Fuller and faster online disclosure of political donations should be at the heart of any reforms to the system.

The Ontario government is expected to release the full details this month of an overhaul of the province’s political financing system. Premier Kathleen Wynne announced in April that her government would ban union and corporate donations to political parties, reduce the limit for individual contributions, and introduce restrictions on advertising by “third parties” or non-political-party actors in Ontario and municipal elections. By-election fundraising will also be curbed.

It is important to consider proposed rule changes in light of the existing network of rules, rather than considering a single piece of legislation as a bulwark against political misconduct. Evaluating the potential downsides of proposed changes is important too. The bottom line is that there is no ideal package; each policy involves trade-offs. Changes in party finance have differential impacts on parties, and restrictions on spending may leave the electorate deprived of critical information. As well, the policy solution may not lie with party finances per se, but rather in tweaks to the network of existing rules.

Aside from how a party fares in an election, the best indicator of its relationship with citizens is the health of its finances. While surveys are not always the best indicators, because participants may self-censor or fail to disclose their true opinion of a political party, a decrease in donations between elections is a good way for the electorate to tell parties they’re on the wrong track. If we look at the case of the federal Liberal Party, from 2004 to 2013, when Justin Trudeau became party leader, its contributions significantly lagged behind those of the Conservative Party, apparently because potential donors were still punishing the Liberal Party for scandals and for other perceived failings, including its frequent turnover in leaders.  The Conservative Party’s income increased over the period —in part because of its more sophisticated use of data, its history of cultivating individual donors, its leader who had been in place over many years, and public approval of the party’s handling of the economy.

When the federal government introduced its tax-based subsidy between 2004 and 2015, parties responded strategically: some, like the Conservatives, boosted fundraising to supplement the subsidy, while others, such as the Bloc Québécois, relied almost entirely on that revenue. In Quebec, tax-based subsidies to the province’s parties were introduced decades ago, as was a $1,000 ceiling on personal donations and a prohibition on union and corporate donations. Nevertheless, these measures didn’t eliminate corruption, as the findings of the Charbonneau Commission revealed. Some companies circumvented the ceiling by buying tickets to fundraisers on behalf of their employees – the so called “prête-noms”system.

While a lowered ceiling or an outright ban on union and corporate contributions may seem beneficial, tax-based subsidies actually appear to insulate parties from the voters they claim to represent. The federal subsidy was based on the percentage of the popular vote captured by a party in the previous election. This formula, while seemingly fair in terms of proportionality, had its downsides: whatever the party’s mis-steps between elections, the quarterly subsidy remained the same (except for inflationary adjustment) and did not change whatever the electorate’s evaluation of a party or its leader. The policy choice is thus between parties that compete for donations, or parties in the legislature that join forces to raise party subsidies in order to ease the pressures of fundraising Both options have intended and unintended consequences.

Network of rules

Political parties are governed by a network of informal and formal rules. While citizens may be suspicious of parties’ actions, they nevertheless expect that the political party in power will act in their (citizens’) best interests. Thus public outrage, media coverage and the ability to withhold funds from a party are powerful informal deterrents that hold parties in check.

In fact, at the federal level, there is a very high level of compliance with election finance laws. Most investigations are settled before a formal compliance agreement is established or formal charges laid. This is also true in most provinces. Provincial compliance does vary: in the case of Quebec, the Charbonneau Commission revealed in its final report in 2015, that, despite a prohibition on individual donations to Quebec political parties, there remained egregious patterns of buying political influence of parties as well as other actors in the province. The political context therefore remains crucial to identifying the right mix of incentives and deterrents.

The behaviour of the party in power, and particularly of cabinet ministers, their political staff and civil servants, is governed by a network of laws: election finance, conflict of interest and lobbying legislation. In Ontario, the Election Finances Act covers contributions, spending, reporting of political parties, candidates, leadership contestants, and third parties, while the Election Act covers the administration and costs of holding an election. The Chief Electoral Officer of Ontario enforces both laws. The Public Service Act and the MPP Transparency and Accountability Act prohibit granting preferential treatment to any person or entity in which a political staffer or civil servant has “an interest”; they much also avoid creating the appearance of preferential treatment. These acts are administered by the Ontario Commissioner of Integrity.

The behavior of the party in power and particularly of cabinet ministers, their political staff and civil servants, is governed by a network of legislation

In Ontario, parties derive their income from several sources. They receive donations from individuals residing in the province, companies doing business there and unions that hold bargaining rights in the province. The following are the allowed amounts for donations, indexed annually:  $9,975 to an Ontario political party; $1,330 to one constituency association; $6,650 in total to the constituency associations of one party. In an election year, an additional top-up of $9,975 may be donated to a political party; $1330 to a candidate of a single party; $6650 in total to candidates of one party. Other amounts apply to by-elections and leadership contests. As an indication of corporate support of parties, in 2014 the four largest Canadian banks gave in total just under $66,000 to Ontario political parties, while the top six corporate donors gave a total of $236,000 in total. Four large private and public sector unions, UNIFOR, CUPE, OPSEU and the Canadian Labour Congress, donated $173,700 in total. These figures do not include donations by corporate subsidiaries or by union locals.

Under the Election Finances Act, parties and candidates are subject to spending limits and they are partially reimbursed for certain election expenditures, if they receive 15 percent of the popular vote in an election. Party spending in the 2014 election in Ontario, for items limited by statute, was $7.1 million for the Progressive Conservatives, $6.1 million for the Liberals, and $3.5 million for the NDP. The three parties spent an addition $5 million on items and services not limited by law.

There is, however, no ceiling on expenditures by third parties, individuals or groups who are not party actors but who wish to support or oppose particular policies or parties. Such spending was not tracked before 2007; third-party spending soared from $1.8 million in the 2007 election, to $8.4 million in the 2015 election — an election in which the spending cap for each political party was $7.4 million.  There were no third parties that were businesses, but public sector unions and locals spent heavily. According to Elections Ontario, the Ontario English Catholic Teachers Association spent about $2 million. The surge in third-party spending in Ontario may be due to the Federal Accountability Act (2006), which prohibited corporations and unions from donating to federal political parties: interested actors had to change their arena of influence.

The final pieces of the network of rules are enforcement and disclosure. The Chief Electoral Officer of Ontario enforces both election administration and election. Parties have 10 days to file reports on the donations received with Elections Ontario, and Elections Ontario has an additional 10 days from the time of receipt to post them online; this 20 business-day period is considered ‘real time’ disclosure.

Options for election financing policy

Fuller and more prompt disclosure of political financing should be at the centre of any reform, and there is also room for other improvements. First, when a government contract is in play—be it for privately owned legal services, construction, health and social services or public-sector wages and benefits— there should be a requirement for the party in power to disclose political contributions. While a donor firm may in fact offer the best quality and service in a bid, affiliates and directors of that firm should be required to disclose information on any donations it has made to the party in power, as part of the tendering process, and this information should be made available online at the time the tenders are submitted. Similarly, unions or their locals should be required to disclose online any donations to the party in power or to local councillors at the beginning of contract negotiations. This would enable popular opinion, media and opposing parties to hold parties accountable more effectively.

Fuller and prompt disclosure of political financing should be at the centre of any reform, and there is room for other improvements

Second, given that parties are private entities that provide important public services, such as voter education and the recruitment of quality candidates, spending limits should be increased, and there should be an accompanying increase in contribution limits for individuals. It is unlikely that a political candidate will be corrupted by a donation $9,975 from an individual: there is simply too much at stake. As well, there is some evidence that individuals give to political parties as their income rises: such giving is a “normal” good, in economic terms; in other words, rather than viewing individual donations as “buying” political policies or access, we should view political donations as acts of participation that people can afford as their incomes rise, like luxury good consumption.  Advocates of “fairness” in party finance often argue that high-income donors pay for policies that benefit only their own demographic, but as Bernie Sanders’ presidential campaign in the United States shows, high-income individual donors do sometimes favour liberal social programs.

What to do about third-party spending is a conundrum. In Ontario, limiting it would redress the current imbalance between political parties and interest groups; however, it could also reduce public discourse. This may be an excessive cost for society at large if, for example, an interest group is alerting voters about an urgent policy problem; say, funding for autism treatments, but does not want its proposals to be considered partisan.

There is no widespread evidence of egregious behaviour by large corporations in their capacity as third-party advertisers or in their donations to Ontario parties; the problem is the influence the governing party allows large corporations to exert. Recent media revelations on the awarding of subsidies to corporate political donors obscure the fact that thousands of contracts are awarded annually without apparent political interference. Finally, one US study questions whether political contributions shape policies or follow them. Corporate donations to parties might be more likely to support a government that produces or sustains a stable economic environment.

We need to be clear about what the policy problem is. In the case of Ontario, the problem does not seem to be the influence corporate donors have on policy choices, but rather the influence they have on government’s awarding of contracts or subsidies.  Individual political donations are not problematic. What is a threat to party competition and thus to voters’ choice is public-sector-union spending and donations that actively undermines political parties of the centre-right because their policies might threaten public sector union membership, despite the fact that these parties might overall benefit the tax-paying public and voters.

The late Canadian scholar Peter Aucoin proposed a workable solution to address executive influence on the awarding of government contracts: independent boards that evaluate the governance and performance of specific government departments and central agencies, with the minister’s directives published and announced in the legislature. These administrative bodies  might also govern the approval of private sector and public sector contracts.

Regarding third-party advertising, it may be time to consider differentiating among the various third-party actors and the incentives and disincentives they face. If it is then judged that for a specific third party the benefits of spending limits outweigh the costs, then limits could be set for that party.

There is no inherent reason for lumping small businesses, large corporations, private sector and public sector unions into the same package of potential influence on elections. Here are a few examples of this. While employees and shareholders of businesses, and donors to interest groups, can withdraw from a business or interest group that supports a political party with which they disagree, businesses that make political donations to political parties or even to certain charities can suffer boycotts and damaged reputations following disclosure of their contributions. For public sector employees, union membership and dues are mandatory, yet there is no mandatory disclosure of unions’ political spending. Public sector union members therefore cannot direct the political spending of their unions; but there is little to discourage public sector union executives or local executives from engaging in third-party activities, even their members do not approve. Of all Canadian public sector workers, 46 percent work in Ontario (2011 figures, Statistics Canada). If they are all are eligible Ontario voters, they comprise 14 percent of the Ontario electorate. Therefore, the solution for Ontario may need to be different from that for other provinces.

Finally, one effective fix for election finance rules would be to require real time disclosure, at all times, of third-party spending and of contributions to parties, candidates and local associations (perhaps within 72 hours of the transaction), and its uploading by Elections Ontario within 48 hours. At present so called real-time disclosure for parties is 20 days: 10 days for parties to report contributions and another 10 days for Elections Ontario to post the information online. Given that the average electoral campaign is approximately 35 days, a shorter timeline and online publication of third-party spending would be a significant improvement. Errors could be corrected later (as they are in media), and the adverse publicity from errors would be a strong incentive to get the reporting right the first time. This requirement would not be onerous for party volunteers, and it would be eminently feasible with the software that is available. But even this option would carry a cost: disclosing the identity of a donor would essentially mean publishing that donor’s voting intention.

Focusing on the broad network of institutions and requiring fast, online disclosure are policy solutions that are more likely to balance opposing influences and interests than would traditional fixes like imposing contribution limits. Political parties need robust sources of funds to carry out their democratic functions. Tax-based subsidies have the long-term impact of making political parties’ responses to issues and public opinion less dynamic. The outright banning of corporate and union donations to parties and restrictions on third-party advertising carries too high a cost in terms of freedom of expression and public discourse.

No rule will catch every dubious act or behaviour: in no other sphere of public policy is a zero percent failure rate the stated objective. The possibility of diminishing marginal returns to additional turns to the screw must be considered. It is time to zero in on the  policy problem, and not rely on the “money in politics” mantra; we must start to weigh the costs and benefits of other policy options.

Photo: Junior Braz / Shutterstock.com

 


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