A concerned politician's guide to donations reform

I think what the Australian political system needs is a real shock to the system. It needs shaking up. And if Senator Dastyari's problems lead to this shaking up, then that's only got to be a good thing.' (Emeritus Professor John Warhurst, ANU, interviewed by ABC journalist Sabra Lane, 8/9/2016)

An earlier paper suggested it was impossible to find any serious defence of the practice whereby political parties rely on large, secret donations to fund election campaigns. That was before labor shadow Minister Sam Dastyari admitted soliciting $1670 from a company linked to the Chinese Government, igniting a much wider debate on the funding of parties and candidates.

Why is the practice so widely condemned? First because of the risk of corruption, seen in the 'tit for tat' secret deals in NSW in recent years, but also in what critics call 'soft corruption' and the High Court has labelled 'clientilism', where there is no actual deal but a symbiosis - an ongoing relationship in which each side knows where its interests lie and acts accordingly.

A typical case of the latter is cited by Luca Belgiorno-Nettis, a wealthy industrialist and former donor to both major parties, who in 1987 proposed and won an unsolicited bid to build a Sydney Harbour tunnel for $750 million. On the ABC program 'Money and Influence' on May 24 he agreed his donations played a role in this success. He now believes the practice of buying access to ministers is wrong in principle.

In addition to this distortion of the democratic process by hard and soft corruption, there is an arguably more serious distortion in the use of large donations in advertising campaigns which aim to saturate TV, print and radio coverage in order to sway public opinion during the election period; the effect is to drown out the voices and dilute the voting power of ordinary citizens.

The latter part of this essay will argue that this distortion of the democratic process by private wealth cannot be reconciled with a principle the High Court has recently found to be implied in the Constitution. While this 'egalitarian' principle has major consequences for the reform of donation laws, it has barely caught the attention of constitutional lawyers and political philosophers.

However that may be, the question is whether current attempts to defend the practice of political donations, or to pursue only limited or token reforms (such as constraints on foreign donations) are plausible, and one way to begin is to get a sense of what the leading politicians are saying, including former PM John Howard, now an elder statesman and Liberal icon, and current PM Malcolm Turnbull.

While intra-party views differ widely, there is a clear Liberal/Labor division based on a distinction argued by Defence Minister Christopher Pyne and Attorney-General George Brandis that it is (in Pyne's words) 'perfectly justifiable' to solicit foreign donations so long as they are not used to pay one's personal debts. Otherwise, it 'doesn't compromise either the Liberal Party or individual MPs, because 'people are entitled to support the political party of their choice.'

Brandis tried to clarify this distinction when questioned by a skeptical Michael Brissenden on the ABC's AM program on 6th September:

Brissenden,

The Greens want to work to reform the donation laws, Labor wants reform, some in your own party want this .... Are you open to the idea?

Brandis

… that is a different conversation. The issue for today is Senator Dastyari and I think it confuses the issue to speak of this payment as a donation to Senator Dastyari. It wasn't a donation, it was a gift. It was the payment of money into his bank account to settle a personal debt, by a company with very close links to the Chinese state.… it's no different to if someone had given him a bundle of cash and he put it in his pocket.

Next morning ABC journalist Leigh Sales grilled Barnaby Joyce, Nationals leader and deputy prime minister, on the difference - she asked him to explain how Gina Rinehart's $50,000 donation to his 2013 election campaign was any different to Dastyari accepting $1670 to pay a travel debt. Joyce said the difference was that it went to a political party, and was "auditable', whereas Dastyari had taken the money for himself.

Joyce,

What we have here is a direct cash payment to an individual by an entity closely associated with the Chinese Government and at the same time, so there's definitely correlation - a substantive change to a policy … Mr Shorten has to explain this.

When pressed further about Rinehart's donation, Joyce tried to avoid the question by saying other parties got donations as well. But Sales persisted:

What do you think that you have to give her in response? Is it access? Why does she give that money? What does she expect? I'm asking you what you - do you think you have to take phone calls from people or attend functions? What do you think you have to do?

Joyce:

To be honest, Ms Rinehart, I haven't had to give anything. They are strongly of the conservative side of politics. There's no doubt about it. They support the conservative side of politics. They're Australian. It goes via a political party. It's auditable.

On the same day (September 6^th) Joyce was explaining to Leigh Sales the difference between a personal gift and a political donation, former PM John Howard was booked to address the National Press Club in Canberra. He would have anticipated a question and responded with a defence of traditional Liberal party principles.

… fundamentally it is an attack on freedom of political activity and expression. If you limit donations to a small amount per head, that will inevitably result in massive increases in public funding. And political parties cannot run campaigns on nothing.

This was backed by an appeal to personal history, based on a dated and arguably distorted view of Labor party principles:

Having spent all of my life in a political party fighting socialism and nationalisation, it passes strange to me that people should embrace the idea of completely socialising the operation of political parties by increasing the amount of public funding, because that's the result.

It is interesting to contrast this ideological response with the very different approach by Malcolm Turnbull, as reported by Sabra Lane:

I have argued that ideally donations to political parties should be limited to people who are on the electoral role, voters. And so you would exclude not simply foreigners but you would exclude corporations and you'd exclude trade unions. I have always felt that would be a good measure.

Speaking to reporters on the sidelines of the Australia-ASEAN Summit, he agreed this would be problematical - there would be 'big legal issues and indeed some constitutional issues' involved in reform. 'It is … something that the Joint Standing Committee on Electoral Matters should look at very carefully'

While this difference between conservative and progressive views will increase party tensions Turnbull's response, based on a conviction that such problems can and should be settled by rational discussion, helps clarify what each man brings to politics. Turnbull is reflective, uncertain and open to argument, like a judge listening to arguments of legal principle. By contrast, Howard is confident and decisive, just as he was on the Apology, the Iraq War and same-sex marriage.

However that may be, the PM is clearly an in-principle advocate of the radical reform most experts favour. Prominent among these is Michael Yabsley, a former Liberal politician who also believes that large political donations are morally sleazy and wrong in principle. His knowledge is unrivalled, having been NSW corporate fundraiser from 1999 to 2003 and treasurer of the federal Party from 2008 to 2010.

When Turnbull's view was put to shadow attorney-general Mark Dreyfus, however, he appears to have thrown a legal spanner into the works - in an interview with ABC reporter Hayden Cooper 0n 8^th September, Cooper asked:

Well, you've seen what the Prime Minister said there, and that is that, sure, he's prepared to consider it as long as you also ban donations from corporations and unions. Would Labor come at that? Would you consider banning donations from unions?

Dreyfus:

The High Court has already looked at this a couple of years back and has said absolutely clearly that you can't, within our Constitution, ban corporations from making donations or ban unions from making donations.'

On its face this would rule out substantive reform, given the core of the problem is the ability of big donors, primarily business corporations and unions, to influence government to serve their interests rather than the public interest.

But the shadow minister's opinion would appear to be based on the High Court's 2013 decision in Unions New South Wales v New South Wales, which has since been superseded by a far more important decision the High Court handed down in October, 2015 - a decision which may well provide the kind of shock - of seismic constitutional importance, which Professor Warhurst is calling for.

The High Court decided Unions NSW v NSW on December 18, 2013, ruling that NSW laws on political donations and expenditure were invalid because they were in breach of an important but rarely argued implied constitutional freedom of political communication. This freedom had been recognized since 1992, but this was the first law struck down since that time for its breach. Professor Anne Twomey of the University of Sydney Law School explains the reasoning:

'The basis for the implied freedom… Is that sections of the Constitution require that the houses of parliament be directly chosen by the people. To be a genuine choice, it must be a free choice that is capable of being an informed choice. Hence, political communication is impliedly necessary to allow the people to make a free and informed choice.

The defective NSW law, introduced in 2012, had embraced the Turnbull approach - a simple, omnibus law to prohibit donations from all persons not on the NSW electoral role, thereby ruling out foreigners, corporations and trade unions in one fell swoop. The first question for the Court was did this restrict the flow of political communication, which it clearly did - it reduced the amount of political advertising by a party, and the amount of information conveyed to voters and others.

But the key question was whether it was a 'reasonable and proportionate' limitation on the freedom, because restrictive laws will still be valid if they pursue legitimate ends via proportionate means. The High Court ruled that it had no obvious legitimate purpose, which meant no further question arose as to reasonable proportionality.

New South Wales, predictably, had argued that the ban on donations would reduce the risk of corruption and undue influence. The court accepted that caps imposed on donations and spending, which were not being challenged, might well be legitimate to deter corruption, but the prohibition on some donations but not others could not be. This discrimination was relevant because NSW had adduced no evidence to show that donations by non-voters would have a greater corrupting influence than other donations.

This is a brief sketch of the central issue in a difficult and complex case, and there is room for different interpretations, including whether this case does, as Dreyfus asserts, render donations from trade unions and corporations untouchable. After all, if caps are a legitimate response to corruption, a court might rule that caps of $1000 are a 'reasonably proportionate' means to achieve this legitimate goal. And if these caps apply to all donors no problem of discrimination will arise.

However that may be, on October 7^th 2015 the High Court handed down its decision in McCloy v NSW, which is now the leading authority on the implied freedom of political communication. It ruled that New South Wales laws which banned donations from property developers did notviolate the implied constitutional freedom.

The case was brought by Jeff McCloy, a property developer and former Lord Mayor of Newcastle who regularly made political donations. But because NSW laws banned donations from developers, he risked being found by ICAC to have engaged in 'corrupt conduct'. To pre-empt this he argued in the High Court that the ban was invalid by reason of the implied freedom of political speech.

In a major contribution to Australian constitutional jurisprudence the majority judgment of French CJ, Kiefer, Keane and Bell JJ re-affirmed the logic of inference the High Court had used in 1992 to recognize the implied freedom. But it then adopted the same logic to infer a countervailing principle, no less fundamental to the proper working of the Constitution.

The need for such a principle seemed clear from McCloy's claim that he had a right to donate money to 'build and assert political power'. Political power may be acquired by many means, his lawyers argued, and paying money to a party or elected member is but one. This argument, in effect a claim that he had a constitutional right to buy political influence was, in the High Court's view, a misconceived attempt to import into Australian law a US style jurisprudence of rights.

The Court noted that a right to 'build and assert political power' cited a phrase used in 1902 by Sir William Harrison Moore, an early constitutional scholar. Moore wrote that 'only by uninhibited publication can the flow of information be secured and people informed… only by freedom of speech… and of association can people build and assert political power.'

But as the majority noted, Moore had also written that 'the great underlying principle' of the Constitution was that the rights of individuals were sufficiently secured by ensuring each an equal share in political power'. It endorsed this view, adding that 'equality of opportunity to participate in the exercise of political sovereignty is also an aspect of the representative democracy guaranteed by our Constitution.'

The High Court elaborated on this principle by citing with approval the Supreme Court of Canada, which had upheld legislative restrictions on electoral advertising on the basis they were in accordance with 'the egalitarian model of elections adopted by Parliament as an essential component of our democratic society.' The Canadian Court explained that the premise for the model was equal opportunity for participation, that wealth is the major obstacle to equal participation, and that the state can pursue this aim by restricting the voices which dominate political discourse so others may also be heard. This creates a level playing field for those who wish to engage in the electoral discourse, and thus enables voters to be better informed; 'no one voice is overwhelmed by another.'

It seems clear from these and similar remarks that the majority sees this egalitarian principle as an essential part of the justification for the restrictions and bans it will recognize on political donations. Professor Anne Twomey of the Sydney University Law School, in her October, 2015 submission to the final report of the NSW expert panel on political donations, comments:

The High Court gave very strong support to the imposition of limitations on political donations as a means of reducing or removing undue influence and facilitating the equal share of individuals in political power. It also recognized as a legitimate end the imposition of limits to prevent those with wealth from dominating political communication to the exclusion of others.

While the facilitation of an equal share of citizens in political power is an important principle it does not, as the Court makes clear, create a US style jurisprudence of rights. There is, therefore, no right to equal treatment comparable to the equal protection clause of the Bill of Rights, which famously spelled the end of US racial apartheid in 1954 in Brown's Case and subsequent decisions.

The High Court takes this stance out of respect for the doctrine of separation of powers and the idea that unelected judges have no right to legislate social policy. The same concern explains the highly structured process of reasoning required to interpret both the freedom and the equality principle, with an emphasis on transparency and the need to avoid subjective judgments based on a vague sense of fairness.

How likely, then, are low threshold caps, such as the widely discussed $1000 limit, or even a complete prohibition on donations by non-voters, to be ruled invalid because they are in breach of the freedom of political communication?

While this is a question for expert constitutional lawyers, if the implied protection of equal access to political power is as important as the majority says, and as their ruling in McCloy demonstrates, it will be hard to argue this is not a 'legitimate end', as Professor Twomey suggests. And if legislative caps or bans are an effective means to limit the distortion of voting power due to large donations, it will not help to argue they are unreasonable because they target wealthy donors, or because they do not also target corruption.

Whether the High Court may need to further clarify the relationship between these constitutional principles may now depend on the outcome of a Liberal party debate between the conservative views of John Howard and the more progressive views of the Prime Minister, as well as the willingness of major parties to re-assess their commitment to large political donations, whether from corporations, wealthy citizens, trade associations or trade unions.

Finally, and perhaps even more important, is a need to avoid the US situation where, after the Citizens United Case, wealthy donors and 'political action committees' can bypass political parties (to avoid caps on donations) and spend unlimited amounts to directly support those candidates and parties who serve their interests while targeting those who don't. The egalitarian principle stated in Mc Cloy's Case makes it clear the Government can cap or ban this third-party spending without risking a breach of the implied freedom of communication.

In summary, the High Court has now made it possible for politicians across the spectrum to support reforms which respect both the freedom of political communication and the idea that all citizens must be treated as having equal worth, arguably the nation's most important democratic principles.