The case for banning political donations

With submissions closing this week on the bill to ban political donations, Ashmit Vyas lays out three critical refinements to make the reform successful.

Photo: Tony Lewis/InDaily

Photo: Tony Lewis/InDaily

The South Australian Government’s daring plan to abolish political donations has the potential to invigorate our democracy. To dismiss it as a tactical powerplay would be to squander a golden opportunity for much-needed reform.

Concerns that the policy will undermine free speech, increase reliance on public funding and crush fledgling parties are far from insurmountable.

With the right modifications, a crackdown on political donations will fortify civic engagement and signify a sensible use of public funding.

A market for political privilege

Interest groups have long had an ironclad grip on Australian politics. Labor’s relationship with unions and the United Australia Party’s reliance on Mineralogy (both founded by Clive Palmer) are well-documented.

When the demands of multimillion-dollar institutions collide with the will of the people, it is the highest bidder who wins. This de facto market for political privilege is an affront to the most sacred principles of democracy because it allows the few to commandeer a system designed to serve the many.

A total ban on political donations is the only way to decommission that market. While donation limits may be more palatable than bans, they are unlikely to curb the influence of powerful benefactors who can contribute through an endless stream of affiliate businesses, subsidiaries and third parties. 

Peter Malinauskus’s ambition to get ‘money out of politics’ is still a tall order because an embargo on donations wouldn’t stop interest groups from campaigning independently for their preferred candidates and parties.

It comes down to tradeoffs: do we prefer a world where institutions openly participate in the public discourse or a world in which they discreetly line the pockets of their preferred candidates?

A prudent use of public funds

A ban on political donations would necessitate the use of public funds to finance election campaigns. Given the federal government’s misuse of taxpayer dollars in recent times, it’s only natural to feel uneasy about this.

But on this occasion, we’re not talking about inflationary subsidies, sanctimonious wealth transfers, or a referendum that was doomed from the outset. We’re talking about critical reform that would bolster democratic integrity: a bona fide public good. Therefore, diving into public funds is prudent – even in the eyes of yours truly, a free market enthusiast.

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Three steps to success

 The success of the South Australian proposal rests on three critical refinements.

Firstly and most obviously, “registered industrial organisations” (read: unions) cannot be exempt from the ban. If Peter Malinauskus is serious about proving that his intentions are pure, this would be a good place to start.

Secondly, spending limits must accompany any ban on political donations.

Regulated inflows and unregulated outflows would only reinforce the power of wealth in politics by allowing richer parties to outspend and outcompete their rivals.

In addition, spending limits should apply at the party level, not the electorate level, because smaller parties typically concentrate their campaign expenditure into a handful of winnable seats while larger parties distribute their spending more evenly.

Put simply, spending limits should not favour one campaigning strategy over another.

Thirdly, the division of public funding across parties should be determined through an independent committee that facilitates cross-party consensus.

Allocating funding through standard legislative procedure will entrench power in the hands of Labor and the Coalition, as these parties hold most of the seats in parliament. The funding split should account for the costs faced by each party while also granting a sufficient allowance for emerging players to enter and expand.

Figuring out the ideal split is likely to be an iterative process and one that we may not get right the first time. Experimentation must be welcomed.

At the very least, South Australia’s ban on political donations will serve as an invaluable case study for the rest of the country; a crucial first step in decommodifying political privilege.

It is impossible to break new ground without patience and perseverance. Action is hard, but inaction is fatal.

Ashmit Vyas is an analyst with HoustonKemp Economists in Sydney and describes himself as a “problem-solver committed to using economics as a force for good”.

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