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Australia’s system of political donations was the subject of a recent Senate inquiry. AAP/Mick Tsikas

Explainer: how does our political donations system work – and is it any good?

Money makes the world of politics go around and, as recent scandals afflicting both major political parties have shown, keeping it clean isn’t easy. Our series on Australia’s system of political finance examines its regulation, operation and possible reforms.

Campaigning for election is an expensive affair. To promote their cause, political parties have to spend big bucks on high-impact slots on television and radio, travel extensively and perhaps hire fancy political consultants.

Membership of Australia’s political parties has declined over the years, so they’re now less able to raise money from membership fees. Parties do receive some public funding, but not enough to pay for election campaigns. Instead, they have to bolster their coffers by appealing to the public and corporations to donate funds.

It’s against this backdrop that Australia’s political donations system operates.

Who can donate?

At the federal level, all donations above A$13,000 must be disclosed and disclosures must be made once a year. Anyone can donate any amount they like.

In the 2014-15 financial year, $10.4 million was donated to the Liberal Party and $7.2 million to Labor. Major donors included large banks, property developers and mining magnates.

At the state level, Western Australia and South Australia have similar systems; these states require annual disclosure of donations of more than $2,300 and $5,000 respectively.

Victoria and Tasmania are the most lax jurisdictions. They do not have donation disclosure rules for state election candidates – parties just have to comply with federal disclosure laws. Political parties that are registered only in Victoria or Tasmania – and not federally – don’t need to disclose anything.

In Victoria, donations from casino and gambling licensees are capped at $50,000. But this law can be sidestepped: it doesn’t stop associated entities of these industries from making unlimited donations.

Queensland and New South Wales have stricter regimes.

In Queensland, donations above $1,000 must be disclosed. And political parties must publicly disclose donations twice a year, which is more timely than other jurisdictions. Large donations – totalling $100,000 or more within six months – must be reported to the electoral commission within 14 days. These are published within five days of the disclosure, adding to transparency.

NSW has the strongest regime: donations of $1,000 or above must be declared once a year. And there’s a yearly cap of $5,800 per party and $2,500 for candidates.

NSW also bans donations by property developers and the tobacco, liquor and gambling industries. In 2015, the High Court ruled that these restrictions don’t infringe the freedom of political communication, as they legitimately aim to reduce the risk or perception of undue influence and corruption.

The ruling may pave the way for other jurisdictions to introduce caps on political donations.


Good for democracy?

Any regulation of political donations has to balance two competing interests.

First, there’s the freedom of individuals and corporations to express their political preferences, including giving money to political parties they support.

This has to be counterbalanced with the pernicious influence of money in politics. The key here is whether large political donations secure greater access to politicians than ordinary people have.

Another issue is whether large donations sway politicians to bestow illegitimate favours or adopt policies that directly benefit donors.

As US presidential candidate Donald Trump put it:

I gave to many people before this – before two months ago, I was a businessman. I give to everybody. When they call, I give. And you know what, when I need something from them two years later, three years later, I call them. They are there for me. That’s a broken system.

Trump suggests it is possible to “buy” political access and influence through political donations. In Australia, the managing director of Transfield Services, Luca Belgiorno-Nettis, recently likened political donations to the Latin saying do ut des: “You give in order to have given back.”

But, according to democratic principles, we’re entitled to equal representation by our elected representatives. We can also expect politicians to be transparent and accountable in exercising their public duties. In particular, politicians should not engage in corrupt behaviour, such as bartering with a wealthy donor to make decisions in their favour in exchange for a large sum of money.

But it’s not just actual corruption that’s the issue; even the perception of corruption can damage trust in the political system.

As such, requiring political parties to disclose their donations is good for democracy. But the requirement has to be coupled with strong enforcement to be effective.

Traditionally state and federal electoral commissions haven’t taken action even when politicians didn’t disclose donations. Recently, however, the New South Wales Electoral Commission penalised the state Liberal Party for breaching electoral rules.

The party used the Free Enterprise Foundation to disguise donations from donors banned in the state, such as property developers. So the commission withheld $4.4 million in public funding from the party.

The political donation system is riddled with loopholes and is inconsistent across the nation. It lacks transparency as money can be channelled through different jurisdictions to avoid disclosure. Donations can also be made through “associated entities”. This makes it difficult to track the actual donor.

Under federal rules, it’s unclear whether fundraisers charging large sums for access to politicians must be reported. And donations are published only once a year, long after elections are over.

The struggle for political equality has shaped Australian democracy. But it’s undermined by having a fragmented political donations system that can easily be evaded.

Catch up on other articles in the series here.

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