Labor’s campaign funding laws build $100m wall to keep independents out

It’s a phone call most political candidates dream of. Shortly after Nomi Kaltmann was announced as the Caulfield “teal” candidate, an unfamiliar number flashed up on her phone. On the other end of the line was a local businessman who said he was excited about her running for parliament and wanted to donate $50,000 to her campaign.

Simultaneously, she felt elated and deflated. “I wish,” she said.

Teal independent Nomi Kaltmann will stand in the seat of Caulfield.Credit: Simon Schluter

Kaltmann went on to explain that under Victoria’s campaign funding laws in force for the first time at this state election, the most he could donate was $4320. It didn’t matter if he donated as an individual or a business; the same cap had to fit. The businessman was stunned. “Wow, they don’t make it easy for you,” he said. “How are you supposed to win?”

“Tell me about it,” she replied.

When Victoria’s campaign funding laws were introduced four years ago, the Andrews government claimed they heralded a new era of transparency and accountability in politics. To a degree, this is true. The shift away from private donations to funding election campaigns with public money and the introduction of tighter disclosure requirements make it difficult for deep-pocketed interests to buy influence and enable greater scrutiny of who pays for our politics.

Whether intended or not, the laws created something else: a $100 million, taxpayer-funded wall that protects those already represented in parliament against those seeking to get in. At a time of historically low support for the major parties, the laws also grandfather the financial advantage of our largest and most powerful political organisations. To understand how, you need to follow the money into the inner workings of the Victorian ALP and Coalition parties.

Climate 200, an organisation that helped seed the “teal” revolution that swept into federal parliament four months ago, has applied the funding formulae contained within Victoria’s amended Electoral Act to the last state election results to chart how its provisions favour the ALP, Liberals, Nationals and to a lesser extent, the Greens, leading into November’s poll.

Climate 200 spokesman Simon Holmes a Court says the architect of the laws, former Labor special minister of state Gavin Jennings, deserves credit for severing the nexus between big money interests and government, but points to what, from his perspective, is a critical design flaw.

“It is a big advancement but if you wanted to design a system that entrenched the duopoly, this would be it,” Holmes a Court says. “It is near impossible for an independent or a new party to break into Victorian politics. The new laws have effectively ordained Labor and the Coalition as being the two parties of government in perpetuity.”

So let’s follow the money.

The most commented upon provision in the new laws is the public funds provided to any party or independent MP who received more than 4 per cent of the vote at the last state election. Under an indexed formula, they are currently entitled to $6.33 for every lower house vote they received and $3.16 for every upper house vote.

Figures published by the Victorian Electoral Commission show that, between the last state election and April this year, this provision has funnelled $13.6 million into Labor’s campaign coffers, $10.8 million into the Coalition parties and $3.3 million into the Greens.

The next brick in the wall is more than $20 million in public funding to cover administrative expenses provided to sitting MPs. It is calculated on the number of upper and lower house seats held by parties and independents.

As the same suggests, the money cannot be used for political expenditure but, under Victoria’s laws, the definition of political expenditure is so narrow as to allow many activities that are inherently political and essential to a successful election campaign: the running of a political office, development of policy, paying political staff. The ALP and Coalition parties have so far received more than $7 million each in administrative funding.

Next comes a special carve-out for the major parties: the exemption of nominated entities from the donation cap. Under Victoria’s electoral laws, any registered political party can appoint an organisation to be its nominated entity. This enables the ALP and Liberal and National parties to continue to receive unlimited political donations from trusts which control legacy assets such as property and share holdings.

Climate 200 spokesman Simon Holmes a Court says the new campaign funding laws entrench Australia’s political duopoly.Credit: Alex Ellinghausen

For Labor, its special cash cow is an entity called Labor Services and Holdings. For the Liberal Party, it is the Cormack Foundation. For the Nationals it is the James Barrie-esque-sounding Pilliwinks Pty Ltd. These are the only three nominated entities listed by the Victorian Electoral Commission. In the year of the last state election, the Cormack Foundation donated $2.5 million to the Victorian division of the Liberal Party and Labor Services and Holdings gifted $3.1 million to the Victorian branch of the ALP.

Any new party can appoint a nominated entity but here’s the catch: donations to a nominated entity are captured under the cap limiting donations to $4320 in any given, four-year electoral cycle. The practical effect of this is that, unless you had these arrangements in place before the laws came in, it is near on impossible to set them up now. “In essence, it is too late for everyone else,” says Centre for Public Integrity research director Catherine Williams.

The new laws also make a special allowance, outside the donation cap, for party membership and union affiliation fees which contribute about $1.5 million a year respectively to the Victorian Liberal Party and ALP.

The last brick will be disputed by the major parties, but it is an important part of the advantage they have under the Victorian regime.

Former ALP assistant state secretary Kos Samaras says electorate and communication allowances are used to boost the re-election prospects of sitting MPs.Credit: Wayne Taylor

Under pre-existing laws, all members of the legislative assembly and council receive a share of the electorate office and communications budget. Like administrative expenditure funding, this money should not be spent for political purposes but, as former ALP campaign strategist and current teal pollster Kos Samaras explains, the money wherever possible is used to advance an MP’s re-election prospects.

“When I was a party official a very significant part of my job was to ensure that the incumbent MPs were fully utilising their communications budgets to promote the government, the work the MP was doing and as a result, the MP’s brand,” he says.

Holmes a Court describes it more bluntly: “It is a publicly funded, profile-boosting budget that challengers don’t benefit from.”

When all these bricks are mortared together, any outsider laying siege to a seat in parliament at November’s state election must scale a wall of $100 million in incumbent advantages.

“In terms of the inflow of money we have a public funding formula that rewards incumbent parliamentarians and is tilted against newcomer candidates,” says University of Melbourne campaign law professor Joo-Cheong Tham, an expert on money and politics. “Then we have the nominated entity exemption to the cap on political donations which clearly benefits the major parties.”

Holmes a Court points out that, while the public debate about campaign financing is focused on limiting donations, private donations now account for a tiny amount of the money flowing into Victorian politics. If you think of political funding as an iceberg, campaign donations are the tip. The rest of it – nearly all of it provided by taxpayers – sits below the waterline.

Holmes a Court’s self-interest in challenging the fairness of Victoria’s electoral laws is evident. When the independent MP for Kooyong, Monique Ryan, submits her first annual return to the Australian Electoral Commission later this year, it is expected to reveal that she spent close to $2 million toppling Josh Frydenberg. About 35 cents of every campaign dollar came from the 11,200 donors of Climate 200.

Holmes a Court has personally donated $4000 each to independent candidates in the state seats of Hawthorn and Kew – a donation matched by his wife Katrina – but admits the teal movement is finding it difficult to build campaign structures within the Victorian laws.

Independent candidate for the seat of Hawthorn Melissa Lowe.Credit: Paul Jeffers

To find candidates to run in Hawthorn and Kew – traditional Liberal-held seats that overlap with the federal seat of Kooyong – the respective campaigns each booked a half-page ad, to run one beneath the other, in this newspaper. Although newspapers are notoriously cagey about advertising costs, the expense would have been close to $20,000.

To raise the money to pay for it, the campaigns went door to door, soliciting small donations. “It was just going out and speaking to as many people as we can and asking them whether they would tip into it,” says Brent Hodgson, the campaign director for the teal candidate for Hawthorn, Melissa Lowe. The difference in campaign spend so far can be seen on the streets of Hawthorn, where, two months before Victoria heads to the polls, the billboards and campaign posters that mushroomed well ahead of the federal election are nowhere to be seen.

The short-lived Victorians Party, which had planned to field candidates in all lower and upper house seats, was deregistered this month after its principal organisers couldn’t see a way of raising the funds it would need to campaign. “The cap is the killer,” a source associated with the short-lived party says. “We were willing to maybe fight that in court.”

Such a fight would carry significant risk. Anyone found trying to deliberately circumvent the campaign donation limits faces 10 years in jail.

Holmes a Court is not alone in arguing that the Victorian regime, while an improvement on the previous arrangements, is a protection racket for the status quo. Four years ago, the Greens voted with Labor to pass the electoral law amendments through the upper house. At the time, Greens leader Samantha Ratnam expressed concern about the “significant loophole” of the nominated entities. She has now hardened her resolve to scrap the provision after this election.

“The major parties have cooked up a system that benefits them to the detriment of minor parties and independents,” she told The Age. “To fix it, the nominated entity provisions which let Labor and the Liberals keep a legacy asset base to fund their elections need to go and spending caps must be introduced.”

Reason Party MP Fiona Patten is also pushing for a limit on electoral spending. Under a review clause inserted in the laws by crossbench MPs, an expert panel appointed by the next government will examine the question of spending caps within 12 months of the 26 November poll.

Joo-Cheong says three changes are needed: enforce a cap on electoral spending, remove the loophole for nominated entities and expand the definition of political expenditure so that more money is captured under the donations cap.

Reason Party MP Fiona Patten.Credit: Justin McManus

The Liberal Party, having initially supported the laws, voted against them in 2018. This was largely a political calculation, made by the Matthew Guy-led opposition, to keep Labor’s “red shirts” scandal surrounding the systematic misuse of electoral staff running until election day. When questioned about how the rules were operating in practice, Liberal Party state director Sam McQuestin is phlegmatic: “Labor will always set the rule to suit themselves. Whether we like them or not we will deal with the rules we have got and make the most of them.”

In response to questions from The Age, the Premier declined to comment on whether the new laws tipped the playing field against new parties and independents or explain why the major parties should benefit from their legacy arrangements with nominated entities. A government spokesman said Victoria’s political donation laws were the toughest in the country and next year’s review would determine if further changes were needed.

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