Public funding to political parties: a forward-looking approach

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1 Public funding to political parties: a forward-looking approach Background paper prepared for the Global Conference on Money in Politics, Mexico City 3 5 September, 2015 Daniela R. Piccio Università degli Studi di Torino daniela.piccio@eui.eu danielaromee.piccio@unito.it Access to financial resources shapes politics and affects the nature of political representation. A non-regulated political market unavoidably creates disparity between political actors, with repercussions on the equality of opportunity in electoral competition and on democratic processes more broadly. Public funding to political parties has been introduced in European countries with this very justification, to limit the influence of big and powerful donors in the political process, prevent corruption, and avoid excessive disparity in political competition. However, by no means public funding provisions alone can meet these objectives. In order to curtail undue influence on the political process, comprehensive and coherent legal frameworks should be established. Only by doing so can public funding achieve its democratic goals of reducing the potential for corruption. Public funding to political parties in Europe: an overview The oldest form of state support to political actors in Europe is the provision of indirect public funding. Indirect forms of support include media access (broadcasting time on radio and television), forms of tax exemptions (for example on donations to political parties), use of billboards, state owned property, or town halls for the organization of meetings during election campaigning. The provision of direct public funding to political parties is instead a relatively newer phenomenon. The introduction of such form of state help has taken place in all European countries after the Second World War, Germany being the first country in Europe that introduced forms of direct state support to party organizations. With the exception of Ukraine, 1 Malta and Switzerland where no direct public funding to political parties is established, all European countries currently provide forms of direct public funding to political parties. Figure 1. Introduction of direct public funding to political parties in Europe Source: 1 A draft law introducing public funding to political parties is currently discussed in the Ukrainian parliament.

2 Different European countries have governed the system of direct public funding to political parties according to different rules, the eligibility thresholds and the systems of allocating public money varying consistently throughout the continent. What European countries share, however, is a very generous provision of public funding to political actors. According to international guidelines, states should support political parties by means of limited contributions, in a way to establish a reasonable balance between public and private funding. 2 However, as shown in figure 2, state subventions in Europe have become so important that they have for almost all European countries by far exceeded forms of private income. Political parties in Europe heavily rely on public funding, and private funding (membership fees, donations, salary deductions from elected officials, candidates personal funds) which traditionally accounted for most of political party income, have become increasingly less significant for the party pockets. Figure 1. Percentage of public funding to political parties in European countries Source: Author s elaboration based on GRECO s Third Evaluation Round. 3 The provision of public funding to political parties in Europe has been so generous that several authors have pointed to various risks of over-dependency of political parties on the state. Most importantly, political parties may rely too much on state funding at the expense of detaching from the citizens whose interests they are supposed to represent. As an example of the fact that political parties in Europe strongly rely on public funding systems, the newly established Spanish political party Podemos, asked its supporters to provide a loan to the party to finance its local level elections, promising to return the money as soon as election reimbursements will be received late Council of Europe, Recommendation 1516(2001) on the Financing of Political Parties, Recommendation 2003(2004) on common rules against corruption in the funding of political parties and electoral campaigns. 3 All reports issued by the Group of States against Corruption (GRECO) can be found at 2

3 Figure 3. Podemos crowdfunding Source: Besides showing the party s reliance on public funding, this example also stands out as an attempt to rebuilt a system of trust between partisan institutions and the citizenry. With the slogan #SinBancosSePuede, Podemos managed to finance its campaign using a crowdfunding system, refusing any income from corporate funding. The disattended promises of public funding provisions Several commentators have observed that the introduction public funding has not achieved its desired aims. Most notably, corruption problems have persisted throughout the European continent. Observing Transparency International s Corruption Perception Index (CPI), we find that corruption levels, as perceived by analysts, country experts, journalists and entrepreneurs, increased over-time, accounting under the most recent measurements for the lowest score records. Recent Eurobarometer surveys point to similar results. Moreover, several authors have pointed to the declining capacity of political parties to stay in touch with the citizenry. Low degree of citizens trust in the representative institutions are of course a first indicator pointing to this direction. Levels of trust in political parties have dropped significantly throughout the European continent in the latest decade, and currently the average level of citizens tending to trust political parties across the EU-28 is 16.7 per cent, the lowest level ever in Eurobarometer surveys. Figure 2. Trust in political parties (EU-28) EU 28 AVERAGE Note: Entries are the percentage tending to trust political parties. Source: Standard Eurobarometer 83 (Spring 2015). 3

4 These figures do not stand alone. Numerous are the additional symptoms of citizens dissatisfaction towards representative institutions in Europe, from the low election turnout records, to the rise of populist parties, and to the emergence leading in some cases to institutionalization of protest movements. In the light of these figures, the very generous support provided by European states to political parties appears somehow problematic. Why provide state funding to political parties at all, if the system does not deliver what it promises? In several European countries, the principle of state support to political parties have indeed come under attack either by dissatisfied citizens or by the very political institutions. The Italian authorities, for example, opted for a tout court repeal of direct state subsidies to political parties. Following yet another series of political finance scandals, a new law abolished any form of direct contribution to political parties, including contributions for campaign activities. 4 From 2017 onwards, political parties in Italy will only benefit from private funding and indirect forms of public funding (such as tax exemptions and media access). In Italy, political actors were receiving election reimbursements in a form of lump sum (independently from the actual expenses incurred), party balance sheets were controlled exclusively by internal auditors, and monitoring authorities could only perform formal controlling functions with no power of inspection. The Italian example presented above clearly shows that providing public funding to political parties in the form of blank checks is ineffective vis-à-vis the broader democratic goals it aims to achieve and undermines the very credibility of this system of funding. In order for public funding provisions to reach their objectives, instead, a comprehensive political finance framework should be established and specific measures should be attached to public funding provisions. In the remaining of this paper, I will discuss a number of good practices in political finance regulation, showing how systems of public funding can work and can contribute to achieving some of their fundamental objectives when they are combined with other legal measures. Focusing on good practices will allow shedding light on what measures must be attached to public funding to make it work, as a way to encourage and promote a forward-looking rather than a reactive and scandal-driven approach. Creating a comprehensive framework Public funding to political parties and candidates has been recognized by international standard as a key policy instrument for promoting a level playing field in electoral competition and preventing large businesses and corporations to influence the political processes. However, the provision of public funding, alone, is insufficient for achieving its democratic goals. In order to be effective and limit the opportunities for policy capture, public funding rules should be accompanied by a complementary set of narrowly drafted political finance measures. In particular, legislators should introduce rules in relation to: 1. Private donations to political parties and candidates; 2. Election expenditure; 3. Disclosure and transparency measures; and, of course, 4. Adequate authorities for monitoring and enforcement. 4 Decree-law in December 2013 and converted into law by the parliament in February 2014 (law 13/2014). 4

5 1. Rules on private donations Regulating private donations by establishing limitations on the sources of private income of political parties and candidates is an essential instrument to control the inflow of money into politics and prevent inappropriate links between private interests and political decision-making. Imposing restrictions on private contributions to political actors has become a common regulatory practice in Europe. This has been done by establishing restrictions on the amounts that physical or legal persons are allowed to donate to political parties (donation caps) or on the very quality on the admissible donors (donations bans). The large majority of European countries has established donation caps, although the actual height of the caps varies consistently across the region. In Finland, for example, the amount parties can receive from the same donor during a calendar year is set at 30,000 euros; in Ireland at 2,500 euro; and in Spain at 100,000, although far lower cap of 6,000 is set during election years. As such, private donations to political parties are not necessarily pernicious to democratic processes. On the contrary, it is desirable that political parties create opportunities to generate their own income as a way to encourage citizens participation in partisan activities. A good practice, therefore, is to set the height of the caps at some reasonable level, which allows private contributions to political actors to take place while limiting the possibility for private interests to buy political parties and candidates independence. Banning anonymous donations is a very common restriction in Europe. Most countries in Europe have established a ban on anonymous sources of money to political actors. Where no total ban is established, donations from unknown sources are allowed but up to a specific limit. In Ireland, for example, there is a ban on anonymous donations exceeding 100 euro; in Belgium, this limit is set at 125 euro, and in Germany at 500 euro. In Austria and Denmark, however, the limits is set much higher, 1,000 euro and (approximately) 2,700 euros, respectively. Setting the limit of anonymous donations low is a means to encourage smaller private contributions to political actors without the risk of imposing an undue administrative burden, which on turn limit the effective freedom of political organizations. Banning legal persons donations is probably the most effective but restrictive measure to prevent influence from corporations and large donors on the political process. Only a minority of European countries have introduced a specific ban on donations from legal persons: Belgium, Bulgaria, Estonia, France, Greece, Latvia, Luxembourg, Poland, and Portugal. In these countries, bans were introduced in the wake of a series of illicit financing and corruption scandals, in the attempt to limit the influence of plutocratic financing. 2. Regulation of spending Introducing spending ceilings is an additional measure that can limit undue influence on the political process. The lower the political actors expenditure, the less likely their dependence on large private contributors. The establishment of spending ceilings has been a highly controversial issue in a number of countries. In the United States, for example, following the Citizens United v. Federal Election Commission case (2010), restrictions on campaign spending is perceived to limit the freedom of expression. In Europe instead, ceilings on election spending have been introduced by a growing number of countries: 8 were countries setting spending ceilings when political finance rules were first introduced, while under the current rules this number has increased to 20. In a 5

6 number of countries, this legal change was adopted specifically as a response to corruption scandals. In Ireland, for example, this measure was introduced in 1997 within a broader package of political finance reforms after revelations of corruption emanating from Tribunals of Inquiry; in Italy, spending ceilings were introduced after the massive corruption scandals of the early 1990s. The adoption of spending ceilings is in line with international recommendations. 5 However (as for private donations caps), the actual height of spending ceilings should be adequately considered. Spending ceilings have indeed the advantage of reducing the advantages of political parties and candidates with access to large amounts of money, and reducing the margin for potential corrupt exchanges. At the same time, when they are set too low, spending ceilings may restricting the opportunity for political competition to some parties vis a vis the others. 3. Disclosure and transparency measures Disclosure and transparency rules are essential in order to promote oversight and public scrutiny over the political parties sources of income. Transparency requirements are beneficial in at least two ways. On the one hand, they enable citizens to be informed on who are the political actors main backers. On the other hand, allowing donors to be identified has the indirect advantage to reduce big donors contributions to political actors. Indeed, corporations and large financial businesses will be more cautious in granting their financial backing to political parties and candidates when large donations will be exposed to citizens and media scrutiny. This on turn strengthens the credibility of the policy-making process. Almost all European countries require political actors to disclose financial statements to the relevant controlling authorities and to the public more broadly. However, accessing the financial information of political actors has often proved difficult in practice. In Belgium, for example, reports are only made available to the public for a 15 day period after the conclusion of elections; in Bulgaria, financial information is very difficult to access for the public; in Germany, information is easily accessible but it is usually out-dated. The United Kingdom offers instead one of the best examples of disclosure and transparency of the political parties financial accounts. Here, all political parties need to report financial information on both income and expenditure, and the financial statements are made available on the Electoral Commission's website. The central register of Statistics of Norway, the French CNCCFP and the Irish Standards in Public Office Commission provide a similar service to citizens, publishing party annual accounts, political finance statistics and analytical reports on their websites in a timely, intelligible and accessible format. 4. Control and enforcement Of course, none of the before mentioned rules is likely to be effective unless a rigorous system of independent monitoring is established. Indeed, regulation in other areas are of little importance unless they are backed up by an effective system of implementation and enforcement, which entails the presence of independent authorities with effective capacity and powers to monitor the political actors financial accounts and establish sanctions in case of financial misdemeanours. 5 Under Recommendation (2003)4, article 9, States should consider adopting measures to prevent excessive funding needs of political parties, such as, establishing limits on expenditure on electoral campaigns. 6

7 However, in virtually all European countries, it is in this specific area that political finance laws show the most remarkable shortcomings. Most European countries lack a strong independent system of monitoring, which appears as one of the fundamental impediments for the effective enforcement of political finance laws. Using public funding as leverage As underlined by the OSCE/ODHIR guidelines on party regulation, as a result of having privileges not granted to other associations, it is appropriate to place certain obligations on political parties. 6 The underlying logic behind such recommendation is the basic principle of do ut des: in order to benefit from financial backing from state resources, political actors should be subject to some basic requirements. Overall, minimum requirements for political actors to benefit from public funding are present in all European countries. For example, in order to be eligible for funding, political parties or candidates need to overcome a specific threshold, they must be registered in the Party Registry, or they must disclose financial accounts to the relevant authorities. More in particular, however, public funding provisions can be used as a powerful leverage. This can be done by introducing specific legal mechanisms that reduce the amount of public funding at the political actors disposal when a number of requirements are not met. Withdrawing public funding to political parties as the consequence of political finance infractions is a frequent provision in European political finance frameworks. In Slovenia, for example, public subsidies to political parties are reduced or wholly suspended if parties exceed campaign spending limits. I n Belgium, public funding can be temporarily suspended if political parties fail to submit their annual financial accounts. However, it is important to stress once again that the presence of such a rule says little about its enforcement. The financial sanctions for excess of campaign spending in Slovenia, for example, have seldom been imposed as the consequence of the little resources available to the monitoring authorities, which prevents the latter to perform their legally stated functions. Some good practices in linking public funding provisions to specific requirements that political parties need to meet are present in Germany, which has established a system of allocating public funding depending on the own revenues that political parties succeed to generate. Under the German regulation, only a limited percentage of the parties income can be provided by the public purse: irrespectively of the political party s size, the amount of public subsidies that a political party receives cannot exceed the amount of private funds that the party succeeds to raise. As a consequence, Germany is the country in Europe where political parties reliance on public funding is the lowest, and where membership fees, donations, and other contributions constitute the largest share of party income. 6 OSCE/ODHIR (2011) Guidelines on political party regulation, p

8 Figure 1. The matching funds rule in Germany Source: GRECO, Evaluation Report on Germany on Transparency of Party Funding. This regulatory requirement has a two-fold merit. On the one hand, it plays a crucial role reducing the political parties over-dependency from state resources (as shown in figure 1) in line with international recommendations. Most importantly, moreover, it stimulates political parties to maintain a continuous linkage and anchorage with the citizenry. A few European countries, moreover, tie direct public funding to political parties with gender equality. In Portugal, Ireland, France and Italy, for example, public subsidies are reduced if political parties do not field a minimum number of women candidates, or promote initiatives aimed to increase the active participation of women in politics. The recent political finance reform in Sweden provides instead good example of using public funding provisions in order to increase the parties transparency. Despite no specific ban on anonymous donations is established in Sweden, political parties receiving anonymous donations will not be eligible for public funding. These examples show that linking the allocation of public money to a number of specific requirements has a strong potential to change the incentive structures and influence the internal practices of political parties. Legislators should consider taking full advantage of this opportunity to have more transparent, more gender-balanced and generally more accountable party systems. 8