An illiberal cause

Bookmark and Share Deregulation Unit | James Paterson
The Spectator Australia 7th May, 2011

The O'Farrell government should repeal Labor's undemocratic campaign finance laws.

Among the final and most cynical acts of the Labor government of NSW was a bill to rig the campaign finance system in its favour.

In November last year, with the help of the Greens on the Legislative Council, NSW Labor passed sweeping reforms which restricted electoral donations and spending, as well as campaigning by independent political and community organisations.

Reforms included spending caps for political parties in each seat and caps on donations by individuals and companies. The legislation also limited statewide spending by third parties, including unions. While union affiliation fees to the Labor party remained, the ALP assured us none would be spent on campaign activities, just ‘party administration'. Any shortfall in party funding was to be made up with massively increased public subsidies.

Inexplicably, particular industries were singled out for bans, including tobacco, alcohol and gaming. This is in addition to bans on property developers. The list appears to have been drawn up to target businesses the Greens hate the most, so no one should be surprised if logging companies, miners and anyone selling fatty fast foods are added to the list in the future. You never know, even companies that do business with Israel could be added next! Obviously, wholesome industries like the renewable energy sector remain free to donate, though given their profitability is almost entirely reliant on favourable government regulation and subsidies, it's nothing short of hypocrisy they were left out.

As a result of the reforms, NSW is left with a hideously complex set of regulations which are a compliance nightmare and substantially tilt the playing field in favour of parties of the Left. For example, the $1 million cap on political spending by third parties theoretically allowed each of NSW's 22 unions to spend a total of $22 million campaigning for the ALP, while at the same time reducing the amount the NSW Liberal party could spend on its own candidates.

Campaign finance reform is currently a fashionable political cause in Australia. Academics, broadsheet newspapers and many politicians advocate drastic changes to the way our election campaigns are financed. It's puzzling that numerous Liberal MPs are among these advocates, given the tendency of these reforms to disadvantage the Liberal party and the philosophically illiberal nature of the extensive regulation that accompanies them.

Among their number has been NSW Premier Barry O'Farrell, who is a longstanding supporter of campaign finance reform and has publicly advocated outright bans on donations from companies and unions.

While it is clear former Premier Kristina Keneally and the Greens delivered a bastardised version of O'Farrell's plans, it remains true that the political climate was made favourable towards radical reform in part because of urgings by Liberals. This bitter experience should serve as a warning for other Liberals about the perils of supporting campaign finance regulation.

Many Liberal MPs, understandably, do not enjoy raising money. Some genuinely think reform would make our political system healthier. Others hope it will curtail the outsized influence unions have on the political process.

This is fundamentally misguided. For a start, unions derive only some of their influence from their financial might. At least as much, if not more, comes from their historical and cultural links to the ALP, their positions of power on its executive and their control over preselection. Removing union donations will not end union influence.

It might, however, reduce business influence in politics. Many companies buy a seat at the table of both major political parties through their donations. It doesn't guarantee them a favourable decision, but it does help them to be heard. Ending donations from both businesses and unions could end one source of often sensible influence on political parties in the name of economic reform.

But this is just one of the reasons Liberal support for campaign finance regulation is misguided. Another is its utter incompatibility with liberal philosophy. For example, with what do reformers propose to fill the gaps left by reduced private fundraising? Your taxes, of course. Aside from the fact that there is a long list of better ways to spend this money - returning it to taxpayers through tax cuts being just one - political parties should realise that increased public funding is a double-edged sword, at best.

Political parties already test the patience and goodwill of voters at election time by clogging their letterboxes with campaign literature and bombarding them with television and radio advertisements. Imagine how tolerant voters would be if they knew they were paying for almost all of it.

And if political parties rely on a substantial proportion - perhaps even a majority - of their funding coming from the public purse, they will struggle to resist calls for greater government interference in the running of their internal party operations. Don't be surprised when activists start calling for affirmative action in Liberal preselections, or secret-ballot elections conducted by the AEC for internal ALP elections. If political parties are funded like public service departments, they can expect to be treated like them.

The US's experience of campaign finance reform demonstrates the most fundamental reason why Australian policymakers should reject the regulatory approach: it doesn't work. Attempts to restrict donations from companies and to place strict limits on the donations of individuals have dismally failed.

Today in the US, instead of companies donating to candidates, all their top executives do. Unions and companies also donate to, or even set up, special advocacy organisations which can receive almost limitless donations which are then used for political campaigns.

Attempts to restrict their activity have meant they've simply changed the style and language of their commercials. For example, instead of advocating a vote in favour of or against a sitting congressman, these lobby groups will run ‘issue advocacy' campaigns that highlight all the tax increases the congressman voted for or funding for education they voted against.

What all attempts to regulate campaign finance, both here and overseas, appear to overlook is that individuals, companies and unions will always seek to influence a government that intervenes in society and the economy.

While governments hand out subsidies and regulate industries to the benefit of some and the cost of others, people will always seek to influence them for their own benefit. For many companies, favourable government decisions are the difference between profit and loss. Securing government contracts, favourable regulation and financial assistance is as important in some industries as a good marketing or efficient HR.

Regulating the ways in which individuals and others can donate to parties will not make donations go away. If reformers really want money out of politics, their best course of action would be to pursue a smaller government that treads more lightly regarding society and the economy. Big government will always attract influence-peddlers.

Campaign finance regulation hurts the Liberal party, is inconsistent with liberal philosophy and does not even achieve its goals. Sadly, the early indications from the new NSW government is that it favours an even more regulatory approach, by banning all party donations from third party groups such as unions. They would be better advised to opt for a neutral donations system with minimal regulation.