Money Talks: Corruption, Freedom of Speech and Campaign Finance Reform
By Alexander Campbell
In an election dominated by the response to COVID-19, a line in the Labour manifesto opened the door to campaign finance reform:
“Labour will continue to protect the integrity of New Zealand elections, and voters’ access to the polls, including a review of financing rules.”[1]
Campaign finance reform also appeared in the new cooperation agreement between Labour and the Greens which states:
“...it is also the Government’s intention to work with political parties from across Parliament (including the opposition) on issues that affect our democracy, including the Electoral Commission’s 2012 recommended changes to MMP, electoral finance law, and the length of the Parliamentary term.”[2]
While the loose commitment got very little discussion in the media (one piece was written two weeks after the election),[3] it is timely given the recent scandals. Last term saw investigations into New Zealand First, National, and Labour related to possible campaign finance violations. The former was accused of using the New Zealand First Foundation to prevent disclosure of donors’ identities.[4] Members of the National Party supposedly split donations to avoid disclosing a donor’s identity[5] while the Labour Party allegedly failed to disclose discounted rent as a donation, [6] and used donated art to disguise donations. [7] Nor are concerns limited to political parties: the recent referenda saw concern over the involvement of foreign groups in third-party campaigns.[8]
These scandals are not a new trend. New Zealand has seen a string of incidents around campaign finance over the past twenty years, [9] which some have connected with the decline of political party mass membership and the ensuing move to increasing numbers of high value donors. [10] All this has left some arguing there is a need for a discussion on the current law and its enforcement.
To understand what reforms Labour’s review might end up suggesting, it is necessary to discuss the issue implicit in campaign finance reform: whether money in politics is free speech or corruption. Modern politics is anything but cheap, and the place of money in politics has itself become a political issue. How campaign finance is regulated depends on how the line between political speech and corruption is drawn. This is a difficult line to draw, as highlighted by Labour’s reforms in 2007.[11]
In theoretical terms, there are three basic arguments for stringent regulation of money in politics. The first is that money in politics should be restricted in order to prevent corruption and undue influence by a select few individuals on the political process. Research suggests that in the United States - a country with a lot of money in politics - law and policy is more responsive to wealthy interest groups rather than the median voter or mass membership interest groups. [12]
The second is that excessive money in politics means the right to participation loses much of its value if a few individuals with more money can dominate the political conversation. Along these lines, John Rawls proposed that the American constitution should protect equal rights to participation irrespective of social class. [13]
The third reason is that proper regulation of campaign finance protects the democratic legitimacy of the state. This is part of Rose-Ackerman’s broader democratic legitimacy approach to corruption, which highlights corruption as endangering democratic ideals because it replaces meritocratic criteria with the criteria of willingness-to-pay.[14] While some may consider corruption to mean things such as petty bribes, legal corruption in the form of political control by wealth is far more concerning to those who agree with the democratic legitimacy approach to corruption.
Those who believe campaign finance should be loosely regulated argue that freedom of speech should be respected and afforded to all political speech, which includes political donations.[15] The Efficient Market Hypothesis line of reasoning argues that donations are part of the democratic obligations on politicians to be responsive to voters, and that ideas prove their worth by competition in the free market.[16] By this reasoning, large donations to gain access to candidates and parties are not corruption but democracy in action. Cases in the United States have argued that limits on money in politics and the idea of undue influence is unconstitutional.[17]
In New Zealand, similar arguments were against the 2007 reforms regarding restrictions placed on third party campaigners. Opponents of the 2007 reforms argued that the restrictions were contrary to freedom of expression and that the aims of the reforms were not sufficiently pressing to justify its heavy-handed approach.[18] Other arguments in New Zealand against further restrictions have pointed to the possible unintended consequences of further regulation.[19] These included the proliferation of litigation around electoral rules, the stifling effect costs of compliance will have on political actors, and the potential for the state to undesirably gain control over debate.
Before considering where Labour’s review might take the law, it is also necessary to look at the development of the law until now. The 1956 Electoral Act enabled little scrutiny of donations, with only candidates (not parties) having to declare donations and spending.[20] However, advertising by interest groups was controlled during the election campaign period. The 1986 Royal Commission on the Electoral System found no corruption or excessive influence from certain groups.[21] However eventually it was decided there was a need for reform, given the increasing cost and professionalisation of campaigns and scandals around the Labour party regarding donations for the 1987 election.[22]
This reform brought us the 1993 Electoral Act. It required parties to disclose the identities of donors for donations over $10,000.[23] This threshold was circumvented with both Labour and National channelling donations through third parties to keep donors anonymous.[24] The 2005 election had some of the most high-profile incidents around campaign finance. A report by the Auditor-General found most parties had improperly spent publicly funds,[25] and there was controversy around campaigning by the Exclusive Brethren Church against Labour and the Greens.[26] This led to Labour and its support partners controversially passing the Electoral Finance Act in 2007.
Arguments on the 2007 Electoral Finance Act neatly capture the broader debate about campaign finance. It placed significant restrictions on third party campaigns, requiring registration with the Electoral Commission for anyone spending more than $12,000 campaigning for or against a political party or political position, or anyone spending more than $1,000 campaigning for a candidate.[27] All donations to a third-party campaign over $5000 had to be declared[28] and there was a maximum expenditure of $120,000.[29] The Act also increased the length of the regulated period of campaigning to the beginning of the election year.[30] Identities of donors contributing more than $1,000 (in lump sum or aggregated form) had to be declared for parties and candidates.[31] There was a limit of $1,000 on donations from foreigners.[32]
Most of the changes were overshadowed by controversy regarding the restrictions on third-party campaigns. Significant opposition was mobilised to argue that the reforms unjustifiably restricted freedom of speech. In 2009 the new National government repealed the Act,[33] replacing it with one that incorporated weakened versions of the 2007 reforms. The regulated campaign period was shortened to three months.[34] Third-party campaigns still had to register with the Electoral Commission but could spend more than double what they could under the 2007 Act.[35] Parties must now declare the identity of donors for donations over $15,000 in periodic returns, and within 10 days for donations over $30,000.[36] In 2019, foreign donations of over $50 were also banned,[37] but there remain no limits on donations from government contractors or a limit on total contributions to candidates or parties.
While in the previous term the Labour-led government made some changes to electoral legislation such as the ban on foreign donations, it remains unclear exactly what they want to achieve in their new review. The alleged violations by the political parties suggest there is need for reform of donation disclosure, but concerns were also raised regarding the participation of overseas third parties in referendum campaigns this election. Associate Professor Timothy Kuhner has noted the vulnerability of New Zealand to grand corruption issues.[38] Labour’s previous reform suggests they may want to deal with these issues and impose generally stricter rules, but they did also vote for the repeal of the 2007 Act in 2009.[39]
The first question ought to be who should be making the law. Waldron notes that the authority of laws comes from the “dignity” the legislative process confers,[40] but it is unclear whether an issue with consequences of such a partisan nature should be dealt with by Parliament. Some have suggested that a citizens’ assembly process, such as that used in British Columbia and Ontario, would be more appropriate.[41] While this would solve the problem of self-interest, some have also questioned whether citizens assemblies are appropriate, given the New Zealand context of Te Tiriti o Waitangi.[42] It is clear however from the 2007 reforms that consultation and a degree of consensus is a necessary ingredient for long-lasting change.
Bryce Edwards noted that a hands-off approach to regulation would sidestep this issue. The “civil society” approach would prioritise party and citizen autonomy and reduce regulation altogether.[43] This would supposedly reduce the barriers to political participation and allow voters to decide for themselves which parties are acting in a legitimate and respectable fashion. The obvious problem with this is that enforcement by vote would require high quality information to be presented to voters, requiring regulation and barriers, and for voters to actively inform themselves.
What substantive form a new law may take is also unclear. It could take a deregulation approach as above - making relatively minor changes akin to the 2007 reforms - or take a more radical approach. Minor changes would most likely take the form of stricter limits on the amounts of donations and the enforcement powers of the Electoral Commission. The Commission currently has limited powers, so reforms to enable it to force those it investigates to hand over information may be useful.
More radical approaches tend to focus on making donations a more egalitarian process. A ‘democracy voucher’ system is one example. This would give each voter a voucher for a donation to a political party of their choice.[44] This could be implemented alongside a ban on other donations, but regardless would certainly increase the ability of many to participate. However, it is not clear if this should be applied to third party campaigns also. It may also go some way to solving the problem mentioned earlier of the decline in party membership by encouraging participation beyond voting. This proposal is essentially a variation on complete state funding which others have proposed, the key issue normally being how state funding should be distributed. Currently parties are partially state funded through the broadcasting allocation and parliamentary services funding, but total state funding could create more issues around the control of the state on political discourse.[45]
Clearly money in politics is complicated. The combination of partisan interest and the issue of freedom of speech means it will probably always be controversial. This article has not even begun to scratch the surface of the legal issues regarding what is speech and what the role of the state is in political discourse. However, it should be emphasised that something must be done if we want to change low levels of trust in politicians and the funding of politics.[46]
The views expressed in the posts and comments of this blog do not necessarily reflect those of the Equal Justice Project. They should be understood as the personal opinions of the author. No information on this blog will be understood as official. The Equal Justice Project makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The Equal Justice Project will not be liable for any errors or omissions in this information nor for the availability of this information.
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[1] New Zealand Labour Party “Our Manifesto to Keep New Zealand Moving” (October 2019) <labour.org.nz>.
[2] Green Party of Aotearoa New Zealand, New Zealand Labour Party “Cooperation Agreement between the New Zealand Labour Party and the Green Party of Aotearoa New Zealand” (31 October 2020) Green Party of Aotearoa New Zealand <greens.org.nz>.
[3] Justin Giovannetti “The campaign promises Labour didn’t talk about” The Spinoff (online ed, New Zealand, 29 October 2020).
[4] Henry Cooke “Serious Fraud Office will investigate New Zealand First Foundation” Stuff (online ed, New Zealand, 18 February 2020).
[5] “SFO investigation into National involves two donations of $100k” Newstalk ZB (online ed, New Zealand, 18 February 2020).
[6] Thomas Coughlan “Election 2020: Labour must declare Hutt South donations from now on says Electoral Commission” Stuff (online ed, New Zealand, 28 October 2020).
[7] Claire Trevett and Jason Walls “Labour's art auction fundraiser returns despite questions being raised about its transparency” The New Zealand Herald (online ed, Auckland, 22 October 2020).
[8] “Government accuses big American anti-cannabis group of interfering in NZ politics” 1 News (online ed, New Zealand, 30 June 2020).
[9] Max Rashbrooke “A brief history of New Zealand donations scandals” The Spinoff (online ed, New Zealand, 4 March 2020).
[10] Bryce Edwards “Political finance and inequality in New Zealand” (2008) 23(2) New Zealand Sociology 4 at 4.
[11] Electoral Finance Act 2007.
[12] Martin Gilens and Benjamin Page “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens” (2014) 12(3) Perspectives on Politics 564 at 574.
[13] John Rawls A Theory of Justice (Rev. ed., Oxford University Press, Oxford, 1999).
[14] Susan Rose-Ackerman “Corruption: Greed, Culture, and the State” (2010) 120 Yale LJ.
[15] First National Bank of Boston v Bellotti 435 US 765 (1978).
[16] Buckley v. Valeo 424 US 1 (1976).
[17] Citizens United v. Federal Election Commission 558 US 310 (2010).
[18] Roger Partridge and Jesse Wilson “Free speech in election years” [2008] NZLJ 96 at 99.
[19] Bryce Edwards “State intervention in the democratic process” [2008] NZLJ 101 at 103.
[20] Electoral Act 1956, ss 133-139.
[21] Richard Mulgan, Ken Keith, Justice John Wallace, John Darwin and Whetu Wereta Royal Commission on the Electoral System ‘Towards a Better Democracy’ (December 1986) at ch 8.
[22] Bryce Edwards “Opinion: The money follows Labour again” Newsroom (online ed, New Zealand, 16 March 2018).
[23] Electoral Act 1993, ss 206 – 213.
[24] “Nats call in secret donations” Sunday Star Times (online ed, New Zealand, 31 January 2009).
[25] K B Brady Advertising expenditure incurred by the Parliamentary Service in the three months before the 2005 General Election (Office of the Auditor-General, October 2006) at 5.
[26] “Brethren 'budget $1.2m' to help National Party campaign” The New Zealand Herald (online ed, Auckland, 23 May 2006).
[27] Electoral Finance Act 2007, s 13.
[28] Section 58.
[29] Section 118.
[30] Section 4.
[31] Section 24.
[32] Section 32.
[33] “Electoral Finance Act repealed” ONE News (online ed, New Zealand, 17 February 2009).
[34] Electoral (Finance Reform and Advance Voting) Amendment Act 2010, s 4.
[35] Section 206V.
[36] Sub-part 2.
[37] Electoral Amendment Bill (No 2) 2019, s 9.
[38] Timothy Kuhner “Reputation vs reality: how vulnerable is New Zealand to systemic corruption?” The Spinoff (online ed, New Zealand, 6 March 2020).
[39] Above n 37.
[40] Waldron J, The Dignity of Legislation (Cambridge University Press, 1999).
[41] Andrew Geddis “New Zealand's Electoral Finance Act 2007 and its discontents” (2008) 19 PLR 215 at 231.
[42] Nadine Anne Hura “Who gets to be an ‘ordinary New Zealander’? On Citizens’ Assemblies, climate change and tangata whenua” The Spinoff (online ed, New Zealand, 23 November 2019).
[43] Bryce Edwards “State intervention in the democratic process” [2008] NZLJ 101 at 103.
[44] Elisha Watson “A novel way to fix our broken political donations system: flood the market” The Spinoff (online ed, New Zealand, 5 March 2020).
[45] Bryce Edwards, “State funding of parties is bad for democracy” Newsroom (online ed, New Zealand, 25 October 2018).
[46] Simon Chapple and Kate Prickett Who do we trust in New Zealand? 2016 to 2019 (Victoria University, 2019), at 10.