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.