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Electoral Insight - Reform of Election Financing: Canada, Great Britain and the United States

Electoral Insight – May 2002

Election Financing in Canada

Election Financing in Canada

Tim Mowrey
Policy and Research Officer,
Elections Canada

and

Alain Pelletier
Co-Editor, Electoral Insight,
and Assistant Director, Policy and Research,
Elections Canada

Introduction

The principles of transparency, fairness, and participation are fundamental to a modern electoral process. The history of election financing in Canada and the recent rounds of reform show a pattern of trends that cross federal, provincial, and territorial borders: trends toward electoral laws and policies that increase transparency, ensure fairness, and promote participation. Pursuit of these principles is evident in the basic features of most election financing regimes in Canada: registration of election participants; election expenses limits and limits on sources of contributions; disclosure of financial transactions; regulation of advertising, broadcasting and publication of opinion polls; and public funding of the electoral process.

Brief History

Canada's first election financing regime was established in 1874, with the passage of the Dominion Elections Act (DEA). The DEA was the result of the highly publicized "Pacific Scandal" involving Prime Minister Sir John A. Macdonald and the promoters of the Canadian Pacific Railway, who were providing large campaign contributions to the federal Conservative Party in return for government favours. The DEA included provisions governing the reporting of campaign expenses and a requirement for the appointment of an official agent for each candidate.

After these modest first steps, which were largely based on the British Corrupt Practices Act of 1854, election financing regimes progressed slowly, and were usually subject to reform following a scandal or crisis. Further amendments were made incrementally, although no major amendments were made to the federal election financing provisions from 1920 to 1974.

The first modern election financing regime in Canada was introduced in Quebec, in 1963. In that year, the Quebec Election Act was amended to include expenses limits for political parties and candidates, to require candidates to have an official agent, and to introduce partial election expenses reimbursements to candidates. All these provisions were largely borrowed from the British legislation of the time. Nova Scotia followed suit with similar legislation in 1969. Saskatchewan introduced election financing legislation in 1974, followed by Ontario (1975), Alberta (1977), New Brunswick (1978), British Columbia (1979), Manitoba (1980), the Northwest Territories (1986), Prince Edward Island (1988), Newfoundland (1993), and the Yukon Territory. (Although expenses disclosure provisions were in force for the 1978 election in the Yukon, the amounts reported were so small, the sections were revoked. The first lasting introduction of election financing provisions in the Yukon occurred in 1999.) Nunavut borrowed the Election Act of the Northwest Territories for its first election in 1999.

In partial response to the Quebec legislation, and also due in part to rising campaign costs, two federal committees were established between 1963 and 1970 to analyze election financing at the federal level. The Barbeau Committee (which reported in 1966) and the Chappell Committee (which reported in 1972) made extensive recommendations concerning election finance regulations. In 1974, 100 years after the first election financing legislation, Parliament passed the Election Finances Act (EFA), beginning the modern election financing regime at the federal level in Canada. While there have been other amendments since 1974, the election financing provisions established in the EFA remain the basis for federal election financing in Canada today.

Contemporary Context

In the 1874 election that followed the 'Pacific Scandal'
In the 1874 election that followed the "Pacific Scandal,"
Sir John A. Macdonald's Liberal-Conservatives were defeated by
Alexander MacKenzie's Liberals who immediately passed the
Dominion Elections Act, regulating some aspects of campaign finance.

The contemporary context for reform of election financing regulations stems from two events. First is the passing of the Canadian Charter of Rights and Freedoms in 1982. The Charter enshrined fundamental freedoms (section 2 includes freedom of speech and association) and democratic freedoms (section 3), which include the right to vote and become a candidate. Since 1982, there has been a significant increase in litigation concerning electoral and election financing issues.

Second, the Royal Commission on Electoral Reform and Party Financing in 1992 tabled a four-volume report with over 500 recommendations and published 23 research volumes, including 5 on election financing. The Royal Commission acknowledged that the Canadian electoral system rests on the principles of transparency, fairness and participation. The Royal Commission further recognized that public confidence in the electoral process was essential, and sought to enhance the integrity of the process by reforming election financing. Many election administrators, both federal and provincial, have built upon the Royal Commission's recommendations. For example, the Chief Electoral Officer of Manitoba referenced the Royal Commission when making recommendations to the Legislative Assembly in 1999. Footnote 1 Similarly, the Chief Electoral Officer of Canada has used the Royal Commission's report to support many of his recommendations to Parliament. For information about the Chief Electoral Officer's most recent recommendations to Parliament (2001), please refer to page 7 and to the section entitled Electoral News in Brief.

The recent trends in election financing in Canada can be tracked through the passing and amending of related statutes. Notably, the Yukon Territory introduced legislation to regulate election financing in 1999. At the federal level, a new Canada Elections Act was adopted in May 2000, while in Manitoba, significant amendments to the Elections Finances Act occurred in August 2000. All rounds of reform sought to increase transparency, enhance fairness and promote participation in each jurisdiction's election financing regime. The following will demonstrate the similarities and differences in election financing regimes across Canada.

Registration

Registration of political parties

Registration of political parties is a universal characteristic of election administration across Canada, except in the Northwest Territories and Nunavut, where political parties do not exist. However, despite its universality, political party registration is a relatively new phenomenon in Canada. Federally, parties were not legally recognized until 1970, while at the provincial level, British Columbia and Newfoundland did not require parties to register until the 1980s.

More recently, several provinces have extended the registration requirements to include local associations and, at the federal level as well as in Quebec and British Columbia, to third parties (which are individuals or organizations other than candidates or political parties). In August 2000, the Manitoba legislature considered third party registration provisions during amendments to the Elections Finances Act, but did not proclaim those sections of the bill to be in force.

Election Expenses

The definition of election expenses varies from one jurisdiction to another. However, it typically includes all costs incurred to promote or oppose the election of a candidate or a political party. In many jurisdictions in Canada, both direct and indirect expenses are covered, but at the federal level and in the Yukon Territory, the Northwest Territories and Nunavut only direct expenses are covered. Usually, the personal expenses of a candidate are not included in this definition. Most jurisdictions impose a spending limit based on the number of electors in the electoral district where the candidate is running, or the combined electoral districts where the political party is running candidates. Only Saskatchewan sets a fixed election expenses limit for political parties during a general election. Footnote 2

The goal of election expenses limits is to reduce the ability of wealthy interests to unduly influence or dominate the electoral process. As noted, the first government in Canada to introduce limits on election spending was Quebec, in 1963. Most other provinces have followed this lead, except for Alberta, and the Yukon Territory, which do not impose spending limits on either political parties or candidates. The government of the Yukon did not consider spending limits necessary during the 1999 round of electoral reform in that territory.

Despite these two exceptions, there has been a marked trend toward imposing spending limits on political parties and candidates since 1963. Newfoundland (1993) and British Columbia (1995) were the most recent provinces to follow this trend. There has also been a trend toward the extension of spending limits to cover a broader spectrum of expenses. At one time, for example, Ontario and Manitoba only regulated election advertising expenses, but have since moved to limit election expenses. Support from the electorate for spending limits is high. The 2000 Canadian Election Study showed that 93 percent of respondents supported spending limits for candidates and political parties.

Contributions

Table 1.1 Provisions on Election Financing
Jurisdiction Limits on election expenses Limits on amount contributed during a year or an election period Regulation of third party advertising during an election period Blackout period Restrictions on opinion polls
Canada YES YES YES YES
Newfoundland and Labrador YES YES
Prince Edward Island YES
Nova Scotia YES
New Brunswick YES YES YES
Quebec YES YES YES YES
Ontario YES YES YES
Manitoba YES YES
Saskatchewan YES
Alberta YES
British Columbia YES YES YES YES
Yukon Territory
Northwest Territories* YES YES YES
Nunavut* YES YES YES

Source: Adapted from the Compendium of Election Administration in Canada: A Comparative Overview
* Political parties do not exist in the Northwest Territories or Nunavut.

All jurisdictions across Canada impose some regulations on the solicitation and receipt of contributions by political parties and candidates. Most jurisdictions restrict the source of campaign contributions, and some limit the amount that may be contributed.

In terms of controlling the source of contributions, Newfoundland and Labrador is the least restrictive, limiting only the amount that recipients may accept as anonymous contributions. Most restrictive are Quebec and Manitoba, which only permit electors (Quebec) Footnote 3 or individuals (Manitoba) to contribute to candidates and political parties. Quebec has restricted contributions in this way since 1977, while in Manitoba this provision was introduced in the August 2000 legislative amendments to the Elections Finances Act.

Five provinces limit the amount that a person or organization may donate to a political party, candidate, or local association during a year or an election (New Brunswick, Quebec, Ontario, Manitoba, and Alberta). Ontario was the first to legislate in this area in 1975. Footnote 4 Again, the province to legislate most recently in this area is Manitoba. Prior to the August 2000 amendments to the Manitoba Elections Finances Act, no limits were imposed on contribution amounts. In the 2000 Canadian Election Study, nearly two thirds of respondents agreed that contribution amounts should be limited.

Disclosure

To ensure transparency and compliance in election financing, all jurisdictions require candidates and political parties to submit reports of their contributions and expenses to the Chief Electoral Officer (or Commission on Election Financing, in New Brunswick) within a prescribed time limit. Disclosure has been an aspect of election financing provisions since 1874, when it was thought that disclosing how and where campaign funds were spent would be enough to prevent any corruption and satisfy the public's right to know who is funding the activities of political parties and candidates. Nearly all election financing legislation across Canadian jurisdictions has included disclosure requirements.

Although disclosure requirements have expanded over time, there are several gaps in the disclosure requirements of most Canadian provinces and territories, as well as in the federal legislation. While candidates are required in all jurisdictions to submit an expenses and contributions report after each election, and political parties must complete an annual report and (with the exception of New Brunswick) an election report, other elements in the electoral process are currently unregulated. The financial transactions of campaigns for the leadership of registered parties, for example, are revealed for public scrutiny only in Ontario and British Columbia, while only six provinces require financial disclosure by the local associations of these parties. In addition, there are no provisions for the disclosure of contributions to members of the House of Commons or members of the Legislative Assemblies between elections. These omissions from disclosure requirements have been called the "Black Hole" Footnote 5 of election financing. In the 2000 Canadian Election Study, over 94% of respondents surveyed also agreed with full disclosure of election financing.

Advertising and Broadcasting Time

Election advertising by political parties and candidates generally falls under the definition of an election expense (see supra) subject to the applicable spending limits, although several jurisdictions have introduced provisions governing election advertising exclusively. For example, new provisions of Manitoba's Elections Finances Act limit the amount political parties and candidates may spend on advertising during an election, and these limits are included in the general election expenses limits under the Act. The amendments also introduced annual limits in election advertising outside the election period ($50 000).

money

Advertising by individuals and organizations other than candidates or political parties is also regulated at the federal level, as well as in Quebec and British Columbia. Such advertising by these "third parties" has been the subject of intense public debate and several court challenges. In principle, regulation of third party advertising is seen as necessary to provide a level playing field for all participants in the election campaign. By some, it is seen as unfair that, while candidates and political parties must adhere to spending limits, others may actively campaign in support of or in opposition to a candidate, party, or issue without abiding by any spending rules. Others see third party regulation as wholly inconsistent with the Charter guarantees of freedom of speech and expression.

The concept of third party advertising limits first arose in 1974, with the federal Election Expenses Act, which banned all advertising by third parties. Subsequent court rulings and legislative amendments have struck down and resurrected federal third party advertising provisions on several occasions (see National Citizens' Coalition and Somerville). Most recently, the new Canada Elections Act, which received royal assent in May 2000, re-introduced spending limits for third party advertising. This was defined as all advertising messages that promote or oppose a registered political party, candidate, or issue with which a party or candidate is associated. Such advertising by a person or group was limited to $3 000 in an electoral district and $150 000 nationally, subject to adjustments. Further, the new Canada Elections Act contains obligatory expenses and contributions disclosure by third parties. In June 2001, the Alberta Court of Queen's Bench struck down the spending limits imposed on third parties, but left the disclosure requirements intact (Harper v. Attorney General of Canada). This decision has been appealed. The Alberta Court of Appeal heard the matter on May 9, 2002.

Similarly, British Columbia introduced provisions respecting third party election advertising in 1995 ($5 000 in an election), but they were struck down by the British Columbia Supreme Court in 2000 (Pacific Press v. Attorney General of British Columbia) as being contrary to the Charter. In Quebec, provisions of the Referendum Act pertaining to third party advertising were brought before the Supreme Court of Canada in 1997 (Libman v. Quebec). The appellant challenged the total ban on third party advertising which was introduced in the Election Act in 1989, and which was applicable during a referendum. Although it ruled against the referendum provisions, the Supreme Court of Canada acknowledged that limiting the spending of third party advertisers ensured a more fair and equitable election environment, and described such limits as a "highly laudable objective, intended to ensure the fairness" Footnote 6 of the electoral process. The Election Act was amended in 1998 to impose a $300 limit on advertising expenses of third parties. In light of these rulings, legislators must now seek a balance between freedom of speech, as guaranteed by section 2 of the Charter of Rights and Freedoms, and a transparent, fair and equitable election financing regime.

The provincial legislature of Manitoba attempted to find such a balance during its 2000 round of election financing reform. The proposed bill included provisions that would have limited third party election advertising expenses to $5 000 in an election period. The bill also would have required third parties that spent more than $500 to submit a financial report detailing all contributions and expenses made by the third party during the election campaign. While the bill was passed in August 2000, the sections respecting third party election advertising have not been proclaimed in force.

The Canada Elections Act is the only legislation regulating the distribution and allocation of broadcasting time to political parties. A complex formula is applied by the Broadcasting Arbitrator to apportion a base amount of time offered to political parties for purchase. Free broadcasting time is also made available to political parties by some networks, and the allocation is determined on the pro rata of the paid time allocation. With increasing use of television and radio media, the broadcasting time controls emerged as a method of ensuring fairness in access to the means of communicating with electors. The Chief Electoral Officer of Canada and the Broadcasting Arbitrator have both recommended a review of the broadcasting scheme. Footnote 7

Most jurisdictions in Canada prohibit the transmission of election advertising or broadcasting during a given period, usually polling day and the day before polling day. Federally and in British Columbia, the publication of opinion polls (which may be considered an election expense) is also subject to blackout provisions. In keeping with the theme of fairness in the electoral process, such blackout periods are designed to allow all electors to enter the polling station with approximately the same information.

Public Funding

Table 1.2 Provisions on Public Funding
Jurisdiction Tax Credit Annual allowances to political parties Reimbursement of election expenses
Political parties
Reimbursement of election expenses
Candidates
Canada YES YES YES
Newfoundland and Labrador YES YES
Prince Edward Island YES YES YES
Nova Scotia YES YES
New Brunswick YES YES YES
Quebec YES YES YES YES
Ontario YES YES YES
Manitoba YES YES YES
Saskatchewan YES YES YES
Alberta YES
British Columbia YES
Yukon Territory YES
Northwest Territories* YES
Nunavut* YES

Source: Adapted from the Compendium of Election Administration in Canada: A Comparative Overview
* Political parties do not exist in the Northwest Territories or Nunavut.

The amendments to the Quebec Election Act in 1963 included a scheme to partially reimburse candidates for election expenses if they obtained a specific percentage of the vote. Similar provisions were adopted by other jurisdictions, and now all jurisdictions except Alberta, British Columbia and the three territories reimburse candidates' election expenses. In addition, partial reimbursements of election expenses to political parties, also based on percentage of the vote obtained, have been introduced in four provinces and at the federal level. During the 2000 federal general election, a combined total of $7 680 358 was reimbursed to political parties. All jurisdictions except Quebec and Manitoba fully reimburse a candidate's nomination deposit if reporting requirements are met.

In Prince Edward Island, New Brunswick and Quebec, political parties are entitled to further public funding in the form of annual allowances. In these provinces, parties' annual allowances are based on the number or percentage of valid votes received in the last general election.

Broader participation in the electoral process is encouraged by tax credits for political contributions, which are available in all jurisdictions. While these tax credit schemes vary from place to place, six jurisdictions use the same maximum credit calculation (for donations of more than $550, the credit is the lesser amount of [$325 + 33.33% of the amount over $550] and $500). These public funding provisions were introduced, starting in 1963, to promote electoral participation. For more information on jurisdictional practices with respect to public funding, see table 1.2.

Chief Electoral Officer's Recommendations

On November 27, 2001, the Chief Electoral Officer of Canada submitted a report to the Speaker of the House of Commons containing his recommendations to improve the administration of the Canada Elections Act. Many of these recommendations deal with election financing provisions. The recommendations aim to enhance informed choice and elector confidence by increasing the transparency of electoral financing, and to promote fairness and participation.

The Chief Electoral Officer has recommended that limits be placed on the amounts that may be contributed to political parties, candidates, local associations and nomination contestants. The proposed limit for contributions from any one donor to each political party is $50 000 annually, with an additional $50 000 during the year of a general election. Contributions to nomination contestants, as well as general election and by-election candidates, would be limited to an aggregate of $7 500 from any single donor for all contestants or candidates of one party. Another recommendation calls for specific spending limits on nomination contests.

It is also proposed that transparency in the electoral process be strengthened by extending the requirements for disclosure of contributions and expenses to political entities such as the local associations of political parties, the leadership campaigns of political parties and the campaigns of contestants for party nomination.

In addition, the Chief Electoral Officer of Canada has recommended that the reporting requirements for transfers of money from provincial political entities, and for indirect contributions through local associations and trust funds, should be strengthened.

Other recommendations include: lowering the eligibility threshold for candidates to receive a partial reimbursement of their election expenses from 15 percent to 5 percent of the valid votes cast in their electoral district; severing the allocation of free and paid broadcasting time so that a party's entitlement to free time is not dependent on its ability or intention to buy paid time; and public payment for a portion of each party's auditor fees.

Click here for furthur information about the Chief Electoral Officer's recommendations.

Conclusion

There has been a noticeable trend in election financing in Canada toward the pursuit of transparency, fairness, and participation. The importance of these aspects of electoral democracy has increased over the last several decades due to several factors, including increasing campaign costs, public demand, and the need for public confidence in the integrity of the electoral system. Since 1874, the election financing regime in Canada has undergone incremental improvement and reform. The modern system, begun in 1963, has seen the expansion and strengthening of election financing provisions. A number of steps remain to be taken, however, to ensure the full transparency and fairness of the election financing regime.


Endnotes

Footnote 1 Manitoba, Office of the Chief Electoral Officer. 1999 Annual Report.

Footnote 2 This limit is fixed at $651 355.

Footnote 3 Every person who: (1) has attained eighteen years of age; (2) is a Canadian citizen; (3) has been domiciled in Quebec for six months or, in the case of an elector outside Quebec, for twelve months; (4) is not under curatorship; and (5) is not deprived of election rights, pursuant to this Act or the Referendum Act (chapter C-64.1), is a qualified elector.

Footnote 4 Ontario now limits annual contributions to a political party at $7 500. Manitoba's annual limit is $3 000 to a candidate, political party or local association.

Footnote 5 William Stanbury. Money in Politics: Financing Federal Parties and Candidates in Canada (Royal Commission on Electoral Reform and Party Financing, Research Studies, Vol. 1).

Footnote 6 Libman v. Quebec, [1997] 3 S.C.R.

Footnote 7 Canada. Report of the Chief Electoral Officer of Canada on the 36th General Election, 1997.

SOURCES

Blake, Donald. "Electoral Democracy in the Provinces," Choices (Institute for Research and Public Policy), Vol. 7, No. 2 (March 2001).

Canada, Canadian Study of Parliament Group. Reforming Electoral Campaigns, 1990.

Canada. Modernizing the Electoral Process (report of the Chief Electoral Officer of Canada), 2001.

Canada, Royal Commission on Electoral Reform and Party Financing, 1992, Vols. 1 & 2.

Compendium of Election Administration in Canada, 2001 (www.elections.ca).

Compendium of Election Administration in Canada: A Comparative Overview, 2001 (www.elections.ca).

Manitoba. 1999 Annual Report of the Chief Electoral Officer, 1999.

Massicotte, Louis. Legislation in Financing of Political Parties in Canada (Ottawa: Library of Parliament, 1982).

Palda, Filip. Election Finance Regulation in Canada: A Critical Review (Vancouver: The Fraser Institute, 1991).

Seidle, F. Leslie. Reforming Canadian Political Finance Regulations: Conflicting Principles and Processes (paper prepared for presentation at the International Political Science Association XVI World Congress, Berlin, Germany, August 25, 1994).

Smith, Jennifer and Herman Bakvis. "Changing Dynamics in Election Campaign Finance: Critical Issues in Canada and the United States," Policy Matters (July 2000).

Stanbury, William. Money in Politics: Financing Federal Parties and Candidates in Canada (Royal Commission on Electoral Reform and Party Financing, Research Studies, Vol. 1).


Note: 

The opinions expressed are those of the authors; they do not necessarily reflect those of the Chief Electoral Officer of Canada.