Statements and Speeches

Remarks of the Chief Electoral Officer of Canada
before the
Committee on General Government

July 26, 2016

Check Against Delivery

Good morning and thank you, Mr. Chair, for inviting me to comment on Bill 201. I am accompanied today by Mr. Stéphane Perrault, Deputy Chief Electoral Officer, Regulatory Affairs.

My remarks will focus on the political financing rules at the federal level, with the understanding that many of the measures contained in Bill 201 are similar to those that currently exist under the Canada Elections Act or, in some cases, that existed at one time or another over the past decade.

First, I will present a brief overview of political financing in the federal context. I will then talk about the effects of the federal rules – mostly in terms of how the regime has affected the financial positions of the parties and the behaviour of contributors. Finally, I will share some experiences of Elections Canada for your consideration insofar as they relate to some of the proposed amendments.

My comments will be brief, and I will be happy to answer any questions members might have for me.

1. Overview of Political Financing Under the Canada Elections Act

The federal regime that we see today is the result of successive reforms that started in the mid-1970s with the introduction of public funding and spending limits for parties and candidates, and that were continued in recent years with the introduction of limits on contributions.

The overarching objective of the federal regime is to establish what has been described as a "level playing field" for the participants in the electoral process. This is achieved though essentially four sets of complementary measures: (1) spending limits, (2) contribution limits, (3) public funding measures and (4) reporting requirements.

While there is always room for improvement, I believe that the federal regime is, overall, a sound system.

(1) Spending Limits

Spending limits apply federally for registered parties, candidates and third parties during elections, but not before the writs are dropped. There are also spending limits for nomination contestants, but not for leadership contestants.

As a result of recent changes, the spending limits that apply during federal elections are pro-rated to the length of the election period. At the last election, which was the longest in modern history at 79 days, this resulted in limits that were more than double their traditional level. The national limit for parties was $54.9 million, and for candidates the average limit was approximately $220,000, reaching close to $280,000 in some districts. As a practical matter, this effectively meant that there was no limit, at least for parties and candidates who generally spent well below these levels.

I note that there is no similar problem in Ontario in the sense that the spending limit is fixed.

Bill 201 would mirror certain aspects of the federal regime by introducing spending limits for nomination contestants, as well as local and aggregate limits on advertising expenses for third parties. However, Bill 201 proposes to go further by imposing limits on election advertising expenses by both political parties and third parties in the six months preceding an election.

I will come back in the latter part of my remarks to deal with some technical aspects of these proposed changes in light of the federal experience.

(2) Contribution Limits

Contribution limits were introduced at the federal level in 2004 and have since seen a number of adjustments and changes.

Corporate and union contributions were significantly restricted starting in 2004 and then were fully eliminated in 2006.

The limit on contributions from individuals has also evolved over the last decade. Currently, there is a dual limit of $1,500 annually for contributions to a party and another $1,500 limit that applies to the aggregate of contributions made to the electoral district associations, nomination contestants and candidates of the same party. A separate $1,500 limit also applies to leadership contestants. Finally, candidates can contribute up to $5,000 to their own campaign, whereas leadership contestants may draw up to $25,000 from their own funds.

In addition to the rules governing contributions, recent amendments to the Canada Elections Act have introduced restrictions on the source and amounts of loans, as well as loan guarantees. This was an important gap that needed to be addressed. At the same time, the federal rules are complex, perhaps overly so. For instance, the amount of a loan guarantee is subject to the annual contribution limit. However, reimbursements on the loan over the calendar year will affect the amount that an individual guarantor may contribute during that same year. This makes the regime difficult to follow for participants. I note in this regard that the rules governing loans and loan guarantees in Bill 201 are somewhat simpler than the federal rules.

(3) Public Funding Mechanisms

A third and critical aspect of the federal regime is found in the public funding that is provided to political entities. When looking at public funding, it is important to look at the combined effect of the various funding sources. Currently, there are two main mechanisms for public funding at the federal level.

The first, which is an indirect funding mechanism, is a tax credit to encourage contributions. Contributors are eligible for a 75 percent tax credit for the first $400 in money donated to a registered party, electoral district association or candidate. The credit is 50 percent of the amount over $400 and 33 1/3 percent for any amount over $750. In total, the maximum credit federally is $650 for a $1,500 contribution. I understand that the tax credit in Ontario is somewhat more generous.

The second mechanism is direct public funding, namely, the reimbursement of election expenses for parties and candidates. Parties that receive 2 percent of the vote nationally or 5 percent in ridings where they present a candidate are entitled to a 50 percent reimbursement of their election expenses. For candidates, the reimbursement is set at 60 percent, but the threshold is 10 percent of the vote. In addition, candidates receive a subsidy for the audit of their return, up to a maximum of $1,500. In total, for the 41st general election (2011) some $60.4 million was reimbursed to parties and candidates. The amount for the 42nd general election (last fall's election) is approximately $104 million.

Until 2015, political parties that met the threshold for reimbursement were also entitled to a quarterly allowance of roughly 50 cents per vote or $2 annually per vote. The allowance was introduced in 2004 at the same time as the restrictions on contributions and was aimed at offsetting revenue losses for political parties, but it was phased out starting in 2012. I will come back to this issue in a moment.

(4) Reporting Requirements

Finally, the Canada Elections Act requires the various political entities to report on their revenues and expenses. For ongoing entities such as registered political parties and district associations, there is annual reporting. Event-based reporting is also required for parties, candidates, nomination contestants and leadership contestants, as well as for third parties that spend more than $500 on election advertising.

2. Effect of the Political Financing Reforms 2000–2014

Given that many of the reforms proposed in Bill 201 mirror rules found at the federal level, I thought that it might be useful to share with this Committee the financial analysis that my Office has produced regarding the financial impact of the political financing reforms over the last decade or so on federal political parties. I have brought a copy of the report, which I am happy to share with the Committee, but I want to highlight some of its main elements.

Before doing so, I think it is important to offer a number of cautions regarding the figures in the report. The report looks at financial trends over a relatively long period of time, which is largely what makes it interesting. However, the rules were not constant over that period. For instance, contribution limits were initially set at $5,000 in 2004 but then reduced to $1,000. This has an impact on the comparisons to be drawn between pre-2004 and post-2004. Similarly, district associations, nomination contestants and leadership contestants did not report contributions or expenses prior to 2004, so it is difficult to have a solid picture of the revenues and assets of political families prior to 2004.

Nevertheless, I believe that the report will be of interest to the Committee.

First it shows the impact of the restrictions on contributions on the types of contributions received and the fundraising activities of parties.

Before contribution ceilings were introduced and before union and corporate contributions were prohibited, 2 percent of the contributors (those who donated over $1,200 per year) represented 54 percent of the funds received. Compare that to the period from 2004 to 2006, when contributions from individuals were capped at $5,000, and union and corporate donations to certain political entities were limited to $1,000 and banned for parties. For those years the 1 percent of contributors who gave more than $1,200 contributed only 17 percent of the total contributions.

This trend continued for the years since 2006, when the 1 percent of contributors who gave more than $1,200 (for example, candidates themselves) represented only 1 percent of the total contributions.

Thus, while the 2 percent of the richest contributors made over half of the donations before limits were introduced and before contributions from unions and corporations were excluded, by 2014 these contributors made up a very small fraction of total donations.

This should not be surprising, of course. What is perhaps more surprising is that the restrictions on contributions did not appear to have a major impact on the revenues of political entities. While there was a significant reduction of total contributions received during election years starting in 2004, the contributions received during non-election years appear to increase by 7 percent.

It is difficult to make sense of these figures in isolation. As indicated earlier, electoral district associations, nomination contestants and leadership contestants did not report contributions prior to 2004, so the comparison may be skewed.

However, looking at the net assets of political entities over that period provides a more telling story. There, the data shows that from 2004 to 2014 the combined assets of parties and their district associations grew considerably, at least for those entitled to direct funding. The overall net assets of registered parties and their electoral district associations increased significantly from $7.8 million in 2004 to $81.7 million in 2014, despite successive elections in 2004, 2006, 2008 and 2011. During that period, public funding increased from $8.4 million on average per year before 2004 to an annual average of $50.7 million during and after 2004. This shows that the public funding mechanisms more than offset any revenue loss arising from the limits on contributions. It will be interesting to see how the removal of the quarterly allowance affects the financial situation of federal parties in the long run.

It is not for me to pronounce on what is the optimal level of public funding for political parties. I would say, however, that there are risks associated with strict limits on private contributions combined with inadequate public funding. Obviously, the greatest risk is that parties turn to illicit and undisclosed funding strategies that give rise to even bigger problems of undue influence.

Another risk is what some have described as the "permanent campaign." That is, because political entities can no longer secure large donations coming from a few donors, they must make efforts to obtain smaller amounts of money from a much broader pool of individuals. To motivate this source of potential donors, we see a continual state of campaigning. This phenomenon is perhaps not without its consequences on the overall tone of political discourse and the level of public cynicism.

So, although there are some positive aspects to contribution limits – eliminating the influence or the appearance of influence from a very few contributors – there is also a need to ensure solid public funding for political parties.

3. Some Targeted Comments on the Bill

I would like now to make some comments on some parts of the bill and share some of the challenges Elections Canada has faced and the lessons we have learned with respect to the administration of our own rules.

(1) Regulation of Expenses "Incurred" Outside the Relevant Period

Bill 201 introduces a number of important restrictions on expenses. It limits nomination campaign expenses. It introduces limits on advertising expenses for third parties, both during and before the writ period, and it limits pre-writ expenses for political parties.

In all cases, the ability to enforce the rules and, more importantly, the ability of political entities to understand them and comply require a clear definition of what expenses are captured.

At the federal level, poorly drafted definitions of leadership and nomination campaign expenses have resulted in important difficulties in dealing with expenses incurred outside the contest period but for goods or services used during the contest or for the contest. This includes, for example, the costs of fundraising activities held before or after the contest, or the cost of advertisements purchased prior to but used during the contest. This also has an impact on the contribution rules, since expenses that are not nomination or leadership campaign expenses can be paid with unregulated money.

In this regard, I invite the Committee to look at the rules proposed in Bill 201 not only for nomination contests but also for party advertising expenses incurred prior to the writ period but used during the election. In the same vein, it should also carefully examine how Bill 201 deals with party advertising expenses incurred before the six-month pre-writ period, but for ads that play or are distributed during the six-month period preceding the election.

(2) Election Advertising Expenses

I also feel the need to express a word of caution about the definition of "election advertising". The definition in Bill 201 is the same as is found in the Canada Elections Act and raises difficult interpretation and application issues. First, it is not always easy to draw lines between what is advertising and what is discourse or satire or editorial comment, especially on the Internet.

Second, it is also difficult in practice, especially in the pre-writ period, to discern what is caught by the words "an issue with which a registered party or candidate is associated."

I know that the Chief Electoral Officer, Mr. Essensa, has invited the Committee to consider restricting the rules on pre-writ advertising to direct advertising, as opposed to issue advertising. Perhaps there is some wisdom there. But difficulties will remain.

I don't have a drafting solution to this. At the federal level, we have been fortunate in a way due to the fact that there has been relatively little third-party advertising in the last 15 years. On average for the last three general elections, third parties spent only 12 percent of their limit, and very few spent more than 50 percent of it. There was at the last election an increase in third-party spending, and some spent close to their limit. However, it remains a far cry from the level of third-party spending observed at the provincial level in Ontario. In that regard, there have been few occasions for third parties to test the boundaries of election advertising and to challenge how the definition applies.

However, difficult interpretation and application issues remain, which we have addressed for the most part through interpretation notes. This brings me to my third and final point.

(3) Opinions, Guidelines and Interpretation Notes

Recent amendments to the Canada Elections Act provide for the issuing of written opinions, guidelines and interpretation notes (OGIs) on the application of the Act to political entities. The process for issuing these instruments is inclusive and collaborative, in that it provides for consultations with the Commissioner of Canada Elections and representatives of every registered party. It is also very transparent. We publish a draft document, typically setting out the issue and the challenges it presents, as well as a proposed interpretation. Written comments from parties and the Commissioner are published, along with detailed responses from Elections Canada to each comment, as well as our final interpretation.

Although guidelines and interpretation notes are not binding in theory, they certainly are binding on Elections Canada in practice. Written opinions on specific factual situations presented by political parties are legally binding on the CEO and the Commissioner.

The reason I am raising this is that the Canada Elections Act, much like Ontario's Election Finances Act, is a complex and comprehensive piece of legislation. Many of the provisions of these two statutes are open to interpretation and raise questions that are not directly answered in the Act, and probably cannot be.

A good example is the various questions around the application of the rules on election advertising. In the lead up to the last election we used OGIs to clarify, in consultation with political parties, the scope of election advertising rules with respect to Internet and telephone communications. Because there is no perfect answer to these difficult questions of interpretation, it is useful to have an open and transparent process for clarifying these issues.

The provisions of the Canada Elections Act setting out the OGI process are relatively new; they came into force in 2014. Elections Canada officials and I have found the OGI process to be an excellent device to help resolve difficult issues and improve consistency. Probably most important for politicians and other political entities is that they can help to create predictability in the application of the Act. I'm simply raising this subject as something for the Committee to consider.

Conclusion

Mr. Chair, I'd like to thank you for inviting me, and I would be happy to respond to any questions.

Thank you.