I’d like to thank the Committee for providing me with an opportunity to comment on Bill C-24.

Democracy Watch has been quite active on the issue of making Canada’s political fundraising rules more transparent and democratic since we were founded nearly 10 years ago, and 50 organizations from across Canada have endorsed our recommendations in this area.  This is in fact the third time that I have appeared before a parliamentary committee on this issue, and I’m pleased to see a willingness on the part of the government to meaningfully address the longstanding need for reform in this area.

We are by no means alone in advocating the need to address electoral finance reform.  Included in our coalition are women’s groups, environmental and health organizations, labour unions, community economic development groups, and many others.  Many of the problems being addressed by this bill were identified by the Lortie Commission in 1991, and a series of reports from the chief electoral officer since then.

In Bill C-24, we have the basis for a law that will limit the potential for wealthy interests to influence the democratic process.  But for the law to be effective, amendments that are well within the scope of the bill must be made.

Current and historic donation patterns ? from Canada and elsewhere ? suggest that if we close only a few of the key loopholes that donors use to hide donations, the response from donors will be to simply re-route their donations to the loopholes that remain embedded in the system.  The amounts and sources of money wouldn’t change; rather, only the donation pattern would change.  I do not believe that this is the objective and spirit of this bill.
 

The Need for Reform
According to the Chief Electoral Officer, under the current system, just 3% of the donors account for 45% of all money raised by the parties.  What we know of these donors is that they tend to be those with the greatest stake in government decisionmaking.  Democracy Watch’s own research shows that, of the top 25 government contractors, two thirds are major donors to the governing party, and they donate to that party, versus all other parties combined, at a ratio of six-to-one (at the riding/candidate level, that ratio is 30-to-one).  There are similar patterns with regulated industries, such as banks and telecommunications.  Our research also shows that there is a strong correlation between donors and companies that maintain a significant lobbying presence in Ottawa.

While this is not direct proof of corruption in the political process, it is a strong indicator that major donors give, not simply out of a sense of civic duty, but with the expectation that they will get something in return.  The perception is that while a major donation is not necessarily the price of admission, it seems to get you a better seat at the game.

Does every donation buy influence with every politician?  Of course this isn’t the case.  But the system certainly allows for this form of corruption, and arguably encourages it.

At the very least, we can safely say that donations buy access.  To take just one indicator of this, most politicians readily admit that they will place a priority on returning calls from their major supporters.  At the lower tiers of power, this may seem like an insignificant edge.  But at the higher levels, such as with ministers and party leadership candidates, this is a major problem.  The power wielded by these higher offices, as well as the higher amounts being given and the ease with which donations can be made in secret, exacerbate the imbalance between wealthy interests and virtually everyone else, and increases the potential for political corruption.
 

Strengths and Weaknesses of Bill C-24
If we can agree that the goal of Bill C-24 is to reform electoral finance ? to encourage parties to broaden the base of their support, making them less dependent on a small number of large donors ? then we must ensure that there are incentives in the bill to facilitate this shift, and we must not leave the many loopholes in place from the current law.

In this regard an effective electoral finance law must do at least three things:

• It must provide for full disclosure of all political donations, so that a dollar donated is a dollar disclosed.
• It must provide reasonable limits on how much can be donated.  A line must be established between what is a reasonable contribution to the democratic process and what is an attempt to gain undue access or influence.
• And it must place reasonable limits on election expenses, in order to ensure that running for office is affordable and accessible for most Canadians.

In the area of disclosure, Bill C-24 closes some of the loopholes in the disclosure regime, including donations to riding associations, leadership races and nomination races.  It also would require identification of the date that a donation is made.

These are important elements of an effective disclosure regime.  However, in order to ensure that the money that flows through these loopholes is not simply diverted to other loopholes, the following weaknesses should also be addressed:

1) Trust Funds - These funds include any fund that is controlled by a candidate or party.  Some have argued that this loophole has been closed, because donations from these funds would be disclosed, and the funds could not be used for “political purposes.”  However, the funds could still be used for personal purposes, such as vacations and retirement.

2)  Identifiers are important because they make it possible to know the true identity of a donor.  Not that long ago, you could have six people identified as “J. Smith” in a donation list, without being able to know who these people really were.  While we now have address as an identifier, the disclosure regime is still missing key identifiers, such as employer, corporate affiliation (i.e. if the donor is a member of a board or executive), and in the case of a company or organization, parent company.  These identifiers are included in the U.S. disclosure system, and would make it easier to tell if companies were, for example, trying to funnel donations through their employees.

3) Disclosure is still delayed.  Under Bill C-24, parties do not report their donations until July following the end of the fiscal year, with the result that disclosure occurs up to 18 months following receipt of the donation.  For riding associations, it is five months after the fiscal year, and for nomination races, disclosure occurs four months after the race.  Even for leadership contestants, while disclosure occurs every week during the last four weeks of campaign, there is no ban on donations between the last disclosure report and the vote, so donors will not be fully known before the vote takes place.

The second area I would like to discuss is limits on contributions.  And as noted earlier, there is a loophole being created for trust funds that must be closed.  This is perhaps the most serious loophole in the law, and far exceeds the breadth of any loophole in the US system, since it would allow for unlimited and secret donations to any MP or party.

Bill C-24 places a limit of $10,000 on all individual contributions, and places a partial ban on donations from corporations, unions and other organizations.  While we support these provisions in principle, the proposed $10,000 limit is excessive, and far beyond what is affordable for the average Canadian.  Ten thousand dollars represents more than one sixth of the average household income in Canada.  A donation of this amount would hardly be a prudent expenditure for the vast majority of Canadians.  Quebec and Manitoba both have complete bans on corporate and union donations, and an individual donation limit of $3,000.  Democracy Watch feels that the donation limit should be at a level that is affordable for the average Canadian.  The limit should be no higher than $1,000.

I’d like to comment briefly on the Quebec and Manitoba systems, which this committee has heard about.  The Manitoba system was adopted just three years ago, and has a $3,000 limit on all individual donations, and a complete ban on donations from corporations, unions and other organizations.

Some say that even under the Quebec and Manitoba systems, corporations and unions skirt the rules by donating through their employees.  There is no solid evidence that this has occurred on any significant scale, and for good reason.  First, the company or union would have to find enough employees willing to make the contributions.  Second, it would have to compensate each of the employees, taking into account income tax considerations.  Third, for such a scheme to be effective, the company or union would have to communicate to the recipient party or candidate that the employees’ donations are all really from the company.

Nonetheless, the problem could easily be addressed in Bill C-24.  The bill already contains a general anti-avoidance rule that prohibits this sort of funneling from taking place.  However, the best way to ensure that this abuse is minimized is by placing the donation limit at a low enough level to force the donor to use many employees if they want to attempt to illegally funnel donations.  The greater the number of employees involved in the scheme, the higher the chances of getting caught.  Few companies or unions would be willing to risk this.  This is yet another reason to place the donation limit at a level of $1,000 or less.

The third area in need of reform is expense limits.  Bill C-24 provides new limits on nomination races, which we strongly support in principle.  However, we feel the limit of 50 percent of what can be spent during the election in a riding is too high, and should be reduced to 25 percent.  In addition, new limits should apply to leadership races, the winners of which are in positions far more powerful than those who win nomination races.

The bill would also include polling and research costs in the definition of election expenses.  This too is long overdue, but using this as a justification, the bill would increase the expense limit of parties by roughly $1 million.  This would encourage a spiraling of election costs, and strengthen the hand of the governing party, since it is generally the only party that spends close to the maximum national limit.

Polling and research costs have been a loophole in the system for far too long, and these costs should have been included in the definition in the original law, so we would oppose the provision that would raise the party expense limit (s.422(1)(a)).

Finally, I’d like to comment briefly on the public financing provisions.  Democracy Watch supports the principle of public financing, and we believe that basing a portion of that financing on the public support enjoyed by a party or candidate is sensible.  However, public financing should be used as an incentive to help the parties broaden the base of their support.  The new public financing provisions, it would seem, assume that there will be no new donors to the parties, so it replaces the corporate and high-end donations that the bill would remove with publicly financed dollars.  In our view, the public subsidy should be reduced significantly.  If the parties are simply replacing corporate and union money with publicly financed dollars, there will be little incentive to make the shift toward a broader base of support.
 

Conclusion
Democracy Watch hopes that Bill C-24 is passed with the amendments we’ve proposed.  We feel these changes are long overdue.

Polls show that two thirds of Canadians favour banning corporate and union donations completely.  The transparency provisions in the bill address loopholes that have been  identified consistently over the past decade by the chief electoral officer as well as the Lortie Commission in 1991.

Suggesting that we wait to study this issue further is a lot like saying we should wait for more research on nicotine addiction before figuring out whether it’s worthwhile to quit smoking.

But the most important reason for making these changes, and making them now, is that Canadians have a right to know who is bankrolling their elected leaders, and to have a democratic system where the influence of money and the potential for conflict of interest is minimized.

Thank you.