Money, politics and the campaign arms race: corporates outspend citizens

Prime Minister Kevin Rudd has flown in United States President Barack Obama’s digital strategist to help with his campaign and made an American-style appeal for donations. It begs the question: just how much has money got to do with campaigning and the democratic process in Australia?

Lots. Australia is even more laissez-faire than the US when it comes to politics, the media and money. In the US, foreigners can’t donate, the disclosure threshold is $200 and corporations should only donate a little over $30,000 through an intermediary committee. In Australia, anyone (corporations and foreigners included) can donate any amount. If it’s not more than $110,000, donors can remain anonymous. In fact, they can remain anonymous no matter how much they give, so long as it’s given to an “associated entity” of a political party.

As it stands, there can be no spending caps in Australia, due to a surprising High Court ruling in 1992. Bans on paid political advertising exist elsewhere, such as the UK, Japan and Israel, and free airtime is not only commonplace in many democracies but has been depicted as fundamental to the ousting of Chilean dictator Augusto Pinochet in 1988 (as in the 2012 film No). Political academics continue to call for a review of this case, noting its ramifications have cast a “long shadow” over political finance reform. 

Campaign expenditure is not the only area considered a “freedom of expression” in Australia; political donations are too, so there are no limits to the amounts parties may receive. If each dollar has the power to shape opinions via media expenditure, it’s pertinent to ask who can contribute to the political funds of a democracy.

First and most obviously, citizens can. For every first preference vote a party receives (assuming the party polls more than 4% of the total vote — not an easy task for new parties), it will be allocated a set amount of public money. Secondly, foreigners can make political donations. In 2004, the largest individual donor to Australian politics was not an Australian but Lord Michael Ashcroft of the UK, who donated $1 million to the Liberal Party. Countries such as Canada, New Zealand, Japan, Brazil and even the US ban all gifts from foreigners. In Australia, there have been proposals to do likewise (separate bills in 2010 and 2013) but these failed to pass parliament.

“Australia’s campaign finance sector is even more relaxed than in the US. Without expenditure or donation caps, regulation only really occurs by way of disclosure.”

Thirdly, trade unions and corporations can donate. This is banned in Canada and France, and for a long while it was also banned in the US, until a 2010 ruling allowed corporate funds to be channelled through “political action committees” (PACs). These cannot donate more than $32,400 per year to national parties. Australia’s regulation of corporate donations (or lack thereof) is most similar to that of the US, except there are no limits to how much can be donated.

In short, non-voting entities regularly finance Australia’s political process — far more than its citizens do. While foreign companies donate tens of thousands of dollars to parties each year and trade unions contribute a significant albeit diminishing proportion of the ALP’s income (about 10% in 2001-2002), by far and away the greatest source of political donations is the corporate sector. It would be fair to say that although the corporate sector donates to all major parties, from a theoretical left-wing, right-wing perspective, it aligns itself with the Coalition. Sally Young and Joo-Cheong Tham noted in a 2006 report for the National Australia University that “there is a serious danger of corruption […] due to the parties’ reliance on corporate funding. This is most apparent with the Coalition.”

Major contributors to political parties in Australia include banks, gambling proprietors, property developers, construction companies, military contractors, pharmaceutical companies and the mining sector. The Australian Shareholders Association has publicly opposed corporate donations, arguing companies don’ give without expecting something in return.

Australia’s campaign finance sector is even more relaxed than in the US. Without expenditure or donation caps, regulation only really occurs by way of disclosure. Basically, companies declare their financial gifts to the Australian Electoral Commission, which publishes the details on its website (each state has an electoral body similar to the AEC). But Young and Tham say that “disclosure schemes do nothing to combat […] dependence. Indeed, by publicising the reliance of the major parties on corporate money, they may have perversely assisted the normalisation of corporate contributions.”

Voters and journalists can’t access information related to political donations up to as long as 19 months after the donations have been made, as the data is only released in February of each year — after elections are held. Donations made in the lead-up to the last election (2010) might not have been made public until 2012. Timeliness (or lack thereof) has a major impact on newsworthiness and the interest of journalists to look for questionable political donations. The result is an overall disinterest in sifting through the various lists on the AEC website.Even if parties frequently published their donations, it still wouldn’t be easy to appreciate the size and number of total donations. For one thing, political parties don’t have to reveal gifts that are below the disclosure threshold. For a while this threshold was $1500 per annum, but in 2006, when the Howard government had a majority in both houses of Parliament, it was increased to $10,000, indexed for inflation. It is currently at $12,400. Unlike in other countries, this threshold does not apply to the sum of all donations to the same party; it applies to each division within the party — states, territories and the federation. That means that $12,399 can be donated nine times to a party without the need for disclosure. That’s $111,591. In Canada and the US, the total threshold is $200. The ALP and Greens want the threshold reduced (attempts to do so in 2010 and 2013 failed); the Coalition does not. The ALP continues to disclose gifts above the old threshold, even though it is not obliged to.

Another reason it is impossible to know the extent of political donations is the use of “associated entities”. These are basically fundraising organisations for political parties; they invest money and receive donations on behalf of the party. Each year, they need to report to the AEC how much they made/received, but they don’t have to break this figure down to specify donations and donors, meaning that corporations et al can remain anonymous. Associated entities are major contributors to political funds, accounting for 40% to 90% of revenue, depending on the year.

With such easy loopholes, it’s a wonder why any of the entities reporting to the AEC (political parties, associated entities, third parties and donors) would break any of its few existing rules. Nevertheless, compliance with the electoral authority is often lacking, perhaps because the AEC is seen to lack teeth. There have been next to no prosecutions by the AEC in over a decade, though there have been numerous reporting breaches in that time (such as 17 political parties that failed to lodge a disclosure return by the 2008 deadline). One explanation may be a lack of resources, with the AEC largely occupied in its role as election administrator, rather than political finance regulator. Elsewhere, such as in the US and UK, those two roles are seen as separable and are undertaken by different organisations. The AEC’s penalties for breaches were created in 1983 and are not indexed to inflation, meaning their real value in 2013 has decreased to a fraction of their intended determent value. The fines range from $1000 to $10,000. By way of contrast, the Canadian electoral authority can not only serve fines but deregister a political party, liquidate its assets and lay criminal charges.

There is a notable grey area in Australia’s disclosure scheme (one the AEC likely has a hard time investigating), and that’s the difference between a “gift” and a “service”. This is especially relevant to fundraising events, such as when guests pay to attend a political party dinner function.

The pitfalls of the campaigning arms race have been recognised since 1984, when public funding and political donation disclosure laws were first introduced in Australia. The most recent report into the matter, by the Joint Standing Committee on Electoral Matters in 2011, recommended the following changes to electoral law:

• Banning all gifts from foreigners;
• Reducing the disclosure threshold back to $1000 and applying this to the sum of gifts to party divisions;
• Moving to six-monthly reporting cycles (instead of annual);
• Requiring donations of more than $100,000 to be reported within two weeks;
• Including fundraising events in the definition of gifts; and
• Exploring options to restrict third party political expenditure in the lead-up to an election.

The ALP, Greens and independents are in favour of electoral law reform, but the Coalition opposes it, as expressed in their response to the report. To date, none of the bills addressing the issues raised by the JSCEM has been passed, meaning that Australia continues to be one of the least regulated democracies when it comes to campaign expenditure and donations. The cosy arrangement between the media and political parties’ reliance on corporate donations is arguably not healthy for any nation.

*This is an edited version of an article that originally appeared on CitizenJ