The folly of donations caps

I’m working on a CIS paper on political donations, so today’s lead Age story on the biggest ever donation to an Australian political party caught my eye. Wotif founder Graeme Wood gave the Greens $1.6 million.

Despite this, Greens leader Bob Brown is calling for donations to be capped at $1,000. Remarkably, he seems to understand that – like virtually all electoral ‘reforms’ – donations caps are attempts by existing political players to rig the system in their own favour:

‘”‘…the Greens are going to continue to get a disproportionate increase in funding,” he said.

“Maybe it will be that factor which will get one or other of the big parties to bring in restrictions on political donations.”

Exactly. As Bradley Smith argues in his book Unfree Speech: The Folly of Campaign Finance Reform, political newcomers often find it hard to raise money through small donations. They frequently lack the strong organisational base needed to tap into networks of many donors.

There is also a potential collective action problem: many donors don’t want to give unless they think their gift can make a difference, but unless the party or candidate can raise enough to run a credible campaign they won’t be in a position where extra donations will have a chance of making a difference.

Smith argues that a small number of large donors have often been important to giving political campaigns momentum. In this case, Wood seems to have thought carefully about his Greens donation. $1.6 million wasn’t a random figure. He asked for advice from advertising people about the minimum amount needed to have an impact through TV advertising.

Donations caps – unfortunately already law in NSW – combined with public funding based on votes received will probably mean that the Greens are the last viable minor party to be formed in Australia.

Another interesting aspect of the Wood story was this:

[Wood] knew a few wealthy people who were sympathetic to the Greens’ cause. He was disappointed to find none of them felt they could publicly donate to a political party. ”The main reason given, on every occasion, was ‘I’d love to do it but I can’t be seen to be out there doing that sort of thing’,” says Wood.

The problem of political intimidation again. The donations disclosure section of my paper is intellectually the most difficult. Unlike bans on donors or caps on spending, there are respectable arguments for disclosure. But there are also significant disadvantages.

2 thoughts on “The folly of donations caps

  1. Is disclosure of political donations about transparency or about accountability (for tax deductibility)?
    I’m not sure about the collective action problem you identify. Intimidation seems to be the bigger deterrent. Even large businesses who could benefit from Coalition governments generally make only token political donations and then often make them to both sides. All it would take would be for the big 4 banks and top miners to put in $20m each (about as much as they pay their CEOs each year) and the Coalition would find it much easier to win elections.


  2. Rajat – I think the collective action problem is bigger in the US, where even candidates with major party endorsement have to work hard to raise their own funds and establish name recognition. Donors tend to back candidates who have established momentum. Controls on donations in the US have favoured incumbents, celebrities, and very rich candidates (the Supreme Court knocked out a ban on self-funding) who can get around this initial problem.

    Deterrence is the major problem in Australia. The official justification is transparency, but I suspect the real reason is to hold donors accountable (ie punish them) for their actions.

    I don’t think tax deductibility matters either way for the concerns I have. I would not oppose its abolition.


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