Chapter 7 Third parties and associated entities
Current arrangements
7.1
Many third parties take part in issues based campaigning but some also,
both directly and indirectly, advocate for particular political parties and
candidates. Consequently it is important to consider the extent to which third
party activities in the political sphere can and should be regulated under a
funding and disclosure system.
7.2
Those favouring lower levels of third party regulation generally base
their arguments on protecting the implied freedom of political communication
that has been found to exist in the Australian Constitution. In contrast, proponents
of reform of third party regulation tend to argue that the potential for third
parties to be used as a means by which political parties can circumvent limits
justifies the imposition of limitations on their expenditure and gifts, and argue
that this can be done without unnecessarily encroaching on the implied freedom
of political communication.
7.3
While third parties are not explicitly defined in the Commonwealth
Electoral Act 1918 (Electoral Act), section 314AEB provides a definition of
‘political expenditure’. Third parties are persons that incur political expenditure
above the applicable disclosure threshold for any of the following purposes, by
or with his or her own authority:
(i)
The public expression of views on a political party, a candidate in an
election or a member of the House of Representatives or the Senate by any
means;
(ii)
The public expression of views on an issue in an election by any means;
(iii)
The printing, production, publication or distribution of any material
(not being material referred to in subparagraph (i) or (ii)) that is required
under section 328, 328A or 328B to include a name, address or place of
business;
(iv)
The broadcast of political matter in relation to which particulars are
required to be announced under subclause 4(2) of Schedule 2 to the Broadcasting
Services Act 1992; or
(v)
The carrying out of an opinion poll, or other research, relating to an
election or the voting intentions of electors.[1]
7.4
Certain individuals and organisations who are exempt from the provision
are registered political parties, state branches of registered political
parties, the Commonwealth (including a Commonwealth Department, an Executive
Agency or a Statutory Agency), a member of the House of Representatives or the
Senate, and a candidate in an election or a member of a Senate group.
7.5
Some groups that meet the definition of ‘associated entity’ in section
287 of the Electoral Act are also third parties. For example, many trade unions
have both associated entity and third party disclosure obligations under the
Electoral Act.
7.6
Where a person or group incurs expenditure in the categories defined in
section 314AEB(1) of the Electoral Act, it must submit a third party
expenditure disclosure return to the Australian Electoral Commission (AEC) within
20 weeks after the end of the financial year.
7.7
Where a third party has received a gift or gifts over the threshold that
have been either wholly or partly used to enable the third party to incur
expenditure in the defined categories, or to reimburse the person for incurring
expenditure, the details must be provided to the AEC by the third party.
7.8
The current approach to regulating the role of third parties in the political
process is based on obtaining transparency and accountability through disclosure.
There are, as in other areas of the Commonwealth funding and disclosure regime,
two key options for reform in relation to third parties:
n amend the current
measures to improve the current scheme that governs third parties; or
n make more substantial
changes, such as placing restrictions on third party expenditure and gifts
receivable to maintain the integrity of the democratic process, if such a move
is deemed necessary.
7.9
The Liberal Party of Australia emphasised the importance of ensuring
that third parties were holistically and sufficiently regulated, stating that:
Any reasonable outcome designed to achieve broad consensus
must ensure that the issue of third-party activity in election campaigns is
adequately dealt with and, in particular, that trade unions are not excluded in
any way from third-party requirements.[2]
7.10
The Electoral Reform Green Paper – Donations, Funding and Expenditure
(first Green Paper) considered whether the appropriate third party regulatory
scheme would best be determined once a broader scheme had been designed. For
example, where there is a scheme of caps on political party spending and
contributions in place, third parties may also need to be more strictly
regulated to prevent their use to circumvent caps on political parties and
associated entities.[3] As above, this is one of
the key arguments supporting increased regulation of third parties.
7.11
Similarly, the AEC also observed that increased regulation of third
parties often accompanies substantial reform of political financing
arrangements for political parties. It submitted that:
Most jurisdictions that have imposed donation and/or
expenditure caps on political parties and candidates have tended to include an
extension of those caps in some form to third parties…[4]
7.12
In further discussion on this issue the AEC stressed that:
…third parties must be effectively regulated if they are not
to provide opportunities for circumvention of the donation and expenditure caps
placed on political parties and candidates.[5]
7.13
The use of third parties to circumvent the broader regulatory scheme was
raised as a particular area of concern in the context of the regulation of donations
from particular sources, such as the tobacco industry. Ms Anne Jones OAM from
Action on Smoking and Health Australia (ASH) argued that:
...we cannot just stop at saying we are concerned about the
tobacco industry donations to political parties, which have come to millions of
dollars over the past decade or so. We know that there are third parties that
have been set up that the tobacco industry has funded, but that has been largely
secret. I am talking about the whole issue of transparency and accountability.[6]
7.14
In this chapter, the committee considered options to improve the current
regulation of third parties and measures that could be implemented if more
substantial reform was deemed necessary. Issues relating to the definition of
‘associated entities’ are also addressed.
Improving the current scheme
Definition of political expenditure
7.15
Much of the debate on third parties within the Commonwealth political
financing regime relates to the definition of ‘political expenditure’, which
determines which political participants are third parties with a disclosure
obligation. This is an issue distinct from the definition of ‘electoral
expenditure’ in section 308 of the Electoral Act, which sets out the nature of
expenditure that must be disclosed by candidates and Senate groups in election
returns.
7.16
The current definition of political expenditure in section 314AEB of the
Electoral Act has been the subject of considerable administrative confusion. The
need for a clear definition of ‘political expenditure’ under the Electoral Act
is particularly evident in light of the fact that failure to lodge a third
party disclosure return is a strict liability offence under section 315. The
only defence, if criminal proceedings were undertaken for a breach, would be a
‘mistake of fact’.[7]
7.17
In this respect, the AEC indicated that it had concerns regarding the
operation of requirements for annual returns of political expenditure. It noted:
...[the] uncertainty that exists in relation to the
interpretation of this section of the Act. The uncertainty results in it being
unlikely that any criminal proceedings could be instituted for an alleged
breach of this provision.[8]
7.18
The AEC also raised issues regarding the absence of clear parliamentary
intent and the need for the application of ‘subjective tests’ to the current
section 314AEB. This was said to cause great difficulties with determining
whether a breach has occurred. The AEC advised the committee that:
The advice available to the AEC is that the Parliamentary
intention behind some of the requirements contained in subsection 314AEB is not
clear and that there are subjective elements that would need to be assessed to
establish the intention of the person who incurred the expenditure...this makes
it extremely difficult for the AEC to determine whether any breach may have
occurred and therefore to apply the section in relation to a particular
transaction.[9]
7.19
Emeritus Professor Colin Hughes acknowledged the difficulties with
devising a definition of ‘political expenditure’ in the context of, for
example, third party advertising that compares different scientist’s approaches
to an issue. He stated that this unique form of third party advertising has
‘become part of the political debate which leads up to a voting decision’.[10]
However, the increasingly complex nature of advertising that could be
classified as ‘political’ highlights the need for a coherent and
administratively practical definition.
7.20
In comparable jurisdictions, generally regulatory schemes involving expenditure
caps are accompanied by narrower definitions of the types of expenditure that
are subject to the cap. For example, the provisions in the Canada Elections
Act that operate to cap third party expenditure state:
A third party shall not incur election advertising expenses
of a total amount of more than $150 000 during an election period in relation
to a general election.[11]
7.21
In the Canada Elections Act ‘election advertising’ is
defined in section 319 as:
...the transmission to the public by any means during an
election period of an advertising message that promotes or opposes a registered
party or the election of a candidate, including one that takes a position on an
issue with which a registered party or candidate is associated.[12]
7.22
Specific activities are explicitly excluded from the definition of
‘election advertising’. These include the transmission of an editorial to the
public and the distribution of a book if the book was planned to be made
available regardless of the election.
7.23
In Queensland, only advertising that directly or indirectly promotes or
opposes a candidate or party or influences voting, is covered by the
expenditure cap.
7.24
The NSW legislation also has a narrower definition of expenditure that
is subject to the cap in operation. The NSW Election Funding, Expenditure
and Disclosures Act 1981 includes a definition of ‘electoral communication
expenditure’ and a separate definition for ‘electoral expenditure’.[13]
While electoral expenditure must be disclosed under NSW disclosure laws,[14]
only electoral communication expenditure during a state election campaign is
subject to the cap.[15]
7.25
Electoral expenditure is defined in the NSW legislation as expenditure
‘for or in connection with promoting or opposing, directly or indirectly, a
party or the election of a candidate or candidates, or for the purpose of
influencing, directly or indirectly, the voting at an election’. [16]
Electoral communication expenditure is defined as ‘electoral expenditure’ of
specified types, including television and radio advertisements.[17]
7.26
The same definitions of electoral expenditure and electoral
communication expenditure apply to political parties, candidates, groups and
third parties. This is distinct from the Commonwealth approach, which applies
the definition of ‘electoral expenditure’ to candidates and Senate groups
during an election, while the definition of ‘political expenditure’ applies
only to third parties and on an annual rather than election basis.
7.27
The treatment of expenditure by third parties as distinct from expenditure
during an election by candidates and Senate groups is one feature that sets the
Commonwealth apart from many other jurisdictions.
7.28
Calls to amend the definition of political expenditure generally focus
on:
n section
314AEB(1)(a)(ii), particularly the lack of clarity regarding the term ‘issue in
an election’; and
n section
314AEC(1)(a)(v) regarding the carrying out of opinion polling or other research
and its potential for unintended consequences.
An ‘issue in an
election’
7.29
The use of the term ‘issue in an election’ in section 314AEB(1)(a)(ii) of
the Electoral Act has given rise to considerable administrative difficulties. This
is due predominantly to the inherent challenges in prospectively assessing, for
the purposes of annual disclosure obligations, which issues will be issues in
the next federal election.[18]
7.30
The AEC argued that the lack of clarity stemmed from the use of terms,
such as ‘the public expression of views on an issue in an election’ that are not
seen elsewhere in the Electoral Act, which makes it difficult to determine the
precise scope of the section.[19]
7.31
The AEC also argued that a contributing factor to the difficulties
involved with the matters covered by section 314AEB(1)(a)(ii) was that the
other subsections in section 314AEB(1)(a) were clearly defined and outlined material
needing authorisation under sections 328, 328A and 328B, such as printed
electoral advertising, paid electoral advertisements on the internet, and
electoral advertisements on radio and television regulated under the Broadcasting
Services Act 1992.[20]
7.32
The Australian Council of Trade Unions (ACTU) also expressed concern
regarding section 314AEB(1)(a)(ii). It highlighted difficulties with defining
an ‘issue in an election’. The ACTU raised the question of whether
non-partisan attempts to generate public interest and attention around a particular
issue of concern, that is, expenditure seeking to make a particular issue an
issue in an election is captured by the provision.[21]
7.33
Mr Andrew Norton focused heavily on the issues regarding third parties
in his submission, including the definitional problems with section
314AEB(1)(a). He noted that a number of commentators in the political
financing field, including those that support much stricter regulation on
campaign finance, have identified issues regarding the clarity of the meaning
of section 314AEB(1)(a)(ii).[22]
7.34
Mr Norton suggested that the lack of clarity surrounding the term ‘issue
in an election’ arose as a result of the ‘carry-over’ of the term from the
times when third party disclosure only occurred after an election. He also
observed that annual reporting obligations for third parties mean that an
‘issue in an election’ now has to be determined prospectively.[23]
7.35
Mr Norton presented three options to address the lack of clarity in the
meaning of ‘issue in an election’ in section 314AEB(1)(a)(ii). His preference
was that only expenditure advocating a vote ‘for or against’ a political party
or candidate be counted towards the disclosure threshold. However, he recommended
that if this was not to be implemented, then:
n section
314AEB(1)(a)(ii) be deleted;
n an exemption be
created from section 314AEB(1)(ii) for commentary on issues; or
n section
314AEB(1)(a)(ii) only apply in election years.[24]
7.36
The creation of specific exemptions to section 314AEB(1)(a)(ii), such as
commentary on issues, or having the provision only apply in election years do
not resolve further interpretative issues that the AEC argued have resulted in
administrative confusion, such as the fact that the term ‘issue in an election’
is not used anywhere else in the legislation. The notion of only applying
parts of the definition in election years adds an additional layer of
complexity to the definition that may result in further administrative
difficulties and confusion.
7.37
The AEC argued that in reading section 314AEB(1)(a)(ii) in the context
of the other types of expenditure that are covered, it was not clear what
additional forms of political expenditure it aimed to cover.[25]
Opinion
polls or other research
7.38
Another concern raised regarding the definition of political expenditure
in the Electoral Act relates to the provision in section 314AEB(1)(a)(v) that a
third party disclosure obligation arises where a person or organisation incurs
expenditure through ‘the carrying out of an opinion poll, or other research,
relating to an election or the voting intentions of electors’ in excess of the
threshold.
7.39
There are two immediate options for reform of this provision:
n to completely delete
section 314AEB(1)(a)(v); or
n to include a list of
exclusions from its terms.
7.40
The AEC observed that this disclosure obligation could serve to impede
the regular activities of some organisations. It advised that:
The phrase “carrying out an opinion poll” results in
organisations that carry out opinion polling as a part of their day to day
business, rather than actively participating in political activity, having an
obligation. In addition, the phrase “other research” could result in people
who discuss and analyse elections or the voting intentions of electors as part
of their day to day business being potentially captured by this section.[26]
7.41
For example, Galaxy Research submitted a return of third party political
expenditure showing nil expenditure.[27] This is because Galaxy
Research is merely paid to carry out the activity, rather than engaging in
opinion polling of its own accord as a form of campaigning or political
participation.
7.42
The AEC also observed that the requirement could potentially catch
university students and political scientists. This would result in significant
administrative difficulties with ‘no apparent benefits to the financial
disclosure scheme’.[28] Accordingly, it
suggested in its report on election funding and financial disclosure in
relation to the 2010 federal election that section 314AEB(1)(a)(v) be deleted.[29]
Conclusion
7.43
The phrase ‘issues in an election’ as applied in section 314AEB(1)(ii)
causes significant administrative difficulties, due mainly to the difficulties
involved with prospectively predicting which issues will be ‘issues in an
election’. The phrase was more practical when third party disclosure
obligations only arose after an election, rather than annually, as is currently
the case.
7.44
The matters of the frequency of third party disclosure and the
definition of what must be disclosed are inextricably intertwined. If third
party disclosure is to remain on an annual basis, an appropriate definition
must be devised that will be able to be administered effectively by the AEC and
that will capture and release information into the public arena that is
informative and conducive to the principles of transparency and accountability
that the scheme seeks to uphold.
7.45
The committee notes the AEC’s comments that the term ‘issue in an
election’ is particularly confusing given that it is not used elsewhere in the
Electoral Act, and that section 314AEB(1)(a)(ii) does not, when read in the
context of the other paragraphs, cover any form of expenditure that is not
covered elsewhere. Accordingly, the most feasible method by which the clarity
of the term can be improved is by deleting the requirement from the definition
of ‘political expenditure’ in section 314 AEB(1)(a).
Recommendation 19 |
| 7.46 |
The committee recommends removing the reference to ‘issues
in an election’ from the definition of political expenditure, by deleting
section 314AEB(1)(a)(ii) of the Commonwealth Electoral Act 1918. |
7.47
The current definition of ‘political expenditure’ can potentially
capture and impose a disclosure obligation on people, groups and organisation
that are not actually intending to influence the outcome of an election or
enter the political or democratic process. This is particularly in relation to
section 314AEB(1)(a)(v) of the Electoral Act.
7.48
People or organisations that may be unintentionally captured by the
provision could include market research companies paid to carry out opinion
polls and authors, academics and individuals that merely aim to provide
commentary and analysis on issues. The benefits to transparency of requiring
these individuals or groups to disclose their sources of financing is
questionable. In addition, it can potentially result in an increased
administrative burden on the Australian Electoral Commission in administering
the provisions.
7.49
The committee notes that the Canadian approach in this area is to
include exceptions in the legislation to the operation of certain electoral
advertising provisions. However, the committee recognises the administrative
and interpretative difficulties that may arise from diluting and creating
exceptions to legislative requirements. The committee believes that the most
effective approach in this respect is to delete the requirement.
Recommendation 20 |
| 7.50 |
The committee recommends removing the reference to opinion
polls and other research from the definition of political expenditure, by
deleting section 314AEB(1)(a)(v) of the Commonwealth Electoral Act 1918. |
Frequency of third party disclosure
7.51
In 2006, amendments were made to the Electoral Act that changed the third
party disclosure obligation from requiring that a disclosure return be lodged
after every election, to annually. This is the current requirement in Part XX
of the Electoral Act.
7.52
The main options for the timing of third party disclosure are:
n Annual disclosure—would
need to be accompanied by amendment of definition of ‘political expenditure’,
as discussed above, to operate more effectively;
n Election disclosure
(after an election)—could occur with current definition of political
expenditure but definition would still require refinement;
n Contemporaneous
disclosure of gifts; or
n Contemporaneous
disclosure of gifts and expenditure.
7.53
The issues of the frequency of third party disclosure and the clarity of
the definition of expenditure are closely intertwined. For example, in a
context where third party activities are increasing on a regular basis there is
prima facie an increasing value in annual disclosure. However, the disclosure
obligation will then need to be detached from the linkage to ‘issues in an
election’ and become more general so as to ensure that third parties are clear
on their obligations.
7.54
In relation to contemporaneous disclosure, the AEC argued that if it is
introduced for donations to political parties then it must extend to third
party disclosure, stating that:
…the objective of contemporaneous disclosure to electors
could be easily frustrated if it didn’t extend to third parties who potentially
could be used as vehicles to delay disclosure until after an election. That
is, there appears to be a loophole in the operation of the current disclosure
requirements contained in the Electoral Act that could be abused so as to
circumvent the current reporting and disclosure regime.[30]
Conclusion
7.55
In the current climate of continuous election campaigning, third parties
are also major participants, and so it is desirable to at least maintain the
current annual disclosure requirements for third parties rather than returning
to solely election disclosure. However, to operate effectively, the annual
disclosure of third parties must be accompanied by the proposed definitional
changes outlined above.
7.56
It is important that third party regulation is designed to complement the
regulatory approaches to political parties, candidates and groups, so as not to
allow them to be used as a means to circumvent the broader scheme.
Recommendation 21 |
| 7.57 |
The committee recommends that the frequency of disclosure
reporting obligations for third parties under the Commonwealth Electoral
Act 1918 align with the frequency with which political party disclosure
takes place, to minimise the potential for circumvention of requirements. |
Partisan connections of third parties
7.58
In relation to the disclosure obligations of third parties, the
Electoral Act currently only requires that the details of expenditure incurred
in excess of the threshold in the five categories set out in section
314AEB(1)(a) be disclosed.
7.59
Mr Andrew Norton expressed concern regarding the fact that the Electoral
Act currently does not require third parties to disclose the party or
candidate, or the issue that they are campaigning on. He argued that:
...the current federal disclosure system is poorly designed
to identify undue third party influence. While third parties must categorise their
political expenditure in various ways, there is no requirement or formal
opportunity to disclose which party, politician, or issue the spending was
directed towards.[31]
7.60
Mr Norton’s argument is that the associated entity rules should result
in third parties campaigning on purely issues based grounds being ‘free’ from
regulation. Any third party that is campaigning or acting ‘wholly or to a
significant extent’ on behalf of a political party should, Mr Norton argued, be
covered by associated entity provisions. He submitted that:
The undue influence case for regulating third parties is an
incidental one. This is that if political parties are regulated but third
parties are not, donors who want to remain secret will shift their gifts to
partisan third parties. However, in Australia this possibility is already
covered by the ‘associated entity’ rules, which cover third parties controlled
by a political party or operating wholly or to a significant benefit of one or
more political parties.[32]
7.61
It is arguably these ‘partisan’ third parties in which there is interest
in awareness of funding sources. The solution that Mr Norton proposed to
rectify this shortcoming with the current arrangements is to remove regulation
of ‘issues based’ third parties from the Electoral Act and only require
disclosure of political expenditure under section 314AEB of the Electoral Act
from associated entities (or, according to his argument, partisan third
parties). He recommended that section 314AEB of the Electoral Act should only
apply to associated entities.[33]
7.62
A similar issue was raised in the submission from Senator Eric Abetz
with respect to GetUp. In relation to third parties that might be partisan he
also indicated support for:
...tightening the definition of Associated Entity in the
[Electoral Act] or preventing Third Parties from claiming to be independent.
If a Third Party is incurring electoral expenditure it is ipso facto not
being independent...the neatest solution is to amend the [Electoral Act] to
prevent Third Parties which incur electoral expenditure from claiming to be
independent, non-partisan, impartial or not to back any particular party...[34]
Conclusion
7.63
Any third party regulatory scheme must also allow third parties to
effectively communicate with their supporters and the public, and complement
arrangements in place for political parties and other groups, to minimise the
possibility of third parties being used to circumvent the wider disclosure
requirements. The circumstances of the Australian political party democratic system
warrant a third party regulatory scheme that is legislatively distinct from the
laws governing associated entities.
Disclosure threshold for third parties
7.64
Under the current disclosure scheme third parties are subject to the
same disclosure threshold as political parties, associated entities and donors
for each financial year.
7.65
Mr Andrew Norton proposed in his submission that third parties be
subject to a separate, higher disclosure threshold than other participants in
the democratic process to ensure that their freedom of political communication
was not stifled. He recommended:
n That the threshold
for third parties entering the disclosure system be increased to at least $50
000;
n That the threshold
for disclosable donations to third parties remain at $11 900.[35]
Conclusion
7.66
Making third parties subject to a higher level of regulation than
political parties and other groups is not merited or appropriate, and could be
seen as an unreasonable restriction of their right to political expression. However,
a lesser level of regulation including a lower disclosure threshold may
increase the potential for third parties to play a role in circumventing caps
applicable to political parties or other groups. In addition, a higher
threshold solely for third parties could be seen as tipping the balance in
favour of third parties and running the risk of third parties overwhelming the
process.
7.67
In the interests of ensuring clarity, equality between participants in
the political and democratic process, and balance, the disclosure threshold for
third parties should remain in line with those applicable to political parties
and other groups. There is no justification under the current system to apply a
separate disclosure threshold to third parties.
Recommendation 22 |
| 7.68 |
The committee recommends that third parties be subject to
the same disclosure threshold as political parties, Independents candidates,
Senate groups, associated entities and donors. |
Disclosure rules for donors to third parties
7.69
Donors to third parties do not have a separate disclosure obligation.
The Electoral Act requires a third party to disclose in its return details of
donors that give an amount exceeding the disclosure threshold for that
financial year.
7.70
A number of submitters to the inquiry raised the issue of the impact of
any changes to disclosure laws on donors to third parties. Mr Norton described
‘donor names’ in his submission as ‘the only substantive new information that
the third party disclosure system can produce’, stating:
Though not relevant to an influence disclosure rationale for
campaign finance law, knowledge of third party funding sources could help
evaluate the credibility of some third party messages...While knowledge of
funding sources does not provide any conclusive evidence on the merits of an
argument, it does alert people to possible biases in sources that otherwise
seem credible.[36]
7.71
Similar to his approach on other issues pertaining to third parties, Mr Norton
supported a reduction in the regulation of donors as a source of funding for
third parties partly because donors may stop participating in the political
process. He commented that:
People financially support third parties partly because they
don’t have the time, skills or opportunity to articulate their views in public
places. ‘Accountability’ for donors in this context means suffering some
penalty for the views they hold, and fear of such penalties is a deterrent to
political participation. The possible value of donor information in a limited
number of cases needs to be balanced against donors being intimidated into not
expressing their views.[37]
7.72
Mr Norton raised donor fears of retribution as an argument against
imposing limitations on donations to third parties, as it may discourage a
legitimate form of political participation.[38]
7.73
Mr Norton also observed that the only protection from retribution given
to donors to third parties under the current laws was the high disclosure
threshold. He stated that the ‘donors that pose the least threat to the
integrity of the political process have the weakest legal protection’.[39]
7.74
Additionally, a recurring theme throughout preceding chapters has been
the need to effectively regulate third parties to prevent them from being used
as a means of circumventing stricter requirements on political parties. If
donors to third parties are subject to ‘weaker’ requirements regarding
disclosure than donors to associated entities and political parties, this
increases the potential for circumvention of restrictions on other political
actors.
7.75
In support of increased regulation of donors to third parties, the AEC
highlighted the difference in requirements for donors to political parties and
candidates and donors to third parties. The former must disclose donors of any
sums they have received which are used wholly or partly to make their donation.
The AEC submitted that:
This, importantly, establishes an audit trail back to the
source of the funds, something that cannot be achieved for third parties where
the only disclosure is on the third party’s return showing donations received.
In such circumstances, a third party could disclose receiving funds from a
private foundation or trust and there would be no public record of where that
entity may have originally received its funds from.[40]
7.76
The AEC used this as the basis for its support for donors to third
parties being subject to the same requirements as donors to political parties.
In NSW, ‘major political donors’ have an obligation to disclose ‘political donations’
equal to or greater than $1 000 to political parties, members, groups, candidates
or third party campaigners. These are referred to as ‘reportable political
donations’, which is a blanket term for donations to all political actors.
7.77
One issue that may arise in relation to imposing a disclosure obligation
on donors to third parties is the possibility that a donor may donate to a
third party in support of its campaign on a particular issue, but not its
campaigns in other areas. That is, the donation is made on the basis of support
for a single issue, rather than the group as a whole. If a disclosure
obligation was to exist, an individual or group would potentially be publically
revealed as a ‘supporter’ of a group campaigning on an issue, without necessarily
agreeing with its approach in all areas.
7.78
Mr Norton explained a similar issue in the context of tax deductibility
of donations in his appearance before the committee, where an actual intention
to participate in the political process through donating to a third party may
not be present. He stated that:
The difficulty is the multipurposes of third parties. For
example, the RSPCA ads about the live export issue. You might want to give to
the RSPCA because you like their shelters for lost animals, and that is
probably a legitimate deductible thing. But then you find your money ends up
going to these particular campaigns. So it is very hard to manage the different
purposes of the third parties.[41]
7.79
However, these types of issues can be overcome in the design of the
third party donor obligation, for example, providing donors with room on an
applicable form to provide details of their support if they wish. Additionally,
it is arguable that a similar issue exists under the current arrangements with
donor names and details provided by a third party on its disclosure form. A
separate donor disclosure requirement for donors to third parties could,
depending on its design, actually result in rectifying some of these issues and
providing a clear trail back to the original source of funds.
Conclusion
7.80
The transparency and accountability achievable in a political financing
system is dependent on its ability to reveal the source of funds. In devising
appropriate disclosure laws regarding donors to third parties, a balance must
be obtained between transparency and accountability and ensuring donors to
third parties are not discouraged from political participation because of the
requirements or fear of retribution. This balance can be achieved if disclosure
obligations for donors to third parties were to be strengthened to match those
of donors to political parties.
7.81
The fear of retribution by some donors should not prevent them from
participating in the political process through making donations. The committee
believes that requirements akin to those recommended in Chapter 3 could be
implemented in relation to the disclosure obligations of individual third
parties.
Recommendation 23 |
| 7.82 |
The committee recommends that the Commonwealth Electoral
Act 1918 be amended, as necessary, to impose a disclosure obligation on
donors to third parties. Amendments should be worded so that only the name,
suburb, state and postcode of individual donors are required to be made
public. |
Further reform options
7.83
Discussions in relation to significant changes to the current approach
to regulating the political finances of third parties generally involve
proposals for caps on the donations that can be received by third parties, and
caps on the expenditure that they can incur. However, there are a number of
issues that need to be considered before such changes could occur.
Caps on third party expenditure
7.84
There are currently no limits on the amount of political expenditure by third
parties. However, when expenditure is incurred in excess of the disclosure
threshold in one or more of the five legislatively defined categories, the
third party must meet its annual disclosure obligation.
7.85
Proposals supporting the implementation of caps on third party expenditure
are generally linked to proposals for caps on spending by political parties as
a measure to curtail spiralling levels of election spending. The broader issues
relating to implementing caps as part of political financing schemes are
discussed in detail in Chapter 4. In this chapter the issues specific to the
imposition of caps on third party expenditure are discussed.
7.86
A number of submitters to the inquiry expressed support for caps on
expenditure, including caps on the expenditure of third parties. In line with
general approaches in the area, the majority of proposals accompanied related
calls for caps on political party expenditure. For example, the Australian
Labor Party expressed support for the capping of third party expenditure to
prevent the circumvention of caps on political parties through the use of
‘soft-money’ through other groups.[42] Similarly, the
Australian Greens stated:
A cap on campaign expenditure removes the excessive
dependence on donations funding...Donation and expenditure restrictions should
also apply to third parties…[This] would ensure that third party advertising
could not be used to circumvent [other measures].[43]
7.87
The AEC also raised the related concern that if caps on political
parties and candidates are in operation, where third parties are not subject to
similar constraints on their actions, there is the potential that third parties
could come to dominate public debate to the disadvantage of the ‘primary
players’ in election campaigns; political parties and candidates. The AEC
submitted:
...there is a concern that if political parties and
candidates are limited in their campaigning through expenditure caps, then it
leaves the revised system vulnerable to having campaigns overwhelmed by third
parties that are not similarly constrained. This could have the potential to
relegate the primary players in an election campaign – political parties and
candidates seeking to win seats and possibly form government – to second tier
status in terms of the volume and reach of campaigning behind bigger spending
third parties.[44]
7.88
As with general caps on expenditure, the AEC identified the period
during which caps on third party expenditure are to apply as a key challenge
relating to the implementation of the measure.[45] Other challenges include
the nature and design of any third party registration scheme,[46]
and the difficulties relating to devising effective penalties for offences
against political financing laws committed by third parties, given that their
motivations for engaging in the political process is less clear than parties
and candidates.[47]
7.89
Mr Norton suggested that the implementation of third party expenditure
caps could result in the limitation of opposition to government, particularly
given that some forms of government advertising were unlikely to be subject to
the cap if current models were followed.[48]
7.90
However, Professor Sawer noted in a research paper critiquing Mr
Norton’s submission that despite the drop in corporate involvement in elections
in Canada since the implementation of spending limits, the overall number of
third parties has risen from 50 to 64 over the past four general elections that
have been held in Canada since limitations on third parties were introduced.
She also stated that none of the third parties had spent anything near the
maximum amount allowed. This would seem to suggest that in the Canadian
context, third parties have not been unduly constrained by having their
particular expenditure cap model in place.[49]
Constitutional issues
7.91
Arguments opposing the imposition of a cap on expenditure by third
parties incurring political expenditure generally focus on its potential to
stifle the implied constitutional freedom of political communication.
7.92
Professor Anne Twomey indicated that one of the key considerations in
relation to a cap on third party expenditure would be the precise level at
which the cap was set. She indicated in her appearance before the committee
that:
...[in the United States] the courts have been more concerned
that expenditure caps prevent political parties or third parties from
expressing their views in election campaigns. So if you make the cap too low
and you impede that form of political communication without very good reason
then you are vulnerable to constitutional problems.[50]
7.93
In Canada, since 2000, third parties have been required to register with
Elections Canada once they spend more than CAD$500 in election advertising. Third
parties in Canada must also disclose the source of donations of more than CAD$200
during the six months before the issue of the writs and are limited to total
expenditure of $150 000 (indexed) or $3 000 per electoral district.
7.94
In 2000 the National Citizens Coalition challenged this legislation in
the Harper case, in which it was found that third party regulation was a restriction
on freedom of expression. However, the Court held that the restriction was
reasonable for ‘electoral fairness’. The Court accepted that the purpose of
third party spending limits was to promote equality and that this purpose was
pressing and substantial. The restrictions were necessary to provide equal
opportunity to participate in the electoral process and to prevent wealthy
voices from overwhelming others. That is, the spending limits enabled citizens
to be better informed by preventing domination of the discussion by a wealthy
few and enabling opposing voices to be heard.[51]
Caps on donations to third parties
7.95
Third parties that incur political expenditure in the categories defined
in section 314AEB of the Electoral Act are entitled to receive gifts that can
be used wholly or partly to incur that expenditure. There are currently no
limits on the amounts that may be contributed to third parties. The only
proviso is that third parties must disclose in its annual returns gifts received
above the threshold and used wholly or partly to incur political expenditure.
7.96
Any consideration of caps on third party expenditure must necessarily
involve consideration of caps on incoming finances. The option to cap donations
to third parties must be considered in the context of the wider scheme. If
donations on political parties are capped, an individual seeking to circumvent
these could donate to third parties acting on the political party’s behalf. Political
parties could also potentially set up third parties for this purpose, if they
so wished.
7.97
Concerns were raised in submissions that the combined effect of limiting
third party sources of funding and expenditure, given that the two measures generally
accompany one another, could result in an unfair limitation on their capacity
to undertake political communication.
7.98
The arguments against caps on donations to third parties are along the
same lines as the broader arguments relating to caps on donations, which are
addressed in detail in Chapter 3, and are largely based on protecting the
implied freedom of political communication issues.
7.99
Mr Andrew Norton dealt specifically with the issue of caps on donations
to third parties, and cautioned that there could potentially be unintended
consequences. He argued that:
As with expenditure caps, donation caps exacerbate rather
than mitigate a power imbalance between third parties and political parties,
especially with the governing political party that is often in an adversary
position with a third party...The donation caps, in conjunction with other
campaign finance measures, look very much like a cynical attempt by political
parties to suppress the political activity of their critics and opponents.[52]
7.100
In addition, Mr Norton highlighted the risk that caps on donations to
third parties to have an ‘unequal’ effect on third party participants and thus
a detrimental effect on the ability for such third parties to effectively
participate in the democratic process. He submitted that:
Donation caps also have unequal consequences between third
parties. Third parties that rely on donations are disadvantaged relative to
third parties that can fund their own campaigns. Ironically from the
perspective of justifications for campaign finance law, traditional vested
interests such as unions and business can carry on much as before under
donations caps.[53]
7.101
Mr Norton argued that if donations caps were to be put into practice,
they should apply only to funds raised to advocate a vote for or against a
political party or candidate. He stated that the recent reforms in Queensland
had successfully implemented similar provisions in relation to caps on
donations to third parties. Mr Norton’s proposal involved narrowing the
definition of ‘political expenditure’ that donations could be used to fund in
order for a scheme involving caps on donations to third parties to operate
effectively. [54]
Conclusion
7.102
The imposition of caps on donations to, and expenditure by, third
parties requires further consideration before any moves in this direction can
be taken. In particular, a cap on expenditure presents significant difficulties
in relation to enforcement.
7.103
However, legitimate concerns have been expressed about the increased
spending and the potential influence of third parties engaged in the political
sphere. The committee does not seek to unduly hamper third parties campaigning
on its core issues, but in cases where third parties are campaigning on key election
issues or advocating for or against particular candidates or parties, third
parties should not be permitted to overwhelm public debate by means of large
expenditure that is not appropriately regulated.
7.104
Accordingly, further investigation should be undertaken into the
feasibility of imposing caps on political expenditure by third parties. This must
involve consideration of an appropriate period during which caps are to apply
in relation to the election date. The aim would be to ensure that third parties
do not exert undue influence close to an election by high spending levels, but
still allow these groups to engage the community on relevant issues and
participate in the political process.
Recommendation 24 |
| 7.105 |
The committee recommends that the Australian Government
investigate options for:
n restricting
or capping third party political expenditure; and
n setting
a reasonable period relevant to the election date around which this
restriction would apply. |
A third party registration scheme
7.106
There is no requirement currently in the Electoral Act regarding the
registration of third parties before they can incur political expenditure.
While party registration schemes are usually aimed at facilitating the
administration of a more extensive regulatory system that involves expenditure
caps, the AEC indicated its support for the introduction of party registration
as part of the current system. It stated:
The AEC is aware that the overseas experience is that all
third parties must be registered with the relevant electoral management body
before they are able to incur electoral expenditure. In some jurisdictions
there is also a requirement for specific campaign accounts to be established
accompanied by proof that the organisation has formally agreed to use the funds
in such an account for electoral purposes. This would obviate the need for the
auditing and reporting of all other amounts of expenditure (i.e. non-political
expenditure) incurred by a third party.[55]
7.107
Additionally, a third party registration scheme could play a similar
role to that played by the political party registration scheme within the
current regulatory scheme, in that it can assist with tracking disclosure
obligations.
7.108
In the context of discussing schemes involving caps on expenditure, the
Australian Labor Party advocated that:
n Participation by
Third Parties in public election campaigning should be conditional upon
registration with the AEC. The ALP believes there should be a high threshold
for the registration of a Third Party...which should include provisions similar
to that required for the registration of political parties.
n Third parties should
be required to demonstrate that they are a bona fide community of
interest prior to registration.[56]
7.109
The AEC stated in its submission that a major aim of third party
registration schemes is to publicly disclose in advance the identities of
people and organisations— aside from political parties and candidates—that
intend to be active in an election. [57]
7.110
An additional aim of such a scheme appears to be to ‘weed out’ the
‘illegitimate’ third parties. However, criteria for what might constitute a
‘legitimate’ third party could be difficult to objectively determine.
7.111
The Australian Labor Party proposed in its submission that the criteria
for third party registration should be premised on that which currently exists
for political parties. ‘Eligible political parties’ as defined in section 123
of the Electoral Act may be registered under Part XI if they meet the requirements
in section 126(2). An ‘eligible political party’ is one that has at least 500
members or has the support of a sitting member or Senator.
7.112
Section 126(2) of the Electoral Act provides that an application for
registration from an eligible political party must set out the party’s name,
abbreviation (if it wishes to have one), registered officer, a list of the names
of the 500 members relied upon for registration, state whether the party wishes
to receive election funding, set out names and addresses of the requisite ten
members that are making the application (one of whom must be the secretary),
include a copy of the party constitution and include the $500 fee.
7.113
Clearly some of these requirements would not be directly relevant to a
third party registration scheme, but the concept of requiring a minimum number
of members, the requirement to provide a party constitution and the requirement
to provide certain office bearer details could legitimately form part of the
criteria for the registration of third parties.
7.114
The United Kingdom political financing regime includes a third party
registration scheme by which a third party that intends to incur above a set
threshold in campaign expenditure must first register with the relevant
electoral administration body. Domestically, similar requirements exist under
the NSW and Queensland schemes that have recently been implemented.
7.115
Each of these schemes is premised heavily on an ‘intention’ to incur
political expenditure in excess of a certain defined amount. Under the NSW scheme,
registered third parties are subject to a higher expenditure cap than
unregistered third parties. The registration of third parties with an intention
to incur political expenditure would be of assistance in keeping track of which
third parties have disclosure obligations, but the benefits outside this are
unclear.
Conclusion
7.116
The committee does not believe there is currently enough evidence to
demonstrate that a third party registration scheme would significantly enhance
transparency and accountability in the Commonwealth scheme. While the AEC sees
value in third party registration in terms of helping to track third party
disclosure obligations, evidence to the inquiry indicates that it would be most
useful in a system where caps on the political expenditure of third parties
were in place. On balance, if there are to be no restrictions on expenditure, a
system of third party registration under the current arrangements would be seen
as an unnecessary burden on third parties and the AEC.
Definition of associated entity
7.117
Prior to the amendments to the Electoral Act in 2006, an associated
entity of a political party was defined simply as an entity controlled by one
or more registered parties, or that operates wholly or to a significant extent
for the benefit of one or more registered political parties. The amendments
inserted in 2006 effectively broadened the range of entities that could be
classified as ‘associated entities’ for the purposes of Part XX.
7.118
Currently, an associated entity is defined in section 287(1) of the
Electoral Act as:
n An entity that is
controlled by one or more registered political parties; or
n An entity that
operates wholly or to a significant extent for the benefit of one or more
registered political parties; or
n An entity that is a
financial member of a registered political party; or
n An entity on whose
behalf another person is a financial member of a registered political party; or
n An entity that has
voting rights in a registered political party; or
n An entity on whose
behalf another person has voting rights in a registered political party.
7.119
The first Green Paper identified three types of associated entities:
n entities that conduct
fundraising activities for a political party;
n entities that conduct
the business activities of a political party; and
n entities that are
‘members’ of political parties (for example, trade unions that are affiliated
with the ALP or businesses affiliated with the National Party of Australia).[58]
7.120
As associated entities can be sources of funding for political parties, a
number of submitters suggested that there should be changes to the way in which
associated entities are regulated under the Electoral Act. There were two major
strands of arguments in the submissions that addressed issues surrounding
associated entities, and these related primarily to increasing the transparency
with which associated entities operate. The key issues raised were:
n Whether the
definition of ‘associated entity’ in section 287 of the Electoral Act should be
revised; and
n Whether there should
be a change in the disclosure rules regarding associated entities. This is
addressed in Chapters 3 and 4.
7.121
The definition of ‘associated entity’ in the Electoral Act has been the
source of significant difficulties both before its broadening through the 2006
amendments and currently. An analysis of submissions to the inquiry indicated
that there are three main themes in relation to perceived definitional
weaknesses of associated entities:
n it does not capture
all groups and organisations that it should (under-inclusive);
n it captures groups
and organisations that do not have an influence over political party affairs
(over-inclusive); and
n it results in
inconsistencies with some groups and organisations being classified as
associated entities, with similar groups and organisations escaping the
disclosure obligations.
7.122
The AEC advised that it had ‘taken the view’ that ‘significant’ in the
definition of an associated entity’ is ‘a degree once removed from wholly’. In
relation to administrative challenges the definition gives rise to, the AEC
stated that:
...imprecision in the second arm of the definition – ‘an
entity that operates wholly, or to a significant extent, for the benefit of one
or more registered political parties’ – complicates its administration. It
is also the case that the AEC’s interpretation of its practical application
opens a potential loophole whereby an entity need only prove that a
comparatively small proportion of its operations benefit someone other than a
political party for it to escape having a disclosure obligation.[59]
7.123
This indicates that the definition of ‘associated entity’ as it
currently stands may run the risk of being over inclusive, that is,
unintentionally capturing groups and organisations that may not need to be
captured, as these groups are unlikely to have any significant influence on
party affairs.[60]
7.124
The ACTU also noted Dr Tham’s argument that in other respects, the
definition omitted some relevant players, restating that:
…[the definition of associated entity] is under-inclusive
because significant influence over a party’s position is not confined to
financial membership and voting rights. It can result from other forms of
affiliation.[61]
7.125
The NSW Greens Political Donation Research Project also expressed
concerns about the issue of sponsorship of some associated entities by
companies, which provides an entitlement to access to party officials, and
recommended that:
The definition of Associated Entities should be rewritten in
order that they are clear and include all organisations that operate wholly, or
to a significant extent, for the benefit of political parties – including
companies or incorporated associations, trusts, charitable foundations, and
unincorporated associations, societies, groups or clubs that actively
participate in business, industrial or fundraising activities, or passively
hold assets (including intellectual property) or liabilities of the political
parties.[62]
7.126
The NSW Greens Political Donation Research Project went on to detail in
its submission a number of specific cases in which organisations that appeared
to meet the definition of ‘associated entity’ in the Electoral Act had not been
classified as such by the AEC. For example, the question was posed:
Why is the Progressive Business Association in Victoria a Labor
associated entity when NSW Labor’s Business Dialogue [is] not? They both charge
substantial amounts for membership packages which include considerable access
to politicians.[63]
7.127
While a number of submissions raised the issue of the definition of associated
entities under the Electoral Act, few proposed solutions to the identified
weaknesses under the current system.
7.128
In its funding and disclosure report relating to the 2010 federal election,
the AEC recommended that three elements of the definition of ‘associated
entity’ in the Electoral Act be clarified, and also recommended the manner in
which the clarification should take place. It made the following
suggestions:
n ‘controlled’ – define
as the right of a party to appoint a majority of directors, trustees or office
bearers,
n ‘to a significant
extent’ – define as the receipt by a political party of more than 50% of the
distributed funds, entitlements or benefits enjoyed and/or services provided by
the associated entity in a financial year, and
n ‘benefit’ – define as
the receipt of favourable, non-commercial arrangements where the party or its
members ultimately receives the benefit.[64]
7.129
Section 197 of the Queensland Electoral Act 1992 defines an
associated entity along the lines of the pre-2006 definition at the Commonwealth
level, that is, operating wholly or to a significant extent for the benefit of
a political party. This definition was inserted into the Queensland legislation
based on that in the Commonwealth Electoral Act.
7.130
A clarification of some of the terms used in the definition may negate
some of the issues that have been identified, as was inferred by the AEC.[65]
This would reduce the administrative uncertainty that has resulted in the
provisions regarding associated entities not operating as intended.
Conclusion
7.131
There is a lack of clarity in the definition of associated entity in the
Electoral Act that could potentially result in its aims not being met and an
inconsistent application.
7.132
The amendments to the definition that were implemented in 2006 to
effectively broaden its scope resulted in a stronger disclosure scheme and
reduced the potential for organisations or groups that are potentially
‘associated entities’ to go unnoticed.
7.133
The committee believes that persisting concerns can be overcome by
providing legislative clarification regarding the definition. While the
details of the clarification require in-depth consideration, there are some key
issues that can be deal with as a starting point.
Recommendation 25 |
| 7.134 |
The committee recommends that the Commonwealth Electoral
Act 1918 be amended to improve the clarity of the definition of
‘Associated Entity’. Particular steps that could be taken might include the
following:
n Defining
‘controlled’ as used in section 287(1)(a) to include the right of a party to
appoint a majority of directors, trustees or office bearers;
n Defining
‘to a significant extent’ as used in section 287(1)(b) to include the receipt
of a political party of more than 50 per cent of the distributed funds,
entitlements or benefits enjoyed and/or services provided by the associated
entity in a financial year; and
n Defining
‘benefit’ as used in section 287(1)(b) to include the receipt of favourable,
non-commercial arrangements where the party or its members ultimately
receives the benefit. |