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Joint Standing Committee on Electoral Matters
08/08/2011
Funding of political parties and election campaigns

HUGHES, Emeritus Professor Colin, Private capacity

[10:18]

Evidence was taken via teleconference—

CHAIR: Thank you very much, Professor Hughes. Although the committee does not require you to give evidence on oath, I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. We have received a submission from you. Do you wish to make an opening statement in relation to that submission?

Prof. Hughes : No, only perhaps to call attention to certain bits of evidence that have appeared since the submission was lodged with you. For example, today's Australian, on the subject of the media, makes very much the point that I was making about the new media being such a difficult area to regulate. That is the only point I would make.

CHAIR: You mentioned in your submission that some activity in relation to political donations has probably become routine and, it follows, may not constitute news. Do you think the nature of the current regulatory scheme—that is, post-event reporting strategy—may have contributed to that situation? If so, how can the situation be changed?

Prof. Hughes : I doubt that it has contributed. I think the changes, which have been very substantial, have been quite extraneous to the political system and regulation and have really come out of technological and economic forces and the like but they do suggest that the ball game has changed very substantially. If I can put it in a single phrase, I think the committee's problem is that they must not try to fight the last war.

CHAIR: In your submission you made reference to the possibility of an increased burden on political actors through revised disclosure rules. On page 5 you refer to the possible need to enhance the accounting capacity of members' officers through a centralised service. Are you able to elaborate on what you envisage there?

Prof. Hughes : To the extent which money comes into the member's office rather than going to a central place—the party secretary or the party treasurer—then it becomes diffuse. By and large, I do not think very much money goes in or goes out now. The days when the individual candidate, particularly the incumbent member, controlled a large part of the expenditure which went to local press and to local printers and the like have long gone. The money is centralised at least at the top office of the state and quite possibly at the federal level. Having said that, there are a lot of independent candidates and small-party candidates who are not in that situation and so it is necessary to look at what is happening at that level as well.

CHAIR: Finally, I ask you about prohibition of political donations. You suggest that this could be persons or interests overseas; artificial persons, especially large corporations; and trade unions. I think you used the words 'politically noxious trades' like property developers, tobacco manufacturers and facilitators of gambling. I think that is on pages 6 to 7 of your submission. Have you had a look at the legality of the parliament being able to do that?

Prof. Hughes : Not really because I think the case that I do cite, the Australian Capital Television Pty Ltd v Commonwealth (1992) case, points out that there are real problems there. But that decision has been much criticised and there are observations made about how this High Court is not that High Court. To that extent, I would not like to chance my arm. You would be better served by a constitutional lawyer who was practising his trade from day to day rather than my recollection of what was the situation 20 years ago. What I would say, however, on that point more widely or perhaps even more specifically, is that I think there is a cloud on the horizon that will raise many of the difficulties that I had in mind.

There is talk at the moment that there is going to be the large United States facility created in Australia that will be engaged in basically backup facilities for defence activities further afield. This is exactly the sort of situation in which you will have the United States government, you will have private defence contractors and you will have bodies that are accustomed to being generous with local political forces wherever they are around the world. That is going to be a real testing ground of whatever controls may be attempted to be put over regulating donations to local party or political funds. I think it is worth considering just what would happen in case a very large defence contractor did not wish to be caught by association with a particular political donation in Australia. All they would need to do is set up a local subsidiary company with suitable camouflage through one or two tax havens, and this whole system would be pretty pointless; it would certainly not be effectual.

Senator RHIANNON: I would like to go to some of the points you have raised in your submission that I thought were of interest and useful for the committee to consider. You talk about the continuous coverage between elections—I am now talking about disclosure—being preferable and indeed essential. Later in your submission you talk about the need to have a complete picture of party finances. I recollect that you gave considerable emphasis to that. I was wondering if you could expand on the form you think that should take, considering that it is widely recognised that improving disclosure is so important?

Prof. Hughes : I think the point is that there have to be frequent, perhaps quarterly or twice a year, accounts of expenditure and donations to get the full picture. In terms of when the voter makes up his or her mind, the theory that they are issued the writs with a blank mind and then start filling in the details hastily is unrealistic and has probably always been. What we need to do is ask what influence is being applied to electoral thinking throughout that process. By the time you get to the issue of the writs, most people—quite possibly, upwards of 90 per cent—have made up their minds and that is usually to vote the same way that they voted the last time, but not always. Concentrating on a very narrow period, whilst the level of political communication rises in those last few weeks, what has been going on during the life of the present parliament suggests that that need not necessarily be the case. 'Continuous campaigning' has been a phrase that has been around for some decades, but we are really starting to see it in a much more extreme form perhaps then we have previously.

Senator RHIANNON: When you got into some more detail on this point, you also talked about the accounting capacity of members' offices. You set out that you thought that that needed to be enhanced and you spoke of the need for a centralised service. Could you expand on what you meant by that and how you thought that that could work?

Prof. Hughes : There is the miracle of the computer. There would be suitable software that would be installed in members' offices so that expenditure and receipts could be registered at the time they occurred and centrally communicated forthwith, rather than saying that the worthy souls who often man members' offices are expected to be bookkeepers on the side. Many of them have skills in other directions. You could just have a centralised system that went into the members' offices. There have been prosecutions in the past—not at the federal level, to my knowledge—of people who trousered donations as they came in and things of that sort.

Mrs BRONWYN BISHOP: I want to go to a question you raised about overseas firms that operate in Australia and whether they operate as a branch or act as a legal entity within Australian law. I must say that I have a problem with what you have put forward. I believe that people who come to this country and prosper and are able to trade and make profits and add to their own wealth and to the activity in our country benefit enormously from the fact that we have a safe and well-functioning democracy, where there is freedom to criticise and there is freedom to take part in the activities. I find that those firms which use the excuse, 'We are an overseas entity and therefore we are not going to contribute to the political process,' really rather unacceptable. If they come to this country they should be part of the political system and should not only be free to make a donation but they should also feel that they should be part of the political activity in the country and take part of it because they are betting from it.

Prof. Hughes : I couldn't agree with you more. On the other hand there is always the experience that such entities ought to contribute to the taxation system. There is a fair bit of evidence that there are wicked people who do not do that and seek to use overseas entities to avoid accepting that lot of responsibilities. I suspect that, to the extent that their intervention in politics was not perceived to be popular or would attract the attention of the opponents, there may be an attempt to cover their tracks. What I am after is people who try to cover their tracks, which is much more easily done once you get outside the three mile limit.

Mrs BRONWYN BISHOP: I do not think there is any disagreement that people feel that overseas donations can be excluded from the process. But I am talking about people who operate as Australian companies employing Australian people benefiting from Australian business and making profits. They ought to be part of the political process. If there is a problem with transfer pricing or having an argument with the tax office, I see that as entirely separate from this question.

Prof. Hughes : Be that as it may, my point really is that knowing who has donated money is the most important element of a system of regulation.

Mrs BRONWYN BISHOP: I agree.

Prof. Hughes : In following that up one may necessarily have to go down a variety of paths. That is why going to the other side of the coin and making sure that expenditure is fully reported gives you a control as to whether there is a significant gap between the two sides of the books.

Mrs BRONWYN BISHOP: I also go to the point that you made about installing software in members' and senators' offices and recording expenditure. I point out to you that, certainly from my point of view and most if not all of my colleagues, we do not raise or spend money at all. That is done by the political party of which we are a part. So it would not come through our offices at all. The only thing that would be relevant there is something that is already disclosable and reported already, and that is the use of entitlements, which the law provides for. But money raised and money spent is done by the political parties and is nothing to do with members and senators, as it should be in my view.

Prof. Hughes : All I am saying is that you need to block every mouse hole on the off chance that there may be a mouse there. It is quite probably the case that what you say is 100 per cent the case and no member would receive funds. It is possible that this will change.

Mrs BRONWYN BISHOP: No, I do not think so.

Prof. Hughes : I am trying to provide a comprehensive system.

Mrs BRONWYN BISHOP: I just think it is important to know that members and senators do not, in fact, raise and spend money themselves. I think that is important to note.

But then I do come to the question of Independents, who are in a different position. Independents, when the system was not required to substantiate their expenditure, did, to use your term, 'trouser' a profit, which was, of course, non-taxable, because they themselves received the income. I always felt it was rather hypocritical of a particular Independent who used to say, 'Terrible people using entitlements,' when he used to get a nice tax-free payment himself.

I then go to the question of a very strange expression you used: 'political noxious trades'.

Prof. Hughes : Yes.

Mrs BRONWYN BISHOP: You choose to say 'property developers'. I really find it offensive that you categorise them as some sort of criminal element or bad dealing, bad faith people within our community. I find that highly offensive. Who else should we add? Should we add pompous academics or privately owned media groups? Where does the list end?

Prof. Hughes : The reason that I mention them is that there is legislation being proposed at the state level to do exactly that. Many years ago, writing about campaign finance, one of the first pieces, this would have been back in the 60s, was that there were certain economic activities which were traditionally associated with problems of political influence, such as property, such as drink and the like. I think that continues to be the case. I am not criticising it. This animal is wicked, it defends itself—good luck to it. But what I am saying is that these proposals are about and I do not agree with them. If you look at what is being said about the influence of clubs, for example, in respect of gaming machine legislation, if you look at what is said about property developments in cities and in the country you will see I am not unique in saying that it is perceived as a problem.

Mrs BRONWYN BISHOP: Perhaps we can look at the real reasons these things are brought forward. Let us look at the question of property developers, which was brought forward in New South Wales and stems from the appalling Labor party involvement in the corruption that went on in the city of Wollongong and its council. Quite frankly, I think it is wicked to penalise the whole category of property development and the whole of the country, or the state of New South Wales in any event, because the Labor Party people indulged in this practice. There are other ways of dealing with it. I think that, with regard to the laws that are passed in New South Wales, it was an attempt in the dying days of a loathed government to try and reclaim some of its territory. It did not work.

Senator RHIANNON: But your New South Wales colleagues voted for it.

Mrs BRONWYN BISHOP: Fortunately, we have a federation, not a union, here, and our Commonwealth laws differ from our state laws. I am pleased to see that they do and long may it be the case. I would like to see some competitive federalism operating. It is always going to be the case that we, state and federal, will operate in different ways.

CHAIR: Which means that the state Liberal Party did vote for it.

Mrs BRONWYN BISHOP: Yes, it did, but that is not the point.

Senator RYAN: Okay, Daryl, we'll tag you with state Labor Party activities, if you like.

Senator RHIANNON: It should be on the record.

CHAIR: I know a lot of developers were happy.

Senator RHIANNON: And they gave more to the New South Wales Liberals than they did to Labor for many years.

Mrs BRONWYN BISHOP: You got the biggest—I might point out the Greens—

Senator RYAN: Ten years of cashing in. That's all it was, Daryl.

CHAIR: Well, that's okay then.

Mrs BRONWYN BISHOP: I must say the Greens got the biggest known single donation from a single individual, of $1.6 million from Wotif, and did not disclose that prior to the election. I find the Greens' testimony on this sort of issue rather hypocritical.

CHAIR: We won't talk about the Victorian Liberal party for years!

Mrs BRONWYN BISHOP: Then we go to the question of gambling: we talk about—

Senator RYAN: That is all out there publicly.

Mrs BRONWYN BISHOP: Absolutely. We go to the question of gambling. We know that this is just a stitched up deal between one Independent and the Labor Party at the federal level wanting to hang onto power. The fact of the matter is: in New South Wales the club industry was developed, has been in existence for decades and contributes to the community. I remember the days, before other states had such things as clubs and poker machines, when people would get on buses from Queensland, South Australia and Victoria and come to New South Wales for a day's outing and enjoyment. For Mr Wilkie, a single entity, to hold everybody else to ransom is a joke.

CHAIR: We do not need to go into that. Just stick to the issues.

Mrs BRONWYN BISHOP: What I am saying is that those questions of trying to label classes of people as somehow unacceptable I find totally offensive. As I said, where do you stop: pompous academics, privately owned media groups, there is an attack on media groups at the moment? Where does the list end?

CHAIR: Is that the question to Professor Hughes?

Mrs BRONWYN BISHOP: The question is: I think you said you had not looked at the legality of introducing any such things—is that the case?

Prof. Hughes : Yes. Could I say that my point was that, while I agree with Mrs Bishop that this is indeed a federation, one of the constant complaints from the bodies that are subject to several electoral acts is about the disparities between the acts. They have to think differently when they are doing something in the federal sphere. I think I did say in my submission that it is desirable that the two bodies of law be kept at least within shouting distance of each other. If you have donations varying considerably between one and the other it will be a loophole through which illicit money can move.

Mrs BRONWYN BISHOP: I disagree with that. I think the fact that we have a strong federation is a plus, not a minus, and the fact that there is complexity and difference can be a plus, not a minus. Indeed, if we are really concerned about the differences that really make a difference in the outcome, look at the difference between states that have optional preferential voting versus the full preferential voting, particularly New South Wales and Queensland, where the informal vote is huge. It is a far more significant question, I think, than the one we are addressing here.

Prof. Hughes : Where you combine the populations of the states involved, what you can say is half the population has optional preferential, New South Wales plus Queensland, and the other half does not.

Mrs BRONWYN BISHOP: That is right, and that is where it makes a difference between the outcome of elections. We are getting a push now to have the South Australian system foisted on us federally, which would be abhorrent—the South Australian scam.

CHAIR: It is abhorrent to have another 300,000 people have their votes—

Mrs BRONWYN BISHOP: Where bureaucrats take over the voting.

Senator RYAN: Especially when they do not mark their ballot paper like that.

CHAIR: We may report on that. We will see where it goes in the parliament.

Mrs BRONWYN BISHOP: I would like to finish on this question, which relates to the question of expenditure caps. You are concerned with regard to expenditure caps and the types of advertisements that they could produce. Would you like to say a little bit more about that?

Prof. Hughes : I am not sure I can, really. I think it is a matter that the committee and the witnesses who are currently on the battlelines would be much better placed than I to elaborate on. It is just an impression that I had.

Mrs BRONWYN BISHOP: I think I agree with you that the problem of caps is that it allows outside groups to have far more influence when the political parties are the ones who are actually seeking the support or otherwise of the public. I did cite earlier in the hearing the United States, where those caps have produced precisely that effect. Have you looked at that much?

Prof. Hughes : If I could just pursue the point, I think there is one spot at which this really does impinge on what the committee may have to consider. This is the problem of identifying third parties. Again the American experience here is fairly relevant. If you say, 'Vote for Bloggs,' this is clearly entering the electoral process. If you say, 'Bloggs's policy will ruin half the population,' you are getting a bit further away but probably all right. What is emerging now is the advertisement that says: 'Bloggs has no evidence that supports his policy. The science behind Bloggs's policy is defective.' In a sense an advertisement that deals purely with comparing scientist X with scientist Y has become part of the political debate which leads up to a voting decision as to whether to back the man who backs scientist A or the woman who backs scientist B. Defining third parties if their expenditure and in particular advertisements are to be brought under the regime is a tricky one and I wish the committee luck without telling them what an easy formula would be.

Senator RYAN: In earlier discussions I have expressed some concern about the way money is treated differently by the tax system for political activity. Money given to a political party is only tax deductible up to a certain limit. Money given to a politically active NGO or via, for example, tax-exempt bodies like the trade union movement is effectively tax-exempt. So a given amount of money gets effectively a different amount of political activity depending on the means through which it is channelled. Do you think that an ideal outcome of the way in which money is regulated in the political system would be that its tax treatment, so the effective cost of the donation, was equal no matter through which means it was done?

Prof. Hughes : On first principles I do not like the idea of doing anything in the tax system that is intended to achieve a political objective. As for trying to use it to manage a relatively remote situation, I do not like the sound of it to begin with. I think you come back to the question that if the welfare of a commercial entity is at stake then, given all sorts of ideas of fairness, they ought to be able to defend themselves. The only problem nowadays—and I cite Mr Cube as I tend to always do from nationalisation days—is that there are battalions of Mr Cubes rushing around the landscape spending money and, presumably, intentionally trying to influence the political system and therefore perhaps trying to influence the electoral system. I think it is desirable that we know what is going on. I think bringing the tax law on to it is tricky. I would be inclined to say that if it has to be reported then it ought to be treated as an expenditure that is quite proper with whatever happens to that under the tax regime. I must say that, having been asked a legal question of taxation, I would reply immediately that as a member of the Bahamas bar I know nothing about taxation and can give you no advice on that point.

Senator RYAN: The point I wanted to make, Professor, is that at the moment I think the tax system does dramatically favour one level of political activity over another. If I have $500,000 that I wish to see used to campaign for or against a particular issue, if I give that to a political party it is not tax deductible and if I give it to an NGO or to the trade union movement, if it happens to align with their interests, it effectively is tax deductible. Is that inconsistency a problem in our system?

Prof. Hughes : That is an anomaly that I think should be removed, but how that is removed is I think beyond my competence.

Senator RYAN: Sure; I just wanted to get the in-principle discussion. Thank you, Professor.

Prof. Hughes : I think that what you want is uniformity, hence my discussion with Mrs Bishop. I think it should be as uniform as we can get it across the Commonwealth and the states, to the extent of state regulation and local government elections and federal ones. Similarly, I think the application of taxation and government intervention by various forms of support should be uniform. If the Commonwealth thinks it is going to subsidise a mail-out, then I think it ought to be open to the states to subsidise a mail-out and they ought to be encouraged to keep the game as uniform as possible.

CHAIR: Professor Hughes, thank you for your evidence today. You will be sent a copy of the transcript so you can check it and make any corrections of fact. I see Mrs Bishop wants to ask a question.

Mrs BRONWYN BISHOP: Professor Hughes, I am sorry to do this but there is one important point. On the question of advertising and influence that is brought to bear, I put it to you that in 2007 there was one act by an outside group that was more important than any advertising. That was the Reserve Bank raising interest rates in the middle of a campaign. How would you assess that sort of activity?

Prof. Hughes : I think it is difficult to maintain a complete embargo on decision making and acting upon decisions in a protracted period. I do not know that saying the issue of the writs causes a transformation of the political landscape such that it should not occur in that particular period because, as I was saying earlier, I think things occur beyond that. What I believe is appropriate is those who disagree with what the Reserve Bank did are entitled to say that they should not have done that and those who want to defend the Reserve Bank can come to their rescue. But I am loath to put an embargo that goes beyond the conventions of the present period, which do not produce many problems because people have learnt about them. The other question really is more a matter of what constitutes constitutional convention. It is said it has never happened before that the Reserve Bank has done this and therefore they should not have done it. That then brings us up against all the affairs of 1975 again, which are larger than I am sure the committee or I would want to launch on to.

Mrs BRONWYN BISHOP: I was just wondering if perhaps they should be covered by the caretaker provisions.

Prof. Hughes : I really do not know. I have not heard much discussion on that point beyond the brief journalistic exchange. I think the committee, if it were thinking of saying anything on those lines, would really need to look to a different circle of witnesses, starting with the Reserve Bank and those who comment on its activities and influence. It may well be that the decision by the Reserve Bank saved the country from disaster. Alternatively, there are those who say it robbed us of a golden opportunity. I am not sure this is—

CHAIR: Professor, you do not need to answer this, but I suppose I could also say that there might be some time in the future when the Reserve Bank could lower interest rates during an election campaign. They are not compelled to raise them. I will leave it there, because time is running away from us. As always, thank you for your contribution. You have been someone who over the years has made a difference in terms of the electoral processes with your thoughtful contributions. Thank you.

Prof. Hughes : You are most kind. Thank you.