Throughout the course of the inquiry, the committee heard from participants that transparency of political funding alone is insufficient against the risk of undue influence posed by political donations. Participants argued that if reforms to the federal political funding and disclosure regime are to be truly effective, additional measures need to be put in place to safeguard the integrity of political decision-making. Measures frequently highlighted by submitters and witnesses included:
caps on the size of political donations;
restrictions on donations from certain sources;
caps on campaign expenditure;
enhanced compliance and enforcement mechanisms; and
an increase to public funding.
The need for greater harmonisation between federal and state and territory political funding and disclosure regimes was also raised by some participants as a means of enhancing the integrity of political finance regulation. This issue is discussed briefly at the end of this chapter.
Caps on donations
Under the present federal political finance regime, there are no limits on the amount a donor can contribute to a political party, candidate, associated entity or third party. Several participants in the inquiry argued that this unfettered freedom to donate significantly increases the risk of corruption through undue influence. Submitters and witnesses contended that capping the amount donors can contribute will prevent wealthy interests from using political donations to secure disproportionate influence on the political process.
The Synod of Victoria and Tasmania, Uniting Church in Australia (the Synod) was supportive of caps on donations, observing that the size of political donations appears to correlate with the level of access and influence a donor obtains:
The available anecdotal evidence strongly suggests that the size of political donations does make a difference to the level of access an organisation will have to a political party or candidate, with the larger the donation the greater the access and influence.
Professor Tham expressed a similar view, noting that 'as the amount of money contributed by an individual increases, the risk of undue influence heightens' and therefore, 'bans on large contributions can directly deter corruption through undue influence'. Professor Tham further submitted that caps on donations promote political equality:
…such limits will promote fairness in politics as they prevent the wealthy from using their money to secure a disproportionate influence on the political process. The result is to promote the fair value of political freedoms despite limiting the formal freedom to contribute.
Dr Lewis supported capping political donations as one way to address the dilemma attached to ascertaining the intent of a donor, commenting that doing so 'would minimise considerably the possibility of donations influencing public policy'.
Similarly, Dr Ng expressed the view that caps on donations are the best way of entrenching equality in the political donations system and would 'ensure people do not have a larger voice just because they have a larger wallet'.
International IDEA also advocated for limits on the amount donors can contribute, noting that by encouraging a greater proportion of smaller donations, caps on donations can have a diluting effect on the potential influence of large donors:
The proportion of large and small donations received also affects how much influence wealthy donors have. The greater the proportion of donations received in small amounts, the more the influence of large donors is diluted.
Limiting the amount that an individual donor can contribute is common practice internationally. International IDEA advised that currently, '35 per cent of countries worldwide limit donations to political parties and in Europe 57 per cent of parties do so'.
In Canada, there is an annual limit on donations to each political party ($1,575 for 2018), with the limit increased by $25 on 1 January each year. The United States of America has donation limits for election campaigns, however differential limits apply depending on the recipient—an individual may give a maximum of: $2,700 per election to a federal candidate; $5,000 per calendar year to a political action committee (PAC); $10,000 per calendar year to a State or local party committee; and $33,900 per calendar year to a national party committee.
In Australia, New South Wales (NSW) is currently the only state or territory to place caps on the amount that can be contributed to political parties and candidates. Legislation imposing caps on political donations came into effect from 1 January 2011 following the passing of the Election Funding and Disclosures Amendment Bill 2010 by the NSW Parliament in November 2010. Under the NSW scheme, political donations are capped for a financial year. Caps vary for different recipients and are adjusted annually for inflation. For 2017–18, the applicable caps are $6,100 for a political party and $2,700 for candidates and third-party campaigners. Political donations made by the same donor to the same recipient are aggregated for the purpose of the caps.
Professor Tham expressed the view that the NSW scheme of capping political donations 'provides an excellent model for federal measures'. Moreover, as highlighted by several participants, the caps on political donations imposed in NSW have been held to be legal and constitutionally valid by the High Court of Australia and, therefore, establish parameters for similar reforms at the federal level.
In the case of McCloy v New South Wales, the High Court held that while restrictions on political donations—including caps on the amount a donor can contribute—do constitute a burden on the freedom of political communication implied by the Australian Constitution, such restrictions are not invalid if there is a demonstrated justification for such selectivity.
Professor Beck summarised the High Court's judgement:
In McCloy, High Court held that appropriate caps on the value of donations a donor may make are not inconsistent with the implied freedom of political communication because they are appropriate and adapted to the purposes of (i) preventing corruption and undue influence in the administration of government, (ii) preventing perceptions of corruption and undue influence, and (ii) preventing wealthy donors having an unequal opportunity to participate in the political process. The High Court considers that these purposes are consistent with the maintenance of the system of representative and responsible government prescribed by the Australian Constitution.
Level of cap
The issue of what amount a potential cap on political donations should be set at was raised throughout the course of the inquiry. Some participants did not have a particular view regarding a specific cap amount, however noted that any limit on political donations should aim to balance the freedom of individuals and corporations to express their political preferences while still effectively limiting the risk of undue influence.
International IDEA submitted that:
It is important that any limit is defined as encompassing the total amount of contributions made by the donor within a specified time period (normally 12 months). The amount of any limit is of course the crucial element here. The aim is to remove from the equation contributions from individuals (natural or legal) that because of their size risk quid pro quo arrangements or other undue forms of influence.
Dr Ng recommended the introduction of 'caps on donations by individuals, unions and corporations of $1,000 a year', noting that this would be consistent with the proposed Victorian reforms. Dr Ng argued that caps which equally target different types of donors avoids money being 'channelled through shady corporate structures or "associated entities" to evade the rules'.
GetUp encouraged the committee to 'stop the money game', also recommending that the amount any individual or corporation can donate be capped at $1,000 per financial year.
Professor Williams suggested a cap of $5,000 on all donations to political parties, candidates and third parties.
This view was supported by Professor Beck, who recommended that the Commonwealth Electoral Act 1918 (Electoral Act) 'be amended to provide that a donor may only make donations to candidates, political parties and third parties engaged in election advertising to a maximum value of $5,000'. Professor Beck further commented that:
I believe this amount [$5,000] appropriately balances the benefits of limiting the influence of money in elections and a donor’s potential desire to make a single large donation or a number of smaller donations to multiple recipients.
Professor Tham's submission underscored that reforms to introduce caps on political donations are likely to result in significant objections from across the political spectrum. Professor Tham explained that, most importantly, 'instituting such limits by themselves will leave the parties seriously under-funded given that they are presently heavily reliant on large contributions'. However, Professor Tham submitted that these objections are 'not insurmountable', arguing that the funding shortfall created by caps on donations can be ameliorated by complimentary reforms to the political finance regime; including caps on campaign expenditure and increases to public funding (discussed below).
Arguably the key element of any overhaul of the federal political finance regime is the limiting of the actual amount that any individual or organisation can contribute to a political entity. The rationale for introducing a cap is simple; it reduces the capacity for political entities to be influenced by large donations. NSW has introduced a cap, and Victoria has proposed a similar cap for this reason. The constitutionality of a cap on donations was considered in the case of McCloy v New South Wales, where the High Court of Australia held that such a cap was justified as a legitimate tool in preventing corruption of the political process.
The committee is convinced of the need for a cap. The question of where that cap should be set was the subject of considered debate amongst contributors. While some favoured relatively low caps of around $1,000 per financial year, others were more generous.
The committee recommends that the Australian Government amend the Commonwealth Electoral Act 1918 to introduce a cap on donations to political parties, candidates and associated entities to a maximum value of $3,000 per parliamentary term. Donations made by the same donor to the same recipient should be aggregated for the purpose of the cap.
Restrictions on who can donate
The Electoral Act does not currently contain any restrictions on the source of political donations. As noted by International IDEA, countries often ban donations from certain sources in order to protect the integrity of political decision-making. Several inquiry participants raised the issue of banning political donations from certain sources; in particular, from foreign interests and consumption industries such as the tobacco, alcohol and gambling industries.
Ban on foreign donations
In terms of international practice, the most widespread ban in relation to political donations is on donations from foreign interests. International IDEA's Political Finance Database shows that:
…almost two thirds (63%) of countries have a ban on donations from foreign interests to political parties, while half (49%) have a ban on foreign donations to candidates.
The issue of foreign political donations and their potential to exert undue influence on Australian politics has been the subject of recent public and political debate. As discussed in Chapter 2 (see paragraphs 2.20–2.24), in December 2017, the Australian Government introduced legislation—the Electoral Legislation Amendment (Electoral Funding and Disclosure Reform) Bill 2017—to ban foreign political donations.
As noted in the Joint Standing Committee on Electoral Matters' Advisory report on the above bill:
There is a broad consensus amongst political and civil society groups on the need to remove actual, and the potential for, foreign influence in our electoral system. However, the means by which to achieve this, and to whom the regulatory framework should apply, has been robustly debated.
Submitters and witnesses to this inquiry were also broadly supportive of introducing a ban on foreign donations in Australia. However, participants cautioned the committee that the scope of such a ban would need to be carefully defined such that it applied only to sources that are exclusively foreign; that is, a ban on foreign donations should only extend to a source that is not an Australian citizen or resident, or entities not registered in Australia. Some participants suggested that this would ensure a ban on foreign donations does not impinge on the implied political freedoms in the Australian Constitution.
National sovereignty and enforceability
Inquiry participants presented two overarching justifications for a ban on donations from exclusively foreign sources. First, participants highlighted the issue of national sovereignty and preventing foreign interests—in particular, foreign governments—having an influence on public policy matters in Australia.
Secondly, participants underlined the inability to enforce the requirements under the Electoral Act extra-territorially and the implications this has on accountability. The Australian Electoral Commission (AEC) summarised this issue in its submission:
The Electoral Act contains no restrictions on donations by foreign donors and does not have extra-territorial application. That is, while the AEC can seek voluntary compliance with the disclosure requirements, overseas donors cannot be compelled to comply with Australian law.
Underscoring the above issues, Professor Tham told the committee that 'I think there's only a justification for a ban on foreign political donations from foreign governments and offshore donations'. Professor Tham explained:
…the problem of foreign political donations is not about noncitizens, it's not about permanent residents. In that particular case, it's about the influence of foreign governments. So I would support a ban on contributions from foreign governments, whether directly or indirectly, say, from state-owned enterprises of the Chinese government. I would also support a ban on overseas-sourced donations. What I mean by that is money coming from accounts that are geographically outside the territory of Australia. The rationale there is a bit different. With foreign governments, the rationale is clear: it's about the threat to national sovereignty. The rationale for banning overseas-sourced donations is the problem of compliance. It's hard to know whether it comes from overseas and, because the reach of the Electoral Commission or our enforcement authorities does not extend that far, it's hard to know whether the laws are being complied with.
The committee heard support for this view from Dr Livingstone:
The problem with offshore donations, in my opinion, is both the sovereignty issue, which my colleague has pointed out before, and the fact that enforcement is, effectively, impossible because it's extra jurisdictional; you can't prosecute someone who lives in China and has all of their business in China under Australian law. It's about accountability and having a system of regulation which allows proper enforcement of the procedures you put in place.
Several participants drew the committee's attention to the need to consider potential constitutional constraints when considering a ban on foreign donations. Some submitters highlighted recent High Court decisions relating to political finance laws in NSW and proposed that these decisions establish the parameters for reforms at the federal level.
Professor Williams pointed to the case of Unions NSW v New South Wales, in which the High Court held that a provision under the Election Funding, Expenditure and Disclosures Act 1981 (NSW) (Election Funding Act), which prohibited political donations unless made by a person whose name appeared on the electoral roll, was invalid as it is inconsistent with the implied freedom of political communication in the Australian Constitution. Professor Williams noted that the High Court decision in this case 'suggests that any attempt to limit donations to individuals on the electoral roll has an unacceptable risk of being struck down'.
In discussing the issue of restrictions on the source of donations, Professor Beck highlighted the case of McCloy v New South Wales, in which the High Court upheld a ban on political donations from property developers under the Election Funding Act. Reflecting on the High Court's findings in this case, Professor Beck submitted that:
In broad terms, prohibiting a class of donor from making political donations will be valid where there is something 'sufficiently distinct' about that class of donor to 'warrant specific regulation' especially in light of the nature of the public powers that class of donor may seek to influence in their interest.
Professor Beck considered this reasoning in relation to political donations from foreign interests:
Foreign entities and individuals are in a distinct category. They may be considered 'sufficiently distinct' from other classes of donor. The
self-interest pursued by foreign donors in making political donations to Australian candidates and parties is likely to [be] qualitatively different to the self-interest pursued by Australian donors.
Dr Ng also pointed to the case of McCloy v New South Wales, noting that 'the court upheld a New South Wales scheme that banned donations from property developers due to the history of corruption in the state'. Dr Ng suggested that this means 'it is possible to ban donations from a certain group, such as foreigners, where there is evidence of a serious risk of corruption'.
However, Dr Ng questioned whether there is sufficient evidence of corruption due to foreign donations in Australia for a ban to be upheld as constitutionally valid. Dr Ng noted that the proportion of donations from foreign sources in Australia is relatively small:
[T]he proportion of foreign donations in Australia is small. Foreign political donations amounted to 2.6% of total donations to political parties in 2015-16. In the last seven election periods from 1998-99 to 2016, foreign donations have amounted to between 0.03% to 6.13% of total donations. As such, there may not be enough proof that foreigners pose a particular threat to the integrity of the Australian electoral system.
Some submitters and witnesses raised concerns regarding political donations made to political parties by donors from certain consumption industries—including the tobacco, alcohol and gambling industries—and the potential influence such donations may have on the development of public health policies.
For example, the Centre for Drug, Alcohol and Addiction Research (CEDAAR) submitted that it has 'a particular concern for donations from dangerous consumption industries, such as tobacco, alcohol and gambling, and their influence on the development of public health policies'.
Similarly, the McCusker Centre for Action on Alcohol and Youth (MCAAY), expressed concern regarding 'the extent of funding provided to Australian political parties by various alcohol industry bodies and associated groups'. MCAAY stressed the importance of government policy discussions on alcohol issues and approaches to reduce alcohol-related harm not being influenced by vested interests from the industry:
There is currently considerable policy discussion at national and state levels in Australia on alcohol issues and the approaches open to governments to reduce alcohol-related harm. It is imperative that the debate is not unduly influenced by companies with vested interests in maintaining and increasing alcohol consumption and in ensuring a regulatory environment that supports their financial interests. The public may consider political parties that are supported by donations from alcohol interests to bear an expectation of support for the alcohol lobby agenda.
The Foundation for Alcohol Research and Education (FARE) underlined the importance of safeguarding against undue influence of the alcohol industry on government policy decisions, arguing that there can be a direct conflict between the interests of the alcohol industry and those of the general public:
Alcohol policy decisions relating to the taxation and regulation of the industry directly affect the health and wellbeing of the Australian population. The interests of the alcohol industry can be in direct conflict with those of the population. It is important, therefore, that appropriate measures are in place to prevent undue influence of the alcohol industry on public policy decisions.
Support for industry-specific bans
A number of submitters recommended the introduction of industry-specific bans.
Dr Livingstone and Ms Johnson, for example, expressed support for the prohibition of donations 'from certain classes of persons or entities with clear commercial vested interests in government regulatory decisions'. Dr Livingstone and Ms Johnson contended that these are industries 'that exist solely because they are granted a license from government present a greater corruption risk, since they derive significant benefit from policy decisions'.
The Australian Council on Smoking and Health (ACOSH) recommended that 'political donations from the tobacco industry are prohibited under a new Commonwealth Law'.
When questioned by the committee on the benefits of banning political donations from certain industries, Dr Ingrid Johnston, Senior Policy Officer at the Public Health Association of Australia (PHAA), responded that:
There would be a better playing field for the other side of the argument. At the moment you have alcohol companies, for example, being able to donate money, and then you have the counselling organisations, the public health advocates and the small groups who pick up the pieces from alcohol damage, who are not able to put their side of the story with the same power. So if there weren't those donations then it would start to tip the balance a little bit more the other way so that you can get the other side of the story and so that there's an equal playing field for policy ideas and evidence.
MCAAY and Transparency International Australia (TIA) both highlighted the approach to industry-specific bans in NSW and suggested that consideration should be given to adopting similar measures at the federal level.
Under the Election Funding Act, it is unlawful for a prohibited donor, or for a person on behalf of a prohibited donor, to make a political donation. It is also unlawful for a person to accept a donation that was made, wholly or partly, by a prohibited donor or by a person on behalf of a prohibited donor.
A prohibited donor under the NSW Election Funding Act is:
a property developer, or
a tobacco industry business entity, or
a liquor or gambling industry business entity,
and includes any industry representative organisation if the majority of its members are such prohibited donors.
Arguments against industry- specific bans
The committee heard arguments from some witnesses that opposed the introduction of industry-specific bans.
Professor Tham expressed the view that, while problems in relation to corruption do tend to occur in particular sectors, other regulatory measures to cap political donations make bans on such industries unnecessary. Professor Tham advised the committee:
I'm actually quite opposed to sector-specific bans. Of course the problems we see in terms of corruption occur in particular sectors. That's true, and I think the submissions by Dr Livingstone and Dr Johnson quite powerfully document that—the gambling industry. But when we think about what should be the proper regulatory measure, the path forward should be uniform caps. Once you have uniform caps set at a low level, they render unnecessary sector-specific caps.
Mr Rangott from the NSW Independent Commission Against Corruption (ICAC) agreed that appropriate caps on donations would negate the need to prohibit certain industries from making political donations, as well as the administrative burden associated with such bans:
I think it would negate the need. Obviously, we've talked about it already, but, in the administrative burden of just identifying whether that person, that donor, is connected with one of those banned classes of donor—are they foreign or are they domestic?—there is some effort that goes into that, and I accept that. As a for instance, if a tobacco company or gambling company or a property developer donated a small but capped amount of money, you have to do the mental calculus. Say it's $5,000. Is that going to corrupt the process? If it's a small, capped donation, it's highly unlikely. It's really those very large donations that seem to cause problems.
While the committee accepts that income directly from foreign donations is small, there is public support that any attempt to influence the political process in Australia by foreign governments should be curtailed. Contributors were also of the view that overseas-sourced donations should be subject to restrictions. The committee supports this view.
With respect to industry-specific bans, the committee is also cognisant of evidence from NSW where they have prohibited donors from particular industries. ICAC submitted that the burden of administering such a regime is high, and may be unnecessary if caps on donations were in place. However, the committee also recognises the importance of limiting the influence of sectors proven to be inimical to public health and the broader public interest. On balance, the committee is of the view industry-specific bans are required to enhance the perceived integrity of a revised finance regime.
The committee recommends that the Australian Government amend the Commonwealth Electoral Act 1918 to introduce a ban on foreign donations to political parties, candidates and associated entities. For the purpose of the ban, foreign donations should be defined as donations from a source that is not an Australian citizen or resident, or an entity registered in Australia.
The committee recommends that the Australian Government amend the Commonwealth Electoral Act 1918 to introduce a ban on donations from developers, banks, mining companies and the tobacco, liquor, gambling, defence and pharmaceutical industries to political parties, candidates and associated entities.
Caps on campaign expenditure
At the federal level, there are currently no restrictions on the amount that can be expended on election campaigns. As neatly summarised by Professor Tham, there is 'no natural limit on campaign expenditure or, more generally, to the parties' expenditure. The only real limit is the size of the parties' budgets'.
As noted in the Synod's submission, Australia's expenditure on election campaigns is very high compared to many other Organisation for Economic Cooperation and Development (OECD) countries. To demonstrate this point, the Synod provided the following example:
In the 2013 Federal election public funding to the parties was $58 million, not including tax revenue forgone for tax deductions on donations up to $1,500 to political parties and candidates. Private funding in donations for the two major parties in that election is estimated to have been $367 million. This works out to roughly $29 being spent per voter on the election. By comparison in the 2015 Canadian election the spending was $5 per voter, for the 2014 New Zealand election the spending was $2.83 per voter and in the UK 2015 election the spending by political parties was $1.36 per voter.
The Synod also highlighted that campaign expenditure is Australia is made up of a high proportion of funding from private sources compared to other OECD countries (see Table 6.1). Based on the above funding figures from the 2013 federal election, the Synod concluded that '86 per cent of the funds spent on the election appear to have come from private sources'.
Table 6.1: Balance between public and private funding to political parties as a percentage of total party income in selected OECD countries, 2007 to 2015
The unrestricted nature of election campaign spending has been described as having given rise to an 'arms race', whereby political parties feel a pressure to amass increasing amounts of money for their election campaigns through large donations. As noted in Chapter 2, the risk posed by this increased fundraising and spending on election campaigns was highlighted as early as 2008 in the then Labor Government's 'Electoral Reform Green Paper':
Spiralling costs of electioneering have created a campaigning 'arms race'—heightening the danger that fundraising pressures on political parties and candidates will open the door to donations that might attempt to buy access and influence.
As well as the risk of increased motivation and opportunity for undue influence through large donations, unrestricted campaign expenditure has been argued to reinforce the imbalance between minor and major parties that results from unequal private funding; that is, the major parties are able to secure an unfair advantage over their minor party competitors.
Professor Tham's submission reflected on this 'unfair playing field' between major and minor parties:
The flow of private money creates a dramatic funding inequality amongst the parties.
Come election time then, the playing field is far from level. Armed with larger war chests, the major parties are able to vastly outspend their competitors.
As cited by Professor Tham, the above risks and consequences of escalating campaign expenditure were also underscored by the NSW Legislative Council's Select Committee on Electoral and Political Party Funding. The Select Committee expressed concern about escalating spending levels and noted that it 'does not consider this escalation to be healthy or sustainable'. The Select Committee contended that:
It [escalated spending] increases pressure on parties and candidates to engage in more fundraising, thus taking time from their other representative and policy functions; it squeezes minor parties and independents, who do not have access to the same resources as the major parties; and it makes it harder for new entrants to break into the political arena, thus adversely impacting on the diversity of political representation. The increased reliance on private funding also fosters strong ties between politicians and donors, giving rise to perceptions of undue influence.
Support for expenditure caps
Inquiry participants broadly supported the introduction of expenditure caps on election campaigns at the federal level. Submitters and witnesses argued that expenditure caps are necessary to promote fair electoral contests and to alleviate the risk of undue influence on the political process by reducing the need to raise funds through large donations.
ACF recommended limiting the amount political parties, candidates and independent advocacy organisations can spend on elections in order to 'remove the incentive for politicians to amass big money war chests, and ensure a level democratic playing field for everyone'.
TIA also endorsed introducing limits on campaign expenditure, submitting that '[s]pending by parties on overall election campaigns or in individual seats should be capped'.
Professor Tham's submission argued:
There are clear connections between the fairness rationale and election spending limits: if properly designed, they will facilitate open access to electoral contests by reducing the costs of meaningful campaigns, thereby increasing the competitiveness of these contests; they will assist in addressing the imbalance between the minor and major parties and will contain departures from ‘equality of arms’ amongst the major parties.
Some participants cautioned that for campaign expenditure caps to be effective, they must be accompanied by contribution limits. For example, PHAA submitted that:
There is also a difference between donations and campaign expenditure, and caps need to be placed on both for the system to be effective. Limits on expenditure during election campaigns may help to decrease the motivation and opportunities for political donations seeking to purchase influence.
Professor Tham echoed this view, contending that the increasing demand for election campaign funds is driving the supply of money to political parties through donations and fundraising activities:
They [political parties] discharge their arms and then they fundraise again and so on and so forth. The key point to be made here is that if we're worried about the supply of political funds, we should be equally concerned about the demand for election campaign funds, for it's the demand that's driving the supply. If we want to deal with unsavoury fundraising practices, it must be dealt with not just at the contribution side of the ledger but also at the spending side of the ledger.
Dr Edwards expressed similar sentiments to the committee:
I think that one has to look to the root of this problem, which is that people aren't raising money for fun; they're raising it because of the arms race to be able to pay for campaign funds. The only way that we can really systemically address this problem is to reduce the need to be raising as much money for campaigning.
The committee questioned witnesses about the practical implications of implementing caps on donations with regard to political parties' ability to mount effective election campaigns. Professor Beck acknowledged that there would be practical implications of capping donations, however suggested that this would be an inevitable consequence for the purposes of holistic reform and would be partly alleviated by complementary changes to cap campaign expenditure:
Senator O'SULLIVAN: One piece of a paper in each letterbox in one state electorate these days costs $40,000.
Prof. Beck: Do you need to put so many pieces of paper in a letterbox? If all political parties had caps—
Senator O'SULLIVAN: No, no. You probably do need to put one, to tell them who you are as a candidate, and oftentimes that's all that happens—one or two. But it is $40,000 alone to do that. Don't worry about your corflutes to identify yourself or any of the administrative costs of an election. Trust me, when I was raising the money I wanted caps on expenditure more than anyone else I know; there would have been less that I had to raise. But the fact of the matter is I am challenged by the practical implications of some of these recommendations, I really am.
Prof. Beck: Of course there are practical issues, and of course it would be a change to the current system. But surely that's the whole point.
The corollary to a cap on donations is a cap on campaign expenditure. The cost of campaigning in Australia is very high compared to similar jurisdictions overseas and, as illustrated during the inquiry, the introduction of a limit on expenditure would involve a significant change in the way electioneering and campaigning is carried out in Australia.
While some work will be required as to the appropriate level at which to cap expenditure, and how it will be regulated, in the context of a holistic overhaul of the donations regime, the committee is of the view that it is possible and necessary to both limit the impact of a donations cap, and the impost on public funding to bridge any gap.
The committee recommends that the Australian Government amend the Commonwealth Electoral Act 1918 to introduce caps on campaign expenditure by political parties, candidates and associated entities. Expenditure caps should be indexed to inflation and subject to periodic review.
Compliance and enforcement
The committee heard evidence during the inquiry regarding the efficacy of current enforcement mechanisms available to ensure compliance with political finance regulations.
AEC regulatory powers and sanctions
Some participants expressed concern regarding the efficacy of the regulatory enforcement powers and penalties for breaches of political finance laws that are currently afforded to the AEC under the Electoral Act. A number of submitters recommended the introduction of stricter sanctions for breaches and enhancement of the AEC’s powers to monitor and enforce compliance with political finance rules.
Dr Edwards pointed to large discrepancies between the disclosure data of political parties and donors as evidence of weaknesses in the present compliance and enforcement measures:
To date there has been a very lax attitude to enforcing the accuracy and compliance of disclosures. To my knowledge there have not been any prosecutions for failing to meet compliance obligations, even though failures are rife in the data. Reconciliation of data provided by donors and parties reveal large discrepancies and failures in reporting. One analysis found 80 cases in the 2014–15 [sic] where donors had declared payments as a ‘Donation’ and the parties had recorded the payments as ‘Other Receipts’.
Dr Ng argued that political finance rules in themselves are ‘insufficient’ and that these ‘must be coupled with effective enforcement’. Dr Ng further submitted therefore, ‘it is incumbent on the Australian Electoral Commission to vigilantly monitor compliance with the rules and prosecute any breaches’.
This view was supported by Dr Edwards, who recommended that the AEC be empowered 'to police the timeliness of disclosures, and the accuracy of the categorization of disclosures, with failures to be penalized with fines and public statements of compliance failures’.
Professor Williams submitted that ‘strict sanctions for the breach of campaign finance rules, combined with the necessary resources for enforcement’ should be a feature of federal political finance laws.
Similarly, TIA advocated for sanctions for breaches of political finance rules to be ‘increased significantly and enforced vigorously’.
Electoral Commissioner, Mr Tom Rogers, stressed to the committee that the AEC has successfully performed its roles of administering and regulating the current federal political funding and disclosure regime within the boundaries set by the Electoral Act and AEC resourcing:
The AEC’s role is to perform the twin roles of administrator and regulator of the existing scheme. In our view, the AEC has performed these roles successfully within the legislative and resource constraints placed upon us. We remain committed to working with parliament on funding and disclosure, and we stand ready to administer and regulate any future model.
Mr Paul Pirani from AEC drew the committee’s attention to the current penalties for breaches of requirements under the Electoral Act:
The fines at the moment are 10 penalty units for breaches of disclosure requirements. In section 316 it’s also 10 penalty units. There is one offence—if we get provided with deliberately false or misleading information it’s imprisonment for six months or 10 penalty units. A penalty unit is currently $210, so do the maths in relation to that. But they are relatively small fines.
A federal anti-corruption commission
Over the course of the inquiry, several participants raised the need for an
anti-corruption body at the federal level to investigate non-compliance and bolster the integrity of the political finance regime.
Dr Ng asserted that the federal government is 'lagging behind', noting that
anti-corruption bodies exist in all Australian state jurisdictions. Dr Ng submitted that:
To uncover and investigate allegations of corruption, a federal
anti-corruption body modelled on NSW’s Independent Commission Against Corruption should be introduced. In this way, any illegal donations can be thoroughly investigated. All States have anti-corruption bodies, and the federal government is lagging behind in this crucial area.
Representatives from ACF also commented on the absence of a federal anti-corruption body. Dr Paul Sinclair, Director of Campaigns, reflected on the fragmentation this causes between federal and state levels of government in relation to holding individuals to account with regard to political funding:
Now, the issue we have with the accusations that are being made in New South Wales is the inability of a federal entity to call state government bureaucrats or officials and hold them to account for the abuse of federal funds. So, a federal ICAC can work very closely to seek integration where at the moment there is fragmentation. The federal level is the only level of government between the states and the feds that doesn't have something like an ICAC, and it's a glaring weakness that we need to see rectified.
Mr Peter Burke contended that an independent anti-corruption body is a 'vital first step' to re-establish public trust:
If trust is to be re-established both sides of parliament must now act decisively. The political donation process is disastrously flawed and clearly prone to corruption. The establishment of an Independent Corruption Watchdog, properly resourced and authorised to act, would be one of the vital first steps in restoring the electorates faith in the those they have elected to office.
TIA argued that a federal anti-corruption commission with overarching oversight 'should be established as a matter of urgency'. TIA also argued that the 'system should include a Parliamentary Integrity Commissioner who can refer serious breaches to the Integrity body'.
Similarly, GetUp encouraged the introduction of a 'corruption watchdog with teeth', recommending the creation of 'an independent federal corruption watchdog with broad investigative powers'.
If the donations regime is to be overhauled, as recommended throughout this report, enhanced regulatory powers and sanctions will be necessary. The current measures available to the AEC do little to deter wrongdoing. The committee is of the view that sanctions and penalties under any new political finance regime need to provide as strong an incentive as possible to ensure the integrity of the system.
While not the focus of this inquiry, many contributors and submitters cited the need for a federal ICAC with broad investigatory powers to provide oversight of a revised political finance regime, amongst its other activities.
The committee recommends that the Australian Government amend the Commonwealth Electoral Act 1918 to:
increase the regulatory powers of the Australian Electoral Commission to monitor and enforce compliance with the political funding and disclosure regime;
expand the regulatory powers of the Australian Electoral Commission to investigate and aggregate donations made below the disclosure threshold; and
introduce strict sanctions and penalties for breaches of legislative requirements.
The committee recommends that the Australian Government establish a federal independent integrity commission.
Increase in public funding
Over the course of the inquiry, several submitters and witnesses highlighted the need for public funding to adequately complement reforms to private funding, in particular, the proposed introduction of caps on donations. Participants argued that a modest increase to public funding is necessary to help alleviate the inevitable shortfall in political parties' income that would result from limiting the amount a donor can contribute.
For example, Professor Tham argued that:
If contribution limits are imposed, such funding will be necessary to (partly) make up for the shortfall in income experienced by political parties. In doing so, public funding will directly support these parties in discharging their functions. Together with such limits, public funding will also wean these parties off of large political contributions, thereby lessening the risk of corruption.
The Australian Greens expressed a similar view, submitting that a 'necessary consequence of capping donations is that public funding will have to increase to replace the large private donations'. Reiterating this point, they noted that:
While these amounts are likely to be small in comparison to the government’s total expenditure, it is necessary to secure public support for greater taxpayer money going to political candidates as the necessary price of keeping the influence of big money out of politics.
Professor Miller from CEDAAR also endorsed an increase to public funding in light of the proposed changes to the political finance regime, noting the need sufficient funding for political parties to engage in political communication:
If there are going to be changes around the political donations scheme, I think it's important to look at ensuring there is adequate funding for political parties to get their message across…
Similarly, Professor Williams told the committee that 'I think it is in the taxpayers' interests that they subsidise these changes to ensure that they are implemented properly and without prejudice'.
The Synod discussed how an appropriately balanced private and public funding scheme can help facilitate the aims of 'levelling the playing field' between political parties and reducing dependence on private income:
Public funding will help complement private funding, providing support for the institutionalisation and daily activities of political parties while negating the dependence on private capital. Public funding can ensure that all political forces are on a level playing field in terms of access to resources to reach electorates, which encourages pluralism and choice for the community. Paired with donation limits, public funding can also limit the advantage and close the gap between competitors with vastly different funding amounts.
International IDEA expressed a similar view, arguing that 'public funding can dilute and reduce the relative importance of private donations providing that it is combined with other regulatory measures'. International IDEA further submitted that '[i]n order to offset the influence of private donations, the amount provided from the public purse must also be sufficiently large to have an impact'.
The committee heard from Mr Rangott of ICAC about how an increase in public funding in NSW has supplemented the funding burden placed on political parties by caps on donations:
To the extent that those caps bite, in New South Wales they were supplemented by public funding, so those burdens of running a political party that were met in previous times are now being met by public funding. So that is part of the answer. I don't think it is fair to require political parties to run on the smell of an oily rag, so that was the situation in New South Wales.
An increase in public funding is one of the most sensitive aspects of any proposed changes to the current regime. However, the committee believes it is unrealistic to expect political parties to be subject to a donations cap, even with an associated cap on expenditure, and not provide some element of increased funding to bridge the gap.
The committee is also of the view that a revised public funding formula, which is linked to expenditure to prevent the potential for profiteering from a revised model, would increase transparency, equity and scrutiny, and therefore the accountability of political parties to the public.
The committee recommends that the Australian Government implement a small increase in public funding to political parties given the significant loss in revenue that would occur from implementing donations caps.
In addition to the measures outlined so far in this chapter, a number of inquiry participants highlighted the need for greater harmonisation between federal and state and territory political funding and disclosure regimes as another means of enhancing the integrity of political finance regulation.
As noted in Chapter 1, the various state and territory schemes that apply to elections and related activities within their relative jurisdictions are broadly similar to the federal regime in terms of their objectives and approach. However, some quite significant differences have evolved between the states and territories in response to local factors, particularly with regard to disclosure thresholds and the degree of regulation involved.
The AEC submitted that the varying requirements that exist in each state and territory create 'a layer of complexity for all participants', and that non-disclosure is often a result of misunderstanding the different obligations between jurisdictions:
Currently, state and territory disclosure schemes have different obligations to the Commonwealth and to each other. The different thresholds, definitions, and timings create a layer of complexity for all participants, particularly donors. Instances of nondisclosure can often be attributed to donors or organisations not fully appreciating the different requirements between jurisdictions.
For the general public the different disclosure provisions across the jurisdictions provide a layer of complexity that may add to a perception of a lack of transparency.
Some submitters and witnesses argued that inconsistent political funding and disclosure regulation between the Commonwealth and the states and territories creates loopholes that encourage evasion of the system.
For example, Mr David Templeman, President of PHAA, commented that:
There are different rules in each jurisdiction, and the lack of real-time integrated national reporting on all donations from all sources, regardless of the amount, means that there are so many ways to evade timely public reporting of donations.
Dr Ng also reflected on this issue, noting that the inconsistencies with regard to political finance regulation have seen 'money being channelled to other jurisdictions with more lenient rules'.
Elaborating on this point, Dr Ng drew the committee's attention to how donations caps under NSW legislation have been circumvented by funnelling donations to the federal level:
For instance, at the federal level we don't have those caps. The donations were channelled to the federal level and then channelled back to New South Wales. One problem with the system is that it's not uniform across the country. Where there's a more lenient system, the money can be channelled there.
Arguing the need for a 'national system for political donations' in Australia, Dr Lewis also highlighted the loopholes created by inconsistent regulation between jurisdictions:
The time has come for action, not more words, and that action needs to involve state and territory governments and the federal government coming together to establish a national system for political donations in this country. This is necessary because history shows that members of parliament and political parties will ‘game’ a fractured system that provides loopholes for MPs and political parties to exploit.
ICAC acknowledged that 'steps have been taken to limit the adverse impact of these inter-jurisdictional differences', however it urged the committee to 'consider the benefits of a more uniform framework for regulating political donations made across Australia'.
Electoral funding rules vary enormously between the Commonwealth and the states and territories. The committee considers this to be a serious issue when it comes to the disclosure of donations and expenditure. Efforts at a state level to regulate money in politics have been undermined by the ability of donors to funnel money into federal level party election accounts which are not under the jurisdiction of state election funding laws.
The committee recommends that the Australian Government initiate discussions between state and territory governments and the Commonwealth with regard to political donations regulation—including legislative definitions, allowable donors, disclosure thresholds and disclosure timeframes—with a view to developing harmonised laws within two years.
Senator Richard Di Natale