Political Roundup: Govt review of political donations will make the problem worse

The ultra-wealthy have an outsized impact on New Zealand politics. This undue influence is partly enabled by donations to political parties and campaigns, and we’ve already seen in the current electoral cycle very large and unequal amounts of money being made available to the parties.

For example, since the start of 2022, donations declared to National and Act have been about eight times higher than to Labour and the Greens. Of course, at other times, it’s been around the other way – with Labour and the Greens bringing in more money than National and Act.

This uneven playing field goes to show just how unfair and undemocratic the New Zealand electoral system can be. And suspicions continue that it’s the influence of the wealthy that prevents governments, including Labour-led ones, from implementing policies that might help the poor or working class.

Hence, demands for reforming the rules about money in politics continue. The latest attempt at reform is the Labour Government’s “Independent Electoral Review”, which has put forward some radical proposals to clamp down on donations from the wealthy.

The problem is these reform proposals threaten to inadvertently make the problems of money in politics much worse, giving even more power to those who can afford to fund politics. The risk is the Government Review’s proposals will promote an American-style politics of aggressive election campaigning in which there is, counterintuitively, much less regulation of large donations.

The Govt Review proposals to fix money in politics

Labour’s Independent Electoral Review has recommended that the following major changes be made to donation rules:

1. A prohibition on donations being made to parties and candidates from any interest group, business, trade union, or trust – instead, only individuals who are enrolled to vote will be allowed to donate, and

2. Donations will not be allowed above about $10,000 per year (via a cap of $30,000 for any individual giving to a party over the three-year electoral cycle).

These radical proposals might be well received by many opponents of big money in politics. After all, such blunt measures would appear to clamp down strongly on the rich being able to buy influence from politicians.

The proposals even appear elegant in simply outlawing any donations from anyone other than voters. After all, the logic goes that if you aren’t entitled to vote, why should you be allowed to contribute to politicians? And such a rule would appear to make the regulation and control of donations much easier, as regulators could more easily keep track of who is donating to whom.

Putting a $10,000 cap on donations will also be superficially attractive – as those donations currently going to National and Act in the region of $50,000 or even $500,000 will simply be prohibited.

Why the Govt review proposals will make political donations rules worse

In attempting to fix the problems of money in politics there’s always a desire to find a “silver bullet”. However, the reality is inevitably more complicated. While it’s true that these donation proposals, if implemented, would have a huge impact on the political system, they would also produce some radically unintended results.

Unintended consequences are a common outcome in the ongoing struggle to suppress the power of money in politics. Often reformers attempt to clamp down on wealthy influences with well-intended policies, but it normally just pushes the money to other parts of the political system.

Political scientists talk about the hydraulic nature of money in politics – like high-pressure water, money is prone to finding a way through barriers and weak points, to reach its intended place. Silver bullets normally turn out to be illusionary.

Much like with the “war on drugs”, or alcohol prohibition, if blunt bans on donations are brought in, then donors and politicians just find ways around the rules. This was the lesson of recent high court trials involving donors to NZ First, National and Labour, which showed that rules on donations are easily circumvented without the public or authorities being aware.

In the case of the Government Review’s proposals, it is inevitable that wealthy interests will circumvent the new rules in various ways. Not only will they use the traditional technique of simply splitting up their donations into smaller amounts to evade detection, but donors will find legal and novel ways to use their money for influence.

The Govt Review’s radical proposals would push donations into interest group campaigning

In lieu of being able to fund political parties and candidates, the main way that wealthy donors will use their finances for influence is by funding interest groups to campaign on politics. Not only will existing interest groups use money to campaign for and against political parties, but entirely new entities will be established – much like the Political Action Committees that dominate electioneering in the United States – to carry out well-resourced campaigns.

The current laws already enable this to occur, but the Government Review’s proposals will supercharge such interest group activity. With big donations to parties banned, the interest groups will usurp parties as the main fundraisers and election spenders. This will have a major impact on New Zealand’s political landscape.

The reality is that under the Government Review’s proposals, interest groups will be much less regulated for fundraising and spending than political parties currently are. Yes, the interest groups will be limited in how much they can spend in the three months leading up to an election, but this won’t prove to be a significant barrier.

New Zealand effectively now has a “permanent campaign”, and interest groups will be active throughout the three-year cycle, with the large donations that previously funded political parties now going to these campaigners instead. And in other ways the interest groups will have many fewer restrictions on their political advertising – for example, unlike parties, they will be able to advertise in broadcast media throughout the three-year electoral cycle.

Furthermore, interest groups will easily get around any limits on expenditure during the campaign by setting up multiple entities in order to campaign. Unlike political parties, interest groups can easily multiply themselves, creating several entities to receive donations and spend the money on political campaigns. For example, although under the proposals each interest group would be restricted to spending only $350,000 during election campaigns, it will be relatively easy to set up ten third-party promoter organisations that would collectively be able to spend up to $3.5 million dollars on an election issue.

The Regulations will turn elections into aggressive negative campaigns

The Review proposes that interest groups be heavily restricted in campaigning positively in favour of a particular political party. An interest group that advertises in favour of a vote for a party (“Vote Labour”, for example), will essentially be regarded as donating to that party.

In contrast, if an interest group campaigns negatively against a party (“Don’t vote Labour” for example), this will be largely unregulated. This is because money spent against a party like Labour can’t fairly be legally connected to another party such as National or Act. Therefore, wealthy donations are likely to be directly almost entirely into interest groups that campaign negatively trying to dissuade voters from choosing a particular party.

The unintended effect of this will be to foster very aggressive campaigning in New Zealand. This will have a highly detrimental impact on the nature of New Zealand’s politics.

The Government Review doesn’t want to create a new Electoral Finance Act

The fact that the fundraising and spending of interest groups would remain largely unregulated in elections isn’t entirely due to oversight by the Government Review panel. Instead, they explain that any greater regulation of interest groups is likely to be regarded as an unjustified breach of the Bill of Rights Act 1990.

The Review Panel also says that they don’t want to go down the route of creating a new version of the discredited Electoral Finance Act of 2007, which was brought in by the Helen Clark Labour Government. That piece of legislation clamped down on interest groups running political campaigns, but was judged to be a failure, with the Electoral Commission saying it had a “chilling impact” on popular participation in the 2008 election. Even the Labour Party subsequently voted to abolish the hated legislation.

The Govt Review of elections needs to go back to the drawing board

The above proposals and problems aren’t the only ones arising from the Government’s Independent Electoral Review. Its draft proposals contain all sorts of ideas that will have unintended consequences.

The Review panel need to put more thought and research into how to make elections fairer and more accessible. Although the panel has good intentions, many of their proposals will lead to greater advantages for the wealthy in dominating New Zealand politics, while also creating all sorts of ugliness and problems in elections.

This is not to say that their big idea of bans and caps on political donations can’t have a place in the regulation of money in politics. But the consequences of implementing such radical rules must be anticipated and dealt with – which is something the Government Review hasn’t done.

Quite simply, if the Review Panel wants to clamp down so strongly on party fundraising, they will have to come up with plans to also clamp down on interest groups, or US-style Political Action Committees, because these entities will quickly usurp the role of parties as the receptacles for wealthy spending on politics. Ignoring this reality, and kicking the can down the road by leaving this policy problem to a future review of political donations would be irresponsible.

Already there is increasing public distrust in the political process. And although some of the “fixes” proposed by the Government Review might have a short-term effect of increasing public confidence in the fairness of elections by banning and suppressing wealthy donations, eventually these over-simplistic rules are likely to do the opposite, and risk bringing New Zealand’s democracy into even more disrepute.

The Democracy Project

Political Roundup: Govt review of political…