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

Part 8: Extending the Application of the Canada Elections Act

Not all events which are central to an election take place in the 36-day electoral period. Political parties, for example, operate on a continuing basis and can collect significant amounts of money outside of the election period. Some events are intimately connected with elections although they take place outside of the election period. Party nomination contests, for example, can take place well before any election. Yet the whole purpose of the contest is to put forward a party candidate.

The recommendations in this Part deal with extending aspects of the Canada Elections Act into new areas which, although they can take place outside of an election period, are nonetheless, intimately connected with elections. The recommendations recommend extending the disclosure obligations of the Act to trusts established primarily for electoral purposes, local electoral district associations and party nomination and leadership contests in the recognition that these areas are so intimately connected to elections that disclosure is necessary in the interest of the public's right to know and the concept of the informed vote.

In the same vein, in recognition of the ability of parties and local electoral district associations to use funds which may have indirectly come from public sources for the purposes of party nomination and leadership contests, the concluding recommendation of this Part recommends that the principles respecting the surpluses of election candidates be extended to contestants for party nomination and leadership contests.

8.1 Extending the Disclosure Obligations of the Act

Financial disclosure obligations have been part of the Canada Elections Act since its inception in 1874, with the obligation of official agents to file statements of election expenses. The history of the Canada Elections Act is a history of the growing realization of the importance of disclosure. The duty to provide a detailed statement of "all contributions, payments, loans, advances, deposits or promises of money" was imposed upon official agents in 1908. Names of contributors were first required in 1920. Registered parties first came under disclosure obligations in 1974, with the Election Expenses Act, and third parties were brought into a disclosure scheme respecting contributions used for election advertising in 2000.

The guiding minimum principle of disclosure is that it should be made respecting transactions that meet two criteria: the transaction must reasonably be seen as being capable of creating commitment in the policy or actions of persons who seek election to the House, or of the parties that sponsor them; and, it must have a reasonable connection to the business of Parliament. The areas of increased disclosure recommended in this part meet both of these criteria.74

The Canada Elections Act already recognizes the principle of disclosure in a number of ways, as referred to above. The time has come to recognize that there are transactions in other areas linked so closely to the electoral process that they must also be disclosed so it can be truly said that the public has an informed choice.

The recommendations that follow focus on areas that meet the criteria for disclosure that have been articulated above – that is, they involve transactions capable of creating commitment; and, they have a reasonable connection to the business of governance.

8.1.1 Reporting the Original Source of Contributions Received by Candidates from Political Trust Funds

Significant amounts of money are paid into political trust funds. Transfers from these trusts may be a significant part of the financing of a party, or a candidate, in an election. To enhance the principle of transparency in election financing, the original source of these transfers should be disclosed.

Strengthening the Foundation: Annex to the Report of the Chief Electoral Officer of Canada on the 35th General Election, pointed out that political trust funds have become a major source of unidentifiable support for election activity, which runs counter to the principle of transparency in election financing. It quoted W.T. Stanbury (Money in Politics: Financing Federal Parties and Candidates in Canada, 1991, p. 434), who discussed the influence of political trust funds on election finance and recommended that new political trust funds not be permitted and that existing ones be prevented from accepting more contributions. Strengthening the Foundation recognized that political trust funds established by parties represent an area of election finance that is not disclosed to the public. It recommended that trust funds established for political purposes be required to appoint an agent, register with the Chief Electoral Officer and file annual audited reports with the chief financial agent of the party and the Chief Electoral Officer.

The Canada Elections Act now has a provision (s. 428) that requires trust funds established by registered parties to be used for an election, to file a return including contributions and expenses. That provision applies only to trusts established by a party for an election. However, donors to trusts which do not fall under s. 428, but are used to fund activities related to an election are not currently disclosed, which is contrary to the principle that election financing should be fully disclosed. A similar concern exists respecting trusts established for candidates which are referred to in ss.451(h) and (i).

The provisions of the Act governing political trusts have to be widened in scope from trust funds "established by a registered party to be used for an election" to cover "trusts or other entities that have as a principal function the funding of any activity related to an election". Furthermore, in connection with the concept of financial transparency in leadership contests, the definition should include trusts established principally for the funding of a leadership contestant or the nomination of a candidate.

Recommendation: The definition of a political trust should be widened to include any trust that has election purposes as its principal function, including leadership and nomination contests.

8.1.2 Reporting by Electoral District Associations

The introduction, in 2000, of the third party election-advertising regime in the current Canada Elections Act, was a formal recognition that parties and candidates are not the only participants in a modern election. The important role and impact of third party advertising in elections warranted their recognition as a type of electoral player with significant electoral responsibilities respecting disclosure. Similarly, and coincidentally with this report's recommendation that eligible parties be brought more fully into the existing electoral scheme of rights and reporting responsibilities, the time has also come to recognize that there remains another body of electoral players whose political impact is not yet fully recognized in the Canada Elections Act. These are the parties' local electoral district associations. These district associations exist for electoral purposes and play a significant role in the electoral process. They already enjoy rights under the Canada Elections Act (notably the ability to transfer funds to parties and candidates) and they receive public funds (through the receipt of candidates' surplus funds). Yet, they are only partially subject to disclosure.76

The role of the local electoral district association in the electoral process is significant. They can finance a candidate's pre-writ activities, raise money between elections from non-receipted sources, and receive substantial amounts of money (a proportion of which is publicly subsidized) in the form of transfers of their candidates' election surpluses. It was noted in the 1996 Annex that often officials in the national party know little about their local association's finances. These associations are not required at the federal level to register or to disclose their financial activities, notwithstanding the requirements to do so at the provincial level in a number of the provinces (Ontario, Quebec, British Columbia, Alberta, Nova Scotia, and New Brunswick).

Both the Royal Commission on Electoral Reform and Party Financing (the Lortie Commission) and the Special Committee on Electoral Reform pointed out that there is a notable gap in the information available to the public about the financial operations of local associations.77

The Canada Elections Act at present requires that the fiscal returns of registered parties and the election return of candidates must include with the return the name and address of every contributor who contributed more than $200 where the local association has transferred contributions to the candidate's campaign (ss. 424(2)(c), 451(2)(h)). Where the original contributor cannot be specifically identified, as in the case of contributions from a pooled fund in the hands of a trust or association, the candidate must disclose all contributors to the trust or association who contributed in excess of $200 since the last election.

These current disclosure obligations recognize electoral district associations, but only in the context of their direct pass through of contributions to parties and candidates. Yet, as noted above, the electoral district association is an important political mechanism whereby candidates or prospective candidates can be supported between elections and parties can function at the local level. The same principles, which require annual fiscal returns by parties, argue for annual returns by local associations. Without registration and financial reporting by local associations, a proportion of the financing available to parties and candidates can remain undisclosed. Any regime in which disclosure is only partial allows for transactions to take place that avoid publicity and frustrate the general intent of one of the basic principles of the Act.

This recommendation was made in a similar form in Strengthening the Foundation.

Recommendation: There should be reporting obligations where an electoral district association, which is related to a party that is subject to a reporting regime under the Act, has financial transactions.

The person who is authorized by the association to carry out those financial transactions should be required to report those transactions annually to the Chief Electoral Officer.

8.1.3 Reporting the Finances of Contestants for Party Endorsement

Although most of the financing for an election is now reported and made public, the sources of funding for those who are contestants for a party's endorsement in a riding do not have to be reported.

The selection of a candidate for endorsement is obviously a key element in the election process. Donations to the successful contestant for endorsement by the party likely to win an election contest constitute, in effect, undisclosed contributions. In any event, candidates play an active part in the political process of the election and any financial influences they may be subject to, should be known.78

To secure real transparency in election financing, the law must secure transparency in the financing of all stages of the process that leads to the selection of a member. Any surplus should be dealt with in the same way as the campaign surplus – that is to say, it will be returned to the local association or the registered party.79

A second issue relating to contests for endorsement is whether there should be a limit on expenditure. The amount that can be spent on nomination contests is currently unregulated by the Act, except for a limit on how much can be spent on the notices for nomination meetings that take place during the election. This cannot be more than 1% of a candidate's election expense limit in that electoral district during the previous election.

There is, however, a concern that since spending to seek the nomination is excluded from the election expense limit, excessive spending on nomination meetings could undermine the intent of the election spending limits and run contrary to the principle of fairness. Not only could candidates benefit from the spill-over effect that these expenditures may have on the election campaign itself, but if spending for nomination contests is not regulated, those who have access to greater financial resources have an advantage over those who do not. Since winning the party nomination is the first hurdle that an affiliated candidate must overcome, unnecessary barriers to participation in the nomination process should be minimized.

The Royal Commission on Electoral Reform and Party Financing recommended that spending limits be set for nomination contests, that these limits be established as a maximum threshold, and that any party could choose to set a lower spending limit.

Recommendations: Contributions made to and expenses incurred by a contestant for party endorsement, should be reported and published in the same manner as contributions to a candidate during the campaign.

The return should be filed by the same deadline as the electoral campaign return and the same right to request extensions should be available.

Spending limits on nomination contests should be established based on the estimated election expenses limit calculated each year in accordance with s. 442 of the Act.

8.1.4 Reporting the Finances of Contestants for Party Leadership

There is at present no requirement in the Canada Elections Act for a contestant for party leadership to disclose finances. Such events are treated as private matters. Consequently, leadership contests are not governed by public law. However, selection of a leader of a party can be an extremely important political event. Transparency in financing such a contest is arguably just as important as it is in an election.80

Leadership contests have always been treated as internal events within a party, rather than public events. The party view of this is that they choose their leader through the internal process and then present the party, its proposed political program, the leader and the candidates as a "package" to the electorate in a general election. In this package, there is no doubt that the leader of a party has a great influence on the party's success and is always a significant element in voter choice.

A further problem is that funding for candidates in a contest may be routed through the party's chief agent, and come from tax-deductible donations. However, usually there is no published information concerning which candidates received funding.

Strengthening the Foundation: Annex to the Report of the Chief Electoral Officer of Canada on the 35th General Election, quoted Stanbury, who advocated disclosure: "they [leadership contests] can involve the raising and expenditure of millions of dollars and are often financed in part by contributions for which a tax receipt is issued." (Stanbury 1991, p.368).81

In his study entitled Do Conventions Matter: Choosing National Party Leaders in Canada (1995, p.77), John Courtney said: " the time is propitious for state involvement in setting the terms for financing future [leadership] contests." He also suggested spending limits, arguing that such contests are part of the public domain.

Leadership contests are the venues where future Prime Ministers and opposition leaders are chosen. Even unsuccessful contestants may remain influential in Parliament. The argument for financial transparency respecting all of them is compelling.

There should also be spending limits respecting leadership contests with the specific amount of those limits being set by Parliament.

Recommendation: It is recommended that contributions to and expenses of a party leadership contestant, whether successful or not, be reported four months after the leader is elected and published in the same manner as a candidate's electoral campaign return.

8.2 Surpluses in Leadership and Nomination Contests

In support of the principle that no person should personally profit from contributions while seeking election to the House of Commons, the Act currently requires that when a candidate who has been endorsed by a registered party has a financial surplus at the end of a campaign, that surplus must be turned over, either to the registered party, or to that party's electoral district association in the candidate's district. Surpluses of candidates who have not been endorsed by a registered party must be turned over to the Receiver General for Canada.

This principle need not be adopted strictly in the case of leadership and nomination contests insofar as it is a matter of party constitution if contestants should be able to benefit personally from their party activities. However, where a contestant's participation in a contest is financially supported by public funds, his or her participation ceases to be solely a matter of private concern to the party. Public funds cannot accrue to the personal benefit of a contestant.

Public funds can come to individual contestants when parties or local associations make contributions that have come from funds for which tax receipts have been issued. Once a contestant elects to receive contributions flowing from tax-receipted funds, the contestant should come under the obligation to turn over any surplus from his or her contest in the same way as surpluses are dealt with that arise from a candidate's campaign. If a candidate receives any tax-receipted funding, all of that candidate's funding must be subject to this obligation. Otherwise, it may be difficult to determine if expenses are paid from public or private funds.

Recommendation: When any leadership/nomination contestant receives contributions from a tax-receipted source, any surplus funds remaining to the contestant after the leadership/nomination contest must be turned over, in the case of a leadership contest, to the contestant's party, and in the case of a nomination contest, to the party or local electoral district association.