Chapter 3 Private funding
Sources of private funding
3.1
A substantial amount of funding to political parties is obtained from
private sources. Many advocates for reform argue that this, combined with the
escalating costs of campaigning, could give rise to a situation in which
political parties and candidates are increasingly dependent on private sources
for their continued operation. This could render them potentially vulnerable
to the perception of influence from major private donors. However, a balance
must be struck between addressing these concerns and preserving the right of
political expression of individuals and groups through making donations.
3.2
In this chapter the committee examined the regulation of private funding
with these concerns in mind. It considered the effectiveness of the current
arrangements and discussed options for improvement by revisiting disclosure
threshold levels and its application, and the current reporting requirements.
More substantial reform options for private donations are considered in Chapter
4.
3.3
All political parties, associated entities and third parties are able to
receive privately sourced donations from individuals, corporations and other
organisations. Candidates and Senate groups in a federal election may also
receive donations.
3.4
The Commonwealth Electoral Act 1918 (Electoral Act) does not impose
any limits or restrictions on privately sourced donations to political parties or
associated entities. The Electoral Reform Green Paper – Donations, Funding
and Expenditure (first Green Paper) stated that the rationale for this was
that the making of political donations was seen to be a legitimate exercise of
the freedom of political association and the freedom of expression.[1]
3.5
The first Green Paper, published in 2008, cited figures indicating that
80 per cent of the major political parties’ funds come from private sources.
It also stated that around three-quarters of the major political parties’ funds
from private sources come from fundraising activities, investments and debt.[2]
This means that donations form one-quarter of the incoming finances from
private sources of major political parties. In the first Green Paper it was
noted that in the 2004-05 financial year, over 80 per cent of funds raised from
donations included donations of $10 000 or more.[3]
3.6
This suggests that large donations are an important component of private
funding for the major parties. Instances of large donations to smaller
political parties, such as the Australian Greens immediately prior to the 2010
federal election, indicate that large donations can also be important to the
minor political parties.
3.7
While there are currently no limitations or restrictions on the amount
and sources of donations to political parties, associated entities and
candidates at the federal level, Part XX of the Electoral Act requires that the
following must be disclosed by political parties to the AEC 16 weeks following
the end of the financial year:
n total amount received
by or on behalf of the party
-> where
amount from a person or organisation is more than the disclosure threshold for
the financial year, the name and address of the person or organisation;
n total amount paid by
or on behalf of the party during the financial year; and
n total outstanding
amount as at the end of the financial year, of all debts incurred by or on
behalf of the party
-> where an
amount from a person or organisation is more than the disclosure threshold for
that financial year, the name and address of the person or organisation.[4]
3.8
Associated entities must disclose the same information as political
parties, but are required to disclose details of capital contributions that
were used to generate funds to be provided to a political party.
3.9
The disclosure threshold for returns pertaining to the 2010-2011
financial year was $11 500.
3.10
The first Green Paper highlighted the fact that only one quarter of
major political parties’ funds from private sources or only 20 per cent of
total funds of major political parties from both public and private sources were
covered by the Electoral Act. The effect is that ‘major contributions’ to a
political party or candidate could remain undisclosed under the current
disclosure requirements.
3.11
For example, money paid to attend or paid at political party or
candidate fundraising events may remain undisclosed, as may the details of
money paid to attend fundraisers held by associated entities. The higher
disclosure thresholds also mean that a number of donations, some of which may
arguably be in the public interest to be known, will not be disclosed.
3.12
When determining the appropriate degree of regulation in this area, a
balance must be struck between making information of public significance
available and allowing political parties and third parties to communicate with
voters. Individuals and groups must also be able to freely participate in the
political process through making donations without having an undue
administrative burden imposed upon them. In this chapter, the committee
considered options for achieving these goals through the refinement of the
current system.
Is change to the current scheme necessary?
3.13
Chapters 1 and 2 made reference to the different approaches to
regulating political financing. The approach in Australia to date has been to focus
on disclosure of financial transactions as the key mechanism for transparency
and accountability of political actors, with little direct limitation on the
amounts and sources of funds.
3.14
Despite the existence of a scheme for
the disclosure of sources of funding of political parties in the Electoral Act,
a number of submitters to this inquiry—and to previous processes—argued that the
perception of undue influence by political donors on the political parties to
which they donate exists within the community.
3.15
There is general agreement between
committee members that most parliamentarians work to serve their constituents
and country. However, a number of submitters argued that the activities of all
parliamentarians and candidates can still be coloured by a perception of the
possibility of undue influence. This perception was identified in the first
Green Paper as being ‘as damaging to democracy as undue influence itself’.[5]
3.16
A number of submitters argued that donations
to political parties and their associated entities tend to be strategic
business decisions rather than being motivated by benevolence or ideology. For
example, the Public Health Association Australia commented that:
In modern politics party donations have the capacity to buy
influence. Otherwise donations would be made to the one party that most closely
aligned with the goals and aspirations of the donor...The overwhelmingly
dominant reason for donors taking this approach is to purchase access and
influence.[6]
3.17
The Public Health Association Australia
also argued that the perception of undue influence can be as damaging as
undue influence itself, as it colours people’s view of the legitimacy of the
democratic process even if there are no inappropriate activities actually
occurring. It commented that:
As the community becomes more aware of the influence of
political donations on elected members and their parties, the situation is
becoming more untenable for those members who, when making a decision based on
the evidence as they see it, are accused of acting in one way or another
because of financial influence.[7]
3.18
A number of submitters to the inquiry
identified a potential link between the election spending ‘arms race’ and the
‘need’ by political parties and their associated entities to seek additional
funding through private donations to ‘keep up with the other side’, and the
effect that this was having on perceptions of undue influence and the perceived
legitimacy of the democratic process. The Australian Labor Party (ALP), for
example, stated:
In recent years...the size of political campaigns have grown
at an alarming rate, with some in the community concerned that election
spending has risen to unsustainable levels. An ‘arms race’ has emerged between
political parties, with media buying reaching saturation point during the
election campaign period. This has placed increased pressure on political
parties to seek out further donations, with a concomitant impact on public credibility
for political parties.[8]
3.19
To address the potentially damaging
effect of the perception of undue influence, changes to the regulation of
donations could involve:
n the inclusion of
‘stronger’ measures under the current system, such as a lower disclosure
threshold; or
n more substantial
changes, such as the development of a scheme involving caps and bans, which is
discussed in Chapter 4.
3.20
The Australian Electoral Commission (AEC)
emphasised the importance of designing a scheme to minimise the perception of
undue influence through political donations. While conceding that it had not
done any specific research on the issue, the AEC commented:
Whether it is a ban on donations from
particular industries, whether it is tobacco, the hotel industry or whatever,
the notion that large donations can actually buy influence is a common
perception in the community. Whether that is the reality or not, that is the
perception....If there is a general view in the community that this is
happening, then you design a scheme to try and avoid that perception.[9]
3.21
However, in discussions during the inquiry, it was suggested that this
link between the perception of undue influence and political donations may be
overstated and that the existence of money in the political process was not necessarily
a corrupting influence.
3.22
Some members of the committee queried
the meaning of the concept of undue influence in the context of political
funding, and argued that the votes and actions of Members, Senators and other
political actors are not manipulated according to sources of funding for their
political party. These members noted that politicians themselves do not
actually see or handle the money donated to the party, and challenged whether
there is any direct or discernible link between money received by the party and
the individual decisions of Members of Parliament and Senators.[10]
Conclusion
3.23
When political donation and disclosure
issues were examined in 1983 and subsequently, the major political parties in
Australia have taken a different ideological stance on the risks that money
poses to the political process and the degree of regulation required.
3.24
The committee believes that the current
climate of high election spending and the need by political parties to seek
additional funds through donations justifies a higher degree of regulation of
Australia’s funding and disclosure arrangements to help minimise the perception
of, and potential for, corruption.
3.25
The ‘principles informing the regulation
of electoral funding and disclosure’, as outlined in the first Green Paper,
should be taken into account when designing a regulatory framework for funding
and disclosure. The principles include:
n integrity;
n fairness;
n transparency;
n privacy;
n viability, that is,
ensuring political parties and candidate are financially able to provide the
electorate with a suitable choice of representatives;
n participation;
n freedom of political
association and expression;
n accountability and
enforceability;
n ensuring public costs
in democratic processes are not unreasonable; and
n ensuring regulation
balances these principles against the costs of compliance and administration.[11]
Setting the disclosure threshold
3.26
Australia’s funding and disclosure system is primarily based on
disclosure, which has been described as the ‘cornerstone of political
transparency’. The ALP argued that:
Disclosure serves to inform the public, through the media,
about the nature of each party or candidate and the type of support they
receive. It also informs shareholders or stakeholders about the support that a
company or institution offers to the political process. Further, disclosure
effectively deters any tacit or secret attempt to influence decision making.[12]
3.27
Political parties and associated entities are subject to annual
disclosure requirements under the Electoral Act. Similarly, candidates and
Senate groups are subject to certain disclosure requirements in relation to a
particular election or by-election they are contesting.
3.28
Sections 305A and 305B of the Electoral Act provide that persons making
gifts totalling above the disclosure threshold applicable for that financial
year to the same registered political party or the same state branch of a
political party must furnish a financial disclosure return to the AEC. The
return must be lodged within 20 weeks of the end of the financial year, showing
all gifts the person made to the political party or branch during the financial
year, where the total of those gifts exceeds the disclosure threshold.
3.29
In 2006, the Electoral Act was amended to increase the disclosure
threshold from $1 500 to $10 000, indexed annually in line with the Consumer
Price Index (CPI) figure. The disclosure threshold for returns relating to the
2007-2008 financial year was $10 500 and it rose to $11 200 for 2009-2010, and
$11 500 for the 2010-2011 financial year. A higher disclosure threshold results
in the exclusion of a greater number of receipts by political parties from
public disclosure.
3.30
A summary of the current annual disclosure requirements for political
parties, associated entities, donors and third parties, as well as the
obligations for each election for candidates, election donors and Senate Groups
is included at Appendix C. The disclosure requirements for New Zealand, Canada,
the United Kingdom and the United States of America are outlined in Appendix E.
3.31
A number of submissions advocated for reducing the disclosure threshold
above which receipts must be disclosed by political parties and associated entities,
as well as by donors and third parties.
3.32
The most common rationale underpinning support for a lower disclosure
threshold was to increase transparency. Supporters of this measure argued that
a lower threshold would give electors a clearer idea of who was funding
political parties and the potential to which a political party might be
influenced by those funding it.
3.33
The level of the disclosure threshold was also suggested to play a role
in the practice of ‘donation splitting’ and the scope for some associated
entities to raise significant amounts of money for parties, while only
disclosing a small sum of that money.[13] ‘Donation splitting’ is
a practice in which donors to political parties are alleged to ‘split’ large
sums between their registered branches so that they individually come under the
disclosure threshold to avoid disclosing the amounts received.
3.34
Action on Smoking and Health (ASH) expressed concerns about the scope
for circumvention of disclosure obligations through ‘donation splitting’ when a
higher threshold is in place. It also argued that Australia is ‘lagging behind’
other countries in terms of electoral funding reform. The ASH commented that:
Rather than improving the transparency and accountability of
the funding regime, political donations and their associated conflicts of
interest have been made more secret with a tenfold increase in the disclosure
limit for donations...and such limits can be bypassed when donations are
dispersed across state branches.[14]
3.35
Similarly to ASH, the Australian Greens also noted in its submission the
potential facilitative role that a higher disclosure threshold could play in
the practice of ‘donation splitting’. The Australian Greens argued that a
lower threshold would help prevent donation splitting between different
branches of political parties for the purpose of avoiding disclosure.[15]
3.36
The main options advocated by submitters as the appropriate level for
the disclosure threshold include:
n no disclosure
threshold – disclosure of all donations by political parties;
n $200;
n $1000; and
n a threshold based on
previous years returns.
3.37
The McCusker Centre for Action on Alcohol and Youth and the Cancer
Council of Western Australia argued that all political donations should be
disclosed, regardless of the amount, in furtherance of the principle of
transparency.[16]
3.38
The NSW Greens Political Donation Research Project supports a disclosure
threshold of $200, in line with that which currently operates in Canada.[17]
The Accountability Round Table also expressed support for a $200 disclosure
threshold. On the issue of selecting a disclosure amount, Associate Professor
Ken Coghill of the Accountability Round Table stated:
Any figure that is going to be chosen is going to be a
subjectively set figure. There is not any objective case where you can say
there is a magic about $200 which does not apply at $199 or any other figure.
But we think that for the ordinary person—again using the 'ordinary person'
test—a gift of a couple of hundred dollars is a significant amount of money.
Certainly in my experience as a member of the Australian Labor Party there
would not be a lot of members of my branch or any other branch I know who would
hand over $200 as a gift with any frequency at all.[18]
3.39
The Australian Greens supported a disclosure threshold of $1 000.[19]
Dr Joo-Cheong Tham also supported a $1 000 disclosure threshold and
cited the decline in detailed receipts being disclosed on financial disclosure
returns with the high indexed figure as the major motivator for this.[20]
3.40
A paper prepared by the Parliamentary Library on the change of
disclosure level indicated that under the $1 500 (not CPI indexed)
threshold, the major parties were disclosing three quarters—almost 75 per cent—
of their total receipts in 2004-2005 and previous financial years.[21]
Subsequently, in its advisory report on the Commonwealth Electoral Amendment
(Political Donations and Other Measures) Bill 2008, the previous committee
noted that under the $10 300 disclosure threshold of 2006-2007, 52.6 per cent
of the declared total receipts of the Australian Labor Party, the Liberal Party
of Australia and The Nationals were itemised for that year.[22]
3.41
The Australian Labor Party supported a $1 000 disclosure threshold.
The ALP indicated that it has continued to voluntarily disclose donations it
receives above $1 000.[23] The AEC website includes
disclosure by the ALP federal, ACT and Queensland branches for the 2009-2010
financial year of amounts under the $11 500 threshold.[24]
3.42
FamilyVoice Australia conveyed an alternative perspective, placing a
stronger emphasis on privacy and the notion of ‘protecting the donor’ when
setting the disclosure threshold. The group suggested that the three criteria
for determining an appropriate disclosure threshold were: preserving donor
privacy, limiting compliance costs and safeguarding the public interest in
knowing who the major financial supporters of political parties are. It
recommended:
The annual threshold for disclosure of political donations
should be based on the previous year’s returns so as to ensure that a fixed
percentage, between 90 and 95% of total donations are disclosed.[25]
3.43
Dr Norman Thompson from the NSW Greens Political Donation Research
Project raised the concern that the higher disclosure threshold was one of the
features of the current disclosure scheme that allowed some associated entities
to raise significant amounts of money through fundraising activities for
political parties and for only a small portion of the money raised to be
disclosed to the AEC.[26]
3.44
Dr Thompson drew on the example of the Wentworth Forum, an associated
entity of the Liberal Party. He noted that the reason that some information
regarding funds raised were available through the NSW Election Funding
Authority but not the AEC, was because of the lower disclosure threshold in
NSW, coupled with its requirement that all money, whether federal or state, be
reported.[27]
3.45
When questioned on the issue of the level of the disclosure threshold,
the AEC did not propose a particular disclosure level, but observed that:
...the lower the level, the more that is disclosed. That is a
question of fact and I think the evidence in the past bears that out.[28]
3.46
Mr Brett Constable of the Australian Greens was questioned about a $1.6
million donation the party had received from Wotif founder Graeme Wood for
their 2010 federal election campaign. He acknowledged the benefit this
donation had provided the party, but stressed the Australian Greens’ support
for bans on certain donations and a lower disclosure threshold. He stated that:
The fact that you are making these claims about Mr Wood
having influence on the Greens is a case in point as to why we think such
donations should not be allowed...[29]
3.47
The Australian Greens expressed support in the context of a $1 000
disclosure threshold for the disclosure of ‘full contact details’, as well as
the nature of the donor’s activities through the disclosure laws. For example,
the type of company or industry in which a corporation operates. In the case of
individuals, the Australian Greens stated that they should list their
occupation.
3.48
The rationale behind proposals for lower disclosure thresholds such as
$1 000 is that it is most likely to allow for the industries that are
seeking access and influence to be made public. The rationale in relation to
individuals is likely to be to make evident cases where, for example, a
director of a prominent company makes a political donation in their own name
with the aim of exercising some influence. However, it is likely that some
individuals not connected to any company or industry and who are simply seeking
to participate in the democratic process will be covered by such provisions if
enacted.
3.49
A lower threshold would result in more donor and third party names and
addresses being disclosed on the AEC website in accordance with Part XX of the
Electoral Act, unless the individual informs the AEC when meeting their
disclosure obligation that they are enrolled as a silent elector.
Consequently, the name and addresses of many donors, who are arguably not
garnering any influence with donations only just above $1 000 would then be
readily available on the AEC website.
3.50
The key argument against increased regulation through stricter
disclosure rules in this context is the privacy rights of individuals that may
be affected. However, in a discussion paper prepared for the Democratic Audit
of Australia addressing campaign finance topics, it was argued that:
...in most other contexts privacy gives way to the public
interest. Privacy rights, in general, have much less protection here than in
the U.S...Whether or not a contribution is, or is not, potentially corrupting
is something for voters to decide.[30]
3.51
Supporters of a higher threshold argue that it provides donors with the
flexibility to make significant donations without their details needing to be
disclosed through the AEC’s website and without imposing an undue
administrative burden on them for making what some would argue is a small
donation. A higher disclosure threshold is argued to serve as an effective
mechanism to shield donors from ‘retribution’ for the expression of political
views through donations to parties, which are then made public on the AEC
website.[31]
3.52
In its submission to the first Green Paper, the Office of the Privacy
Commissioner highlighted privacy as a consideration in devising an effective
scheme for the regulation of political financing.[32]
While acknowledging that the right to privacy was not ‘absolute’, it stated
that ‘personal information’ as defined in the Privacy Act 1988 (including
address details) needed to be appropriately protected.[33]
3.53
The Office of the Privacy Commissioner suggested that where disclosure
of donations by individuals are being disclosed, sufficient transparency may be
gained by only including an individual donor’s name, suburb, postcode, state
and the amount donated.[34]
Conclusion
3.54
An effective financial disclosure scheme is an important measure for
transparency and accountability in the political financing process. In
particular, the level of the disclosure threshold is central to the
effectiveness and accountability obtained by the financial disclosure scheme.
3.55
However, determining the appropriate level of the disclosure threshold
for Australia’s financial disclosure system has been a point of contention
between the major parties.
3.56
The issues to be considered when setting the appropriate disclosure
threshold are:
n The interests of the
individual donor, including the freedom to participate in the Australian
political system by making political donations and feeling safe in doing so;
n The notions of
transparency and accountability of political party (including associated
entity) financing and the democratic system; and
n The need for
consistency in requirements.
3.57
To be effective, the disclosure threshold must strike a balance between placing
a realistic administrative obligation on political parties, associated entities
and donors and the need to maintain the integrity of the system. A threshold
amount of $1 000 as proposed in the Commonwealth Electoral Amendment (Political
Donations and Other Measures) Bill 2010 will obtain the desired balance.
3.58
The committee maintains its view as stated in the Advisory Report on
the Commonwealth Electoral Amendment (Political Donations and Other Measures)
Bill 2008 that the indexation of the disclosure threshold should be
removed.
Recommendation 1 |
| 3.59 |
The committee recommends that the disclosure threshold be
lowered to $1 000, and CPI indexation be removed |
3.60
In conjunction with the issues relating to an appropriate disclosure
threshold, the need to safeguard the privacy and freedom of political expression
of donors and third parties must be considered. A disclosure system should not
discourage political participation through making donations by imposing
unnecessary or onerous burdens in relation to financial disclosure. One
immediate way in which privacy arrangements can be enhanced is to reduce the
amount of personal details of individual donors made publically available on
the AEC website.
Recommendation 2 |
| 3.61 |
The committee recommends that the Commonwealth Electoral
Act 1918 be amended to require that only the name, suburb, postcode,
state and the amount donated by individual donors be released on the public
website by the Australian Electoral Commission. |
Application of the disclosure threshold
3.62
Section 305B of the Electoral Act provides that a person that makes
gifts totalling more than $10 000 (indexed, $11 500 for the 2010-2011 financial
year) to the same registered political party or the same state branch of a
registered political party must submit a disclosure return to the AEC within 20
weeks of the end of the financial year. Section 314AB provides that each state
branch of each registered political party must, within 16 weeks after the end
of each financial year submit a disclosure return to the AEC. The effect of
these sections is that the disclosure threshold applies separately to each
branch of a political party.
3.63
The practice of ‘donation splitting’ was raised earlier in this chapter
and mention was made that a high disclosure threshold may contribute to
allowing larger donations marginally below the threshold to be made to
different branches of political parties without having to be disclosed under
the current laws. This results in a reduced level of transparency in relation
to party finances and means that donations by which significant influence could
potentially be obtained remain undisclosed. The Democratic Audit of Australia
recommended that:
The current loophole whereby the federal, state and territory
divisions of political parties are treated as separate legal identities for
donation purposes should be closed.[35]
3.64
One method for addressing this practice is by applying the
threshold collectively to ‘related parties’. Section 123(2) in Part XI of the
Electoral Act defines ‘related parties’ as parties that are part of each other,
or that are both part of the same political party. Subsections 129(1)(c) and
(d) provide that ‘related parties’ may be registered even if the names are the
same or similar to a political party that has already been registered.
3.65
The Queensland Electoral Act 1992 applies this concept of
‘related parties’ to disclosure. This means that the donations cap in that
jurisdiction applies to related parties as though they are one entity, and so
can serve to restrain the practice of donation splitting.[36]
3.66
The Commonwealth Electoral Amendment (Political Donations and Other
Measures) Bill 2010 utilises this definition outside the realm of political
party registration by proposing that it be included in the general definitions
section in section 4 of the Electoral Act, and provides that the $1 000
disclosure threshold in the Bill applies to a registered political party and
its branches as though they are a single entity.[37]
Donors to political parties must aggregate donations made to the various
branches of a political party, but the branches of the political party itself
would still disclose to the AEC as though they are separate entities.[38]
3.67
While this measure goes some way towards alleviating concerns regarding
‘donation splitting’ practices, the AEC stated in a supplementary submission that
there were a range of other measures that would need to be utilised to ensure
there were no loopholes for this practice to continue.[39]
3.68
The AEC cited the Canadian situation, where the national body of the
relevant political party is responsible for all reporting of all branches, with
a requirement to maintain separate electoral expenditure accounts. It is an
offence to incur electoral expenditure from outside these accounts.[40]
Thus the change in disclosure requirements for donors is simply one—albeit
important—step in curtailing the potential for circumventing disclosure
requirements.
Conclusion
3.69
The way in which the Commonwealth Electoral Act currently applies the
disclosure threshold separately to each branch of a political party may result
in larger donations being ‘split’ among party branches and not being disclosed.
3.70
While a range of measures are necessary to effectively curtail donation
splitting, the measures contained in the Commonwealth Electoral Amendment
(Political Donations and Other Measures) Bill 2010 are a step in the right direction.
In addressing this issue, the committee supports the measure which would
require donors to political parties to aggregate all donations made to various
branches of the same political party.
3.71
However, it is important to ensure that when applying this requirement
the determination of which parties are ‘related political parties’ is
consistent and does not unfairly disadvantage certain political parties. One case
for which it is possible to anticipate complications in the Liberal National
Party in Queensland, in determining whether it is ‘related’ to the Liberal
Party, The Nationals, both or neither. Issues such as these will need to be
clarified to ensure that the application of this requirement is clear and for
special provisions to be made, where applicable, to obtain the desired
disclosure, but do not unduly disadvantage parties like the Liberal National
Party whose arrangements may be more complicated.
Recommendation 3 |
| 3.72 |
The committee recommends that donations to ‘related
political parties’ be treated as donations to the same political party for
the purposes of the disclosure threshold. Once the combined donations to
related political parties from a single donor reaches the $1 000
threshold, disclosure is required. |
Fundraising events
3.73
The way in which fundraising events are treated under the current
funding and disclosure system is unclear. A fee is usually paid to attend these
political fundraisers and other contributions can be made at the event. Whether
these payments can be regarded as a ‘fee for access to Ministers or Members’, a
donation, or a ‘gift’ requires closer consideration.
3.74
A number of submitters to the inquiry argued that the attendance and
non-disclosure of fundraising activities by political parties, associated
entities and those providing finances or gaining access to politicians through
these events contributes to the overall perception of undue influence.
3.75
The Electoral Act defines a ‘gift’ for its purposes as:
...any disposition of property made by a person to another
person otherwise than by will, 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...[41]
3.76
The provision also states that a payment of election funding or the
payment of a subscription does not constitute a ‘gift’ for the purposes of the
Electoral Act.
3.77
The lack of clarity surrounding fundraising events where attendees can
pay a fee to gain access to ministers and shadow ministers is due largely to
the references to consideration in ‘money or money’s worth’ in the legislative
definition of ‘gift’.
3.78
The advice given by the AEC to clients regarding the disclosure of
fundraising events is that if the amount paid for a ticket or meal is more than
the value of what was received, the amount counts as a donation and should be
classified as such on a political party or associated entity return. It should
also be disclosed as such to the AEC by the donor. The AEC’s Funding and
Disclosure Guide for Donors to Political Parties stated:
n If a payment for attendance
at a party function or conference is considered a donation, that is, the person
making the payment did not receive services or adequate services equal to the
value of the payment, the payment should be disclosed on the donor disclosure
return.
n Payment for
attendance at a party function, conference or luncheon for commercial reasons
may not be considered a donation if the commercial value or benefit of
attending is equal to or exceeds the amount paid.
n Payment for
attendance at a function with the intention of contributing to the party, (that
is, where the function is primarily a fundraiser), or where the amount paid is
in excess of the value of the function, is a donation and must be disclosed. [42]
3.79
The way in which fundraisers should be treated in light of the
definition of ‘gift’ in the Electoral Act is an issue that is seemingly central
to the success of the disclosure scheme. The first Green Paper stated:
Although the Electoral Act requires disclosure by both the
recipient of private funding and the provider of donations, there remains the
scope for major contributions to a political party or candidate to remain
undisclosed if contributions do not come within the scope of matters requiring
disclosure under the legislation. If the public has no way of being aware of
major contributions by way of, for example, purchases at fundraising events,
there is an argument that one of the major purposes of the disclosure system
established in 1984 has not been met.[43]
3.80
The main options proposed by submitters to address concerns around the
lack of clarity of fundraising income were:
n To ban fundraisers
and/or offers of access to Ministers; or
n To improve the
disclosure scheme in relation to fundraisers by:
Þ Including
all fundraisers in the definition of ‘gift’ in section 287 of the Electoral
Act, thus ensuring they would be disclosed as donations; or
Þ Including
fundraisers above ‘reasonable costs’ in the definition of ‘gift’ in the
Electoral Act.
3.81
The Accountability Round Table was one of the submitters that expressed
concern about fundraising events that involve access to ministers or other
parliamentarians. Associate Professor Ken Coghill commented that:
It comes to what it is that a person is getting in return for
actually paying a large sum of money to attend a function at which they expect
to have access to a minister or a parliamentary secretary, or an ordinary
member of parliament for that matter, so it might be an opposition member, for
example. The argument goes that, because the amount of money which is being paid
is far in excess of the actual costs of the function, the adequate
consideration the person is receiving for this payment can only relate to the
access which is being provided at the function.[44]
3.82
The Accountability Round Table also took their concerns a step further,
arguing that:
...the current practice of raising funds by offering access
to members of parliament, particularly ministers and shadow ministers, should
be made illegal. It provides opportunities for corruption, damages the
reputation of all politicians, and confidence in our democratic system. It
gives unequal access to politicians based on the ability to pay for it. If,
however, the committee decides not to make this practice illegal it is critical
that it ensures that there be complete and prompt disclosure of each
transaction.[45]
3.83
However, before any action can be taken to restrict engagement in the
political process in this way, it is crucial to consider, and seek to strike a
balance between protecting the right to political expression in this way and
acknowledging that the ability to engage in this form of political expression
is limited to those with sufficient funds.
3.84
Professor Anne Twomey, in her appearance before the committee,
highlighted the importance that Australian courts were likely to place on
maintaining individual freedom to make political donations, attend political
fundraisers and similar forms of political participation.[46]
3.85
One way in which to minimise the potential for attendance by certain
individuals and organisations at fundraising events of creating a perception of
undue influence is to improve the quality of disclosure in relation to
attendance at these events. The Democratic Audit of Australia recommended that:
Income generated at party/candidate/associated entity
‘fundraisers’ should be treated as gifts above reasonable costs for venue hire,
food and beverages etc.[47]
3.86
In its third supplementary submission to the inquiry, the AEC argued
that the best way in which to negate some of the confusion regarding the
disclosure of payments made to attend and while at political fundraisers was to
ensure that disclosure regarding these events should be included ‘irrespective
of whether a profit was realised’. The AEC stated that:
...issues relating to disclosure and the attendance at
fundraisers could be simplified by including gross amount of both payments to
attend and all other payments made during the fundraiser events. This could
include amounts such as winning auction bids, purchasing raffle tickets, and
the like. Sponsorship arrangements should also be included in the definition.
The AEC notes that some care would be needed in defining the scope of what is a
‘fundraiser’ to ensure that all events at which money is collected... are
included.[48]
3.87
The AEC also raised the possibility of altering all references to
‘gifts’ in Part XX of the Electoral Act to ‘contributions’ or some similar
term, to reflect the fact that a profit or benefit to the recipient in excess
of market value is not necessary for the transaction to fall within disclosure
laws.[49]
3.88
The NSW Election Funding, Expenditure and Disclosures Act 1981 provides
that ‘an amount paid by a person as a contribution, entry fee or other payment
to entitle that person to participate in or otherwise obtain any benefit from a
fund-raising venture or function (being an amount that forms part of the
proceeds of the venture or function)’ is taken to be a gift.
3.89
This definition means that political parties, associated entities, Senate
groups and candidates must disclose details of each fundraising activity or
function. The definition also requires donors attending fundraising functions
to disclose details of the purchases of entry tickets, raffle tickets, auction
items or other memorabilia. The AEC advised that it was not aware of ‘any
issues or difficulties’ that had arisen under the NSW legislation.[50]
3.90
Relevant discussion in the first Green Paper put an alternative view to
arguments proposing that fundraising events be explicitly included in
disclosure Commonwealth disclosure requirements. It was noted that fundraising
events attract considerable publicity in many cases and so are not completely
hidden from public awareness and scrutiny.[51]
Conclusion
3.91
The freedom to participate in the political process by making political
donations and attending political events is fundamental to our democratic
system. The principle of participatory democracy should never be compromised
beyond the extent which is essential to ensure the integrity of the system.
3.92
Access to politicians through attendance at fundraising events by those
who can afford it do not necessarily garner any particular effect in terms of
the way in which their votes were cast, or overall policy on any given issue. It
is generally the case that rather than being inappropriate or dishonest,
fundraisers are just another part of the political process that allows for the
financial support of political parties.
3.93
However, the committee believes that the large sums of money that are
sometimes exchanged at such events warrants increased measures to improve transparency
and accountability in relation to these events through the disclosure system.
3.94
In light of the competing considerations involved in addressing the
issue of access to parliamentarians through fundraising events, the most
effective way to deal with concerns regarding the practice would be to improve
the disclosure rules to cover such functions, rather than to ban the practice
completely.
3.95
By expanding the definition of ‘gift’ in section 287 of the Electoral
Act to explicitly include fundraisers, as in the NSW Election Funding,
Expenditure and Disclosures Act 1981, an appropriate degree of transparency
of fundraising events can be achieved to maintain the integrity of Australia’s
democratic system. The definition should be sufficient to ensure that all
relevant fundraising events are covered.
Recommendation 4 |
| 3.96 |
The Committee recommends that the definition of ‘gift’ in
the Commonwealth Electoral Act 1918 be amended to include fundraising
events. |
Classification of receipts
3.97
At the federal level in Australia, political parties and associated
entities are able to, and do, receive income from sources including membership
fees, fundraising events and donations. Part XX of the Electoral Act provides
that where amounts exceeding the disclosure threshold have been received by
political parties and associated entities, certain particulars must be
disclosed.
3.98
In addition to these legislative requirements regarding disclosure of
receipts above the applicable disclosure threshold, the AEC requests that
political parties and associated entities classify each of the sums exceeding
the threshold as ‘donations’ or ‘other receipts’. Any receipt that meets the
definition of ‘gift’ in the Electoral Act, including gifts-in-kind, should be
classified as a donation. Some examples of receipts that are general
classified as ‘other receipts’ on party returns include membership fees and
levies on members of Parliament.
3.99
These two additional column headings on the AEC’s disclosure return form
were added to the annual return form to assist members of the public to
identify key elements contained in an annual return. They also assist the AEC to
identify donors that may have a donor disclosure obligation under section 305B
of the Electoral Act and to target any donors that may have failed to meet
their disclosure obligation.
3.100
However, as the classification is not a legislative requirement, it
cannot be enforced. The NSW Greens Political Donation Research Project
representative observed that:
The political parties are encouraged to list
gifts of cash as ‘Donations’ and money spent at fundraisers as ‘Other
Receipts’. However, even this categorisation isn’t required, so some years one
sees all the money reported by a division of a political party as
‘Unspecified’.[52]
3.101
The classification request made by the AEC is particularly valuable in
an environment in which a high disclosure threshold is in place, allowing the
public to easily identify the donations. Likewise, where there is a lower
threshold, the classification may assist electors to understand and interpret
the larger amounts of information disbursed through the disclosure system.
3.102
The Australian Greens made the related recommendation that reporting
classifications such as ‘other receipt’ ‘public funding’ and ‘donation’ should
be more clearly defined. It also stated that the AEC should ensure that
political parties and candidates use the terms consistently in meeting their
disclosure obligations. This is also important for associated entities.
3.103
Notably, Australia is the only country that requests that political parties
and associated entities classify their receipts. However, many nations have
other measures in place to differentiate between donations and other receipts.
For example, the United Kingdom requires weekly ‘donation reports’ during
elections, which include details of only donations received during that week.
These are immediately made public.
3.104
Thus there are a range of mechanisms by which information regarding
specific donations or other forms of receipts by political parties can be
obtained. Regardless of the method used, it seems that there is value in
having some dichotomy between donations and other forms of political party and
associated entity income.
Conclusion
3.105
The classification of receipts on political party returns as ‘donations’
or ‘other receipts’ is important to the disclosure scheme. The committee
believes that legislating to make this a requirement of disclosure should improve
the quality of information received through Australia’s federal disclosure
scheme.
3.106
The possible incorrect classification of receipts on disclosure returns,
in particular, as subscriptions when the receipt is ‘more likely’ to have been
a donation, is cause for concern. One way to address this is to legislate to
allow the AEC to pursue the possible incorrect classification of receipts above
the threshold as ‘false and misleading’ information on a disclosure return.
Recommendation 5 |
| 3.107 |
The committee recommends that the Commonwealth Electoral
Act 1918 be amended, as necessary, to include the following:
n to
require political parties and associated entities to classify their receipts
exceeding the disclosure threshold as ‘donations’ or ‘other receipts’;
n to
include an adequate definition of ‘donation’ and ‘other receipt’; and
n to
make the requisite changes to the enforcement and investigation provisions to
allow the Australian Electoral Commission to investigate and enforce these
classifications. |
Frequency of reporting
3.108
The issue of the frequency of disclosure featured prominently in the
submissions to the inquiry and subsequent discussion by the committee. There
were four key themes that emerged from the submissions in relation to reporting
obligations:
n The issue of
contemporaneous or continuous disclosure, whereby parties disclosure their
receipts of donations as they are received;
n The possibility of
requiring political parties to submit weekly ‘donation reports’ during election
periods, disclosing all donations received that week;
n The possibility of
requiring political parties to disclose on a six-monthly instead of annual
basis; and
n Special reporting
arrangements for large donations.
3.109
The Commonwealth disclosure scheme as it currently stands in Part XX of
the Electoral Act, requires annual disclosure by political parties, associated
entities, donors and third parties. Separate returns for candidates, Senate
groups and donors to these are also required for each federal election and
by-election.
3.110
The current disclosure scheme is based on ex post facto reporting
and electors do not know the sources of party finances until well after an
election. For example, details of donations to political parties made during
the period leading up to the 2010 federal election may not be publicly
available until February 2012.
Contemporaneous or continuous disclosure
3.111
The concept of contemporaneous disclosure involves compelling political
parties to publicly disclose aspects of their finances continuously, including
disclosing donations as they are received. The rationale underpinning such
proposals is that it allows electors to be aware of sources of party funding
immediately, and, importantly, before they must cast their vote. The AEC noted
in its submission that a shift from ex post facto reporting to
contemporaneous disclosure would require a ‘fundamental shift in the philosophy
underpinning the legislative approach to political funding’.[53]
3.112
Associate Professor Ken Coghill from the Accountability Round Table
observed that in NSW, political parties were already required to keep most of
the information required for an effective system of contemporaneous disclosure.
He advised the committee that at a workshop in July 2011 on the Challenges of
Electoral Democracy, the deputy director of the Liberal Party New South Wales
branch indicated that their branch was required to do exactly that sort of
record keeping for their own internal purposes for compliance with the
provisions of the New South Wales legislation on disclosure of donations and
expenditure of funds.[54] Associate Professor
Coghill concluded that:
...we have now got the evidence that that is technically
possible. It is not an administrative difficulty, at least not for the New
South Wales branch of the Liberal Party, and presumably not for any other
political party.[55]
3.113
The Democratic Audit of Australia raised the example of the online
system used by the New York City Campaign Finance Board as an example of a
contemporaneous disclosure system that could be used as a guide at the
Commonwealth level.[56] That system allows the
user to search for donations by election cycle, candidate name and contributor
first name or last name. The Democratic Audit also identified the desirability
of contemporaneous disclosure systems operating alongside fixed election dates.[57]
3.114
The Australian Greens expressed support for the temporary maintenance of
the current annual disclosure period, but stated that this should act as a
measure to provide the AEC with time to develop software that would facilitate
contemporaneous disclosure of donations of $1 000 or more on the internet by
political parties, donors, candidates, associated entities and third parties.
The Australian Greens also recommended that all disclosure by political parties
should be required to be made online.
3.115
When questioned about the time it would take to implement an electronic
system to facilitate a shift to contemporaneous disclosure, the AEC advised that
its existing e-returns portal had been designed to account for the potential
for contemporaneous reporting. It stated that it may take approximately 12
months for the required work to be done to allow the current system to
facilitate a legislative shift to contemporaneous disclosure.[58]
3.116
In relation to the costs to the AEC in building the system to facilitate
the administration of a contemporaneous disclosure scheme and the cost to those
with disclosure obligations, the AEC explained that:
There are the investment costs in building the system and
then, assuming that system lasts for many years, ultimately the investment is
defrayed over many years. That applies both to the AEC as well as to parties
and other organisations that would have to adjust their systems to enable that
online disclosure to occur.[59]
3.117
The AEC further stated in relation to the issue of the costs associated
with such a system:
There will be a certain level of ongoing business costs and
also ongoing staff costs. But certainly the significant costs would be the
initial establishment of the system.[60]
3.118
On a related matter, the AEC raised the issue of the limitation period
on prosecution for offences under Part XX of the Electoral Act. It argued that
the current delay between a financial year or an electoral event gave rise to
difficulties in instituting prosecution action in time, explaining that:
Under subsection 315(11) of the Act prosecutions for offences
against the funding and disclosure provisions must be commenced within three
years of the offence being committed. In practical terms (particularly due to
the post event reporting of matters), this means, in some instances, that by
the time the AEC becomes aware of a possible breach and/or conducts inquiries
to accumulate sufficient evidence to warrant the preparation of a brief of evidence,
there is no opportunity to pursue prosecution action. This can leave the AEC
with no opportunity to enforce a correction to the public record.[61]
3.119
The reason for the lag in the commission of the offence and the AEC
being able to take prosecution action is the delay in disclosure requirements.
The AEC also noted the general provision in section 4H of the Crimes Act
1914 for commencing criminal proceedings for a summary offence is 12 months.
Contemporaneous disclosure, coupled with incidental changes to offences that
are straightforward matters of fact to administrative ones (discussed in Chapter
8), should alleviate some of the issues in this area.
3.120
The AEC also indicated that in order for a contemporaneous disclosure
system to operate effectively, it has to be complemented by a suitable enforcement
scheme that operates proactively, or its effectiveness could be undermined if
people did not meet their obligations, whether intentionally or through poor
management.[62]
Donation reports during elections
3.121
The concept of donation reports during elections is closely linked to
that of contemporaneous disclosure. In fact, the only difference between each
concept, depending of course on the precise model proposed, is that one
involves weekly reporting during an election period, instead of continuous
reporting as donations are received.
3.122
The United Kingdom disclosure scheme involves a requirement that
political parties provide weekly disclosure in the form of donation reports. This
requires parties to submit reports for all transactions considered to be
donations which disclose the amount and date of such donations and identifies
the status of the donor as an individual, trade union, company or other entity.
3.123
Individual candidates are not subject to this requirement, but they must
report their donations to the Returning Officer in their constituency after the
election. Third parties are also not subject to weekly donation reporting
during an election period, and accordingly, this may provide a loophole for
those seeking to avoid disclosure under weekly donations reporting obligations.
Third parties do have separate reporting obligations depending on whether they
are registered or unregistered and the amount of expenditure they incur.
Six-monthly reporting
3.124
Currently, the Electoral Act provides in Part XX that political parties,
associated entities, donors and third parties must report certain financial
details to the AEC annually. Candidates, Senate groups and donors to each of
these must submit returns following every election.
3.125
Some submitters to the inquiry recommended that the reporting timeframe
be changed to six-monthly instead of annual or contemporaneous disclosure.
This is the measure that is contained in the Commonwealth Electoral Amendment
(Political Donations and Other Measures) Bill 2010. For example, Mr Andrew
Norton expressed the view that ‘six monthly reporting should be enough’.[63]
3.126
However, others commented that ‘bi-annual returns [did] improve the
frequency of disclosure’, but still failed to provide the ‘real time
disclosure’ required for informed voting.[64]
Special reporting of large donations
3.127
Under the Commonwealth funding and disclosure scheme, political parties
and associated entities report annually. Candidates and Senate groups report
following every election.
3.128
Recent measures implemented in Queensland saw a requirement inserted
into the Electoral Act 1992 whereby a large donation or a series of donations
from the same source adding up to an amount greater than $100 000, gives rise
to an obligation to report the details by both the political party and the
person making the donation within a prescribed time.[65]
3.129
Mr Andrew Norton supported this measure, commenting that:
[Large donations] are actually the donations we are the most
concerned about. Most of the smaller donations, even though they are disclosed,
never get much attention. It is really the big donors we are interested in.[66]
Conclusion
3.130
The current reporting obligations on political parties, associated
entities, candidates and Senate groups result in the details surrounding
sources of funding not being revealed until after polling day, thus preventing
electors from using the information to help determine how they cast their votes.
3.131
Due to comparably weak penalties and enforcement provisions that
accompany the Commonwealth disclosure scheme, this ex post facto approach
to reporting and enforcement is not conducive to the transparency and
accountability that the funding and disclosure regime is intended to
facilitate.
3.132
The committee supports an immediate move to six monthly reporting, which
should result in at least some information regarding political party sources of
funding being available before polling day in a given election. This move must
be accompanied by measures to encourage or even compel political parties to
lodge their disclosure returns using the AEC’s online system.
3.133
A move to six-monthly reporting must also be accompanied by an effective
enforcement scheme to act as a deterrent to non-compliance with disclosure
obligations. The issue of compliance is addressed in detail in Chapter 8.
Recommendation 6 |
| 3.134 |
The committee recommends that the Australian Government
introduce a six-monthly disclosure reporting timeframe, as outlined in the Commonwealth
Electoral Amendment (Political Donations and Other Measures) Bill 2010. |
3.135
The committee noted comments from submitters indicating that larger
donations are the ones in which there is significant public interest in
releasing. The disclosure rules regarding these donations must be made more
robust and conducive to the transparency and accountability aims of the scheme.
3.136
There is significant value in having special reporting of large donations
in excess of a prescribed amount. Such a mechanism would improve the visibility
of large donations. At the Commonwealth level, such a requirement would best
operate in relation to a single donation above the special reporting amount. In
addition, the requirement to aggregate donations to political party branches
would not apply regarding Special Reporting Events, as it could result in an
undue administrative burden on political donors.
Recommendation 7 |
| 3.137 |
The committee recommends that if a single donation above
$100 000 is made to a political party, associated entity, third party,
candidate or Senate group, then a ‘Special Reporting Event’ return must be
lodged with the Australian Electoral Commission by the political party,
associated entity, third party, candidate or Senate group and the donor
within 14 days of receipt of the donation. The Australian Electoral
Commission must publish details of these returns within 10 business days of lodgement. |
3.138
Moving to a system of contemporaneous disclosure is a feasible and
desirable option, and will not cause an undue administrative burden on
political parties provided there is sufficient electronic lodgement capability
provided by the AEC. Accordingly, research into such systems and issues
regarding their implementation and administration, and their potential for
application in the Australian context is warranted.
3.139
A contemporaneous disclosure system would facilitate the implementation
of requirements relating to immediate public release of donation reports and
special reporting of large donations, if such a requirement was deemed
feasible.
Recommendation 8 |
| 3.140 |
The committee recommends that the Australian Electoral
Commission investigate the feasibility and requirements necessary to
implement and administer a system of contemporaneous disclosure and report
back to the Special Minister of State by 31 March 2012. |
Different reporting obligations for donors and political parties
3.141
The reporting obligations for donors and political parties under the
Electoral Act contain a number of key differences. While political parties are
only required to aggregate individual receipts that exceed the disclosure
threshold, donors must aggregate donations of any value. The AEC explained that
this difference between the precise disclosure requirements of political
parties and donors was a key reason that disclosure returns by each often do
not reconcile, stating that:
The most obvious point of difference has come about since
legislative amendments in 1995 that introduced a ‘transaction threshold’ for
political parties when aggregating receipts from individuals. Currently,
political parties only need to aggregate individual receipts above the
threshold (sums above $11,900 for the 2011/12 financial year) when compiling
their disclosure returns. Donors, however, continue to be required to
aggregate donations of any value made to political parties. This can mean that
a donor will lodge a return but not appear on a party’s return or a donor will
disclose a larger total of donations than the party discloses.[67]
3.142
The AEC suggested that to overcome some of the discrepancies between
donor and party returns, the disclosure requirements for each could be brought
‘back into alignment’.[68] It suggested removing
the ‘transaction threshold’ from political party disclosures because the
introduction of such a requirement for donors would result in a ‘loophole’
allowing donors to make multiple donations to different branches of a political
party below the threshold without needing to disclose.
3.143
The AEC also identified a number of other issues with the current
disclosure obligations for political parties and donors to political parties,
following further questioning from the committee. One of these related to the
issue addressed earlier in the chapter in relation to the inclusion of
‘fundraising events’ in the definition of ‘gift’.
3.144
The AEC stated that the absence of fundraisers from the definition of
‘gift’ meant that some companies may consider that a payment for access to a
minister at an event a genuine transaction and would not conceive it as a
donation, but it may be listed as such by the political party on its disclosure
return. The AEC stated that it does not feel it is in a position to demand that
a donor return be lodged, given that the definition of ‘gift’ in section 287
does not include payments at fundraisers.[69] Accordingly, the
inclusion of fundraising events in the definition of gift would give the AEC a
basis on which to initiate enquiries of relevant donors.
Conclusion
3.145
The lack of consistency between the disclosure requirements for donors
and political parties makes the current scheme more difficult to administer and
inhibits its potential to meet its ends.
Recommendation 9 |
| 3.146 |
The committee recommends that the Commonwealth Electoral
Act 1918 be amended, as necessary, to require political parties to
aggregate all individual donation receipts, not just those individual
receipts that exceed the disclosure threshold, in line with the current disclosure
requirement for donors. |