Political parties are in almost all cases at the heart of our representative democracy. Already in 1942, E. E. Schattscheider postulated that “the political parties created democracy and modern democracy is unthinkable save in terms of the parties.”
When it comes to money and political parties, many think about corruption, bribes and hush money. Few think about the legal ways in which parties finance campaigns and the education of voters.
Most parties in matured democracies rely on a mix of private and public funding. Instances of private funding are donations and membership fees. Public funding includes, for example, direct cash payments by the state or reimbursement of private donations, for example through tax credits. Often, laws regulate how much parties can receive or what they can purchase or spend. But what mix makes a fair and democratic party financing system?
Some authors argue that public funding – if fairly distributed – helps curb the worst effects of big cooperations and billionaires in politics because parties have a secure independent income. To limit the influence of big money further, states cap the legal contributions of individuals and in some cases ban donations from corporations, unions or foreign actors.
Canada effectively limits donations to candidates to Canadian citizens and permanent residents. Trade unions, corporations, and foreign individuals are not allowed to donate. The Canadian state also caps individual donations at $1,700 annually to each party or candidate.
Direct public funding is limited to partial campaign reimbursements to parties and candidates and tax credits for voters. If Canadians donate to a political party, they are eligible for a tax credit – but that is, of course, only applicable if someone pays income tax. Assuming a passionate low-income donor who does not pay income tax pays $1,700 to a campaign, she will spend the full $1,700. If someone with a high income donates $1,700, she will qualify for a tax credit of 75% for the first $400 and 50% for any amount up to $700, meaning despite being the high-income earner, she will not have to pay the full $1,700 once tax season comes around – a regressive policy that disadvantages low-income earners and the parties they favour. Studies have found that richer people tend to donate more to political parties than poorer segments of society, ensuring (as critics argue) a disproportional influence.
French author Julia Cagé proposes Democratic Equality Vouchers as an alternative, which is a system inspired by the current Italian financing systems. Voters who file their taxes can tick a box at the end of their annual tax report, designating a set amount that is equal for all Canadians to one political party (or candidate) of their choice. Voters would ‘vote’ not only in elections but also with their tax reports each year. All other forms of party financing would be prohibited. Given that each citizen would donate the same amount, the funding would be less regressive than the current tax rebates; the rich would have less of an influence and the funding of political parties would be ensured in a democratic manner.
While the power of the donor class would be reduced, affiliate organizations of political parties that promote their agenda, like partisan online platforms, would remain outside of the proposal and have proven to be more difficult to regulate.
