Briefing Book Article, 47th Parliament

Political finance

Dr Damon Muller

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Key issue

The federal political finance system has gone without significant reform for over a decade and critics argue that it provides little of the transparency required to prevent undue influence and give Australians confidence in the integrity of the system. It is also increasingly out of step with the states’ and territories’ regulatory systems which generally feature lower disclosure thresholds, more frequent reporting, and expenditure or donation caps. Some commentators have suggested this divergence between jurisdictions can contribute to political corruption.

The current system also treats independent candidates and parties inconsistently, and deals poorly with the rise of large, expensive campaigns by independents.

One of the recurring themes of concern to voters in the 2022 federal election was the corrosive effect of money on politics and elections. Political finance reform was a feature of some ‘teal’ independent’s policy platforms and was also used as a point of attack against them.

The federal system for regulating political finance, which is provided for in Part XX of the Commonwealth Electoral Act 1918 (the CEA), saw its last substantial changes in 2006. While there have been some small amendments to the CEA in recent parliaments, there are 2 main areas worth examining:

the increasing divergence between the federal government’s political finance regime and the considerably more rigorous political finance systems now existing in most Australian states and territories
the different ways that the federal political finance system treats parties and non-party candidates.

The divergence between the federal and the state and territory systems can lead to confusion and inadvertent non-compliance for parties and donors, but also the potential for using one jurisdiction’s system to avoid the transparency measure of another jurisdiction. With the High Court having recognised that political finance laws in the states and territories may serve to reduce corruption and undue influence, the discrepancies between the laws risk undermining these important anti-corruption measures.

More generally, features of the current federal political finance system allow large amounts of donations and political spending to remain undisclosed. From the inception of the federal political finance system, it was recognised that donations have the potential to exert influence and that the integrity of the system required the public to be aware of sources of funds to parties and candidates. The current disclosure threshold, inconsistencies in reporting requirements and delays in reporting have reduced the transparency of the federal system. This lack of transparency may be contributing to the declining confidence of Australians in federal politics.

The constitutional restrictions on political finance laws are complex and have largely been defined by several recent High Court cases, most of which related to laws in Queensland and NSW. Generally, the High Court has found that restrictions on political finance are a burden on the constitutionally implied freedom of political communication, but that the burden may be justified based on policy objectives such as preventing corruption and undue influence and levelling the ‘playing field’.

Recent changes to federal political finance laws

Ban on foreign donations

The most significant recent change to the federal political finance laws was the introduction of a ban on foreign political donations.

The Electoral Legislation Amendment (Electoral Funding and Disclosure Reform) Act 2018 amended the CEA to make it an offence to receive donations from foreign donors. This legislation has since been extended to include donations to members of parliament and to non-party candidates and limits on electoral expenditure by foreign campaigners.

Third party registration

Entities that are not political parties, candidates or their associated entities are referred to as third parties (associated entities are organisations that are set up to help candidates, parties or third parties, or that are otherwise controlled by them). In 2018 legislative amendments imposed a requirement for third parties to register as political campaigners if they exceeded a certain level of expenditure. Political campaigners were subject to essentially the same disclosure regime as political parties. In 2021 the Electoral Legislation Amendment (Political Campaigners) Act 2021 lowered the financial threshold at which an entity becomes a political campaigner and renamed political campaigners as ‘significant third parties’.

Such amendments have caused some consternation among charities as to whether their activities would constitute electoral expenditure and lead to a reporting obligation. In practice the changes seem to have made little difference to how third parties operate. In the 2020–21 reporting period, 17 entities were registered with the Australian Electoral Commission (AEC) as political campaigners, most of which were unions or industry bodies.

Protecting federal donations

The 2018 legislative amendments sought to completely quarantine federal political donations from state regulatory regimes so that federal donations would not be subject to disclosure thresholds and donor bans under state legislation. However, the provisions were found to be wholly invalid by the High Court in 2019. In response, the Electoral Legislation Amendment (Miscellaneous Measures) Act 2020 required parties to keep a federal campaign account so donations made for federal purposes are not subject to more restrictive state and territory laws. Campaign accounts are common in other Australian jurisdictions as a way of compartmentalising regulated campaign money. The specific High Court cases are discussed in more detail in the Briefing book article on political finance for the 46th Parliament.

Divergence between state and territory and federal laws

Most of the Australian states and territories have undertaken significant political finance reform in the last decade or so. The one notable exception, Tasmania, announced reforms in early 2021 and introduced legislation to the Parliament in early June 2022.

The approaches taken by the states and territories show a rich variety of policy responses to the question of money in politics, including:

limits on who can donate
caps on donations and election expenditure
real-time or more frequent disclosure of donations
lowered disclosure thresholds (the amounts over which donations need to be disclosed).

The High Court has ruled several times that expenditure caps are not inherently unconstitutional but clarified that the caps must be consistently applied. Similarly, the constitutionality of banning certain donors has been upheld. While there is some important legal nuance to these decisions, with sufficiently careful legislation, such reforms are possible (in contrast to banning political advertising).

In general, the various approaches taken by the states and territories have not severely restricted money in politics. For example, where donations have been limited, this has tended to be compensated for with increased public funding. However, these reforms have made the system more transparent and limited an individual or interest group’s capacity to disproportionately affect election outcomes.

It can be argued that these state and territory reforms were specifically a reaction to the federal system. For example, Victoria relied almost entirely on federal political finance laws before introducing its own legislation that, among other reforms, imposed severe restrictions on donations.

While it is unlikely that Australia will ever achieve complete harmonisation of its political finance laws, the size of the discrepancy across levels of government is problematic. In its report into Operation Aero, the NSW Independent Commission Against Corruption (ICAC) commented on this discrepancy creating loopholes to circumvent state laws by allowing prohibited donors to exert influence by making major donations elsewhere. The NSW ICAC specifically cited evidence of illegal donations under the NSW system being accepted into the federal account of the party’s NSW branch (p. 270). Reducing the disclosure threshold for political donations from the current $14,500 to $1000, as in NSW, Queensland and Victoria, would therefore work to close these loopholes.

Different rules for parties and independents

The CEA treats independents (referred to as ‘candidates’) and parties differently when it comes to political finance. Some examples include:

candidates must provide a return listing their electoral expenditure 15 weeks after polling day, but parties are not required to report their election expenditure (section 307A)
independent candidates are required to disclose donations they receive, but party candidates are only required to disclose via the party (section 305A)
the disclosure obligation for candidates only extends from 6 months before they nominated or announced their candidature until 30 days after the election (section 305A).

In 2021 the Electoral Legislation Amendment (Political Campaigners) Act 2021 extended the provisions relating to associated entities, which previously had only applied to parties, to candidates. The prior arrangements had led to organisations that had been set up to process donations or run campaigns for individual independents registering as third party campaigners, rather than associated entities.

While the Coalition Government’s legislative efforts have gone some way to addressing independents' political finance activities, the system is still somewhat arbitrary and piecemeal. In particular, the current reporting requirements for candidates appears not to have anticipated the campaigns run by some of the independent candidates in the 2022 federal election that involved sophisticated and expensive campaigning infrastructure and large amounts of money raised through donations. The complexity of the system also makes it difficult for independent candidates to be compliant.

Reform of this part of the CEA so that parties and candidates have more consistent reporting obligations would result in greater transparency and would make reporting for parties and candidates more straightforward. While the scale of independent's campaigns can vary significantly, for legislative consistency the overall increased funding of independents' campaigns should correlate with tougher disclosure obligations. Given the success of some of the independent campaigns, these large, well-funded campaigns may become a recurring feature of federal elections, and so it is important that the legislation reflects this new development.

Areas for potential policy reform

The recent history of political finance reform, particularly in Australia’s states and territories, provides a roadmap of reform options that could potentially be adopted by the federal parliament with the aim of increasing the transparency of the use of money in Australian federal elections, or potentially levelling the playing field between candidates, regardless of their financial resources.

Reducing the donation disclosure threshold

The disclosure threshold is the amount under which donations do not need to be publicly declared by parties and donors (although some parties do choose to declare lower value donations). The federal disclosure threshold is currently $14,500, indexed and increased every 6 months. In the 2019 election year around $113 million of political party income was not disclosed, with the majority of that amount likely from donations under the disclosure threshold.

The most common disclosure threshold used in Australian states and territories is $1,000 (NSW has had a disclosure threshold of $1,000 since 2008). While the privacy of donors is a legitimate concern, the positive experience of other Australian jurisdictions demonstrates that a $1,000 threshold is feasible.

Clarifying what constitutes a donation

Large amounts of federal political fundraising is relatively easy to classify as something other than a donation. For example, a $14,400 table at a dinner can be classified in a party return as an ‘other receipt’ because it was provided in exchange for a meal. Some states and territories specifically address this in their legislation, such as South Australia, which caps money raised through political access to $500 per person (section 130ZL).

Ending donation splitting

The CEA does not require parties to declare multiple donations from the one source that are individually below the disclosure threshold but are in aggregate greater than the threshold. Additionally, many parties have separate state and territory branches that are treated as separate entities for political finance purposes. This allows large donations to a party to be split into separate donations below the disclosure threshold and given to each branch. Amending the CEA to require parties to disclose aggregated donations from a single donor, as is currently required for donors, would increase transparency.

Improving donation disclosure timeliness

The CEA requires that parties, associated entities, significant third parties and donors provide annual returns to the AEC, which are published each February. This means that no party returns for the 2022 federal election will be available until February 2023.

Many Australian states and territories have more frequent reporting cycles and have different reporting cycles in an election period. Three jurisdictions (Queensland, ACT and the NT) require weekly reporting during election periods.

Disclosing electoral expenditure

The CEA currently provides no requirements for parties to disclose their expenditure on elections. Since 2018 parties have been required to justify their expenditure to the AEC to claim public election funding; however, only the claimed amounts are published by the AEC and these only constitute a small component of election spending. Given the amount of public money that parties use for their election campaigns (which could be around $100 million in 2022), increased accountability could help increase confidence in the electoral system.

Capping electoral expenditure

Five Australian jurisdictions now limit party (and in some cases third party) spending on an election campaign. Expenditure caps generally apply for total election spending but can also include spending on individual electorates. With some limitations, the High Court has repeatedly ruled that electoral expenditure caps are constitutional. Expenditure caps for an election can generally be set to not restrict parties’ ability to campaign fully, but rather prevent moneyed interests from drowning out other voices.

Capping donations and increasing public funding

Australia’s 2 most populous states limit donations to political parties and candidates by an individual in a specified period. Donation caps prevent wealthy donors buying disproportionate influence, and the High Court has recognised this levelling of the playing field as a legitimate constraint of political speech.

While donation caps restrict political party fundraising, this may be offset with increased public funding. Most jurisdictions also provide administrative funding paid to political parties for routine (non-election) operations, based on their representation in the Parliament. Notably, the last Commonwealth attempt to introduce administrative funding (as compensation for decreasing the disclosure threshold to $1000), descended into controversy and the legislation was abandoned.

Large donations have been a feature of recent Australian federal elections, including Malcolm Turnbull’s $1.75 million donation to the Liberal Party in 2016 and Graeme Wood’s $1.68 million donation to the Greens in 2010. At the 2022 federal election Climate 200 was reported to have donated $500,000 to 2 candidates and $12.5 million across all of its backed candidates. Capping donations without capping expenditure, as in the case of Victoria, might lead large donors to instead spend the money themselves, as third parties, for example. While donation caps appear to have been employed successfully in NSW and Victoria, this approach may not be compatible with the way politics is done at a federal level.