The Campaigning Arms Race

Did you ever stop to wonder how truly democratic Australia is? Did you know that some places, like Switzerland, have forms of direct democracy (not representative democracy)? Imagine that – no representative between you and a vote on policies. Speaking of representatives, do you know who can give money to our politicians and how much is allowed?

During the lead-up to the 2013 federal election, I wrote a piece exploring the systemic disfunction of Australia’s democracy, published through the Queensland State Library’s Citizen J portal, as well as Crikey (a slightly shortened version). It looked at the often-hidden fundraising that affords political advertising (propaganda) amid deficient campaigning rules. 

This may all sound rather alarmist with conspiracy undertones but actually, I try to avoid boring political rants and character assassinations. This is because politicians come and go. It is the system itself that needs scrutiny, since this decides the rules of the game and who fills the seats. Sometimes at social gatherings, people fire off about a politician or policy, and I don’t blame them half the time, but if long-term change is ever to come, then it is the system, not the individual, that needs attention – and I believe this attention is sorely lacking.

Since I wrote this piece, some details have changed. For example, foreigners are now banned from making political donations, although there are ways around this. There have been continued calls for further changes to campaigning rules (not by the LNP) but little has come of them. The article below is the version that was printed by Citizen J. For more on democracy in general, I suggest some entertaining videos by CGP Grey.

Democracy & The Campaigning Arms Race

19 August 2013

Many now know that Rudd has flown in Obama’s digital strategist to help with his campaign. As a result, there’s been a personal appeal for donations. “To run an election campaign costs a lot of money. What I’m saying to you folks is I want $5 from you. If you can, please make that donation, because that $5, per person, goes a huge way towards closing the funding gap between ourselves and the Liberals, come this next election.” This begs the question: just how much has money got to do with campaigning and the democratic process in Australia?

The simple answer is ‘lots’. Australia is even more laissez-faire than the United States when it comes to politics, the media and money. At least in the United States, foreigners can’t donate, the disclosure threshold is $200, and corporations can 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.

The long answer to this question involves expenditure caps (lack thereof), fundraisers, time lags and poor penalties. Read on to understand the politics behind our politicians.

The Call to Arms (with no expenditure caps)

For many, election time is synonymous with a relentless onslaught of political posturing. It’s there on the front page, radio, billboards, and morning TV. It may come as little surprise then, to learn that the Federal Government, followed closely by the State governments, is often amid the top one or two advertisers in Australia, according to Graeme Orr, electoral law academic at the University of Queensland (UQ). The Daily Telegraph gave some perspective in 2007, saying that the New South Wales Government spent more on advertising than McDonald’s or Coca-Cola.

While much of the political noise in the media comes from news and commentary, that doesn’t diminish the great investment made by politicians on the campaign trail – an investment that continues to grow. Campaign expenditure no longer starts and ends in an election year but, says Orr, is an ongoing and tightly orchestrated marketing exercise. The Coalition, for example, spent close to $100 million on advertising in the 2004 election year, but over the period between 1996 and 2005, it spent almost $700 million. In his book titled The Law of Politics (2010), Orr noted that “in relative terms, money politics in Australia is not too far behind America”. Interestingly, none of this large-scale investment in advertising comes with a legal requirement for truth.

Unlike our Commonwealth cousins in the United Kingdom, Canada and New Zealand, Australians don’t place expenditure limits on politicians or third parties (lobby groups) – yet many are in favour of one, including the Australian Labor Party (ALP), Australian Greens, and prominent academics. The CFMEU, a major trade union donor to the ALP, noted in 2009 that: “We do not relish the idea of spending workers’ resources on the public electoral process and we particularly do not relish the idea of those amounts climbing because of the campaigning arms race that the minister rightly speaks about”. Others note that high levels of campaign expenditure exclude smaller parties with less finance by favouring the wealthy in politics. They also create a reliance on private donations that may or may not be exchanged for influence.

As it stands, there can be no spending caps in Australia due to a High Court ruling in 1992 that was said to be surprising at the time. This ruling favoured a group of television networks that challenged the Hawke Government’s attempt to provide a system of free air-time for political advertising during election campaigns, coupled with a ban on all paid broadcast advertising during the same period. Bans on paid political advertising exist elsewhere, such as the United Kingdom, Japan and Israel, and free air-time is not only commonplace in many democracies but has been depicted as fundamental to the ousting of Chilean dictator Pinochet in 1988 (as in the 2012 film No). Nevertheless, with a majority of five to two, the High Court found that the proposed legislation breached the implied freedom of political communication found in the Australian Constitution. A similar view is taken in the United States.

Political academics continue to call for a review of this case, noting that its ramifications have cast a ‘long shadow’ over political finance reform. In her submission to the 2011 parliamentary report on political funding and electioneering, Professor Anne Twomey noted that constitutionally, a law could impose itself on the freedom of communication if it was reasonable, appropriate and adapted to meet a legitimate need. She said that the need to reduce corruption was legitimate (as expenditure fosters a reliance on donations). Canada has experienced a very similar legislative challenge. Since 2000, third parties there have been limited to $150,000 in election expenditure (indexed) or $3,000 per electoral district. This was challenged on the grounds that third party regulation restricted freedom of expression – but the Court upheld the restriction, saying it was appropriate for ‘electoral fairness’. In other words, the restriction prevented wealthy voices from overwhelming others. The Canadian Court basically supported what political and media academics such as Noam Chomsky have long described as the media’s power for undue influence within the democratic process – an influence explored in documentaries such as Shadows of Liberty, Murdoch and Manufacturing Consent.

Who is in this Democracy? (Who can donate?)

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 that parties may receive. If each dollar has the power to shape opinions via media expenditure, then it is pertinent to ask who can contribute to the political funds of a democracy.

First and most obviously, citizens can. They do so at will by their own pocket, as well as by default at the ballot box. For every first preference vote that a party receives (assuming the party polls more than 4 per cent of the total vote – not an easy task for new parties), it will be allocated a set amount of public money.

Secondly, and no doubt surprisingly for some, foreigners can make political donations. In 2004, the largest individual donor to Australian politics was not an Australian but Lord Michael Ashcroft of the United Kingdom, who donated $1 million to the Liberal Party. Countries such as Canada, New Zealand, Japan, Brazil and even the United States 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.

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 United States – 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. In the United Kingdom, there is a rule that attempts to democratise union and corporate contributions. For any donation over £5,000 in a 12-month period, an itemised resolution must be passed by shareholders or members to ensure their consent. Australia’s regulation of corporate donations (or lack thereof) is most similar to that of the United States, except that 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”. They ask “is dependence of a party on a particular class of contributors, most notably, business and trade unions, a form of corruption as undue influence? Such dependence, often described as institutional dependence in the literature, has been criticised on democratic grounds”. Academics are not the only ones to have made this observation. The Australian Shareholders Association has publicly opposed corporate donations, saying that companies do not give without expecting something in return.

Major contributors to political parties in Australia include banks, gambling proprietors, property developers, construction companies, military contractors, pharmaceutical companies, and the mining sector.

Regulating Political Finance (The troubles faced by the AEC)

Orr of the University of Queensland has said that “the regulation of political finance in Australia is laissez-faire, to the point of being lackadaisical”. In fact, it is even more laissez-faire than in the United States. Without expenditure or donation caps, regulation only really occurs by way of disclosure. Basically, companies declare their financial gifts to the Australian Electoral Commission (AEC), which publishes the details on its website. (Each state has an electoral body similar to the AEC.) It’s thought that by knowing who is donating what to whom, voters can punish parties they perceive as being corrupt when elections come around every three years (noting that it is very difficult to prove that Donation A from Company A led to Favour A a few months or years later). Young and Tham of the Australian National University 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”. Specific issues with Australia’s transparency scheme include timeliness, thresholds, associated entities, compliance, and fundraisers, which are described below.

Imagine there is a political party called Party A. It receives very large donations from Company A (which is in property development) and from many companies and associations within Industry A, which wants major changes to policies that affect it (such as in the area of tax). Both Company A and Industry A give massive amounts of money to Party A, but to appreciate this, voters (or journalists) need to go online to the AEC website to scroll through hundreds of reports, tallying donations. Importantly, they can’t do that until as long as 19 months after the donations have been made. That’s because the data is only released once a year in February. In other words, these figures are released after elections are held, so the public is not informed when casting its vote. For example, donations made in the lead-up to the last election (2010) may 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.

Of course, with digital networks these days, it’s quite possible to publish financial data in an instant – à la online banking. During the United States’ 2012 election campaign, the public had almost real time information about donations. In fact, continuous disclosure of political donations has been in place in the state of New York since 1994. Across the Atlantic in the United Kingdom, political parties must disclose their donations on a weekly basis during election periods. Australia’s electoral body said in a 2011 parliamentary report by the Joint Standing Committee on Electoral Matters (JSCEM) that its online portal had been designed to accommodate contemporaneous disclosure, requiring about 12 months to adapt it to such a system. While the JSCEM recommended “exploring options” for contemporaneous reporting in Australia, the reality is that parliament can’t even approve a move from annual to six-monthly reports (as was proposed in a failed 2013 Bill) – so instant reporting stands very little chance.

Even if parties frequently published their donations, it still wouldn’t be easy to appreciate the size and number of total donations. There are a few reasons for this. For one, 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 – i.e. to 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 United States, 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 United States and United Kingdom, those two roles are seen as separable and are undertaken by different organisations. The AEC has itself attributed the low rate of convictions in part to the weak penalties set for offences. It says that such penalties indicate a lack of gravity and limited public interest. These penalties were created in 1983 and are not indexed to inflation, meaning that their real value in 2013 has decreased to a fraction of their intended determent value. The fines range from $1,000 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 make criminal charges.

There is a notable grey area in Australia’s disclosure scheme (one that 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. Fundraising revenue is not insignificant, with lobbyists and agents of industry willing to pay large sums for special events. In theory, a gift is any part of a fee that does not cover services (such as catering and venue hire), but in practice, these components are not strictly defined. In fact, it is unclear whether ‘access to Ministers’ qualifies as a service in its own right. In June 2005, Liberal Party ministers and their chiefs of staff charged $7,500 for 15-minute one-on-one private chats. One hundred business representatives signed up, equating to $750,000 in revenue. This particular fundraising event, which did not come with the façade of expensive food or entertainment, begs the question: should raising funds from the ‘service’ of political access be allowable in a democracy? Not surprisingly, some have called for ministerial access fees to be made illegal, but so far, there’s been little enthusiasm for the idea in Parliament.

And so it goes (Another election with few voices)

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. Since then, there have been a number of reports on the matter. The most recent one, in 2011 by the JSCEM, recommended the following changes to electoral law:
  • banning all gifts from foreigners,
  • reducing the disclosure threshold back to $1,000 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 by Parliament, meaning that Australia continues to be one of the least regulated democracies when it comes to campaign expenditure and donations – unlike its Commonwealth cousins. The cosy arrangement between the media and political parties’ reliance on corporate donations is arguably not healthy for any nation.

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