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Recommendations of the Chief Electoral Officer of Canada to the House of Commons Standing Committee on Procedure and House Affairs Respecting Specific Issues of Political Financing

8. Elimination of Threshold for Quarterly Allowance for Parties

Summary of Section

This section:

Until the current constitutional challenge to the current vote threshold for the payment of the quarterly allowances is finally resolved, no recommendation will be made respecting that issue.

Current Law

Introduction of Quarterly Allowances

Quarterly allowances for registered parties were first introduced with the political financing reforms that came into effect on January 1, 2004. Although not calculated directly in proportion to estimated reductions in revenue resulting from the ban on corporate and trade union contributions to registered parties that came into effect at the same time, that ban was a major impetus behind the introduction of the allowance.

Eligibility for Allowance Under Current Wording of the Act

Section 435.01 of the Act provides that a registered party that obtains at least 2 percent of all valid votes cast at a general election or at least 5 percent of the valid votes cast in the electoral districts in which it ran a candidate in a general election is eligible for an annual allowance.Footnote 39

As the Act is currently written, a party that obtains the number of votes required to qualify for the annual allowance will receive the first payment of the allowance in the quarter after the general election in which it became eligible.

The allowance is payable to a party "whose candidates for the most recent general election preceding that quarter received at that election" the necessary threshold percentage of votes (s. 435.01). Thus, where a party is registered and/or secures the necessary percentage of votes as a result of a general election held within a quarter, the entitlement for that quarter is still determined on the basis of the most recent general election preceding that quarter. The party therefore will not actually become entitled to an allowance until the next quarter when the determinative general election will be the general election that was just held.

A party that loses its registered status in a quarter will not be eligible to receive its annual allowance for any part of that quarter.

That is because under subsection 435.02(1), the Chief Electoral Officer is to provide the Receiver General at the end of the quarter with a certificate that sets out the amount of the allowance payable to "the registered party" for that quarter. Thus, a party must be registered at the time of the certificate to receive the allowance.

The constitutionality of the minimum vote threshold for the payment of the quarterly allowance was the subject of a recent decision of the Ontario Superior Court, which is discussed later in this section.

Amount of Payment

The amount of the quarterly allowance is equivalent to 43.75 cents per valid vote the recipient party obtained in the most recent general election preceding the quarter for which the payment is being made (s. 435.01(2)).

On an annual basis, the payment is equivalent to $1.75 per valid vote obtained and is indexed for inflation, as provided for by paragraph 435.01(2)(b).Footnote 40

On the above basis, the following allowances were paid out to the registered parties listed below between January 1, 2004 (when the allowance started), and September 2006 (the most recent quarter).Footnote 41

2004Footnote 42

Registered
political party

Advance paid in
Jan. 2004
(Jan. 1 –
 Dec. 31, 2004)



(Based on the 37th GE)
3rd Quarter
(July – Sept.
2004)
Payable or (receivable)



(Based on the 38th GE)
4th Quarter
(Oct. – Dec.
2004)
Payable Jan. 2005



(Based on the 38th GE)
Bloc Québécois $2,411,022 $0 $322,846
New Democratic Party $1,914,269 $12,958 $956,692
Green Party of Canada $0 $261,847 $261,847
Liberal Party of Canada $9,191,054 ($49,646) $0
Conservative Party of Canada $8,476,872 ($563,360) $0


2005
Registered
political party
1st Quarter
(Jan. – Mar. 2005)
Payable
Apr. 2005

(With inflation adjustment as of Apr. 1, 2004 – Based on the
38th GE)
2nd Quarter
(Apr. – June 2005)
Payable July 2005

(With inflation adjustment as of Apr. 1, 2005 – Based on the
38th GE)
3rd Quarter
(July – Sept. 2005)
Payable Oct. 2005

(With inflation adjustment as of Apr. 1, 2005 – Based on the
38th GE)
4th Quarter
(Oct. – Dec. 2005)
Payable
Jan. 2006

(With inflation adjustment as of Apr. 1, 2005 – Based on the
38th GE)
Bloc Québécois $755,740 $769,708 $769,708 $769,708
New Democratic Party $956,692 $974,375 $974,375 $974,375
Green Party of Canada $261,847 $266,686 $266,686 $266,686
Liberal Party of Canada $2,240,772 $2,282,187 $2,282,187 $2,282,187
Conservative Party of Canada $1,807,734 $1,841,146 $1,841,146 $1,841,146


2006
Registered
political party
1st Quarter
(January –
March 2006)
Payable
April 2006

(With inflation adjustment
as of April 1, 2005 –
Based on the 38th GE)
2nd Quarter
(April – June
2006)
Payable
July 2006


(With inflation adjustment
as of April 1, 2006 –
Based on the 39th GE)
3rd Quarter
(July – September 
2006)
Payable
October 2006


(With inflation adjustment
as of April 1, 2006 –
Based on the 39th GE)
Bloc Québécois $769,708 $727,092 $727,092
Conservative Party of Canada $1,841,146 $2,515,737 $2,515,737
Green Party of Canada $266,686 $310,867 $310,867
Liberal Party of Canada $2,282,187 $2,096,926 $2,096,926
New Democratic Party class="alignRight">$974,375 class="alignRight">$1,212,255 class="alignRight">$1,212,255

When Payments Are Made

Payments are made by the Receiver General of Canada following the end of each quarter (after each March 31, June 30, September 30 and December 31), on receipt of a certificate from the Chief Electoral Officer of Canada setting out the amount to be paid, and certifying that the party has complied with certain financial filing obligations (s. 435.02(1)).

The allowance, however, is withheld if one of the following financial statements that a registered party is required to file is overdue:

A statement that is not overdue at the time of the payment of an allowance will not operate to postpone the giving of the certificate. And once an overdue return is filed, any past quarterly allowance that was withheld is paid (s. 435.02(2)).Footnote 43

In keeping with the general principle that, subject to the imposition of election expense limits, the Canada Elections Act does not direct the spending of registered parties governed by it and there are no restrictions imposed by the Act on the uses to which a registered party may pay the allowance that it receives. However, a registered party that is entitled to the quarterly allowance is also required to provide the Chief Electoral Officer with quarterly reports of the contributions, transfers and contributions returned by the party for each quarter (s. 424.1).

Provincial Comparisons

Currently, three provinces provide some form of allowance to parties – Prince Edward Island, New Brunswick and Quebec. Prince Edward Island's is a direct unfettered allowance. New Brunswick's is an allowance paid in advance, which can be used only for administration costs, to propagate a party's political programs and to coordinate the political activities of its members. Quebec's is a subsidy paid to reimburse a party for operating costs incurred. The calculation of the allowance in each case factors in the number of votes secured by the party's candidates. None has a minimum vote threshold, although the party must hold a seat in the provincial legislative assembly in Prince Edward Island. In New Brunswick, the party must either hold a seat in the assembly or have run at least 10 candidates in the last general election. In Quebec, the party does not have to have a seat in the assembly but needs only be registered (i.e. be "authorized") with the Chief Electoral Officer. Each provincial scheme is outlined broadly below.

Prince Edward Island (Election Expenses Act, section 23)

Prince Edward Island's allowance is paid to each registered party holding one or more seats in the Legislative Assembly. The amount payable is the amount obtained by multiplying the number of valid votes cast for official candidates of the party at the immediately preceding general election by a sum not exceeding $2 determined by the Lieutenant Governor in Council after consultation with the Leader of the Opposition.

23.(1) An annual allowance in the prescribed amount shall be payable to each registered party holding one or more seats in the Legislative Assembly.

(2) In subsection (1) the "prescribed amount" means an amount obtained by multiplying the number of valid votes cast for official candidates of the party at the immediately preceding general election by a sum not exceeding $2.00 determined by the Lieutenant Governor in Council after consultation with the Leader of the Opposition.

(3) The sum determined by the Lieutenant Governor in Council under subsection (2) shall be increased or decreased in accordance with the Consumer Price Index (Charlottetown\Summerside) published by Statistics Canada using the annual 1995 as the base and the latest available index, as determined by the Chief Electoral Officer, as the current index.

New Brunswick (Political Process Financing Act, ss. 31–34)

New Brunswick's allowance is payable to every registered party represented in the Legislative Assembly on January 1 of each year, and to every registered party which, although not represented in the Assembly, had at least 10 official candidates in the immediately preceding general election.

The subsidy for each party equals $1.30 multiplied by the total number of valid votes cast for the official candidates of that party at the immediately preceding general election. It is adjusted for inflation.

Unlike Prince Edward Island and the federal statute, the New Brunswick law limits the purposes for which the allowance can be used. The statute directs that the party can only be used to pay the costs of its current administration, to propagate its political programs and to coordinate the political activities of its members, with any surplus remaining at the end of a year being required to be repaid into the Consolidated Revenue Fund (s. 34).

31 An annual allowance shall be payable for the year 1979 and each subsequent year

(a) to every registered political party represented in the Legislative Assembly on the first day of January of each year, and

(b) to every registered political party which, although not represented in the Legislative Assembly, had at least ten official candidates at the immediately preceding general election.

32(1) The annual allowance of each registered political party entitled thereto shall be an amount equal to the product obtained by multiplying the adjusted amount determined in accordance with section 32.1 by the total number of valid votes cast for the official candidates of that party at the immediately preceding general election.

32(2) The annual allowance payable to each registered political party in any year shall be published by the Supervisor in The Royal Gazette on or before the first day of March in that year or as soon thereafter as is practicable.

32.1(1) For the purposes of section 32, the adjusted amount shall be

(a) for the year 1981, one dollar and thirty cents, and

(b) for each year subsequent to 1981, the product of one dollar and thirty cents multiplied by the ratio that the Consumer Price Index for the twelve month period that ended on the thirtieth day of September next before that year bears to the Consumer Price Index for the twelve month period that ended on the 30th day of September, 1980.

32.1(2) When the adjusted amount as calculated under subsection (1) is not a multiple of one cent, it shall be rounded to the nearest multiple of one cent or, if it is equidistant from two such multiples, to the higher thereof.

32.1(3) For the purpose of this section, the Consumer Price Index for any twelve month period is the result arrived at by

(a) aggregating the Consumer Price Index for Canada, as published by Statistics Canada under the authority of the Statistics Act, chapter S-16 of the Revised Statutes of Canada, 1970, for each month of that period;

(b) dividing the aggregate obtained under paragraph (a) by twelve; and

(c) rounding the result obtained under paragraph (b) to the nearest one-thousandth or, if the result is equidistant from two one-thousandths, to the higher thereof.

33 The annual allowance computed in subsection 32(1) shall be payable in equal quarterly instalments on the last day of March, June, September and December of each year.

33.1(1) Notwithstanding sections 32, 32.1 and 33, the annual allowance of each registered political party for the year 1991 shall be the same as its annual allowance for the year 1990, as published that year under subsection 32(2).

33.1(2) The quarterly instalments payable under section 33 in June, September and December 1991 shall each be equal instalments of the amount which, taking into account the instalment paid in March 1991, remains to be paid for the year 1991.

33.2 Notwithstanding sections 32 and 32.1, the annual allowance of each registered political party

(a) for the year 1994, shall be an amount that equals 11.6 per cent less than its annual allowance for the year 1993 as published that year under subsection 32(2),

(b) for the year 1995, shall be an amount that equals 10 per cent less than its annual allowance for the year 1994 as published that year under subsection 32(2),

(c) for the year 1996, shall be an amount that equals 4.65 per cent less than its annual allowance for the year 1995 as published that year under subsection 32(2), and

(d) for the year 1997, shall be an amount that equals 1.57 per cent less than its annual allowance for the year 1996 as published that year under subsection 32(2).

34(1) The annual allowance shall be used by the registered political party to pay the costs of their current administration, to propagate their political programmes and to coordinate the political activities of their members.

34(2) If, in any year, a registered political party entitled to an annual allowance, fails to incur, for the uses set out in subsection (1), costs equal to or greater than the amount of the annual allowance paid to it for that year, the difference between such amount and the costs actually incurred by it for those uses during that year shall be remitted to the Minister of Finance to be paid into the Consolidated Fund.

Quebec (Elections Act, sections 81–83)

Quebec's allowance is payable to "authorized" parties – which are parties that have applied to the Chief Electoral Officer for "authorized" status, similar to the concept of "registered party" under the federal statute (see sections 47 and following of the Quebec Act). Unlike the federal statute, a party does not have to run a candidate in an election to be "authorized." Its application for status, however, must be supported by at least 100 members and it must otherwise comply with the administrative requirements of the Act. The allowance is tied both to a formula and specific expenses incurred by the party. It is computed by dividing between the authorized parties, proportionately to the percentage of valid votes obtained by them in the last general election, a sum equal to the product obtained by multiplying 50 cents by the number of electors entered on the lists of electors used at that election. The subsidy cannot exceed the expenses incurred by the party for its general administration, propagation of political programs and coordination of political activities of members. The expenses must have been actually incurred and paid.

81. The chief electoral officer shall, every year, determine an allowance for each authorized party.

82. The allowance shall be computed by dividing between the authorized parties, proportionately to the percentage of the valid votes obtained by them at the last general election, a sum equal to the product obtained by multiplying the amount of $0.50 by the number of electors entered on the list of electors used at that election.

83. The allowance shall be used to reimburse the expenses incurred by the parties for their current administration, the propagation of their political programs and the coordination of the political activities of their members; it shall be paid only if the expenses are actually incurred and paid.

Constitutional Rulings Affecting Payment of Quarterly Allowance

a. Securing Registered Party Status

As noted earlier, under the Act the quarterly allowance is payable only to registered parties, and even then only to registered parties whose candidates secured the minimum vote threshold in the last general election.

As a result of the earlier decision of the Supreme Court of Canada in Figueroa v. Canada (Attorney General), [2003] 1 S.C.R. 912, the ability of a party to secure registered party status was significantly eased by reforms to the Canada Elections Act made by S.C. 2004, c. 24.Footnote 44 Under those reforms a party, which otherwise has registered with the Chief Electoral Officer as an eligible party, can secure registered party status by running at least one candidate in a general election or a by-election. Provided that that party continues to be a political party and complies with its administrative obligations under the Act, it will retain that registered party status as long as it continues to run at least one candidate in each subsequent general election. (The party can resign its registered status.) As part of those reforms, and in order to avoid potential abuses of the income tax system by entities hoping to secure registered party status primarily to take advantage of the income tax credit available respecting contributions to registered parties, a definition of "political party" was added to the Act and the administrative requirements that had to be met to secure eligible party status (and to maintain registered party status) were bolstered.

Under the new requirements, a party seeking to be registered must first satisfy the Chief Electoral Officer that it is a political party. It does this by satisfying the Chief Electoral Officer that it meets the statutory definition of a "political party":

"an organization one of whose fundamental purposes is to participate in public affairs by endorsing one or more of its members as candidates and supporting their election."

In determining whether a group meets this definition, the Chief Electoral Officer must be satisfied that the group intends to run candidates in an election. If, however, the Chief Electoral Officer determines that the group will be running candidates primarily for some purpose other than political – such as securing public funding or income tax benefits – he can refuse to register the party. Thus, the Chief Electoral Officer is entitled to assess and approve the reasons why one wants to participate in public affairs by candidates as a party. To this end, the party leader is required to file a declaration stating that one of the party's fundamental purposes is to participate in public affairs by endorsing one or more of its members as candidates and supporting their election. To supplement that declaration, the Chief Electoral Officer is given the discretionary power, to be used if and when he feels it is necessary, to ask the party's leader for any relevant information to enable him to determine that one of the party's fundamental purposes is to participate in public affairs by endorsing and supporting candidates. This authority will include asking for, among other things:

Aside from having to satisfy the Chief Electoral Officer, the applicant party must now, in addition to the administrative information required in the past, also provide the Chief Electoral Officer with the names, addresses and consents of all of its officers (of which it must have a minimum of three in addition to the leader); the names and addresses of 250 members along with their declarations that they are members of the party and support their party's application. (Starting in 2007, the party will have to submit these lists and declarations again every 3 years.) The leader of the party must also provide the Chief Electoral Officer with a fresh declaration as to the party's purposes every year. Once registered, a registered party can be deregistered by the Chief Electoral Officer for failure to comply with one of the administrative requirements of the Act (such as failure to file a required return, to update its administrative information, or to file a required leader or membership declaration).

The 2004 reforms also provided that a registered party can be deregistered by a court on application by the Commissioner of Canada Elections in the event that the Commissioner believes that the party has ceased to be a "political party" as defined under the Act.

As noted, these administrative requirements operate to ensure that only those entities that are true political parties secure registered party status under the Act.

b. Meeting the Minimum Vote Threshold

The 2 and 5 percent eligibility criteria in section 435.01 for the payment of the quarterly allowance was recently challenged on constitutional bases in the Ontario Superior Court of Justice case of Longley v. Canada (Attorney General).Footnote 45

In its October 12, 2006, decision, the Court held that the above minimum vote threshold was unconstitutional. Citing the earlier decision of the Supreme Court of Canada in Figueroa v. Canada (Attorney General), [2003] 1 S.C.R. 912, the Court, among other things, declared paragraphs 435.01(1)(a) and (b) of the Canada Elections Act to be null and void because these provisions contravened sections 3 (right to vote) and 15 (equality rights) and were not saved by section 1 of Charter (reasonable limits demonstrably justified). The Court made its declaration "effective retroactively to December 31, 2003."

In the Longley decision, the Court basically held that the principles and conclusions of the Supreme Court of Canada in Figueroa respecting limiting the income tax credit, the right to have one's party's name on the ballot, and the ability of a party to receive a candidate's election surplus to parties that ran at least 50 candidates in a general election applied equally to the threshold requirements of the quarterly allowance. The Court noted that the democratic rights guaranteed by section 3 of the Charter include the right of every citizen to play a meaningful role in the electoral process, and that political parties act as a vehicle for the participation of individual citizens in the electoral process. The Court quoted from the earlier Supreme Court of Canada decision:

"[L]egislation that exacerbates a pre-existing disparity in the capacity of the various political parties to communicate their positions to the general public is inconsistent with s. 3."

After noting that "it is both self-evident and supported by the evidence that political parties and candidates require substantial sums of money in order to participate in any meaningful way in the electoral process," the Court stated that elimination of the thresholds would "substantially increase the possibilities that [small] parties could make voters aware of their platform and candidates." The Court also noted that the quarterly allowance payable to political parties that meets the threshold is of greater importance now than before because of the statutory elimination of donations from corporations and trade unions and the statutory restrictions placed on the maximum size of donations that can be given to individuals. The threshold set out in paragraphs 435.01(a) and (b) of the Canada Elections Act was accordingly found to infringe section 3 of the Charter by discouraging individuals who do not support one of the larger parties from participating in the electoral process.

The Court found that under section 15 of the Charter (equality rights), the political party applicants suffer discrimination by being deprived of the right to receive the quarterly allowance because they had failed to meet the threshold.

"The impugned provisions place smaller and weaker parties at a disadvantage in comparison with the major parties and I can find no rationale that would justify this approach. Small and weaker political parties play a very important role in the Canadian electoral process whether or not they receive large numbers of votes and they should be entitled to receive the quarterly allowance on exactly the same basis as the larger political parties."

The Court also cited the conclusions in Figueroa to hold that these breaches of the Charter could not be justified under section 1 of the Charter both because there was no rational connection between the imposition of the threshold and the cited purpose of maintaining the cost-efficiency of the tax credit scheme, and because the threshold requirement failed the minimal impairment test. In addition, the Court also rejected the argument that the threshold was justified "to maintain public confidence in the integrity of the electoral process as fair, accessible and transparent," and that the threshold maintained "Canadians' faith in the integrity of the electoral process' financing regime by endeavouring to ensure that public funds are not used for other than intended public policy purposes." In rejecting this view, the Court stated that:

"the existence of the threshold diminishes public confidence in the electoral process and encourages a public perception that the threshold exists only to benefit the major political parties who alternate, from time to time, in forming the government and are in a position to maintain it. As well, it is impossible to see any reasonable mechanism by which its existence can help ensure that public funds are not improperly used. At most, one can say, tautologically, that if no public funds are given to smaller and weaker political parties, then they certainly cannot spend any of them on either proper or improper purposes. In any event, there are more effective and less damaging means of achieving this purpose such as required reporting and audits were it genuinely sought."

The Court in Longley ordered the payment of specific amounts to the small registered parties that were participants in that action calculated by reference to the payable allowance retroactive to January 1, 2004. With respect to future payments of the quarterly allowance, the Ontario Superior Court of Justice's decision in Longley legally applies only in Ontario. However, at the time of the payment of the next quarterly allowance the Chief Electoral Officer will have to determine whether that decision should be applied across the board.

Based on the results of the 2006 general election, the quarterly allowance payable to those small registered parties that did not meet the 2 and 5 percent threshold would be $140,338.

The Crown has appealed the Longley decision to the Ontario Court of Appeal.

Recommendation

As the issue of the eligibility threshold for the quarterly allowance is still before the courts, no recommendation is made respecting it.



Footnote 39 The 2 percent figure is calculated on the basis of the cumulative number of valid votes cast nationally. The 5 percent figure is calculated by looking at each of the individual electoral districts in which the registered party ran a candidate and determining the percentage of valid votes cast for the party's candidate in that district. The party's candidates must have secured at least 5 percent of the valid votes in each individual district.

Footnote 40 The inflation adjustment figure in effect for the one-year period beginning April 1, 2006, is 127/119.0 or 1.070. The inflation adjustments figures are published by Elections Canada in the Canada Gazette before April 1 of each year (as per subsection 405.1(3)). They are also available on the Elections Canada Web site at www.elections.ca.

Footnote 41 A record of quarterly allowances paid from 2004 to date is also available on the Elections Canada Web site at www.elections.ca, under Political Parties, Candidates and Others.

Footnote 42 As a transitional measure, the annual allowance for 2004 was paid out in full at the beginning of the year. That advance payment was taken into account at each subsequent quarterly payment date in the calculation of any additional allowance that was required to be paid at that time. In addition, in calculating the allowances payable for the third and fourth quarters the results of the general election on June 27, 2004, were also taken into account (S.C. 2003, c. 19, s. 71).

Footnote 43 More information respecting the payment of the quarterly allowance is set out in Elections Canada's Information Sheet 8, Annual Allowances for Political Parties, which is available on the Elections Canada Web site at www.elections.ca, under Electoral Law, Policy and Research.

Footnote 44 The reforms of the 2004 statute, which came into effect on May 15, 2005, were originally intended to operate only for two years, at which time their operation was to be reviewed by Parliament. However, those reforms were extended indefinitely by S.C. 2006, c.1 which, in substitution for the original sunset clause of the 2004 statute, added a provision calling for the review of those reforms in another two years.

Footnote 45 [2006] O.J. no. 4316, Docket: 05-CV-291729PD.