Chapter 2Key issues and committee view
2.1This chapter considers evidence received on the Electoral Legislation Amendment (Fairer Contracts and Grants) Bill 2023 (the bill).
2.2The committee received a small number of submissions and limited evidence on the provisions of the bill. Therefore, where appropriate, the committee has drawn on relevant information from previous committee reports to inform the discussion and committee view.
2.3This chapter ends with the committee's view on the bill and recommendation.
Views on the bill
2.4The committee received submissions and evidence from witnesses that, while either supporting or not necessarily opposing the aim of the bill, raised serious concerns about the bill in its current form, including:
the bill's assumption that all donations are made for corrupt purposes;
the exclusion of minor parties, independents, and the opposition from the bill's remit; and
lobbying and the bill's definition of a 'close associate'.
2.5The committee also received evidence about the bill in the context of the electoral reform recommended by the Joint Standing Committee on Electoral Matters (JSCEM).
Assumption that all donations are made for corrupt purposes
2.6As stated in Senator Waters' Second Reading Speech, one of the purposes of the bill is to change the current 'public perception that decisions in our parliament are made improperly, with self-interest and the interests of donors and mates consistently above the public interest'. The bill seeks to achieve this by 'ban[ning] donations to the political party in government including to a coalition partner, for 12 months before and after any contract is entered into, or tender submission or application is made'.
2.7However, Professor Emerita Anne Twomey submitted that the bill appears to make unwarranted assumptions that all political donations are made for corrupt purposes. While recognising that corruption may occur in some instances, Professor Twomey argued that it is over-inclusive for the bill to include all contracts, grants, and permits, 'especially where Ministers are not involved as final decision-makers'.
2.8On this point, Professor Twomey noted that 'the bill does not establish any clear connection between the donation, the application for a government approval and any form of corruption'. Professor Twomey described a situation in which the proposed bill would take effect, but no corruption existed:
For example, in those cases where the decision is made by a government official (rather than a Minister), the official is most likely to have no idea whether the corporation, or any of its directors, significant shareholders or their spouses had ever made a donation to the party in Government. It is therefore likely that in such cases no corrupt influence was involved. Equally, the corporation which seeks the government approval may also have no idea that the spouse of one of its directors had made a political donation to the party in government.
2.9If the disclosure threshold for political donations were to be reduced to around $1000, Professor Twomey considered the bill's likely impact would be to impede important elements of participation in the political process as well as certain aspects of corporate and civic life. Professor Twomey considered these impediments would include:
discouraging people from making donations to the major parties, if they have any relationship to corporations that might at some stage seek a government approval such as a contract or grant;
causing people to terminate their role as a director, corporate officer or significant shareholder in any corporation that might seek such a benefit, or pressure their spouse to do so; and
stopping, for example, former politicians from sitting on boards of charities and community organisations, if they still intended to make personal donations to the political party which they previously represented.
2.10Dr Mark Zirnsak, Senior Social Justice Advocate, Uniting Church in Australia, Synod of Victoria and Tasmania contended that the potential encroachment on individual access to political processes in exchange for an improvement in democratic integrity was worthwhile. Dr Zirnsak argued that the bill would create a trade-off by impinging on individual participation in the political process for a 'a very small class of people who make political donations' to ensure that 'entities should not be able to use their wealth…to gain some sort of advantage in gaining government contracts and grants'.
2.11In relation to the issue of ensuring that 'close associates' were not unfairly punished for making a political donation, Dr Zirnsak argued that the onus was on entities to educate their directors and shareholders:
[E]ntities that wish to go for public contracts would have to say to their board members and their shareholders and whoever's defined as a close associate, 'You can't make political donations, because we are going after government contracts'…The onus would probably fall on the entity to make sure that those who are closely associated with it understand they can't make a political donation…That's an absolute trade-off, and what you're trading off is an assessment between whether you think that provides a level of extra integrity that's worth having, versus potentially impinging on those who would otherwise wish to make a political donation and do so innocently with no ulterior motive.
Exclusion of minor parties, independents, and opposition parties from the bill's remit
2.12Submitters raised concerns that the bill only applied to the party in government to the exclusion of minor parties, independents, and opposition parties.
2.13Professor Twomey's submission raised concerns about the bill only applying to the party in government and its failure to consider the ability for both minor parties and independents to influence the legislative agenda and thus be open to the influence of donations. Professor Twomey stated:
[I]t seems to be assumed that corruption only applies where such donations are made to the party in government. It is interesting that the Bill does not touch donations to Independents or minor parties who may hold the balance of power and who may use that power to persuade the Government to do special 'deals' for their constituency, including the approval of grants in their constituency, which may benefit their donors. To this extent, the Bill is under-inclusive and does not pick up a potentially ripe form of corruption.
2.14The Australian Democracy Network and the Uniting Church in Australia, Synod of Victoria and Tasmania (ADN and the Synod) submission raised concerns about the bill's failure to consider donations made to a party in opposition. The submission argued that this omission would provide an opportunity for 'a corporation or close associate [to] donate to a party not in government in the lead-up to an election in the hope that if they form part of the new government, it will assist the corporation in obtaining government contracts'. The ADN and the Synodtherefore proposed prohibiting an entity from securing a government contract if they, or their close associates, had made any political donation.
The bill's definition of a 'close associate'
2.15Submitters drew attention to three different matters related to the bill's definition of a 'close associate'.
2.16First, the Centre for Public Integrity (CPI) noted that the bill does not define lobbying. Accordingly, the CPI argued that the bill's ability to prevent the influence of lobbyists on government decisions may be limited because the definition of a 'close associate' in proposed sections 302J and 302K may not capture in-house lobbyists:
The definition of 'close associate', among other things, captures lobbyists 'engaged to conduct lobbying activities on behalf of the corporation'. It is unclear whether in-house lobbyists would be captured by this definition. There is no definition of 'lobbying' in the Bill, which means guidance may be taken from the Lobbying Code of Conduct. The definition in the Code is limited to those who lobby on behalf of a third party client, that is, it covers only third-party lobbyists to the exclusion of their 'in-house' counterparts. While in-house lobbyists may fall within the definition of 'close associate' through meeting another limb of the definition — namely, directors or other officers of the corporation – this would make the regulation of 'in-house lobbyists' dependent on their position within the relevant corporation.
2.17Based on the above, the CPI therefore recommended that the definition of 'close associate' in the bill be amended to clarify that in-house lobbyists are included.
2.18Second, the ADN and the Synod argued that paragraph (c) in the definition of 'close associate' in proposed section 302B, 'a person with more than 20 per cent of the voting power in a corporation', is too high. The ADN and Uniting Church reasoned that a far smaller shareholder could influence a government decision through a donation and that the bill's proposed measures would be inadequate in addressing the improper influence of such a donation. The ADN and Uniting Church state that:
Corruption often flourishes through shareholdings of smaller stakes, as these entities draw less attention to themselves. [A] lower threshold is particularly important for high-risk sectors or companies using high-risk business models.
2.19The ADN and the Synod instead recommended that the paragraph (c) of the definition should 'extend to anyone with a 5 per cent or more beneficial ownership in the corporation'. The reasoning being that beneficial ownership is a far better metric of the potential for a shareholder to benefit from the awarding of a government contract or grant.
2.20Third, Professor Twomey argued that the bill infringes on civil freedoms due to its ability to prevent or penalise independent individuals from making valid political donations. Professor Twomey recommended that the spouse of a director or of a person with more than 20 per cent voting power in a corporation should not be included in the definition of 'close associate' in proposed section 302B as a personal relationship is not a valid reason to prevent an individual making donations to their preferred party. Professor Twomey stated that this section of the bill:
…is derived from historic assumptions that the husband has the power and the money, and his wife is the 'little woman', who just does what he says and is allocated money by him to do his bidding, by making a donation as a proxy for him.
I am aware that this is a long-standing anti-avoidance measure from days when men would indeed use their wife and children to get around laws that impose financial limits, but such assumptions should no longer be made as the world has fundamentally changed since then.
2.21Due to the inclusion of spouses in the bill's definition of 'close associates', Professor Twomey argued that individuals intending to make legitimate political donations would be discouraged, curtailing a voter's civic freedom to donate to a party of their choice.
Recommendations made by the Joint Standing Committee on Electoral Matters
2.22As noted in Chapter 1 of this report, on 20 June 2023 the JSCEM tabled an interim report in the Senate for its inquiry into the conduct of the 2022 federal election and other matters.
2.23Among other matters, the JSCEM interim report recommended the Australian Government consider amending the definition of 'gift' in the Electoral Act, lowering the donation disclosure threshold to $1000, applying donation caps and expenditure caps to third parties and associated entities, and introducing 'real time' disclosure requirements for donations to political parties and candidates.
2.24Although not related specifically to this bill, the four matters recommended by the JSCEM were also picked up by public hearing witness and submitters to this inquiry.
2.25The CPI submitted that 'the way in which 'gift' is currently defined at s 287(1) of the Act [Commonwealth Electoral Act 1918] is too narrow to capture the full range of payments used by private entities to influence and access the political process'.
2.26Currently, the Australian Electoral Commission releases donation data annually. In alignment with recommendations by the JSCEM interim report, the CPI recommended implementing 'real-time disclosure by requiring disclosure within 7days or, in election periods, within 24 hours of receipt of the donation'.
2.27Dr Catherine Williams, Executive Director, Centre for Public Integrity explained that the public could currently be waiting up to 19 months to see who has donated to a political party. Dr Williams stated that the extended wait time before being given access to political donation data:
…prevents scrutiny being meaningful, because it means that we can't easily look at correlations between potential donations being made and favourable regulatory decisions or contracts for grants or procurements being awarded. Once that opportunity for scrutiny has passed, it's very difficult for it to suddenly become relevant 19 months down the line.
2.28Professor Twomey supported the JSCEM interim report's recommendation to impose donation and expenditure caps on third parties and associated entities. Professor Twomey reasoned that 'the bigger issue is political donations generally and the political donation laws…[and that] bringing a cap down on political donations would make a big difference…[and] be more effective' than the proposed bill which could have unintended consequences in limiting individual participation in political processes.
2.29Several organisations advocated for a lowering of the disclosure threshold. The CPI recommended lowering the disclosure threshold to $1000 because the bill's 'ability to achieve its objectives would be limited if they were not adopted'.
2.30Likewise, the ADN and the Synod also argued for the importance of lowering the disclosure threshold to $2500. Their submission explained that 'the ability of a corporation and its close associates to each donate up to the [current] threshold could result in quite a sizeable cumulative donation being provided'.
Committee view
2.31The committee notes that this bill sits within a broader discussion in Australia and other democracies, around the influence of big money on government and political processes. In the bill's introduction to the Senate, Senator Waters argued that the public's trust in Government is declining and specifically noted the established practice of consulting firms donating to major parties for the purpose of gaining influence over government decisions.
2.32The committee draws attention to the JSCEM Interim Report tabled in June 2023 which both recognised the need for legislative reform of Australia's electoral system, and which proposed several recommendations to increase transparency and limit the influence of private entities. Most submitters were in favour of JSCEM's recommendations and encouraged Government to respond to them.
2.33The committee notes that submitters raised concerns about several aspects of the bill. These concerns included the bill treating coincidence as causation. That is, the bill makes the unjustified assumption that every donation is made for corrupt purposes and corrupt advantage. There is no evidence that this is the case.
2.34This is compounded by the bill's assumption that the potential for corruption only exists in relation to a party in government at the time. The arguments put forward by submitters suggest that it is entirely possible that donations for corrupt purposes could, in certain instances, be made to either opposition or minor parties, and independents. It is striking and ill-advised for the bill to disregard such donations given their potential to influence contract and grant outcomes.
2.35The committee received differing views on the bill's definition of 'close associate'. One submitter regarded the definition as unsatisfactory as it failed to address in-house lobbyists. Another submitter argued that the measure for shareholder interest was potentially ineffective. Another submitter viewed the inclusion of spouses in the definition of close associate as unnecessary. The committee concurs that the inclusion of spouses in the definition of close associate is both unnecessary and outmoded.
2.36Finally, while the committee recognises the importance of meaningful electoral reform, it considers this bill to be premature given the recommendations in the JSCEM interim and final reports are yet to receive a government response. The committee acknowledges the importance of the JSCEM recommendations for the health of Australia's democracy and looks forward to the Government's response.
2.37In conclusion, the committee views the bill's approach to preventing donations to a governing party as overreach without demonstrating that those donations are intended to improperly influence a government decision, while simultaneously disregarding the potential for corrupt influence in donations made to other non-governing parties and independents. For these reasons, the committee recommends that the Senate not pass the bill.
2.38That the Senate should not pass the bill.
Senator Louise Pratt
Chair