A senate inquiry will consider how donations to political parties influence policy and how they’re hidden, calling on representatives from the biggest donors in the mining and banking industries to explain what they’re buying. By Mike Seccombe.

The influence of political donations

Over the past 10 years, the mining industry has given at least $50 million to Australian political parties. Now, for the first time, it will be called to explain to parliament what it got for all that money.

It won’t just be mining companies, either, but other vested interests that collectively, by means overt and often covert, funnel hundreds of millions of dollars into the coffers of political parties.

It will happen because on the final day of the last two-week sitting of parliament, while most attention was focused on the constitutional problem of dual citizenship, Greens leader Richard Di Natale snuck in an issue of actual practical importance.

Without giving the usual prior notice, he moved for the establishment of a senate select committee to inquire into the degree of influence political donations had on public policy decisions, the motivations of the donors and the use of “shell companies, trusts and other vehicles to obscure the original source of political donations”. In addition to this, it would look at means by which the system might be cleaned up.

Amazingly, it got up. It was no surprise that the three Nick Xenophon Team senators supported the motion – NXT and the Greens being the two relatively clean political parties when it comes to funding – as did two crossbenchers, Derryn Hinch and Jacqui Lambie.

No surprise either that Liberal and National Party senators voted against the idea, as did Pauline Hanson and her One Nation colleagues, along with right-wing crossbenchers Cory Bernardi and David Leyonhjelm.

The surprise was the support of Labor, whose own history when it comes to questionable fundraising is substantial. With Labor on board, Di Natale’s motion passed 33-28.

The inquiry is due to report by November 15, and given that the terms of reference will allow the committee to call big donors – miners, banks and others – to explain themselves, it should provide some colourful hearings.

It also will hear from experts on the various ways the big parties disguise their donors, which could be enlightening, too. Recent analysis by one such expert, senior lecturer in politics at the University of New South Wales in Canberra, and former journalist and Liberal Party staffer, Dr Belinda Edwards, found that the source of only 12 to 15 per cent of donations to the major political parties was fully, transparently identified, while more than 50 per cent of the money went “entirely undisclosed”.

For all the talk from the major parties about possible reform over recent years, the proportion transparently reported has declined, according to Edwards. As has popular regard for politicians and the political process.

In Di Natale’s opinion, the two things are related.

“In Australia we are witnessing a collapse in support for democratic institutions and I think that is a very dangerous thing,” he says.

“And it’s in large part because people see decisions being made by parliament that are in the interests of the rich and powerful, not in their interests.

“I think the donations system is a corruption of the political process. Wealthy vested interests don’t give money because they’re supporters of democracy. They give because they expect something in return. And it’s an investment that pays off in spades.”

Many experts share his desire for dramatic change to the donations system, as well as other reforms, such as the establishment of an independent anti-corruption body, along the lines of the Independent Commission Against Corruption in NSW.

The dean of law at the University of NSW, George Williams, spoke strongly for these things at the National Press Club on Wednesday.

“We have donations laws you could drive a truck through,” he said, “that actually permit a lot of underhanded methods to receive money without disclosure, including foreign donations. That’s deeply unsatisfactory.”

Donations reform, an anti-corruption commission and a bill of rights to protect against government abuses were all initiatives “for which the community is ready”, Williams said.

Yet despite the evidence in polls and elsewhere that the public wanted such changes, they remained “things we talk a lot about, but don’t seem to do”.

Some states had done it, Williams noted, “but somehow nationally we seem unable to bring about anti-corruption and other changes”.

The question is why, and there would seem to be only one answer: that the current corrupt system suits both the political parties and the big-money vested interests that give to them.

On Saturday, The Australia Institute think tank releases an analysis of donations by the mining industry between 2006-07 and 2015-16, collated from Australian Electoral Commission returns. In total, $49.9 million was given in disclosed donations. And we stress the word disclosed – as the report notes, the poor quality of data available from the electoral commission makes it likely much more was given.

Indeed, the institute suggested most donations were not recorded, because they were given in separate small amounts so as to remain under the threshold for reporting, which is set at $13,200, or were “hidden through other means, such as through associated entities or party fundraising events”.

The first significant finding of their analysis was that most of the disclosed money was given by businesses associated with one individual, Clive Palmer, to support the political aspirations of one individual, Clive Palmer.

In two years, 2013-14 and 2014-15, two companies associated with the former MP, Queensland Nickel and Mineralogy, gave more than $33 million to the Palmer United Party, and Palmer himself tipped in almost $104,000.

Palmer set up his party for two primary reasons.

First, the Liberal National Party government in Queensland, to whom he had given huge sums over several decades, including $3 million between 2005 and 2012, according to the institute’s analysis, cut him out of a business deal. It rejected a bid from another of his companies to build a rail line from the Galilee Basin to a coal terminal in Bowen, giving the contract to rival company GVK Hancock. So he stopped funding the conservative parties.

However, Palmer still wanted political influence. He wanted to see federal Labor’s carbon tax repealed. Nickel refining requires a lot of electricity and he believed – erroneously, as it turns out – that energy prices would fall once the tax was scrapped. Having blown his influence with the Coalition parties, he set up his own.

His lavishly funded campaign led to him winning a lower house seat and also getting three candidates elected to the senate. In June 2014 his senators voted with the Abbott government to repeal the carbon tax.

There could hardly be a clearer example of how the donation system works: vested interests expect outcomes, and if they don’t get them, they take that money elsewhere.

The Palmer example illustrates another point, too: that with sufficient money one can effectively buy not just indirect influence but direct political power.

In last year’s United States presidential election, Donald Trump spent $US66 million of his own money.

In last year’s Australian election Malcolm Turnbull gave $1.75 million to the party of which he was leader to help it on its way to a narrow win.

Excluding Palmer, the big miners declared $16.6 million in donations to the major political parties over the decade to 2015-16, of which 81 per cent went to the Coalition, and 71 per cent to the Liberals.

The donation size varied greatly by year, the analysis showed, with larger gifts correlated “with the election cycle, time lines on project approvals, and debates on key industry policies such as the mining tax and carbon price”.

One thing with which donation size did not correlate was company profitability. The Australia Institute showed numerous examples of companies finding the money to make large donations even in years where they paid no company tax.

The report cites scores of examples of big money being given coincident with significant policy debates or the consideration of major projects. The size of donations by energy giant Woodside to both major parties increased dramatically while it was seeking environmental approval for its contentious gas plant at James Price Point in Western Australia. Its largest single donation, more than $180,000, was to the Liberal Party ahead of the 2013 election.

More recently, while it was campaigning against changes to the tax regime pertaining to oil and gas, it split some $250,000 between the major parties.

The largest donation from gas company Santos – almost $228,000 in 2010-11 – coincided with the industry’s campaign against Labor’s mining tax, as well as Santos’s acquisition of the controversial Narrabri gas project in the environmentally sensitive Pilliga region of NSW, and its approval to develop a massive LNG gas export hub in Gladstone.

The list goes on and on, but the point is clear: there is a pattern of big donations being made at times when political decisions that relate to corporate interests are being made. By far the biggest year for mining company largesse to politics was 2010-11, at the time of debate over Labor’s mining tax, when almost $3.8 million was given – $3.5 million of it to the Liberal Party. The conservatives were, of course, trenchantly opposed and the Gillard government eventually capitulated to industry pressure, watering the proposal down to the point where it raised almost no revenue.

You want to know why governments routinely ignore community objections to mining projects in general and fossil fuel industry developments in particular, or why the federal government will not take meaningful action on climate change? Look at the millions given in donations.

It is not just miners, either. Other corporate interests behave in a similar way.

In a forthcoming, detailed analysis to be published in the Australian Journal of Public Administration, Belinda Edwards examines giving by the big banks, among others.

She notes that over the past decade, ANZ “has submitted a political donations return declaring that they give exactly the same size donation to each side worth $50-100,000 each year, but that they increase their donation to the Liberals to $150,000 in an election year.

“However,” she continues, “when we look at the ‘other receipts’ the money flow was up to nine times the size of their declared donations. It flows much more strongly to the Liberal Party, and it peaked (almost doubling) in years where crucial decisions were being made about the controversial ‘Future of Financial Advice’ reforms of the financial services industry.”

Likewise, NAB declared donations in most years of about $150,000 to the Liberal Party. When Edwards factored in “other receipts” by the party and its associated entities, she found the yearly total “regularly tallied to over a million”.

Other receipts? What are they? It’s a good question without a good answer.

“Under the law, parties are not required to distinguish between donations and other receipts,” Edwards tells The Saturday Paper. “As a result this is incredibly poorly defined and fuzzy. It’s common to find amounts that the donors have declared to the AEC as donations, which the parties have declared as other receipts.”

The “other receipts” dodge is but one of a number of ways by which the real quantum of political donations is obscured, the end result of which is that the ultimate source of most money is difficult to determine.

Clearly sourced donations, by Edwards’ accounting, made up just 15 per cent of Liberal Party group income during the 2013-14 election year. Eleven per cent was “other receipts”, another 11 per cent came from third-party donations, funnelled through party-related fundraising bodies. Sixty-three per cent of party funds was completely undisclosed.

We can blame John Howard for much of the undisclosed money. When the Hawke Labor government first introduced federal disclosure laws it set the threshold at which donors must be identified at $1500. In 2006, the Howard government increased that threshold to $10,000, indexing it to inflation so it now stands at $13,200.

The Labor Party now voluntarily discloses all donations over $1000, but the conservatives stick to the $13,200 letter of the law, which is why almost two-thirds of their money goes unreported.

And the $13,200 reporting threshold is not effective anyway: donations can be split among individuals and various party divisions. A person keen to preserve their influence and anonymity can donate just under the cap to the federal division, the Victorian division, Queensland division and so on.

And they do. A notable recent example related to the so-called “lobster with a mobster” scandal, in which Victorian Liberal Opposition Leader Matthew Guy admitted to sharing a dinner with alleged mafia boss Tony Madafferi at the Lobster Cave restaurant in Melbourne. Subsequently, the party advised on how donations could be split to avoid those electoral commission reporting rules.

There are many ways to obscure the money trail, such as laundering donations through related fundraising bodies. They exist on both the Liberal and Labor side.

Because it reports donations down to $1000, less of Labor’s funding is undisclosed. But still it amounted to 50 per cent of all income in the last election year.

It also had a lower proportion of transparently recorded sources, however, at just 12 per cent. A bigger slice – 26 per cent – came from “other receipts”, largely because of its affiliation with the union movement. As Edwards notes, the ultimate source of the payments flowing through to the political party is often unclear.

“For example, the controversial Shop, Distributive and Allied Employees Association’s Queensland branch received $4.75 million from Woolworths and $2.3 million from Coles in the 2014-15. It is not clear if these payments are union dues paid by an employer or something else.”

There are many other problems with the political funding system, too, like the long time lag between when a donation is made and when it is reported. Suffice to summarise that the business of influence-buying in federal politics is opaque and getting more so over time.

More transparency would help but the only real answer, according to Di Natale and others, is to get the big money out of the system.

“I think three big reforms need to happen,” the Greens leader says. “First, we’ve got to stop these donations and move to a system of publicly funded election campaigns with strict caps for individual donations. Second, we need a national anti-corruption watchdog, the equivalent of a federal ICAC. Third, we need to establish a stronger code for former ministers and members of parliament, to stop the revolving door between politics and industry.”

It’s not such a radical prescription. In fact it already pertains to varying degrees in various states, NSW being the prime example.

Not only does it have ICAC, but also a regime of caps on both political donations and expenditure. 

The NSW model already has proved itself immune to challenge on constitutional grounds, notes Anne Twomey, professor of constitutional law at the University of Sydney.

Jeff McCloy, a Newcastle property developer and Liberal Party donor, challenged the state’s ban on donations from developers in the High Court, on the basis that it was at odds with the implied freedom of communication in the constitution. He lost.

The biggest problem with the NSW laws, Twomey says, is that they only apply in that state, while the political parties are national. Thus vested interests can still curry favour by donating elsewhere.

“You really need a regime of that kind across Australia, or else influence can still be effected by reference to their federal colleagues,” she says.

“NSW has pressed for a long time to put this on the table at COAG [Council of Australian Governments] and get an intergovernmental agreement on it. And the Commonwealth has been, um, reluctant, shall we say.”

Twomey contrasts the practical, as opposed to political, importance of funding reform with the current brouhaha over various politicians’ eligibility for office under section 44 of the constitution.

“Political donations are more likely to have a pernicious effect on members of political parties than having an overseas allegiance through citizenship,” she says.

And other states are moving. Most now have anti-corruption bodies of one kind or another.

Associate Professor Joo-Cheong Tham, director of the Electoral Regulation Research Network at the University of Melbourne law school, presented a 10-point plan for reform at a recent accountability and the law conference in Canberra.

It would impose a low threshold for disclosure of donations and much faster reporting by the Australian Electoral Commission, as well as caps on both donations and spending, including that of related third parties.

Tham proposed publicly funding about 50 per cent of parties’ costs, to make up for lost donations from vested interests. There would also be bans on overseas donations and donations from foreign governments, and tighter regulation of lobbyists. In particular, he advocates stronger measures to prevent former ministers parachuting out of politics to corporate jobs, effectively selling their influence, contacts and inside knowledge.

There would also be limits on spending on so-called “soft” advertising by governments, in which they use public money to advertise policies during election periods, and which gives incumbents a big advantage. 

Tham further advocates harmonising the laws across state and federal jurisdictions. And, of course, establishing an enforcement regime, including an ICAC-style anti-corruption commission.

He plans to present his blueprint to Di Natale’s committee. It’s neither that complicated nor that different from what many other experts have long advocated. It is also, as George Williams says, reform for which the public is ready and willing.

So really, the senate inquiry won’t have a lot to do in the area of policy formulation. The experts – and the punters – already know what’s needed.

It’s simply a matter of generating the political will. And if that requires embarrassing some miners, bankers and others in the senate, so be it.

“We’re going to give it a really good go,” Di Natale says.

This article was first published in the print edition of The Saturday Paper on Sep 2, 2017 as "Donations gracelessly accepted".

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Mike Seccombe is The Saturday Paper’s national correspondent.