted, the Commonwealth may recover an amount equal to the amount or value of the gift from the recipient as a debt.
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Proposed section 314AL outlines the offence provisions and related penalties for making or receiving an unlawful political donation.
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The bill provides that a prohibited donor found to make an unlawful political donation would be guilty of an offence with a maximum penalty of 400 penalty units and/or two years imprisonment. The same penalties would apply to a person who is found to have accepted a political donation from a prohibited donor.
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The EM notes that similar penalties exist in the Electoral Act for bribery offences.
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Proposed subsection 314AL(6) provides for a fault element and proposed subsection 314AL(7) provides that a person would be liable for a civil penalty if that person contravenes the offences listed in proposed section 314AL. It is proposed that the penalty would be the higher of 200 penalty units or three times the value of the donation.
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Additionally, under proposed section 314AM, a person participating in a scheme (or an arrangement) to circumvent the prohibition on political donations would commit an offence with a penalty of two years imprisonment.
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The EM provides the reasoning for this penalty, stating that:
… section 326 of the [Electoral Act] provides for two years imprisonment where a person engages in bribery or seeks to influence a vote or decision. Strategic collusion to avoid measures designed to minimise the corrupting influence of donations should be treated equally seriously.
Persons presumed not to be a prohibited donor
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Proposed section 314AN provides that the AEC would be able to determine, in writing, that a person is presumed not to be a prohibited donor for the purposes of proposed Division 5B if the Commission is satisfied that the donor is not a prohibited donor based on the information provided in that donor's application.
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If granted, the determination would remain in force for a 12 month period, unless revoked earlier. The AEC would need to give written notice to the applicant if the Commission is no longer satisfied that the donor is not a prohibited donor and therefore the determination would need to be revoked.
Item 3—Capping donations from all sources
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Item 3 of Schedule 1 would also insert a new Division 5C relating to caps for political donations from any source.
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Proposed section 314AQ would prevent political donations to a political party (including a State branch of a political party), a member of the Commonwealth Parliament, a candidate, political campaigner or an associated entity where the cumulative total of the donations exceeds the donation cap of $3000 in the donation period, with the cap defined by proposed section 314AP.
Aggregating donations for the purpose of the cap
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Proposed section 314AR would require donations to be aggregated in order to determine whether the donation cap has been exceeded during the donation period.
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The EM clarifies that for the purpose of aggregating donations, donations made to individual members, candidates, endorsed groups or State branches would be considered a donation to the relevant political party, and a donation made to a candidate or member of a group would be considered a donation to the group.
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The bill does not seek to restrict donations to political campaigners for non-electoral work purposes. The EM provides the following example of such circumstances:
[A] large environmental organisation may engage in a wide range of conservation activities as well as some activities characterised as political campaign activities. Only donations or gifts received for the purpose of electoral expenditure will be counted towards the aggregate donations cap for associated entities and political campaigners.
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Recognising the burden associated with aggregating small donations (such as donations acquired through raffle ticket sales), the bill excludes contributions of less than $50 when calculating the total sum of donations. However, the EM notes that contributions of less than $50 'made as part of a strategic arrangement that seeks to circumvent the restriction on political donations' would not be excluded and therefore would be aggregated.
Exceeding donation cap unlawful
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Proposed section 314AS would make it unlawful for a political party (including a State branch of a political party), a member of the Commonwealth Parliament, a candidate, political campaigner or an associated entity 'to accept a political donation that exceeds the donation cap, alone or when aggregated with other donations from the same donor, in the donation period'.
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In circumstances where a donation has been accepted, but the recipient subsequently discovers that the donation exceeds the aggregate donations cap, proposed paragraph 314AS(2)(c) would allow the recipient to return the donation to the donor within five business days.
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Under proposed subsection 314AS(3), the Commonwealth would be able to recover a political donation which has been accepted and exceeds the cap as a debt. No debt to the Commonwealth would arise if the political donation was returned within the five business days requirement set by section 314AS(2)(c).
Item 4––Amendments to subsection 314A(1) of the Electoral Act
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Item 4 of Schedule 1 would insert a reference to proposed subsections 314AK(6) and 314AS(3) in subsection 315A(1) of the Electoral Act to allow the Commonwealth to recover unlawful donations as a debt.
Financial impact statement
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The EM does not discuss the financial or regulatory impacts, if any, of the bill.
Statement of compatibility with human rights
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The statement of compatibility of human rights accompanies the bill. It notes that the bill engages (or has the ability to engage) a number of human rights including the right to freedom of expression and the right to take part in public life.
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The statement notes that the amendments proposed by the bill are consistent with the judgment of McCloy v NSW [2015] HCA 34.
Consideration by other committees
Senate Standing Committee for the Scrutiny of Bills
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The Senate Standing Committee for the Scrutiny of Bills (Scrutiny Committee) commented on the bill in Scrutiny Digest 9 of 2020.
Limitation on merits review
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The Scrutiny Committee noted:
Proposed subsection 314AN(1) provides for the Electoral Commission to determine, in writing, that a person is presumed not to be a prohibited donor for the purposes of proposed Division 5B of the Commonwealth Electoral Act 1918 (the Act), upon application. Proposed subsection 314AN(4) provides for the Electoral Commission to revoke a determination made under proposed subsection 314AN(1) if the Electoral Commissioner is no longer satisfied that it is 'more likely than not' that the person is not a prohibited donor.
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The Scrutiny Committee raised a concern that the bill does not provide for 'a merits review of a decision made under proposed subsections 314AN(1) or (4) in either the bill or the Act'. The Scrutiny Committee drew this matter to the attention of senators and left the matter to the Senate to determine the 'appropriateness of excluding decisions' made under those subsections.
Parliamentary Joint Committee on Human Rights
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At the time of the committee's reporting, the Parliamentary Joint Committee on Human Rights had not considered the bill.