New South Wales Premier Mike Baird’s moves to tighten state political donations laws will further stretch the already vast gap between state-based disclosure regimes and the federal disclosure system, and thus create further opportunities for political parties to exploit the regulatory gaps between two very different sets of requirements.

Despite the mountain of evidence of abuse from the Independent Commission Against Corruption, NSW has much stricter rules around donation disclosure than the Commonwealth — a key reason why the number of MPs lost by the O’Farrell and Baird governments is now into double figures. Baird wants 10-year jail terms for breaching disclosure laws, more timely disclosure, lower donation limits and a new federal-style system of public funding for political parties.

Apart from the public funding issue, however, Baird’s amendments will simply push the NSW system even further away from the federal system, meaning there will be more use of federal funding vehicles to dodge state requirements and bans.

Courtesy of a lax set of disclosure laws, the Howard government’s changes to them in 2005-06 and changes in political parties’ funding practices, the Commonwealth, in effect, has a voluntary disclosure system when it comes to political donations. Any political donor who does not want to be publicly identified can find the means to avoid having to disclose donations, and avoid being disclosed if a party does not wish do so.

Crikey has been lamenting a series of problems at the federal level for years: the absurd requirements for annual reporting, which means we won’t find out who donated to parties in the lead-up to the election over a year ago until February next year; the ridiculously high reporting threshold put in place by the Howard government (now $12,800); and the lack of legal recourse against foreign donors who don’t bother disclosing donations. But the key problem in the federal system is that, unlike in NSW, donors are not required to disclose non-donation contributions: only “money or a service for which no payment or an inadequate payment is received” need be disclosed, which means a donor can purchase a service or good from a party and need only disclose the amount by which the service or good the donor receives from the party is “inadequate” for the cost of purchase. So, you can purchase a seat at a dinner table with a minister with the intention of lobbying that minister or getting a better understanding of the government’s policies, without it being a disclosable donation. Who decides whether what a donor gets is adequate for what they’ve paid? The donor does.

Now, parties do have to disclose non-donation receipts — but only those above the reporting threshold, so you can give a party branch nearly $13,000 without the party needing to disclose it — and you can give each separate branch of the party that amount. To its credit, federal Labor has adopted a voluntary policy of reporting every payment above $1000. But the parties have restructured their fundraising to take advantage of this omission from the federal disclosure law. That’s why fundraising is less reliant on traditional donations, and more reliant on dinners where donors are given access to frontbenchers (thereby receiving a service) and memberships or sponsorships — where donors purchase membership of, say, the Labor Business Forum or, or “sponsor” the NSW Liberals’ Millennium Forum and get offered a series of events, all revolving around access to frontbenchers.

One of the absurdities of the federal rule is donors who do decide to be upfront about their political contributions — and some major corporate donors, like Macquarie Bank, prefer to be transparent — in effect get punished for opting to report, because they must include GST for any non-donation payments made to parties, overstating their contributions.

And if all else fails, you can always put a late return in. The federal reporting laws are so lax that you can file late, or even file once and then substantially amend your initial filing. Knowing that the media only pays attention to donations in the first week of February when annual returns are made, if you file a return after that, it’s unlikely to receive any media attention. Some large donors to the NSW Liberal Party, for example, filed returns as late as June this year for the 2012-13 financial year.

In short, the federal donation disclosure “regime” is a voluntary system that actively encourages non-transparency by donors and political parties. And as state regimes, under the pressure of corruption and rorting, become stronger, the credibility gap will only continue to grow.

Peter Fray

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