Below is the text of an address on the noxious effects of money and lobbying on Government decision-making given to ICAN, The Independent Community Accountability Network by Associate Professor The Hon. Dr Ken Coghill.

This talk was given at an event held on Wednesday 28th October 2015 in the  McPhee Room, Owen Dixon Chambers, 205 William Street Melbourne

ICAN (Independent Community Accountability Network) is a community based organisation dedicated to promoting the accountability, integrity and
transparency of governments.

ICAN can be contacted at ican2014@bigpond.com for more information on future events.


 

ICAN (Independent Community Accountability Network) free forum; “Buying Power”.

Tackling “Buying Power” by Ken Coghill

Ample evidence of the risks of corruption associated with donations to Australian political parties has been published by Royce Millar and his colleagues in Victoria and has been exposed by ICAC in New South Wales in recent times and by the WA Inc. Royal Commission in earlier times.

My purpose is to look to reforms that could reduce and largely eliminate those risks. Let us learn from what has been done outside Victoria. In doing so, let us consider whether those reforms have addressed the disease or only the symptoms and if the latter, what follows from that.

Firstly, let us consider what has been done elsewhere. The stand-out models are New South Wales and Canada.

New South Wales has a long history and reputation for corrupt behaviour. Evidence presented to ICAC serves to confirm that. The corrupting influence of donations from property developers on the public interest has been recognised by the NSW ALP. A ban on developers’ donations was introduced into the NSW Parliament in November 2009, in response to corrupting effects on planning decisions of large donations especially by property developers to parties and candidates in state and local government elections. In one case, tens of thousands of dollars in donations were received by the planning minister’s campaign fund. These were disbursed to other Labor candidates, according to the Sydney Morning Herald.

Since 2009, whether a Labor Minister creating enormous wealth for a “mate” by approving coal mining on his land or Liberals accepting wads of cash from developers and seeking to evade NSW law by channelling donations through another jurisdiction, it is clear that “whatever it takes” continued to thrive in that state.

Victoria does not share that reputation but one has only to ask why it is that donations by developers have switched to whichever political party is in power or is predicted to win the forthcoming election to suspect that this state is not so different to NSW. Add to that the fierce resistance to reform said to originate from Labor sources closely associated with certain developers and one begins to question Victoria’s reputation.

Big donations by businesses that profit from government decisions occur in Victoria too. Australian Electoral Commission (AEC) figures show property development and construction firms to be consistently amongst the biggest political donors in Victoria.

Closer examination raises further suspicions of the donors’ motives. AEC figures show that donations are often greater to political parties which appear well-placed to win the following election. Donations by the same business donors often fall following defeat of the party in government. For example, the Kennett Government was not expected to lose the 1999 election and received generous donations in 1998-99. Donations to the Liberal Party from several of these sources shrank dramatically from then. Not surprisingly, many of these same businesses increased their contributions to the ALP in the same period.

The risks are obvious where planning decisions on donors’ projects are pulled in and finalised by the Planning Minister. No matter how he arrives at his decision, people ask if he was influenced by the generosity of the donor when he approves a development, especially if opposed by the community.

The ill-thought-out decision to approve massive development of Fisherman’s Bend created enormous wealth at the stroke of Mathew Guy’s ministerial pen. Every donation to the Liberal Party from any person or business with a direct or indirect interest in any part of that development must now be under suspicion of receiving a benefit corruptly. That suspicion must fall on land-holders, consultants and construction companies and anyone else profiting from that extra-ordinary decision.

But, developers are not the only business donors who benefit from government decisions.

Gambling businesses have profited hugely from licences issued by State Governments. Tattersalls and Tabcorp were very generous of donors to the party expected to win the next election – Kennett Liberals in 1999 and ALP since. The amounts are huge: a total of $150,000 in 1998-9 of which $130,000 went to the Liberals. After that until 2006: $161,000 to the ALP and only $59,000 to the Liberals. But even that reduced amount may influence Opposition policy and decisions on gambling legislation and regulation. More insidious are the donations by the large consulting businesses and law firms who are so often engaged to advise on drafting documents affecting almost every aspect of life.

History shows donations are a fickle form of party income. Donors who were generous to the ALP in Government hardly recognised the Liberals in Opposition. There have been massive trends for special interest organisations to donate to the governing party, whilst most gave nothing to the Oppositions’ national office. The Australian Hotels Association have given to both but at times at least 13 industry and professional associations including the Master Builders Australia and the Pharmacy Guild of Australia gave only to the governing party.

Every such donation leaves a very unpleasant smell around the integrity of both donor and government.

However, there are other risks to governing political parties. There are too-cosy relationships between party fund-raisers and donors. The momentary advantage for the party in government will turn to major disadvantage as soon as donors sniff electoral change in the wind. Donors who follow government will desert the governing party when the electoral tide turns.

Why do directors approve political donations?

A director’s duties as set out in corporations law provide a further ground for restrictions on the donation of corporate resources. Directors of a corporation are bound to act in the best interests of the corporation. Donations thereby create a “catch 22” situation.

If directors make donate funds or other resources to a political party or candidate there can only be one legitimate ground on which they can justify that i.e. that it is to the (potential) benefit of the corporation. That ground is implicitly corrupt as it relies upon a belief that the donation will influence decision making by the party if elected or re-elected to government.

If the corporation donates resources claiming that it is not in the beneficial interest of the corporation to do so, directors have breached their duty to act in the best interests of the corporation.

Similar arguments apply to the donation of corporate resources to other individuals or organisations which participate in election campaigns.

Perhaps it is for these reasons that only a tiny fraction of companies donate to political parties. Could it be that largely those whose directors have not considered, or have knowingly disregarded their duties, to their companies who have chosen to donate?

Thus it is desirable that the law affecting donations to candidates and parties mirror the directors’ duties provisions of corporations law and that candidates and political parties be bound by complementary provisions i.e. legal provisions affecting donors and recipients complement each other.

NSW Electoral Campaign Finance Reforms

NSW has introduced a succession of reforms which now include

  • caps on donations
  • limits on campaign expenditure
  • limiting donors to persons on the NSW electoral roll, effectively banning business and union donations
  • public funding reimbursement from the Election Campaigns Fund of expenses by candidates and political parties (up to limits)
  • payments to political parties from the Administration Fund and the Policy Development Fund (Electoral Commission NSW, 2015; Khan, 2015).

These reforms have survived recent challenges in the High Court.

Canada’s Electoral Finance Regulation

Canada has also introduced a succession of reforms which now provide:

  • limits on campaign expenditure by candidates and political parties & associated reporting requirements
  • limits on campaign expenditure by third parties & associated reporting requirements
  • limits on campaign expenditure by candidates and political parties
  • limiting donors to individual persons
  • limiting donations to C$1,500 per year
  • banning donations by businesses and unions
  • restrictions banning political loans to candidates and political parties
  • partial reimbursement of elections spending by candidates and political parties (on a stepped scale)
  • tax credits for donations to candidates and political parties (Smith, 2015).

In Canada, there is now no per-vote public funding (Smith, 2015).

Continuous up-to-date disclosure of donations does not appear to be required in either jurisdiction, although it would be technically simple and easy as parties keep up-to-date electronic records to enable compliance with caps in such jurisdictions.

What’s missing from these models?

Each of these NSW and Canadian provisions addresses and suppresses at least some of the symptoms but does it really deal with the disease?

What is the disease? The disease is the neglect, if not outright rejection in some cases, of the responsibility of the Member of Parliament (MP; includes minister) to accept, respect and practice the duties of his or her public office.

We have it on the authority of the High Court and of Chief Justices that an MP is a public officer. We have it on their authority that the manner in which public officers discharge their responsibilities (in their individual capacities and collectively through public sector institutions) derives from the Magna Carta and is expressed as fiduciary duty and the public trust.

The MP occupying public office exercises a public trust. He or she exercises power for the benefit of the community, as a trustee for the community. As a trustee he or she has fiduciary obligations to the community as beneficiaries (French, 2011). The implications of this are that

the fiduciary duty of loyalty requires fiduciaries to put their principals’ interests ahead of their own; it requires fiduciaries to act altruistically. … The duty demands a general denial of self-interest: the fiduciary role proscribes certain perfectly legitimate activities unless the principal consents to the fiduciary’s involvement. The fiduciary’s personal autonomy is correspondingly constrained (Worthington, 2003).

It is on this foundation that it is argued that “the most fundamental of fiduciary relations in our society is that which exists between the community (the people) and the State and its agencies that serve the community” (French, 2011). As Chief Justice French puts it: “echoes of the concept of fiduciary obligation are to be found in the standards which the law imposes upon the exercise of official power by admin decision-makers” (French, 2011). Accordingly the public officers and public offices of the State of Victoria have responsibilities as fiduciaries to discharge a public trust – to serve the public interest.

If practised by MPs and respected by those who would corruptly seek advantage, these principles would obviate the need to restrict political donations.

However, we are stuck with people who will corruptly seek advantage and those MPs and political parties who will accommodate them! I leave the ethical implications to my colleague, Dr Cristina Neesham.

What is the incentive?

Superficially, the motive is greed, but why does greed find expression?

In almost all cases, particularly that involving developers, we are dealing with vastly increased market value created by the exercise of the public trust – e.g. by MPs, usually ministers, using their legal powers to change the permitted use of land or the extraction of mineral resources.

In some cases, the person awarded this approval does absolutely nothing with it other than on-sell it and pocket the capital gain. These are State Government powers but the State captures nothing of the capital gain.

Here lies the crux of the problem: MPs exercising State power for the benefit of selected individuals or corporations instead of the community.

Were the State to capture the wealth which it creates by the stroke of the ministerial pen, less the bona fide expenses in bringing the proposal before government for approval, then the incentive to corrupt the minister, the political party or more probably both, would disappear.

But there is more!

However, the analysis we have considered thus far assumes that the only problem surrounds political parties and elections every three or four years. We have ignored the community’s role in democratic decision-making between elections. By doing so, we concentrate power in time and place and overlook models with potential to disperse and improve decision-making.

Participatory and deliberative democratic techniques have been shown to improve decision-making and social outcomes. They have the added advantage of being less susceptible to corrupt influence over individuals exercising exclusive authority.

There are numerous examples including the City of Melbourne’s recent People’s Panel which drew up a five to ten year strategy, the resolution of major land use planning questions under Alannah MacTiernan’s administration as WA Minister for Planning and the fascinating evidence from Brazil where participatory budgeting has improved social outcomes in many cities (MacTiernan, 2014; Reece, 2015; Souza, 2001; Touchton & Wampler, 2014; Wampler & Touchton, 2014).

Conclusion

In summary, both the disease and its symptoms should be addressed in three ways.

The disease should be addressed because its incidence can greatly reduced by eliminating the infectious agent where-ever possible, knowing that it will survive undetected, just as does bubonic plague. If State approvals processes can be reformed to capture the net value they create, we can dramatically reduce the risks of political corruption.

Secondly, by addressing the symptoms we can largely eliminate both the risks of political corruption and solve other problems such as the inequality of political power.

Thirdly, a re-think of representative democracy to add complementary participatory and deliberative techniques would both reduce the risks of corruption and improve the quality of democratic governance.

References

  • Electoral Commission NSW. (2015). Public Funding of Election Campaigns. http://www.efa.nsw.gov.au/election_funding/public_funding_of_election_campaigns
  • French, R. (2011). Public Office and Public Trust. Seventh Annual St Thomas More Forum Lecture. Canberra.
  • Khan, T. (2015). The Price in Politics: the New South Wales Experience. The Parliamentarian, 168-171.
  • MacTiernan, A. (2014, 21 October). Making it Marvellous: Enriching Democracy. Speech to Electoral Regulation Research Network.
  • Reece, N. (2015, 29 June). Experiment Pays Off: Melbourne’s People’s Panel produces quality policy. The Age.
  • Smith, D. (2015). Canadian Electoral Finance in the 21st Century. The Parliamentarian, 160-163.
  • Souza, C. (2001). Participatory budgeting in Brazilian cities: limits and possibilities in building democratic institutions. Environment & Urbanization, 13 (1), 159-184.
  • Touchton, M., & Wampler, B. (2014). Improving Social Well-Being Through New Democratic Institutions. Comparative Political Studies, 47. doi: 10.1177/0010414013512601
  • Wampler, B., & Touchton, M. (2014). Brazil let its citizens make decisions about city budgets. Here’s what happened. Washington Post. https://washingtonpost.com/news/monkey-cage/wp/2014/01/22/brazil-let-its-citizens-make-decisions-about-city-budgets-heres-what-happened/
  • Worthington, S. (2003). Equity Oxford University Press.