STATE SUBSIDIES AND POLITICAL PARTIES

Harold J. Jansen and Lisa Young

In the June 2011 federal budget , the Harper government made good on its promise to eliminate the quarterly allowance for political parties. This, however, is just one of three forms of financial support for political parties. When one considers the total support for parties, all parties, including the Conservatives, are heavily dependent financially on the state. The debate over state support for parties should encompass the entire range of financial support, rather than focusing exclusively on the quarterly allowance.

Comme promis, le gouvernement Harper a supprimé dans son budget de juin 2011 l’allocation trimestrielle versée aux partis politiques. Toutefois, celle-ci n’était que l’une des trois formes d’aide financière qui leur est accordée ; tous les partis, y compris les conservateurs, restent financièrement très dépendants de l’État. Le débat sur le soutien aux partis politiques ne peut donc se limiter à l’allocation trimestrielle, mais doit englober l’intégralité de l’aide financière qu’ils reçoivent de l’État.

n the budget introduced on June 6, Finance Minister Natural Law Party, a party with little electoral support Jim Flaherty made good on an election promise and among Canadians, began to advertise its religious views I did what the Conservative government had been try- using subsidized election campaign spending, Parliament ing to do since late 2008: begin the process of eliminating amended the criteria to require parties to earn at least 2 the quarterly allowance given to national political parties. percent of the vote nationally or 5 percent of the vote in As the newest component of the financial support package the districts in which they ran. for political parties, the quarterly allowance is a tempting The 2004 reforms to Canada’s election and party target. We argue, however, that the debate over the public finance regime enriched the existing public financing. At financing of political parties should be broader and the national level, the legislation increased the election encompass the whole package of state support for parties. expenses reimbursement considerably, taking it from 22.5 Canada’s political parties have enjoyed various forms percent of eligible spending to 50 percent. Furthermore, a of state financial support since Parliament passed the wider range of expenses were considered eligible for reim- Election Expenses Act in 1974. The 1974 legislation provid- bursement, most notably public opinion polling. The legis- ed for two forms of financial support for parties. First, it lation also raised the party spending limit, increasing the established a generous political contributions tax credit maximum reimbursement. (PCTC) that provided tax credits as large as 75 percent for The PCTC was also enriched. The range of donations eli- small donations. Individuals could claim credits for dona- gible for the maximum 75 percent credit was raised from $0- tions to parties, candidates and local party associations. $100 to $0-$400. Table 1 reports the changes in the tax credit Second, the Act provided for a system of reimbursements levels before and after the 2004 reforms. Contributions above for election spending. Political parties that spent at least $100 received more generous tax credits after 2004 than was 10 percent of their maximum spending limit could get the case previously. For example, before 2004 a $500 dona- 22.5 percent of their election spending reimbursed. tion would have been eligible for a $275 tax credit; a $1,000 Similarly, candidates who earned at least 15 percent of the donation would have been eligible for just under $450 in tax vote in the district in which they ran could get half of credits. After the changes to the law, these donations would their election spending reimbursed from the public purse. be worth tax credits of $350 and $558.25, respectively. The basic framework of public support for political Although these changes significantly increased the parties remained relatively intact until 2004, with only amount of public money going to political parties, they minor changes, most notably to the criteria needed to stuck closely to the existing framework of the Election qualify for the party expenses reimbursement. After the Expenses Act. The 2004 reforms also added a quarterly

POLICY OPTIONS 43 OCTOBER 2011 Harold J. Jansen and Lisa Young

allowance to the array of financial sup- nents are for each of the parties rela- public financing and the debate over ports provided to national parties. tive to their overall income. public financing to neglect the role of While banning donations from corpo- Estimating the value of the PCTC as a the PCTC is regrettable, since tax cred- rations and unions (at least at the component of party income is much its for donations are a form of public national level), the new financing more difficult. The only estimate of financial support for political parties. regime provided an allowance to polit- how much this tax expenditure costs Revenue that the federal government ical parties based on $1.75 per vote the federal treasury comes from chooses to forgo is still a form of expen- earned in the preceding election. This Finance Canada estimates of its cost to diture, an idea captured by the term allowance is indexed for inflation and the treasury. For the year 2008, “tax expenditure.” This form of public paid quarterly to any political party Finance Canada estimated that the support is less transparent than the that earned at least 2 percent of the PCTC would result in $25 million in other two. Leaving it out of estimates of vote or 5 percent of the vote in the dis- forgone revenue. These estimates are public support for parties leads to an tricts in which they ran in the preced- of limited usefulness, since they do not underestimation of the total package of public financial support for Canada has been providing state funding for its national political parties and also of the extent parties since 1974. The 2004 reforms strengthened the two to which each of the parties is relatively dependent on existing components of state support — the political contributions state support. tax credit and the election expenses reimbursement — while Because this public sup- simultaneously establishing a quarterly allowance. port is paid as a tax refund to the donor rather than ing election. help us to understand how this indi- directly to the party, we must estimate Canada has been providing state rect financial support is distributed the value of the tax credit by using funding for its national political parties among the parties. Since the relative donor information provided by since 1974. The 2004 reforms strength- value of the tax credit declines as the Elections Canada. For each donor to a ened the two existing components of magnitude of the tax credit increases, national party, we calculated the value state support — the political contribu- parties that raise fewer large contribu- of the tax credit they would have been tions tax credit and the election expenses tions receive comparably less public eligible to claim using the formula on reimbursement — while simultaneously support than parties that raise more the tax reform. We then added up establishing a quarterly allowance. The small donations. For example, a party those values for all of the donors to a latter has received the bulk of the atten- that raised 1,000 donations of $100 party to assess the value of the tax cred- tion and controversy, while the other would enjoy indirect public financial it to that party. These totals provide an two components of state support for support of $75,000 for those dona- estimate of the extent to which the Canada’s parties escape almost unno- tions, while a party that raised state indirectly subsidizes parties ticed. A complete understanding of the $100,000 through 100 donations of through the tax credit. extent to which Canada’s parties are $1,000 would receive public support of There are certain limitations to the financed by the support requires us to $55,825. The difficulty of estimating analysis that must be remembered assess all three components. the value of the PCTC to parties com- when interpreting the results below. Canada’s political parties are now pared with the other sources of public First, these estimates only include required to provide extensive reports financing explains why most estimates donations to the national party. The to Elections Canada, reporting quarter- of the level of public support to politi- PCTC is claimed by individuals and ly on revenue and expenses, as well as cal parties look only at the extent to includes all of the donations to the transfers to other entities in the party, which they are supported by the elec- various entities of the parties. such as electoral district associations, tion expenses reimbursement and the Identifying the donations made by candidates and contestants for party quarterly allowance. individuals to various party entities to nominations or the leadership. This This tendency in the research into be able to add them together is impos- reporting allows us to analyze the extent to which parties are reliant on TABLE 1. POLITICAL CONTRIBUTIONS TAX CREDIT BEFORE AND AFTER 2004 state support. Tax credit rate (%) Before 2004 ($) 2004 onward ($) lections Canada provides easily 75 0-100 0-400 E accessible data on the election 50 100-550 400-750 expenses reimbursement and the quar- 33.3 550+ 750+ terly allowance, allowing us to easily Maximum credit 500 (on 1,150 or more) 650 (on 1,250 or more) determine how large these compo- Source: Elections Canada.

44 OPTIONS POLITIQUES OCTOBRE 2011 State subsidies and political parties sible. Although this obstacle limits the Table 3 reports the results of our subsidized by the PCTC displays rela- extent to which we can develop a com- analysis of the potential value of the tively little variation by party. The vari- plete picture of the level of public sup- PCTC for each of the five major parties ations reflect the relative importance of port, it is unavoidable. Moreover, the in 2008. Although the value of the tax smaller donations to each of the parties, bulk of individual donations is raised credit varies significantly by party in with the New Democratic Party most reliant on small individual The election expenses reimbursement is relatively transparent, donations and the Bloc following clear rules, and it is reported on the Elections Québécois most reliant on Canada website. Furthermore, it partially subsidizes political larger individual donations. Adding the results of parties for their activities in connecting with voters. By tying the analysis of the value of the value of the subsidy to the value of spending, however, it the PCTC to the direct treats all party activity the same. sources of state funding allow us to get a more com- by the parties at the national level and absolute terms, in relative terms, the plete analysis of the extent of state this tendency has only been enhanced share of individual donations indirectly financial support for political parties by the 2004 reforms. The PCTC is most relevant at the national level. TABLE 2. DIRECT FUNDING OF CANADIAN POLITICAL PARTIES, 2008 (DOLLARS) Similarly, if someone donated to more than one national party, we are unable Individual Quarterly Election expenses to account for that in our analysis. Party contributions allowance reimbursement Total Second, these estimates represent Bloc Québécois 713,085 3,017,092 2,438,060 6,168,237 the potential tax credit claimed by indi- Conservative Party 21,179,483 10,439,132 9,709,290 41,327,905 viduals, not necessarily the actual Green Party 1,621,532 $1,289,951 1,397,900 4,309,383 Liberal Party 5,811,492 8,701,263 7,259,963 21,772,718 amount of the tax credit claimed by New Democratic donors. Not everyone claims all of their Party 5,412,940 5,030,293 8,377,235 18,820,468 tax credits. It is impossible to know the Total 34,738,531 28,477,731 29,182,448 92,398,711 extent to which this occurs and Source: Elections Canada. whether donors to one party are more Note: All dollar figures have been rounded to the nearest dollar. or less likely to claim the available tax TABLE 3. POTENTIAL VALUE TO PARTIES OF THE POLITICAL CONTRIBUTIONS TAX credit than donors to another party. CREDIT, 2008 In what follows, we report the extent of public support to parties in Tax credit as % 2008. We chose 2008 because it is the Party Contributions ($) Eligible tax credit ($) of donations last available full year when all three Bloc Québécois 713,085 415,997 58.3 forms of public financing were provid- Conservative Party 21,179,483 12,690,370 59.9 ed to the parties. Table 2 reports the Green Party 1,621,532 959,250 59.2 Liberal Party 5,811,492 3,469,089 59.7 value of the quarterly allowance and New Democratic Party 5,412,940 3,333,529 61.5 the election expenses reimbursement Total 34,738,532 20,868,237 60.1 for each of the five major parties, as Source: Elections Canada. well as the total value of individual contributions. The Conservatives’ TABLE 4. PUBLIC FINANCING OF POLITICAL PARTIES IN CANADA, 2008 (DOLLARS) advantage in fundraising from private State sources is readily apparent. In 2008, the funding as Conservatives raised more from indi- Direct Indirect Total share of vidual donors than all of the other state funding Total state party of total Party funding (PCTC) funding revenue1 revenue major parties put together. The Conservatives receive more in these Bloc Québécois 5,455,152 415,997 5,871,149 6,168,237 95.2 two direct sources of public financing Conservative Party 20,148,422 12,690,370 32,838,792 41,327,905 79.5 Green Party 2,687,851 959,250 3,647,101 4,309,383 84.6 than the other parties, but their advan- Liberal Party 15,961,226 3,469,090 19,430,316 21,772,718 89.2 tage in public financing is not as pro- New Democratic nounced as in private fundraising. Party 13,407,528 3,333,529 16,741,057 18,820,468 89.0 Total 57,660,179 20,868,237 78,528,416 92,398,711 85.0 Altogether, the Conservatives enjoyed a significant financial advantage over Source: Elections Canada. their opponents. 1 Total party revenue excludes transfers from other party entities.

POLICY OPTIONS 45 OCTOBER 2011 Harold J. Jansen and Lisa Young

in Canada, as reported in table 4. All undesirable form of public support for more truly reflects their support in the Canadian parties are heavily depend- political parties (for example, by Tom electorate, helping to equalize ent on state sources of income to Flanagan in 2009), because it does not inequities created by reliance on pri- finance their revenue. Even the require political parties to actively vate fundraising. Conservative Party, the party most suc- “earn” them in the sense of maintain- In contrast, the PCTC is oblique cessful at raising donations from pri- ing connections with voters between and complex. Unlike the quarterly vate individuals, is heavily dependent elections. Furthermore, the quarterly allowance, its cost is reported only in the aggregate and tucked The debate over the public financing of parties should begin away in obscure reports with the recognition of the full extent and methods of state from Finance Canada. support for political parties, rather than selectively choosing Conversely, it does have the virtue of still requiring one or the other for debate. A more holistic accounting of state political parties to convince support for parties allows us to identify the trade-offs involved voters to make that initial in the mechanisms by which we deliver the state support. donation to the party. Delivering public money in on state funding when measured in allowance is seen to allow parties to this way encourages parties to main- this way. survive without raising much money tain constant connections with Including the election expenses from individuals, as was the case with donors, which helps to minimize ten- reimbursement in a particular year the Bloc Québécois. It does, however, dencies toward cartelization that may tends to produce a misleading picture have at least some connection with come with public money (Young, of both the total revenue and the voter preferences. Although it requires 1998). As fundraising becomes more extent of state support for parties for voters to consider that their vote also professionalized, however, with that year. Other analyses of party rev- entails a donation to the party, the increased reliance on telemarketing enue (such as our chapter in our quarterly allowance requires political and direct mail appeals, the virtues of recent book and Flanagan and parties to earn that level of support. this type of fundraising as a way of Jansen’s of 2009) have shown that Furthermore, it is completely transpar- maintaining contacts between parties excluding the reimbursement pro- ent to taxpayers and voters in that it is and civil society are increasingly ques- vides a picture of revenue and state easily calculated and reported. Finally, tionable. support that is more comparable to by being tied to voter support, it pro- The election expenses reimburse- non-election years. Table 5 reports vides financial support to parties that ment is relatively transparent, follow- the total funding and level of state support with the reimbursement TABLE 5. PUBLIC FUNDING AS A PROPORTION OF TOTAL PARTY REVENUE removed. These results also paint a (EXCLUDING REIMBURSEMENT), 2008 picture of heavily state dependent Total party Quarterly allowance Proportion of revenue parties, much more so than is the Party revenue ($)1 + PCTC ($) from public sources case when the PCTC is not included in the calculations. For example, cal- Bloc Québécois 3,730,177 3,433,089 92.0 Conservative Party 31,617,615 23,129,502 73.2 culations of the level of state depend- Green Party 2,911,483 2,249,201 77.3 ence for the Conservatives that do Liberal Party 14,512,755 12,170,353 83.9 not include the PCTC estimate their New Democratic Party 10,443,233 8,363,822 80.1 Total 63,216,263 49,345,968 78.1 state dependence at around one-third of their total revenue. Source: Elections Canada. 1 Total party revenue excludes transfers from other party entities.

ur analysis shows that all of TABLE 6. PROPORTION OF PARTY REVENUE FROM PUBLIC SOURCES WITHOUT O Canada’s political parties are QUARTERLY ALLOWANCE, 2008 (PERCENT) heavily dependent on state financial support, delivered either directly or As proportion of As proportion of revenue revenue (including (excluding indirectly. In this sense all of Canada’s Party reimbursement) reimbursement) political parties are “wards of the state.” That said, the different forms of state Bloc Québécois 92.0 58.3 Conservative Party 73.2 59.9 support provided to Canadian political Green Party 77.3 59.2 parties have different implications. Liberal Party 83.9 59.7 The quarterly allowance has been New Democratic Party 80.1 61.5 Total 78.1 58.3 singled out in the past few years as an

46 OPTIONS POLITIQUES OCTOBRE 2011 State subsidies and political parties ing clear rules, and it is reported on the ing from public sources, both including In this article, we have tried to Elections Canada website. Furthermore, and excluding the reimbursement from assess the full extent of public finan- it partially subsidizes political parties the analysis. When factoring in the cial support for Canada’s national for their activities in connecting with PCTC, abolishing the quarterly political parties. We have found that voters. By tying the value of the subsidy allowance would still leave the majori- all of Canada’s parties are heavily to the value of spending, however, it ty of party revenue as coming from dependent on state support, whether treats all party activity the same. Attack state sources, but perhaps to the detri- on the direct support of the election advertising and voter suppression ment of equitable competition and expenses reimbursement and the efforts are subsidized at the same rates informed political debate. quarterly allowance or on the indi- as efforts to inform voters of a party’s Tom Flanagan has suggested in rect support of the PCTC. The debate platform during the election. This form 2009 that the quarterly allowance be over the public financing of parties of public support assumes that parties replaced with measures that encourage should begin with the recognition of are using the money to connect with voters to donate to parties and parties the full extent and methods of state voters; it does not require them to do so to appeal to voters. He suggests that an support for political parties, rather in the same way as the PCTC or the enriched PCTC or a check-off system on than selectively choosing one or the quarterly allowance. tax forms might be a way to accomplish other for debate. A more holistic This has implications for the kinds these goals. Flanagan and David accounting of state support for par- of reform Canada might consider to its Coletto suggest in a 2010 article for the ties allows us to identify the trade- party finance system. The Conservative University of Calgary Public Policy offs involved in the mechanisms by plan is to abolish the quarterly Briefing Papers that such a move would which we deliver the state support. allowance; at this point there are no likely leave parties in a worse financial plans to replace the lost revenue with position and these measures would Harold Jansen is associate professor of other sources of income. Setting aside recoup only a fraction of the lost rev- political science at the University of the question of whether this would enue, at best. The point we would add Lethbridge. Lisa Young is professor of provide political parties enough money to this conclusion is that replacing the political science at the University of to carry out their activities, the result quarterly allowance with further action Calgary. They are the editors of would still leave political parties largely through the tax system is replacing one Money, Politics, and Democracy: funded by the public purse. Table 6 form of public support for parties with Assessing the Impact of Canada’s reports the proportion of revenue com- another. Party Finance Reforms. ✂ POLICY OPTIONS SUBSCRIPTION ORDER FORM

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