(Image: Private Media)

This is day seven of The Dirty Country: Corruption in Australia. Read the whole series here.

In the last two decades, just five donors have accounted for a quarter of the donations in Australian federal politics. And the overwhelming majority — more than 98% — of those and other donations go to political parties rather than individual candidates. This gives parties themselves huge power over candidates, reducing political competition further.

All this raises the natural question of how we might reform Australian campaign finance laws.

The first place to look is state and territory rules on donation caps and reporting requirements. In fact, three states have caps of between $4000 and $5,600 on political donations, and disclosure levels of $1000 instead of the federal $14,300. Indeed, the New South Wales Electoral Funding Act 2018 is a good template for starting serious campaign finance at the federal level.

Various reforms that might help mitigate the role of money in Australian politics and enhance political competition at the federal level include: caps on donations and expenditures, improved disclosure obligations through the Australian Electoral Commission, increased transparency about political access such as publishing MPs diaries, and closing the revolving door between lobbyists and regulators.

But can we get those done — even if our elected representatives wanted to?

What campaign-finance reforms are constitutional?

The key question to be addressed in enacting such reforms is whether they run afoul of the High Court’s jurisprudence on the “implied freedom of political communication” articulated in two 1992 decisions: Nationwide News Pty Ltd v Wills and Australian Capital Television v Commonwealth, with the latter case establishing the basic principle of “implied freedom of political communication”.

In the Nationwide case, the court held that a blanket prohibition on political television (and radio) advertising during elections was unconstitutional. The court also held that distributing public funding of advertising in favour of the major parties restricted the political communication of minor parties.

As then-chief justice Gerard Brennan wrote for the majority:

To sustain a representative democracy embodying the principles prescribed by the constitution, freedom of public discussion of political and economic matters is essential: it would be a parody of democracy to confer on the people a power to choose their Parliament but to deny the freedom of public discussion from which the people derive their political judgments.

In a 1997 case Lange v Australian Broadcasting Corporation the court articulated a test for determining whether a prohibition of certain kinds of communications are constitutional. There are two limbs to the so-called “Lange test”: one, does the law effectively burden political communication; and two, if so, is it reasonably appropriate and adapted to advancing a legitimate purpose. In a subsequent case, the court added the idea that it should do so in a manner compatible with the constitutionally prescribed system of representative and responsible government, and in another, the idea that the second stage of the Lange test can usefully be applied using a test of “structured proportionality” — i.e. asking whether a law is suitable, necessary and adequate in its balance.

This test was applied in three important cases involving NSW laws. And while some campaign finance laws were struck down, the court showed sympathy and provided guidance for genuine reform efforts.

In Unions NSW v New South Wales (2013) the court found that a provision banning donations from anyone other than individual voters violated the Lange test in that it was not “reasonably and appropriately adapted” to preventing undue influence or corruption, both of which would be a legitimate government purpose. But the case concerned a blatant attempt by the Liberal party to restrict donations from unions but not business. It is hardly surprising that the court was skeptical.

The court was explicit about the potential corrupting effects of campaign contributions and the potential for “soft corruption” in McCloy v New South Wales (2015), saying:

There are different kinds of corruption… [a] more subtle, kind of corruption concerns ‘the danger that officeholders will decide issues not on the merits or the desires of their constituencies, but according to the wishes of those who have made large financial contributions valued by the officeholder’. This kind of corruption is described as ‘clientelism’. It arises from an office-holder’s dependence on the financial support of a wealthy [client] … The particular concern is that reliance by political candidates on private patronage may, over time, become so necessary as to sap the vitality, as well as the integrity, of the political branches of government …

… unlike straight cash-for-votes transactions, such corruption is neither easily detected nor practical to criminalize. The best means of prevention is to identify and to remove the temptation.

And in McCloy the court applied a proportionality test to uphold NSW bans on donations from “prohibited donors” (such as property developers), to uphold restrictions on indirect campaign contributions, and to uphold caps on donations.

Finally, in a second Unions NSW v New South Wales case (in 2019) the court found that a NSW law reducing the cap on third-party campaigners from $1 million to $500,000 was not “reasonably necessary” to prevent a “political arms race” and the “drowning out” of other political speech.

Where does that leave reform efforts?

Not only has the High Court not gone as far as the US Supreme Court did in the infamous Citizens United case — which effectively equated money and speech, and thus empowered almost unlimited third-party influence in American politics — it has shown sympathy for restrictions that prevent undue influence and soft corruption.

That does not mean campaign-finance reform in Australia is easy — just that it’s feasible. The issue is not so much whether the desire to allow for a more level playing field in political communication — one not driven primarily by financial capacity — is a “legitimate government purpose”. It is whether various campaign finance laws are sufficiently “narrowly tailored” to achieve that purpose.

Passing such laws will require careful thought and drafting. And doing so will likely require bipartisan support.

I know, I know. But one can dream.

Richard Holden is professor of economics at UNSW Business School.

Peter Fray

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