In the 2001 federal election, advertising spending by the major political parties topped $30 million. This time, the figure is sure to be higher, raising questions such as: do donations buy favours? And how might we reform the system?
Politicians routinely deny that money influences the way they vote; money buys access, not outcomes. Yet as Kim Beazley admitted, "It is simply naive to believe that no big donor is ever likely to want his cut some time".
Do political donations affect policy outcomes? In the absence of persuasive local research on the topic, two recent US studies use a simple insight: if donations do not buy results, then a company's share prices should be unaffected by its political donations. But if donations shift policy outcomes, then firms who give a lot of money should find their share price affected by which way the political wind is blowing.
Brian Knight, of Brown University, looked at the relationship between party donations and share prices during the 2000 presidential election campaign. He found that when the probability of a Bush victory rose, firms that had given more money to the Republican Party increased in value. Conversely, when the probability of a Gore victory was higher, the share prices of Democratic Party donors rose.
Seema Jayachandran, of the University of California, Los Angeles, takes a somewhat different tack, focusing on a single event: the unexpected resignation of Senator Jim Jeffords from the Republican Party in May 2001, tipping control of the US Senate to the Democrats. In the week following the switch, firms lost 0.25 per cent of their sharemarket value for every $100,000 they gave to the Republicans in the previous election cycle.
While US politicians and firms may say that donations don't buy influence, the sharemarket disagrees. Is this true in Australia? Some clues might be offered by sorting through Australia's political donations system, using data from www.democracy4sale.org, an innovative new election donations database produced by the NSW Greens, which classifies donors by industry. For simplicity, I pool donations over the past five years.
Looking not at total donations, but where the gap between donations to the federal Coalition and federal Labor was largest, the biggest advantages for the Coalition were in the finance sector (ANZ, JP Morgan), food and pastoral (Inghams, Manildra), industrial and manufacturing (Pratt, Amcor) and resource companies.
Sectors that most strongly favoured the ALP were professional firms (accounting, law), clubs and hotels (the Australian Hotels Association) and the union movement.
Based on US evidence, it might not be surprising to see some degree of favouritism towards the sectors most generous in donating money towards each party. Is there any better way of structuring the system? Perhaps. One option would be to adopt a system of blind trusts for political donations.
An individual or company who wished to donate to a party would not be permitted to give directly, but would deposit the money into a blind trust. The donor would get a receipt showing the amount, but not the recipient. For their part, the party would know their net receipts for the previous month, but not the particular amounts, nor the donors. Variants of this scheme have been successfully implemented in Chile and South Korea.
The advantage of blind trusts over reforms such as pure public funding or strict ceilings on donations is that they encourage people to put money into politics. Large political donations should not be troubling in themselves. Indeed, with Telstra's advertising spending this year likely to exceed that of all political parties combined, there is a good argument that there is too little money in Australian politics, not too much. The challenge is to break the link between donations and favours.
Making all political donations anonymous would prevent corruption without impoverishing the system. Better, such an innovation may serve as an example to the world. Just as Australia quashed vote-buying by inventing the secret ballot, so a system of blind trusts could allow effective fundraising to continue, but without the risks of influence-peddling inherent in the present system.