A cap on dark political donations sounds simple, but there’s a serious catch

Australians are about to be promised an ambitious plan to curb the toxic influence of big money in federal politics. The reform sounds promising, and there is an urgent need for more sunlight on campaign finance, but there are good reasons to be wary about the hidden cost of this difficult change.

The rules that govern political donations are failing badly on the basic tests of fairness and transparency, so the case for change is overwhelming. It is far too easy for donors to hide their payments to politicians under the current system, which was built for an age before the invention of the internet.

Illustration: Andrew Dyson

Watch for big changes over the next few weeks. The Special Minister of State, Don Farrell, has a draft plan that should require donors and political parties to reveal donations in real time to all sides of politics. This could be a big step in restoring faith in the political system.

Incredibly, to this day, donations are recorded on paper forms that are scanned into a system at the Australian Electoral Commission and revealed in a messy data dump on February 1 each year. Astonishingly, the paperwork takes months to catch up with the payments made in the previous financial year, so a donation made in July 2023 can remain hidden until February 2025. It is a farcical system for a modern democracy.

Many donations are never revealed at all because they fall under the $16,300 threshold for disclosure, and there is a vast amount of “dark money” that is impossible to trace through the complex funds that major parties use to store their cash.

And it is far too easy for big donors to swamp an election with a wave of money. The biggest single donor, mining billionaire Clive Palmer, spent $117 million before the last election, purely in payments to his United Australia Party over a single year. The reward was paltry – a single seat in the Senate for Victorian candidate Ralph Babet – but the tactic was troubling. There is nothing to stop others from copying Palmer so they can buy an outcome in federal parliament.

Farrell wanted to release a draft plan last year but could not find a formula that satisfied all sides. As recently as May, he said the changes would come “soon” so he could have legislation by Christmas. Now the package has been postponed from next week to next month. The stated reason is the sheer complexity of the draft law, but the repeated delay only makes a good law harder to achieve. The long wait is limiting the time for a negotiation in parliament. And that, in turn, raises the chances of a deal between the major parties to rush things through before the election.

The basic changes look promising. Donations will be disclosed to the AEC and the public in real time. More donations will be revealed because the threshold for disclosure will be dropped to $1000. A cap will be imposed on donations so the Palmer problem cannot be repeated. This is yet to be confirmed but could be as low as $20,000. A spending limit will be set on how much a campaign can pour into an individual electorate. This may be just under $1 million.

For good reason, the government does not expect these changes to take effect before the next election. The AEC will have a big job in setting up the real-time disclosure regime so it is operating before the 2028 election.

The effect should be simple: to take some of the money out of politics. Big donations will be curbed and advertising will be reduced. This will sound wonderful to anyone fed up with blanket advertising and robocalls, but there will be an obvious temptation to replace the lost money with more public funding. And that is a serious problem.

If the donations cap is too low, the major parties will want more money from the public purse to fund their operations. If the cap is too high, the most powerful donors will have more sway over political campaigns. The challenge is to get all sides to agree that political campaigns can be run on tighter budgets.

Taxpayers already subsidise political parties and independent campaigns, so there is no proven need for more public funding. The AEC paid $75.9 million to those who contested the last election, including $73.9 million to parties and $1.9 million to independents. Labor received $27.1 million and the Liberal Party received $26.6 million. (The current funding rate is about $3.35 per vote).

The problem with public funding is that it makes the major political parties too dependent on the public purse. Why sign up new members if you can rely on cheques from Canberra? The concept of a mass movement becomes optional – even undesirable – for a party that can hook itself up a federal lifeline.

This is not a theoretical outcome. Pauline Hanson’s One Nation collected about $3 million at the last federal election without a big membership. Labor and the Liberals are smaller than they once were, which means their leaders depend on a shrinking core of true believers. This can suit some factional operators quite nicely because they are not accountable to a broader membership with diverse interests. They can be big fish in small bowls.

Farrell may lose support from the crossbench on this key issue. Kate Chaney, the independent member for Curtin in Western Australia, agrees with the government on ideas like real-time disclosure and a $1000 threshold, but she has a very different view of the best donations cap. Her draft law, backed by many of the teal independents, would set a cap of about $1.5 million.

The politics are obvious: the teal campaigners rely heavily on big donors to Climate 200 and on its founder, Simon Holmes a Court. They need significant private support to take on the major parties. Their big concern is that Farrell will do a deal with the Liberals to impose donation caps and spending limits that protect incumbents and make it harder for independent challengers.

A big experiment is now underway in South Australia, where Labor Premier Peter Malinauskas wants something like a total ban on big donations. He would limit donations to $2700 and put a strict spending cap on campaigns.

The catch is in the public funding. Malinauskas assumes taxpayers will fund the political parties to make up for the lost donations. Worse, the payments would be made in a way that favours incumbents. When an election nears, the public funding would be calculated on the votes cast at the previous election. Some of the money would be paid in advance. The incumbents would be cashed up, while challengers would have to scramble for funding under tight restrictions.

The Centre for Public Integrity, a not-for-profit group led by former judges, sees the South Australian funding plan as a “poison subsidy” when political movements should be about galvanising engaged citizens, and thousands of small donations, to seek change. It warns of a funding cycle that entrenches incumbents.

Farrell appears to be alive to some of these risks. He may choose to limit the public funding and avoid the South Australian model. The consultations may start in parliament next week and the final negotiations will not be easy.

There is an overwhelming case for tightening the donations cap. But there is also a real danger in being too loose with the public funding tap.

David Crowe is chief political correspondent.