According to the Electoral Commission, the political parties received far less in big donations for the 2008 election than in 2005. So just how did they fund their campaigns?

One of the more positive features of the much derided, now defunct Electoral Finance Act 2007 was that it attempted to tighten the rules around public disclosure of large donations to political parties. Indeed, there seems to be some consensus that this tightening was necessary; these new rules were retained by the National Government when it repealled the rest of the Act under urgency earlier this year.

Before the Electoral Finance Act's passage, parties were meant to disclose to the Electoral Commission the identity of all donors who gave more than $10,000 in a calendar year. However, there were a variety of ways in which large donors could lawfully hide their identity. They might make their donation to the party "anonymously". They might use a trust as an intermediatry. They might split their donation amongst a number of "straw donors", so each donation was less than $10,000. That isn't even counting a case such as occured with New Zealand First in 2007, where the party secretary apparently just neglected to tell the Electoral Commission about receiving an $80,000 donation from the "Spencer Trust"!

The upshot was that the public disclosure of sizeable donations, those of more than $10,000, effectively was voluntary in nature. Only those who wanted to reveal their identity really had to, whilst anyone wishing to hide could do so easily and lawfully. Such a regulatory system seems pretty pointless - it's precisely those who may have something to hide that the public has the greatest interest in knowing about.

So even though New Zealand has an enviable reputation for clean government, there still was something disquieting about our political parties receiving hundreds of thousands of dollars from private sources that remained secret. Certainly it seemed to be at odds with the norms of transparency and openness that we demand in other areas of public life.

The Electoral Finance Act sought to remedy this situation by limiting to $1000 the amount that parties could receive from a single anonymous donation, as well as requiring trusts and others passing on donations to a party to identify anyone who had contributed more than $1000 towards that donation. However, it did so through provisions that apparently were whipped up in just two days during the select committee stage, which never is a good way to try and create new legislation. Rather than being a complete fix, it represented a band-aid slapped over the most obvious loopholes in the existing law.

So it's hardly surprising that the Electoral Commission's recent release of the parties' reported donations for 2008 does not represent much of an improvement in the overall transparency of election funding in New Zealand. National only reported receiving $207,000 in donations over $10,000, with Labour reporting $420,000. This compares with National's reported receipt of $1,880,000 in donations over $10,000 for 2005, and Labour's $930,000.

So why have the amounts of disclosed donations changed so markedly? One possible explanation is that the parties are getting and spending less. But that just doesn't wash. In 2008, both National and Labour reported over $2.2 million in "election expenses", which does not even include money used for things like opinion polling, travel, media training, etc. That's pretty much the same amount as they reported in 2005. So if the parties are still spending large, where's their money coming from?

I've a few thoughts. One source is the clear out that both National and Labour did of their various trusts and anonymous benefactors in late 2007, before the new disclosure rules came in. So National declared donations of $704,000 in 2007, while Labour declared $1.3 million (bumped up by its "big whip round" to pay off its pledge card debt). A second source might be increased "grassroots" fundraising of amounts under the $10,000 disclosure threshold. A third could be debt; it may be that one or both of our two main political parties is going broke. However, a fourth source will be donors who still gave more than $10,000, but did so in ways that evade the terms of the new disclosure rules.

How do they do that? A family may choose to give $9,999 per family member, including each of the kids. Or several related companies may choose to give $9,999 each to the same party. Or a donor may decide to give a $999 "anonymous" donation to a party every week for six months. Or a donor might set up fifty trusts, give $999 to each, then have them give that amount to a party... And so on. All would be perfectly legal under the new rules.

The tough question then is what to do about all this. It is a question National's public consultation process on electoral funding reform will have to grapple with. It is a question that bedevils democracies around the world. I'm not sure I have a full answer to it. Perhaps you do – if so, you should share it with the rest of us.

Comments (11)

by Graeme Edgeler on May 08, 2009
Graeme Edgeler

You don't need all the 9's. Donations of exactly $10,000 aren't disclosable, and anonymous donations of exactly $1000 are allowed.

I'd argue, however, that if someone was giving $10,000 from each of their kids, those kids would be transmitters and would have to own up to who gave them the money, and it would all then be disclosable.

by Andrew Geddis on May 08, 2009
Andrew Geddis

Graeme,

But $999 and $9,999 just looks better ... much more sinister.

With respect to "I'd argue, however, that if someone was giving $10,000 from each of their kids, those kids would be transmitters and would have to own up to who gave them the money, and it would all then be disclosable", a couple of points:

(1) As a formal legal matter, I am not so sure. If daddy or mommy "give" child X $10,000 (or $9999), and then exercise their power of parental decision making that child X "wishes" to give their money to a particular party, is the child really a "transmitter" under the Electoral Act? If a "donor" is "a person who makes a donation", and a "transmitter" is "a person to whom a donor gives or sends a donation for transmittal to a candidate or party", then why isn't child X a "donor"? Or is it impossible for a child to ever be a "donor" under the Act (assuming the child gets his/her money from Mum and Dad, not from a paper round or similar)?

(2) In any case, as a practical matter, the donation would be untraceable. Even if the kid has a legal duty to disclose, they ain't going to do it. And provided the party looks away, it'll never leak out. 

by Graeme Edgeler on May 08, 2009
Graeme Edgeler

1. It is possible that Child X is a donor. I would suggest in that case, the donation was a donation funded from contributions. That would increase the disclosure limit (donations aren't aggregated with contributions for the purpose of disclosure), but it wouldn't allow complete (legal) avoidance.

2. Nicky Hager and Phil Kitchin might disagree.

by Andrew Geddis on May 08, 2009
Andrew Geddis

On point (1), what if the money already was in a bank account in the child's name (i.e. Mummy and Daddy have, perhaps for tax reasons, perhaps for other reasons, established a bank account for child X with over $10,000 in it)? That money has been there for, say, 6 months. Mummy or Daddy then decide to take $10,000 out of it and give it to a party in Child X's name. Is this then a donation made up of "contributions" (i.e. was the money originally "given [to Child X] in the knowledge or expectation (whether by reference to a trust, agreement, or understanding) that it would be wholly or partly applied to make up, or to be included in, or to fund, a donation")? Would it then make a difference if the parents then topped the bank account up by $10,000?

Phew ... tough stuff!

by Graeme Edgeler on May 08, 2009
Graeme Edgeler

Mummy or Daddy then decide to take $10,000 out of it and give it to a party in Child X's name.

This is a donation from the parents. You can't make a donation in someone else's name. You can make a donation, and you can transmit a donation. Child X can make a donation, Child X can make a donation transmitted through the parents, or Child X's parents can make a donation with money they've taken from Child X.

If you rob a bank, and then give the money to a political party, does it matter that the bank is Westpac and thus forbidden from making donations because it's a foreign company?

by Andrew Geddis on May 08, 2009
Andrew Geddis

Wouldn't the more apposite example be that of a person who has given power of attorney to another (say an elderly person suffering Alzheimer's gives power of attorney to his/her lawyer). The lawyer knows the elderly person is a life-long supporter of a party. So he/she decides to make a donation from the elderly person's funds to that party. I'd regard this as a straight donation from the elderly person to the party ... it's not a "transmission" of a donation (there's no "giving or sending" of a donation to the lawyer), nor was it funded from a "contribution" (there's no "knowledge or expectation (whether by reference to a trust, agreement, or understanding) that [the elderly person's property] would be wholly or partly applied to make up, or to be included in, or to fund, a donation.") Or am I wrong on this?

And if I am right that THIS is a straight donation from the elderly person, then I can't see how my example of the child is different ... someone with legal authority to decide how to use another's property (cf your bank robber and Westpac example) is using that authority to donate the other's property to a party. Whether this SHOULD show up as a donation by the person with authority is a moot point ... I just don't know that under present law it has to.

by DeepRed on May 09, 2009
DeepRed

I recall around the 1996 general election, there was an exposé in the Sunday Star Times of Roundtable lieutenant Trevor Farmer chanelling his donations through various family members, in order to circumvent any semblance of transparency.

by Andrew Geddis on May 09, 2009
Andrew Geddis

Quite right Matthew - and under the legislation at that time, his actions were undoubtedly lawful. As you can see from Graeme and my discussion above, things are a little less clear under the Electoral Finance Act rules (that still apply today).

by Bruce Thorpe on May 10, 2009
Bruce Thorpe

The limit seems to be the cause of the problem. If all donations, regardless of amount, were listed there would be little room for evasion.

Each party to publish by means of public notice all funding received every six months and as a condition to participating in each election ie six weeks before voting day..

by Adolf Fiinkensein on May 10, 2009
Adolf Fiinkensein

Hang on a minute.

".....things are a little less clear under the Electoral Finance Act rules (that still apply today)."

Has this Act not been repealled?  My understanding (which might be flawed) is that the old pre EFA rules apply in the meantime.

by Andrew Geddis on May 10, 2009
Andrew Geddis

Bruce,

The problem with listing ALL donations is what to do about the passer-by who pays $3 for a sausage from a party fund-raising
stall (do we really want to force them to fill out a disclosure form for this amount of money?). Perhaps, though, we could lower the disclosure threshold to (say) $500, and demand the more regular disclosure of all who give in excess of this?

Adolf,

Yes, the Electoral Finance Act has been repealled. But National kept the donation disclosure rules from that legislation and incorporated them into the Electoral Act 1993 (which is what governs us at present). That, incidentally, was what they promised to do pre-election.

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