In 1981, a Labor-right, NSW government led Australia in political finance reform. Then it was Neville Wran and disclosure of donations and public funding. That system was a breakthrough, which came to be adopted nationally and in other large states. But it was only a step on the reform path.

Disclosure has been partial and not timely. Public funding, while giving a small leg up to some minor parties, has not prevented an arms race between the major parties.

Thirty years on, and another Labor-right NSW Government is showing the way. Late last week Premier Kristina Keneally announced her cabinet’s much-awaited response to an all-party report of March this year.  Before appraising the detail, it is worth noting that this is the first root-and-branch regulation of political finance in Australia’s history.

Back in September, Bernard Keane lauded the NSW Government’s intention to move on political finance as a case of “desperate parties make bold reformers”. The move comes after several years of, well, nothing but hand-wringing elsewhere and particularly at federal level.

The Keneally model has three key features:

  • Caps on political donations.
  • Caps on expenditure in election years.
  • An enhanced public funding model.

As you would expect in any system awash scandals such as NSW, caps on donations are the headline item.  Donations from a single source will be capped at $5000 to parties or $2000 to candidates/MPs in any financial year. As an anti-avoidance measure, while businesses will be permitted to “join” parties, the membership fee will be capped at $2000 per annum and cannot be used for campaigning.

Much to Opposition leader Barry O’Farrell’s chagrin, unions will still be allowed to affiliate at a notional fee per union member, but those fees are also to be corralled for administration and not campaigning. O’Farrell objects that this still gives Labor a benefit. (Perhaps the Liberals need to find some member-based organisations to support them?)

The major innovation is expenditure caps. These will cut in at different levels as between party candidates and independents, and as between parties’ statewide campaigns depending on the number of candidates they endorsed. If the ALP and Coalition compete in all 93 electorates, each will have a central campaign cap of $9.3 million. Hardly ungenerous. Third-party lobby groups will be limited to about one-ninth that expenditure.

Controversially, third parties will be limited to receiving donations of $2000 from one donor, and no donor may make more than three such contributions per year. Presumably this is designed to avoid a water-bed effect, of money flowing to US-style front groups. But it will not prevent individual corporations or unions using their funds to run campaigns under their own names.

For the upcoming election, the parties have already been able to accumulate war chests. The interest will be in the 2015 cycle. In electoral rout, the ALP will return to its roots and rely on its union base. In the electoral ascendancy and with the levers of executive power, the Coalition will not, however, be able to amass a huge advantage in business donations.

In future election cycles, then, the parties may be hard pressed to reach the limit of the expenditure cap. The existing public funding scheme is based on funding per vote received over the 4% threshold. The new model will allow reimbursement of actual expenditure up to some percentage of the cap. The major parties, with understanding bankers and big overdrafts, will benefit more from this than the smaller parties.

Premier Keneally promises that the laws will be mandatorily reviewed after the 2011 election. Of course they would be anyway:  by the incoming government. The soon-to-be Liberal Premier is already alleging that the reforms are designed to give Labor a soft-landing. Although the Greens in the Upper House (who support Keneally’s proposals) may have the final say, it’s likely the Liberals will move on union affiliation fees. If they do, Labor may come to regret having stuck its head above the trenches.

A second thorny issue is the cap on third-party expenditure. I have no doubt it is constitutional. What is less clear is how the cap will affect issue advertising in any year involving  NSW and federal electioneering, since there are now few areas of major policy, outside policing, where state and federal regulation does not meld.

The National-led New Zealand Government is repealing third-party campaign caps. Emboldened by a conservative Supreme Court, US third parties and front groups are giving the Republicans a big boost. Yet in Australia, outside of big, ad hoc campaigns (such as the mining companies’), the third party most likely to be affected by a cap is the progressive mass-movement, Get Up.

We have been waiting years for Australia to begin to catch up with reforms overseas. As they were in 1981, NSW’s reforms should prove to be a catalyst, with other Australian states and the national government able to learn from them.  If not, we should give up on the federalist game.

*Graeme Orr is associate professor at UQ Law School and author of The Law of Politics: Elections, Parties and Money in Australia (2010, Federation Press).