Dissenting Report 1 - Senator David Leyonhjelm

Senator David Leyonhjelm, Leader of the Liberal Democratic Party, dissents from recommendation 3, which proposes a ban on foreign donations.
He endorses recommendations 1, 2 and 4 of the majority report. He has no view on recommendation 5.
Senator Leyonhjelm believes foreign donations should only be regulated if there is a problem specific to foreign donations, if the regulation would solve the problem, if the costs of the regulation don’t outweigh the benefits, and if no other solution does a better job.
The Committee heard no evidence to support the specific prohibition of foreign donations.

1.The committee has not established a problem specific to foreign donations

The Committee recommends banning foreign donations because of ‘ongoing community concern that there is potential for foreign actors to use donations to influence domestic policy’. However, no evidence was submitted to the Committee to indicate that such a concern is widely held. The Committee may be conflating concern about Senator Dastyari using a foreign source to pay a private bill with the separate issue of foreign donations to political parties.
Even if there were widespread community concern about foreign donors exerting influence, imagining mischief does not make it a reality.
No witness cited an instance where foreign players have used donations to influence domestic policy.
No witness outlined how foreign donations could influence domestic policy.
Foreign donations are a negligible component of funding for Australian political activity.
No reasoning was provided to suggest that foreign donations could be problematic in the future where they have not been in the past.
Witnesses and submitters left numerous gaps in the argument to ban foreign donations, and the committee has not ventured to fill those gaps.
a.Whether donations could influence domestic policy
Several witnesses argued that a substantial foreign donation may have a detrimental effect on Australia’s democracy, were it to occur. However, no witness was able to indicate how this effect might be manifested. Apart from assertions that major donors secure privileged access to senior members of the government and opposition, no witness could point to specific benefits that a donor might receive.
Whether such access would be sufficient to influence government policy could not be answered.
Whether the same concerns apply to minor parties and others which are never likely to form government was not considered.
The committee did not explore the distinction between a foreigner donating to a party so as to amplify the party’s longstanding and strongly-held policies, and a foreigner donating to a party in an attempt to change the party’s policies.
The former motivation may be the predominant one, and may be of little concern to the Australian community. Many Australians care about American politics and may consider it acceptable to have donated to either the Hillary Clinton or Donald Trump campaigns. If this is the case, they may also consider it acceptable for a foreigner to take a similar, arms-length interest in Australian politics.

b.Whether foreign donations are non-negligible

Data on the level of foreign donations is difficult to obtain. The AEC does not seek to identify foreign donors either in declarations by parties and candidates, or in its auditing processes.
The sole submission to the Inquiry that sought to quantify the level of foreign donations claimed they represent a very small proportion of overall donations.
TABLE 1: Foreign-sourced donations to Australian political parties, 1998–99 to 2014–151
Financial year
Dollars
Percentage of total donations
1998-99 (1998 Federal Election)
15,250
0.03
2001-02 (2001 Federal Election)
163,234
0.38
2004-05 (2004 Federal Election)
1,366,344
2.61
2007-08 (2007 Federal Election)
1,705,521
2.37
2010-11 (2010 Federal Election)
958,548
1.38
2013-14 (2013 Federal Election)
5,119,430
6.13
Sources: Australian Electoral Commission annual returns; authors’ calculations
This submission argues:
At the 2013 federal election, foreign-sourced donations constituted more than 6 per cent of all donations (calculated using returns for the 2013–14 financial year).
In the previous financial year – thanks to a large transfer of $3.6 million from Zhongfu Investment Group to the Labor Party’s Victorian branch – foreign donations were a tad under 10 per cent. The PRC and Hong Kong are the main countries of origin for these donations: in fact, over the past sixteen financial years, over 83 per cent of all foreign-sourced donations were sourced from those two places. The next biggest contributor was Britain, which accounted for just over 10 per cent of all foreign-sourced donations.
Both the major parties benefit from foreign-sourced donations, but Labor received nearly 60 per cent of the total from 1998–99 to 2014–15, with the Coalition receiving nearly 40 per cent. Of donations from China and Hong Kong, just over 68 per cent went to Labor.
These figures suggest there is substantial year to year fluctuation in foreign donations but no clear upward trend, as other witnesses have asserted.
Furthermore, in the context of combined donations and public funding, their contribution is miniscule.
Before any ban on foreign donations is considered, it would be logical to require parties and candidates to at least provide information on foreign donations to the AEC.

c.Whether the unenforceability of legal obligations on foreign donors poses a problem

Some witnesses suggested that foreign donations should be banned because legal obligations on foreign donors cannot be enforced. However, the only legal obligation imposed on any donor currently (if above the disclosure threshold) is to disclose their name, address, the recipient parties, and the total donations.
No evidence was provided of any instance where a foreign donor has failed to comply with disclosure obligations. The Electoral Commission learns of these money flows irrespective of foreign donor disclosures, as parties need to disclose this information themselves.
Even if the unenforceability of obligations on foreign donors was deemed to be a problem, this could be solved by prohibiting a party from accepting foreign donations if ever the donor fails to provide the relevant information.

2.Any problem with donations does not relate specifically to foreign donations

Some witnesses cast foreign donations as a problem because donations should not be made by those who do not have the right to directly participate in Australian elections. If this characterisation of the problem were correct, a more relevant solution would be to ban donations from all who are ineligible to vote, including corporations, not-for-profit organisations, children, adults who choose not to enrol, and prisoners. However, the High Court has ruled this is contrary to the Constitution on the grounds that the electoral process is relevant to these people as well as enrolled voters.
Witnesses who argued that foreign donors could influence domestic policy did not suggest that donations from a domestic source would be any less effective at influencing domestic policy. Their argument implies there is a threat to democracy from all donations, and the more relevant solution would be to ban them all.
By raising the possibility that donations facilitate access to senior members of the government and opposition, and by not distinguishing between access enjoyed by a donor and access enjoyed by a non donor, some witnesses implied that access is the key element in achieving favourable policy.
On this basis, any access to senior members of government and the opposition would be a problem, and the more relevant solution would be to limit all access to senior members of the government and opposition.
This argument relies on the assumption that those with access are infinitely persuasive, and that senior government members are incapable of resisting such persuasion. There is neither an empirical nor theoretical basis for this.
Some witnesses raised the spectre of a foreigner with millions of dollars donating large amounts in order to influence Australian politics. If this is a problem, it applies to the size of donations rather than the source. On that basis, the most relevant solution would be the capping of donations.
Some witnesses raised concerns about the possibility that foreign governments could make donations. This could be countered by specifically banning donations from foreign governments. It is noted that the risk of foreign governments funnelling donations via private entities into Australian politics would nevertheless arise, irrespective of whether the ultimate donor to an Australian party was a domestic or foreign resident.

3.Banning foreign donations has not reduced political corruption elsewhere

Mr Samuel Jones, Program Officer for International IDEA, a group that monitors political transparency issues internationally, confirmed in evidence that many countries restrict or prohibit foreign donations.
However, he also acknowledged a lack of correlation between political corruption and regulation of foreign donations:
“there is a general picture which, maybe contrary to expectation, does not always show that those that regulate donations or political finance in general more have less corruption… some of the most highly regulated countries when it comes to both donations and political finance in general—former communist countries in Eastern Europe are generally very highly regulated; I would say some of them are over-regulated, but they generally have very high levels of corruption. In Scandinavia, the Nordic countries have been traditionally either completely unregulated—Sweden just had its first political finance bill in 2014, for the first time ever; before then, it was basically completely unregulated, and the same in Denmark, Norway and Finland, who just introduced regulations in the last few years, but there were very few problems when it came to political finance and corruption…”
Put simply, the evidence does not show that restricting foreign donations reduces corruption.
While there were a number of references by witnesses to the highly regulated donations regime in NSW, no witness was willing to argue that democracy in that state is less corrupt or otherwise any better for it.

4.Banning foreign donations has adverse consequences

While there is little sympathy for a foreigner who might be denied the ability to donate to Australian politics, it should be remembered that foreign donations benefit the Australians who receive them, including candidates and parties who are yet to break into parliament and who receive no public funding. Banning foreign donations would hurt these Australians, reducing their ability to have their voice heard and to make an impact on public life.
Most of those seeking to regulate or prohibit political donations prefer public funding of political parties. Support for increased public funding is inherent in arguments to restrict avenues for private donations.
However, the committee heard neither a theoretical argument for suggesting democracy is enhanced by public funding, nor empirical evidence confirming such an outcome is achieved.
Moreover, the committee failed to explore the non-level playing field involved in public funding, where a taxpayer’s vote delivers public funding to their party of choice if that party receives four per cent or more of first preferences, but delivers no public funding if their party of choice receives less than four per cent of first preferences.
This consolidates power in the incumbent major parties. It is thus more detrimental to democracy than foreign donations. Banning foreign donations and increasing reliance on public funding will hurt democracy overall.
Some witnesses pointed out that any attempt to regulate foreign donations has the potential to inflict substantial unintended consequences on parties and candidates.
One problem is defining the meaning of a foreign donation. The Committee has considered two options - defining it as a donation of foreign property, which would mostly apply to donations originating from a foreign bank account, or defining it as originating from a foreign individual or entity.
The former definition has the potential to prevent donations by expatriate Australian citizens who have not retained a local bank account, but would not inhibit donations by foreigners temporarily resident in Australia or by local subsidiaries of foreign-owned companies.
The latter definition, defining a foreign donation as one originating from a foreign individual (excluding dual Australian citizens and permanent residents) or foreign entity, would bring into question the status of domestic subsidiaries of foreign-owned companies, and companies with mixed domestic and foreign ownership. The Committee did not address this question, but nonetheless favours this definition.
Compliance was also raised as a potential problem. Who would verify the status of a donor? If this was delegated to a party or candidate, by what mechanism could it be achieved? Is it something that a single independent candidate could handle, or a micro-party run exclusively by volunteers?
Avoidance would also be an issue. What would prevent a foreign donor from utilising a domestic ally to make the donation?
While the Committee recommends that political parties, associated entities and currently regulated third parties should be covered by a foreign donations ban, the Committee has not arrived at a final view regarding how to extend the ban to all other political actors. If the ban only covers candidates, political parties, associated entities and currently regulated third parties, then businesses, industry bodies, unions, charities, universities, etc. may be able to campaign for particular electoral outcomes with the assistance of foreign donations. If the ban covered businesses, industry bodies, unions, charities, universities, etc., the ban would presumably need to be limited to allow foreign funding of the normal operations of these groups. This includes efforts to influence public opinion, such as efforts to build awareness and support for the group, and to promote the group’s brand, products and goals. Defining such a limit would seem fraught with difficulty.
The committee has recommended banning foreign donations without specifying what this means and whether it could be implemented and enforced without generating costs in excess of any benefits. It is naïve and irresponsible to conclude that foreign donations should be banned before these issues are resolved.

5.If there were a problem, there are better solutions

Both domestic and foreign donations matter only if they have an impact on democracy. Since this is determined by voters, the only valid concern is to ensure voters are aware of donations, so they can take them into account when casting their vote.
If voters are indifferent to donations, either in general or in particular, voting outcomes will not be affected and the fact of the donation is irrelevant. If voters disapprove of any particular source or type of donations, they can take this into account when they vote.
It is supremely arrogant, and reflects nanny state thinking, for governments to assume voters are incapable of deciding for themselves whether a recipient of a donation deserves their support.
It is also inherently anti-democratic. If voters are assumed to lack the competence to form a judgement about foreign donations, it follows that they must also lack the competence to form a judgement about party policies generally.
What democracy requires is for voters to be adequately informed. This simply means that disclosure of donations should occur at an appropriate time prior to voters casting their vote. It is immaterial whether this is immediate/real time or not, provided it is in sufficient time for voters to take it into account when casting their vote.
The only regulation that would assist this is to prohibit donations made so close to the poll that they cannot be disclosed in time. This approach could apply irrespective of the source or disclosure threshold.

6.Conclusion

Prohibition of foreign donations is a solution in search of a problem. There is no reason to believe regulation will achieve anything of benefit to Australian democracy, while there are grounds to believe it will have unintended consequences and harm democracy.

7.Recommendations

1
That the Government regulate foreign donations the same as domestic donations.
2
That the AEC have the power to require the location of the donor to be provided in disclosure returns.
3
That it be a requirement for all donations (above an agreed threshold) to be disclosed to voters prior to a relevant ballot.
4
That donations made so close to a ballot that voters cannot be made aware of them before voting be prohibited.
Senator David Leyonhjelm

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    ‘Taking Xenophobia Out Of The Political Donation Debate’, Inside Story, Joo-Cheong Tham and Malcolm Anderson, 20 October 2016.

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