In Re:’s weekly column a 22-year-old with minimal understanding of politics tries to work out what it all means before the election. This week, Zoe Madden-Smith looks into the different ways parties fund themselves, and the flaws in the system. Infographics by Liam van Eeden.

As you know by now, I don’t know much about politics. But one thing I do know is running a political campaign is expensive. Like really expensive. I still remember how shocked I was when a Warehouse Stationery cashier told me what it would cost to print my uni assignment. Imagine what it costs to print giant placards and thousands of flyers for letterboxes across the country. And no one is choosing black and white - everyone is forking out for colour. 

They’re also paying for advertising on social media, buying time on television or radio, hiring campaign managers, travelling around the country and renting out venues to reach potential voters. It all adds ups. So who is paying for all of this? 

In short: parties are funded by a combination of state funds (aka taxpayer money) and private donations. I’ve learnt they are both pretty unfair systems that help big parties stay in power, make it hard for other parties to break in, and lead to policies serving the interests of the elite. There are ways we could improve this system, but when the rule makers are the ones that benefit the most from it, will things ever change? 

Where do parties get their money from? Some of it is funded by the state

State funding is all the money political parties are allocated by the government (shout out to the taxpayer). Some state funding is through the Budget. Political parties are given sizable sums each year so that they can afford to employ people and keep thinking up new policies and ways to fix our problems. 

Other state funding comes through the Electoral Commission. This is the independent crown entity that manages everything to do with elections (their mascot is the weird orange guy). They put aside a lump of cash that each party can only spend on media advertising. The parties don’t actually get this money in the hand, it’s kind of like a media voucher. They can buy advertising on TV, radio or the internet and then send the Electoral Commission the bill.

In 2020, a pool of $4 million was divided up between the parties. 


How does the Electoral Commission decide how much each party gets?

The Electoral Commission says in their allocation document that working out who gets what “is not a simple mathematical calculation”. It takes into account how many votes each party got in the past election, how many MPs and members are in the party, where they are polling and other ways to count a party's public support.  

Isn't that just helping the biggest parties get back into parliament and making it hard for the little parties to get in? Well, yeah, it is. 

This year the National Party was given the most with nearly $1.26 million, and Labour was close behind with $1.2 million. The Green Party and New Zealand First were both given $310,000 while the smaller minor parties were given anywhere from $41,000 to $145,000. 

Is that fair?

Looking at the numbers, you wouldn’t blame minor parties for getting upset about how uneven the money is divided. From a complete novice perspective, I would say it’s pretty unfair. But what do I know?

Law professor Andrew Geddis says the way money is allocated for political party advertising is outdated. Photo: Supplied.

 Andrew Geddis is a law professor at the University of Otago who specialises in the legal regulation of elections. I asked him why the system was built like this, and whether it made sense. 

“So the logic is: the bigger your party is, the more successful you are, the more money you should get,” he says.

“The legislation was written by the biggest parties back when we had first-past-the-post [our electoral system before MMP]. Back then it was just Labour and National and some ‘thanks for showing up parties.’”  

“To justify it the bigger parties would say ‘we are effectively going to form the next government, and so the public really ought to hear from us about what we are about. Because that's where the real race is’.”

Whereas, he says, smaller parties were given much smaller access because they weren’t going to have as much influence in government.  

Andrew thinks the Electoral Commission broadcasting fund is “completely outdated”. He says it made sense when TV and radio were the only way politicians could reach voters, but now there are so many other ways to do it. It also doesn’t suit the MMP system we have now where minor parties are more influential and therefore need to be treated like it. 

“It would make a lot more sense to take all that money, figure out a better way of dividing it all up so you’re not just giving the haves a whole lot more and then let the party spend it the way they want to,” he says.

But changing this rule would mean changing the Electoral Act, something that can only be done if the majority of MPs in parliament decide on something else. But when the majority of MPs are also the ones who benefit from this system, no one is in a real hurry for reform.

It’s a harsh reality for minor parties. It means they will need to use their own deep pockets (cue Kim Dotcom, Gareth Morgan, and Colin Craig) or rely on a bunch of generous donations to make all the effort worth it. But even then, their chances of getting in are slim. 

Where do parties get their money from? Some of it is through private donations

Political parties rely heavily on donations from people and organizations. Whether it’s emailing their supporters for a $10 donation, forking out millions of their own dough, or schmoozing up to wealthy people who can donate $30,000 at a time. Every dollar counts and New Zealand has no limit on how much a person can give to a party or candidate (unlike Canada or the US). 

The only restrictions we have are:  

  • Foreigners can only donate $50 to a party each year. (A law that was rushed through parliament last year after the Government acknowledged New Zealand’s vulnerability to foreign interference with our democracy).
  • Political parties must disclose the identity of donors who give more than $1,500 per candidate or $15,000 per party, per year. Any donation below this, the donor can remain anonymous.

Why would someone want to donate anonymously?

To paraphrase Andrew: there are good and bad reasons for anonymity. The good reason is simply privacy. I don’t have to tell you what party I donate to, just like how I don’t have to tell you who I voted for. A key reason for anonymity is because people can be treated differently if others knew what political party they supported. So to avoid this being a barrier for people donating, individuals can support a party anonymously.  

“It’s just between you and your conscience,” as Andrew puts it. 

Okay, so why can’t all donations be anonymous?

“The problem with that, of course, is that there are other reasons people might give money which are not so pure, like ‘I'm giving them money because I'm trying to buy a public policy outcome that will benefit me’,” says Andrew. 

As a hypothetical example, say I own a huge cannabis company. I currently can only operate in countries where cannabis is legal, (which is not the case currently here) but I really want to sell my product in New Zealand and expand my clientele. I could try and give $100,000 to a political party to try and sway them into legalising cannabis and giving my company a license to set up a store in every main city. 

“If someone gives the party lots of money, there is more chance they will win the election and do their favour in return,” says Andrew. “But you can see why that sort of arrangement would want to be kept secret, so that’s why people hide it.”

So to try and stop people anonymously influencing (or bribing) political parties, the law requires people who give really big sums of money (over $15,000) to have their name public. Because with such big sums of money, we want to know who it’s from and why it’s there.

“The threshold is set at $15,000 donations, because, frankly, not even a politician is going to sell the country out for $15,000. It’s not enough,” says Andrew.

Every system has its weaknesses. But to me it seems like New Zealand’s donation system is riddled with so many flaws our humble little country is left pretty vulnerable to corruption - a thing we pride ourselves on being almost completely free from

How is New Zealand vulnerable to corruption? 

Because New Zealand doesn’t have a limit to how much someone can donate to a party (unless they are foreign), elite people and groups can have a pretty significant influence on our laws and democracy.  

“No party is going to say ‘we tailor our policies to serve the people who pay us’, says Andrew. “But the reality is, the party needs to have this money to operate and to get this money they've got to attract supporters with certain policies. And if you've got supporters who are wealthy and can fund you, then yes, you basically have a better chance of being successful.”

“It's just another way in which the existing political system is biased towards those people who've got the resources.”

And if you know how to find the loopholes, you can have even more influence without anyone knowing. 

One loophole: A large donation can be split up to be kept anonymous

If I (wealthy cannabis entrepreneur) didn’t want anyone to know I bribed a political party with $100,000, the most obvious loophole would be to find some mates, split the donation up into amounts that are below the $15,000 threshold and get them all to donate the money for me.  

It’s a trick an ex-National MP is currently being investigated by the Serious Fraud Office for attempting. Heard of Jami-Lee Ross? Probably. He is the ex-National MP who is currently being accused of breaking up two donations of $100,000 into smaller sums to avoid National having to disclose where the money came from. Three other businessmen are also being charged. 

Another loophole: The vague definition of a ‘donation’ can also keep donors anonymous

The only requirement around disclosing someone's identity is if they donate to the party. But without a clear definition of what actually counts as a ‘donation’, things quickly get murky.

“What may have been happening is parties and individuals were holding auctions and selling things like a piece of art and saying, “This piece of art is worth $30,000, so if you give me $30,000 for the auction there's no donation. You're just buying a piece of art,” says Andrew. 

And because it’s a trade, not a one-way donation, the party doesn't have to disclose who bought the art. Also, with something like art, there is no obvious price tag. The seller can name the price, and no one can really know the true value because it’s completely subjective.  

Technically, the ‘donor’ is the artist who gave the party the painting to sell. “But no one is really interested in them, they are interested in who is giving the cash. Because that’s what helps the party,” says Andrew.

The Labour Party is being investigated by The Serious Fraud Office in relation to donations made in 2017. The SFO is yet to elaborate on the details of the investigation but according to Stuff, artworks were auctioned for tens of thousands of dollars with only the artist’s name made public - not the name of the person who spent the money.

And another loophole: Setting up a separate foundation to fund the party with anonymous donations

New Zealand First is also being investigated by the Serious Fraud Office for setting up a separate foundation that funnels through sizable donations to the party anonymously. 

“What NZ First did was set up a group organization that operated in tandem right beside the party,” says Andrew. “They said any donations that go to this isn't a donation to the party, it is a donation to a separate entity, so we don't have to declare it. The legality of this is what is being investigated by the Serious Fraud Office.”

In 2017 and 2018, the New Zealand First Foundation received multiple donations of $15,000 to $20,000 from different people and organisations connected to the racing industry. As Minister of Racing, New Zealand First leader Winston Peters has allocated the racing industry millions of dollars of government support and scrapped betting levies.

The New Zealand First Foundation spent more than $425,000 in party bills, like advertising and other campaign fees.

Why are the rules so loose in New Zealand?

New Zealand is somewhat of a wild west when it comes to political donation rules, because (up until now) there hasn’t really been a huge reason to make the rules tighter.  

“We haven't really had a big scandal to motivate change,” says Andrew. “We've sort of gone ‘well, what's the problem? We're not corrupt, that sort of thing doesn't happen here. So why would we need to change?’”

But New Zealand could be just as vulnerable to elite influence which undermines our democracy.

“We have got three of the five political parties in parliament all being investigated by the Serious Fraud Office for aspects of their fundraising. Now might be the time to take a step back and go ‘oh gosh, we need to fix this’,” says Andrew. 

Justice Minister Andrew Little has already acknowledged the Electoral Act needs a long-term overhaul. So who knows? Maybe changes might happen one day.

If this system is so flawed, what are the alternatives?

  • We could drastically reduce the threshold for anonymous donations, where, for example, any donation over $1000 would have to be publicly disclosed.
  • We could clearly define what a ‘donation’ is and stop the loophole of allowing donations through auctions, charity dinners, or trusts and foundations being anonymous.
  • We could follow other countries' lead and put a strict limit on the amount each individual can donate each year. In Canada, citizens can only give $1,625 a year (around $2,000 NZD) to a party. The Green Party has already proposed putting a $35,000 cap on all donations.
  • We could only allow individuals to donate, not businesses, trusts, or other organisations. Canada also has this regulation. 
  • We could increase state funding but allow parties to use the money as they wish. For example, the Electoral Commission broadcasting funding could be spent on things other than media advertising.
  • Or, more specifically, we could establish ‘Democracy Vouchers’.

What are democracy vouchers, and how do they work?

The whole idea of democracy vouchers is you leave the funding decisions up to voters, not the state or wealthy elites. In theory, the total amount needed for every political party to function is divided up into small chunks (say $50) that are loaded onto individual vouchers for every voter. Party websites would have a function where you could donate the amount of your ‘democracy voucher’ to the party. This system would ban large donations and allow everyone to equally contribute. The scheme is growing in popularity and is being trialled in the US. 

Max Rashbrooke thinks democracy vouchers are a great idea. Photo: Supplied.

Max Rashbrooke, who writes about democracy and economic inequality, is a keen supporter of democracy vouchers. He says it would be a “much cleaner, much simpler and much less corrupt system” that would “ensure very wealthy people do not have disproportionate influence.”

“I think the cornerstone of democracy is that we all have an equal part in that process. That my vote is just as important as your vote. The very obvious problem with donations is the decision-making process as a whole is going to be biased towards the interests of donors as a whole, which means biased towards the interests of the wealthy.”

“Do people really think wealthy people are putting up $50,000, even $100,000 sometimes, without expecting anything in return? It is just not a workable model of how a democratic society operates,” he says. 

Democracy vouchers would have clear benefits, such as encouraging parties to put forward policies that appeal to the masses, not just the wealthiest. It would solve the issue of taxpayers' dollars going towards parties they hate, and it would also give small parties an even playing field and enable marginalised and low-income voters to financially contribute to the election. It may even mobilise more people to engage with politics, who knows?

The clear downsides to the theory are the huge administrative costs, risk of vouchers being traded for money or security breaches to the system. But Max seems to think the pros outweigh the cons, although he does acknowledge why the major parties (the ones who make the rules and benefit the most from donations) might not be as psyched about it.

“But I think there is still reason to be optimistic about reform. When there is really widespread political dissatisfaction, it becomes a lot easier to make change. We already have the momentum that is needed for reform. Now could be the time.”