Our democracy encourages corruption and undue influence

New laws make it even harder to see who donates to political parties.

On Australia Day, the Prime Minister described this country as a "great democracy". This claim is not without truth. Freedom is one measure of a democracy and we can be assured that the coming federal elections will be free in one respect: donors will be free to donate as they wish and parties free to receive whatever money they wish.

Such freedom has seen large sums of money changing hands. Lack of Australian residence is no impediment, with a British peer, Lord Ashcroft, donating $1million to the Liberal Party in the 2004-05 financial year. Some big donors also carefully hedge their bets. In the last financial year, for instance, Inghams Enterprises, ANZ and Westpac were among the top 10 donors federally to both the ALP and Liberal Party.

Money also goes where power is held. State governments are responsible for the gambling regulation; no coincidence then that gaming companies such as Tabcorp and Tattersall's tend to give disproportionately more to the state branches of the major parties compared with their federal counterparts.

Increasingly, the freedom to donate also comes with the ability to cloak contributions with secrecy. Long-standing problems with transparency were exacerbated by 2006 amendments that increased the threshold at which details of donations were to be disclosed from $1,500 to $10,000. According to Commonwealth Parliamentary Library research, this will likely reduce the proportion of declared donations from 74.7 per cent to 64.1 per cent.

The "greatness" of Australia's democracy comes into sharper relief when the regulation of other countries is compared. In contrast with Australia's system of annual disclosure, UK and Canadian laws require parties to lodge quarterly returns, with weekly reports required in the UK during election times. In the United States, monthly disclosure is generally required. Unlike Australia, these countries have also seen fit to impose limits on contributions (for example, Canada and US) and spending (for example, Britain).

The quality of a democracy is, of course, not to be solely measured in terms of the freedom it offers. The cardinal democratic virtue is arguably that of political equality or, in the Prime Minister's words, "the idea of equality of opportunity". On this count, we see even further greatness of Australia's democracy.

Money allows some to speak much louder than others. For example, businesses and wealthy individuals are able to secure influence over parliamentarians through the purchase of political access. In the last financial year, both Tabcorp and Tattersall's gave $10,000 to Progressive Business, presumably for membership of the organisation. Membership of this fund-raising arm of the Victorian ALP would have entitled them to attend closed-door ministerial briefings by Premier Steve Bracks and Treasurer John Brumby. Such secret meetings give rise, at the very least, to an apprehension of undue influence and corruption.

Inequality among citizens also comes hand in hand with inequality among the parties. When the parties' budgets for the last financial year are divided by the number of first-preference votes they received in the 2004 election, the figures show how the field is far from level. The ALP and the Nationals received about four times the amount of total funding per vote compared with the Greens while the Liberals fared a bit worse with their funding per vote nearly three times that of the Greens. Or take another indicator: recent ads run by the ALP on Kevin Rudd were estimated to have cost $100,000; a sum that amounts to nearly one-sixth of the Democrats' budget in the last financial year.

The secrecy and inequality that attends political donations is hardly exceptional. Secrecy is also a hallmark of political spending and the use of parliamentary entitlements and government resources. Not only does the distribution of private funds favour the Coalition and ALP, so do election funding, parliamentary entitlements and public resources such as government advertising.

This is perhaps what Australia's "great democracy" amounts to. It is a secret system that hinders informed voter decisions and impairs public accountability. Corruption and undue influence lie in the wake of such secrecy. It is a skewed system with institutional rules designed to protect the joint interests of the major parties by arming them with far greater war chests than minor parties and new competitors.

If, as the Prime Minister says, "the notion of a fair go" is central to Australian values, the system is in dire need of reform. Funding received by political parties must be made properly transparent, with lower disclosure thresholds and more frequent disclosure. There should be limits on large contributions and restraint of the parties' demand for money. Such demand is principally driven by the perceived need to match the spending of competitors.

In the absence of regulation, we face the prospect of a spending race among the major parties. To guard against this, we need to institute limits on the amount that parties can spend.