Helen Coonan (NSW, Liberal Party, Shadow Minister for Human Services) Share this | Hansard source

I now want to make some remarks on behalf of the opposition about the Tax Laws Amendment (2008 Measures No. 1) Bill 2008. There were six schedules in the original bill when it was first introduced into the Senate and those who follow these things closely could be forgiven for losing track of where these various measures went. The opposition made it clear that we had no objection to the non-controversial elements of the original bill—that is, schedules 2 to 6. We did however have significant concerns about the effects, both intended and unintended, of the schedule 1 measure to end the tax-deductibility of donations to political parties.

For this reason, the coalition referred the original schedule 1 to the Joint Standing Committee on Electoral Matters. We believe that such an important measure that will affect the operation of democracy in this country ought to have been further scrutinised. Unfortunately, despite the significance of this matter, Labor did try to rush through the measure without due scrutiny, and I will comment on what we regard as their motives for doing so shortly. However, the Senate referred this measure to the committee. Not wanting to hold up the other worthwhile measures in the original bill, the opposition supported the government’s move to add schedules 2 to 6 to the Tax Laws Amendment (2008 Measures No. 2) Bill 2008 as amendments, and that of course was debated and passed last week.

Now that the committee has reported, we are here to discuss the measure in schedule 1. What a pity it is that Labor used its numbers on the committee to produce what I think has to be a very, shall we say, incomplete or perhaps even biased committee report—perhaps one of the most biased committee reports that I have seen in my time in this place. This bill provides that, from 1 July 2008, there will be no tax deduction for membership fees of political parties and gifts and contributions to political parties—for example, moneys paid to attend fundraisers.

In June 2006, the coalition government increased the deduction limit for these payments made by an individual from $100 to $1,500. Companies were allowed to claim a deduction for up to $100; previously no specific deduction had been allowed. Even though these measures have had positive impacts on democratic participation, the Labor government, for what can only be described as cynical motives, wants to reverse them and end tax-deductibility for political donations. I note that the government does not propose to end tax-deductibility for donations or membership fees paid to a trade union. Significantly, in the past on a number of occasions, the ALP has put on the record its support for tax-deductibility of political donations. In its submission to the JSCEM report on the 1987 election and 1989 referendums, the ALP claimed:

… the additional funds raised by political parties with tax-deductibility advantage would alleviate any pressure for increased levels of public funding, would encourage political parties to continue to seek direct support from the public and would help them more adequately fulfil their social functions.

On 19 December 1991, the House of Representatives, under the then Hawke government, voted along party lines to introduce tax-deductibility of up to $100 for political donations to parties. The Political Broadcasts and Political Disclosures Bill 1991, assented to on 19 December, gave effect to the introduction of tax-deductibility of political donations of up to $100. The bill was introduced by the then Minister for Transport and Communications, Kim Beazley.

The ALP in government, making up the majority of the JSCEM, had nothing to say about the issue of tax-deductibility of contributions to political parties in the reports on the 1990 election and the 1993 election. In the JSCEM report on the 1996 election, a recommendation was included to make donations of up to $1,500 annually to a political party, whether from an individual or a corporation, tax-deductible. In the report on the 1996 election, the ALP nominated $1,500 as the maximum amount for tax-deductibility. The JSCEM report on the 1996 election was unanimous in recommending that

… donations to a political party of up to $1,500 annually, whether from an individual or a corporation, would be tax-deductible.

Membership of the 1997 JSCEM, which unanimously recommended tax-deductibility for donations of up to $1,500 from both individuals and corporations, included none other than Senator Stephen Conroy, the deputy chair of that committee; Mr Robert McClelland MP, who is now the Attorney-General; and Mr Laurie Ferguson MP, who is now a parliamentary secretary. So two cabinet ministers and one parliamentary secretary of the current government recommended at that time that the current regime for tax-deductibility of political contributions be adopted.

The minister claims that schedule 1 was a commitment made as part of Labor’s $3 billion savings plan, which was announced on 2 March 2007. Let us examine that. I believe this is trivial compared with the potential damage done to democratic participation by this reckless and ill-considered change. While the cost to democracy cannot be accurately measured, the cost to the taxpayer can be. Treasury estimates that the measures contained in the bill will save $31.4 million over four years to 2011-12, commencing in 2009-10. These costings comprise two components: party membership fees and donations. According to Treasury officials, the membership component of the costing is $4.3 million each year. Of course, there are a lot of assumptions in these figures. Treasury, I think it is fair to say, could not possibly have known, because it does not have accurate information about the number of members of political parties or accurate data on which to base its assumptions. Also, Treasury presumably does not have access to data on how many political party members even make a claim for tax deduction of their party membership. So any claim about budget savings should be measured against Treasury making a lot of assumptions and being absolutely unaware of how many political party members claim a tax deduction.

Likewise, as the coalition noted in its minority report, ‘Treasury had no knowledge of the amount or value of donations of less than $1,500’—which is the subject of this bill. Treasury has derived an estimate based on a series of assumptions to arrive at a figure. While coalition members of the committee do not doubt the internal logic of Treasury’s reasoning—it is very clever at making these kinds of assumptions—nevertheless, they conclude, ‘The result is totally arbitrary, as it relies completely on the reliability of the base data,’ which in this case was non-existent. No doubt later, during this debate, we will hear comments being made that failure to agree to this bill will have negative effects on the budget outcome. Some rather amazing claims seem to be coming from the government—for example, that raising taxes will reduce inflation. So it will be interesting to see Labor try to claim that opposing the removal of this tax deduction will cause inflation.

However, one thing is clear. That is that all the bleating from the government about budget savings is really rhetoric. The government has absolutely no idea of what the cost of this policy is. It is quite clear that this is a major change to campaign finance in Australia. What strikes me as odd is that a major change in campaign finance was placed in a schedule in a tax law amendment omnibus bill; political donations are quite clearly an electoral matter. If the government is so concerned with campaign finance reform—let us call it what it is; I think it is a rather worthy reform, I might add—why isn’t it including it as part of a reform or proposed reform of electoral matters?

The deductibility of political donations is entwined with the proper and effective functioning of Australia’s democratic and electoral processes. It is an issue that has been repeatedly considered by JSCEM in the context of reporting on the conduct of elections and Australia’s democratic system. Schedule 1 encompasses a matter substantially connected with the electoral process and it should be considered along with the democratic and electoral system, rather than be dealt with in an ad hoc fashion, by the back door, in a tax bill. I thereby call on the Labor Party to stop the talk and start a sensible conversation on campaign finance reform, rather than the nonsense that we have seen in this schedule.

One of the coalition’s most significant concerns about this bill is the fact that it will punish small individual donors but will make absolutely no difference to big corporate and union donors. A tax deduction for small donations—that is, of under $1,500—is a financial incentive for small individual donors to donate to a political party and participate in the democratic process. What this bill will do is see the removal of the financial incentive for smaller donors. Currently, only individuals can claim a tax deduction for up to $1,500 in donations. The Bills Digest prepared for this matter clearly summarises the small-donor argument when it states:

The availability of a $1500 tax deduction is of greater importance to individual donors than to corporate or wealthy donors. Insofar as the absence of a tax deduction discourages a large number of smaller donors from contributing, it allows corporate and wealthier donors to make up a greater proportion of a political party’s/candidate’s source of funding. It may be argued that this potentially increases the influence of corporatist and wealthier individual’s influence on political decision making.

That succinct summary of the issues makes it very clear why every senator should be opposed to this bill. What is the price of our democracy? And is it preferable to have many smaller donors or fewer larger donors?

Now that the horrors in the Labor Wollongong City Council corruption scandal have come to light, the Senate should be making moves to reform the system so that there are more small donations from individuals rather than fewer larger donations from corporations and unions. There has been a crisis of public confidence in the campaign finance system because of the bad behaviour of the New South Wales Labor Party. Labor are desperate to clean up their image—and so they should be. That is the real reason why they are trying to rush this schedule through. Quite clearly this bill will not be hurting the big players. Instead it will hurt smaller individual donors. Indirectly, this just means that big business and big unions will gain even more influence over political parties than they already have.

By far and away, though, the most concerning reason why the Labor government have tried to pull a swiftie and push through this legislation without scrutiny is the political advantage that it gives to the trade union movement and its political subsidiary, the ALP. This bill ends the tax-deductibility of a donation from an individual, but it still allows a tax deduction if you donate to a union. What happens, then, if that union runs a $10 million election campaign targeting marginal seats? How is it fair if a third party engages in political behaviour, yet membership fees and donations to that third party are tax-deductible?

The AEC political returns for 2006-07, published in February, revealed that the ACTU spent more than $10 million on political campaigns, while 41 other unions spent a combined total of $10.8 million. The 2006-07 political disclosure returns released by the AEC showed that unions declared donations to the ALP of more than $1.3 million. And union membership is tax-deductible, of course, under section 8.1 of the Income Tax Assessment Act. This would continue to be the case for Labor’s principal donors, while donations to other political parties would not be tax-deductible. Probably one of the biggest flaws in the schedule would be that it just allows Labor to funnel their money through the union movement and give their members a tax deduction by the back door, while members of non-Labor parties cannot do so. That is the real motive behind this bill: to give Labor the biggest financial advantage they can possibly have.

Unfortunately, but entirely predictably, Labor used their numbers on the committee to report that the committee supported the bill as written. This was because Labor knew the advantage that they would receive over other parties if this bill were to go through. The government are clearly seeking to use donation laws to gain political advantage here. The coalition will not allow the government to use the Senate to attack democracy and fair play, and we will oppose this legislation vehemently. I do hope that other non-Labor colleagues will join us in rejecting this very pointed attack on participatory democracy.