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Modernizing the Electoral Process – Recommendations from the Chief Electoral Officer of Canada following the 37th general election

Part 3: The Use of Public Monies to Advance Access and Accountability

To ensure that the electoral process does not become dominated by those with the most resources, the Canada Elections Act both limits election expenses and provides a degree of public support to increase the ability of those with more limited resources to participate in elections.

Part 3 of this report contains recommendations intended to improve public funding aspects of the Act.

Chapter 1: Public Monies to Advance Access

A measure of public funding has been part of the federal electoral system since 1974 and serves to increase access to the process. That funding is provided both directly, through a scheme for the payment of candidate and registered party expenses, and indirectly, through a scheme of income tax credits.

The purpose of public funding is to increase access to the electoral process. Together with election expense limits, public funding is intended to contribute towards a more level playing field in the electoral process.43

Even given the commitment to access that public funding signifies, the practical reality is that it is not reasonable, or possible, to fully fund whatever campaign any and all persons might want to conduct in order to seek election to the House.

Public funding must therefore be provided on a fair basis. Public funding must be dependent upon compliance with the various financial requirements and limitations of the Act. The public funding of non-compliant campaigns would undermine confidence in the system.

The balance achieved by the current public funding legislative scheme with respect to its goals and realities – access to the electoral process, the practical limitations upon the public purse, and compliance – on the whole works well. However, a number of concerns have arisen about how that balance could be better adjusted and about how inefficiencies might be reduced and improvements made.

3.1.1 Reimbursement of Candidates' Expenses

Direct funding for campaigns is provided in two ways – through the direct payment of a portion of auditors' expenses and through the partial reimbursement of other campaign expenses. In the reimbursement of electoral expenses, the limitations of the public purse are reflected in the current scheme by including in the calculation the degree to which a candidate's participation in the process has secured public support.

Direct reimbursement of candidates is provided under the Canada Elections Act through a two-stage process. A candidate must first qualify for reimbursement. Once qualified, a candidate is entitled to reimbursement of a fixed percentage of his or her election expenses. Concerns have arisen respecting the threshold for qualification for candidates.44

Qualification is achieved either by being elected, or by securing a fixed percentage of the vote (s. 464). This is intended to reflect the public support of the campaign in question. Currently, the qualification standards differ for candidates and parties. A candidate who failed to be elected must have received 15% of the valid votes cast in his or her electoral district in order to qualify. Party qualification for reimbursement is set at a lower percentage. The party must garner either 5% of the vote in the electoral districts in which it has confirmed candidates, or an overall 2% of the national vote. Qualification Threshold for Candidates' Reimbursement

The existing qualification level for candidates places more emphasis on public support and less emphasis on enhancing access to the system. Re-balancing these two aspects, by lowering the qualification level, would better accomplish the overall goal of increasing access to the process without imposing an undue burden upon public finances.45

Many electoral districts have five or more candidates and it is not uncommon for three or four of those candidates to fail to reach the 15% threshold. This is particularly true if the winning candidate has a large share of the vote. This does not argue against the appropriateness of a threshold, but it does argue against a threshold that is too high.46

Fifteen percent of the vote reflects much more than a basic level of public support. A candidate with less than 15% of the vote may well have received over 6 000 votes in an average district. This should not be regarded as a minimum degree of public support.

The current 5% threshold for party qualification would serve as a better measurement of reasonable public support for candidates. Reducing the threshold qualification limit for candidates to 5% of the votes cast would require that a candidate receive about 2 000 votes in an average district to qualify for public funding. Two thousand votes is a significant amount of public support and is an adequate measure to warrant public funding.

Reducing the current 15% threshold to 5% would also make the thresholds for candidates and parties consistent and it would make it easier for candidates to contest seats not in their party's traditional area of strength. This would result in a broader national participation as it would also improve access for new parties to public funding for their candidates' campaigns.47

Recommendation: The threshold for candidates to be qualified for reimbursement should be set at 5% of the valid votes cast in his or her electoral district.

See appendix 1 for a table illustrating the effect of the recommended 5% threshold to candidate reimbursement in the 2000 general election.

3.1.2 Issue of Tax Receipts by Registered Parties for Pre-Registration Contributions

As noted earlier, public funding for the electoral process is also provided indirectly through a scheme of income tax credits for political contributions (under s. 127(3) of the Income Tax Act).48 However, as is the case with direct public funding of electoral expenses, the income tax credit scheme also seeks a balance between the desire to increase access to the process and the reality that public resources cannot reasonably support every person or party seeking public office. As a result, only certain political contributions qualify for the tax credit (contributions to registered political parties and to candidates) and only a portion of those qualified contributions will be reflected in the credit. This is similar to the approach followed in the direct funding for election expenses. There is a concern, however, that the basis for qualification used in the current tax scheme results in a financial advantage for some political parties.

Under the Income Tax Act, a registered political party can only give a tax receipt for a contribution that was received by the party after it achieved registered party status.

Registration is a two-stage process. A political party first applies to the Chief Electoral Officer for registered status. If it meets the administrative requirements for registration, it becomes an eligible party. Full registered status cannot be secured until the calling of a general election. At that time, if the party fields at least 50 confirmed candidates for election, it secures full registered party status. Once registered, a party retains its status as a registered party until the next general election, at which time it must again field at least 50 confirmed candidates in order to retain that status.

This continuing registered party status provides registered parties with an economic advantage over non-registered parties during the period between elections. This advantage exists even over parties that have successfully applied to the Chief Electoral Officer for registered status and are awaiting the calling of a general election in order to field the necessary candidates. Contributions to the registered parties will be qualified for the tax credit, while contributions to the other parties will not. It will, thus, be easier for the registered parties to solicit financial support.

This advantage continues even once a general election is called. Even if the previously non-registered party fields 50 confirmed candidates, and qualifies to be registered, only those contributions received after its registration will be eligible for the tax credit. Thus, while both registered and previously non-registered parties in the general election may demonstrate the same qualifying degree of participation in the election to warrant public support, the earlier registered party goes into the election with a financial advantage, simply because it participated in an earlier election. This financial advantage of a registered party over a non-registered party cannot currently be addressed between elections, regardless of the public support or political commitment the non-registered party may achieve during that period.

The current process also results in a further financial advantage to the registered party. Its superior ability to attract contributions will likely result in the registered party being better positioned to meet the early expenses of a campaign. Much of the expense of an election must be incurred or committed before the close of the nomination period. A party that is eligible, but not yet registered, suffers a significant barrier to raising the funds to meet expenses incurred before the close of nominations.

While the inequity resulting from this process cannot be perfectly resolved, it can be lessened. Allowing an eligible party, which subsequently achieves registered party status, to issue tax receipts for contributions received in the period following its successful application for political party status, will reduce somewhat the existing inequity in the current system.

Recommendation: A party that achieves registered party status in a general election should be allowed to issue tax receipts for contributions received by that party either from the time that its application for registration was accepted by the Chief Electoral Officer, or from the time of the last general election, whichever is later.

3.1.3 Disposition of Surplus Funds of Independent Candidates

Subsection 473(2) of the Canada Elections Act currently provides that after an election, an independent candidate's surplus funds are to be transferred to the Receiver General for Canada. This requirement applies whether or not the independent candidate was elected.

By contrast, the surplus funds of a candidate endorsed by a registered party are to be transferred to his or her registered party, or to the party's electoral district association.

Surplus funds transferred to the registered party may be, in subsequent elections, used to fund the campaigns of that party's endorsed candidates. Thus, endorsed candidates have a financial advantage over independent candidates, who must start from scratch with each new campaign.

The reason the surpluses of independent candidates are treated differently from those of endorsed candidates lies in the simple reality that, in the case of independent candidates, there is no registered party, or electoral district association of a registered party, to which surpluses may be turned over. Furthermore, there may be concerns about leaving the surplus in the hands of the independent candidates, who may not run again or who may not be in a position to ensure sufficient safeguards for those funds between elections.

Independent candidates are an important part of our Parliamentary tradition. However, the requirement that each campaign be started from scratch financially can discourage independent candidates from making subsequent attempts at election. The current system may also discourage contributors from supporting independent candidates.

To the extent possible, the electoral process should not be constructed in a manner that handicaps independent candidates. Any such disadvantages should be justifiable and reasonably unavoidable.

The fact is that concerns respecting independent candidate's surpluses can be easily addressed without resort to the draconian form of forfeiture that is currently employed.

All that would be necessary, both to adequately ensure the integrity of the surpluses between elections and to avoid the existing inequity in the system, would be to provide that any surplus funds transferred by an independent candidate to the Receiver General for Canada should be returnable to the independent candidate if that person is an independent candidate in the next general election or a by-election.

A similar recommendation was made in the earlier Strengthening the Foundation: Annex to the Report of the Chief Electoral Officer of Canada on the 35th General Election.

Recommendation: Any surplus funds transferred by an independent candidate to the Receiver General for Canada should be returnable to the candidate if he or she is nominated as an independent candidate in the next general election or a by-election.

Chapter 2: Public Monies to Advance Accountability

The Canada Elections Act provides that, where a party or a candidate is required to file a return, the return must be audited by an independent auditor.49 The auditor generally reviews the return and provides a report in which he or she is required to state whether: the return does not present fairly the information contained in the financial records on which it is based; the auditor has not received all of the information and explanation which the auditor requires; or, it appears that proper accounting records have not been kept. (The actual wording may vary depending on the specific type of return being reviewed by the auditor.)

The auditor's report thus serves as a valuable compliance tool. This nature of the auditor's services is recognized in the Act's treatment of auditor's fees separately and differently from other electoral expenses. For example, public money that goes towards auditors' fees are dealt with as direct payments to the auditor, rather than through the reimbursement mechanism. As well, payment of a candidate's auditor fees is not dependent on the candidate's success in the election, as is the case with the reimbursement of other candidate expenses (s. 466).

The recommendations that follow address elements of the current system respecting the reimbursement of auditor's fees that do not fairly reflect the work the auditor is to do, or that do not fully recognize the nature of the compliance role played by the auditor in the process. One of the recommendations will rectify an existing uncertainty respecting an auditor's eligibility.50

3.2.1 Auditor Acting for More than One Candidate

An inadvertent confusion is created in the Canada Elections Act by the direction in s. 85.1 respecting the auditor for a candidate. Section 85.1 provides that (subject to ss. 84 and 85) a person may be appointed as official agent or auditor for a candidate notwithstanding that the person is a member of a partnership that has been appointed as an auditor either for a candidate in an electoral district other than the electoral district of the candidate for whom the appointment is being made, or for a registered party.51

This provision is useful in the context of official agents, as it resolves a concern respecting the prohibition in s. 84 against a person who is already appointed as an auditor also being appointed as an official agent. It makes it clear that the appointment of one's business partner as an auditor for a candidate or for a registered party does not preclude one from being appointed as the official agent for a candidate in a different electoral district.

However, it is possible to construe the provision in s. 85.1 as an implied prohibition against a person being appointed an auditor for a candidate where that person's partner has been appointed an auditor for another candidate in the same electoral district or for a registered party.51

Section 85 of the Act contains no prohibition against a person who is appointed an auditor for one candidate or for a registered party also being appointed an auditor for another candidate. There is no such prohibition anywhere in the Canada Elections Act. Since there is no prohibition against acting as an auditor for more than one candidate, there should be no confusion as to a person's ability to act as an auditor when his or her partner has also been appointed as an auditor for another candidate or a registered party.

The fact that s. 85.1 is expressly stated to be subject to ss. 84 and 85 indicates that s. 85.1 was intended to eliminate potential confusion respecting partnerships, rather than as an implied prohibition against anything else. To avoid future uncertainty, it would be preferable to make that clear rather than relying on principles of statutory interpretation. This can be done by removing the unnecessary reference in s. 85.1 to the situation of partners serving as auditors.

Recommendation: Section 85.1 should be amended to avoid confusion as to the ability of an auditor to act for more than one candidate regardless of the electoral district. This can be done by rewording the provision to refer only to the ability of a person to serve as an official agent where his or her partner has been appointed as an auditor.

3.2.2 Free the Payment of Auditor's Fees from Requirement for Unqualified Report

The Canada Elections Act currently provides for payment of a portion of the fees that an auditor charges a candidate (s. 467). However, fees are payable only if the auditor's report does not contain any of the noted reservations respecting the return (s. 465(1)(b)).

The requirement appears to be imposed in order that a candidate will comply with the various requirements of the Act. Where a candidate's actions have been such that his or her auditor can only make a qualified report, the right to public payment of a portion of the auditor's fees will be lost and the candidate will be personally responsible for the full payment of those fees.

This requirement indirectly results in exposing the auditor to greater risk respecting the collection of his or her fees, and may be perceived as acting as a disincentive to a fully impartial report. The auditor who submits a report with reservations or qualifications will lose his or her right to direct payment of a portion of his or her fees from the state and leave him or her in the position of having to secure the full payment from the candidate – who may not always be in the position to make that full payment promptly. Yet the auditor, in submitting a qualified report, has carried out the very duty imposed upon him or her by the Act.

The direct payment from public funds of a portion of the auditor's fees to the auditor, rather than to the candidate, is in recognition that the services provided by the auditor benefit the public as well as the candidate. The auditor should not be penalized in the recovery of that portion for performing precisely the public function that he or she was mandated by the Act to perform.

Recommendation: The payment of the public funding portion of an auditor's fees should not be dependent on the auditor submitting an unqualified report.

3.2.3 Amount of Public Payment of a Candidate's Auditor Fees

Currently, the public portion of a candidate's auditor fees are set at 3% of the candidate's election expenses (with a minimum of $250 and a maximum of $1 500). However, in preparing his or her report, an auditor is required by the Act to review and report not simply upon the candidate's election expenses, but upon the candidate's electoral campaign expenses, which includes a candidate's personal expenses and disputed and unpaid claims (ss. 451(2) and 453).

As noted, the auditor reviews these expenses in large part for the compliance purposes of the Act. Consequently, the public payment of the fees should be set as a percentage of all of the campaign expenses that the auditor has been required by the Act to review.52

Also, as noted, the Act currently sets a minimum and maximum amount on auditor's expenses of $250 and $1 500 respectively. However, the Act makes no provision for adjusting these fees to reflect inflation.

Recommendation: The public payment of auditor fees should be based on the total of the expenses (set out in s. 451(2)(a) to (e)), which the auditor is required to review in order to comply with his or her mandate under s. 453.

The minimum and maximum payments should be adjusted for inflation.

3.2.4 Public Payment of a Portion of a Party's Auditor Fees

Like candidates, registered parties are required by the Canada Elections Act to make financial returns appropriate to their circumstances. As registered parties have a continuing existence between elections, and operate for political purposes in that time, they are required to file two types of financial returns under the Act. A fiscal return must be filed annually (s. 424) and an election expenses return must be filed following every general election (s. 429).

The annual fiscal return sets out information respecting the party's activities during the year, including: information on contributions received in that year; a statement of the party's assets and liabilities and any surplus or deficit; a statement of its revenues and expenses; a statement for each electoral district of transfers of funds from the party to one of its candidates or to one of its electoral district associations, or a trust fund established for the election of one of its candidates; a return for election expenses for each by-election in that fiscal period; and, a statement of loans or securities.

The election expenses return focuses on the party's election expenses during the general election to which it relates.

As is the case with candidates' returns, both of the registered party returns must be audited and the auditor's report included with the return. However, the Act does not provide for any public payment of the auditor's fees relating to these reports, unlike the provision for public payment in the case of candidates' reports. Yet, the work involved with the audit of these returns can be extensive, expensive, and a potential financial burden to smaller parties.

The role of the auditor respecting the financial returns of a party is the same as that played respecting candidates' returns. While the auditor may be seen as performing a service to the party in ensuring that it's books and records are complete and adequate, the auditor must also be seen as playing an important public compliance role in the system.

Therefore, the Act should also provide for the payment of some portion of the registered party's auditor fees. In recognition of the fact that the principal statutory purpose of the audit is to assist in the administration of the Act, it would not be unreasonable if the state's portion of the auditor fees were set at 75% of the total fee.53

The payment for party auditor fees should be subject to a maximum (as is the case with the existing payment for the candidate auditor fees). Based on survey results the maximum cap on the payment of audit fees for annual returns could be set at approximately $18 000, with a cap of $15 000 being used for the election returns (which involve less work). These caps should be subject to inflationary adjustment.

Recommendation: The Act should provide for the payment of 75% of the auditor fees of a registered party respecting its financial returns under the Act, subject to a maximum cap. A cap of $18 000 could be set for the portion of fees that would be paid from the public purse for the fiscal return and a cap of $15 000 for the election return. These caps should be subject to an inflationary adjustment.