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Watching Brief – 29 April 2016

Home Insights Watching Brief – 29 April 2016

Matter of opinion

What we don’t know does hurt us

Political party donations have recently been the subject of olfactory themed exchanges with claims that the award of a Government contract in Niue both stunk to high heaven and smelt of roses. Arguing the source needed investigation, Labour has referred the award of the tender to Scenic Hotel Group, to the Auditor-General.

As has been widely reported, Scenic Hotel Group founder, Earl Hagaman made a donation during the 2014 election campaign of $101,000 – large by New Zealand standards – one month before the Niue contract was awarded. 

Many commercial enterprises in New Zealand make donations to political parties, and often to more than one. Those who make party donations are not ruled out from government tendering processes and it would be unworkable if they were. The question then is this: what are the rules or limits, if any, around political party donations and government contracts (and what would an Auditor-General inquire into)? The answer, simply put, is that disclosure in itself, with or without an Auditor-General inquiry, is an effective check and balance. It helps maintain public confidence in a system that increasingly relies on generous political donations from the corporate sector. On the other hand it enables the giving of political donations – which are required for any party to run an effective electoral campaign – alleviating the need for state funding, spending caps or other likely difficult alternatives.

Party donations are, of course, a fraught area. The concern is that increasingly large sums of money paid by corporates and other organisations to political parties bring expectations of increased access to politicians and greater influence over policy and contracting decisions. In the US, the issue is sometimes referred to as “pay to play”. Bernie Sanders was critical of Hillary Clinton’ reliance on corporate money but unable to provide an example of Clinton’s judgement being influenced by it. In some ways this is not surprising. Because corruption is inevitably collusive or secretive it is difficult to identify, quantify or point to specific examples. What matters more in this context is public perception and processes that reduce the likelihood of it occurring. Indeed, perceptions form the basis of one of the main overseas corruption rankings (the Corruptions Perceptions Index).

In New Zealand, our regulation of political party donations and government contracts rests on disclosure and transparency supplemented by detailed procurement rules. The overarching framework governing public sector corruption is the Crimes Act 1961 (which criminalises Ministers, MPs and other public officials corruptly taking a bribe) and, and in relation to party donations, the Electoral Act 1993. 

Previously under the Electoral Act, there were no limits on anonymous donations, reflecting a more light handed approach here than in most other OECD countries at the time. Now anonymous donations are limited to $1,500 (and anonymous means the identity of the person must not be known to the party or the public). Anything over $1,500 must be sent to the Electoral Commission for payment into a Crown Bank account and these donations can only comprise a percentage of total party donations. A party must declare the name and details of a donor who donates more than $15,000.

Underlying the broader framework are comprehensive government rules for Government procurement processes. These are further reinforced by common law natural justice obligations (covering conflicts of interest, fair process, bias and consistent treatment among other things). These rules are critical to ensuring the everyday government procurement activities are robust and fair. 

New Zealand is also signed up to the OECD Anti-Bribery Convention and the UN Convention Against Corruption and our regime is regularly reviewed and tested against these conventions, the latter emphasising the importance of clear and effective procurement rules.

Under this regime, disclosure is the core safeguard: a smoke detector signalling when investigation of the procurement process might be required. Because of the requirement to disclose in the Electoral Act, we know Hagaman made a large donation one month before a contract was awarded to his company. Because of the disclosure the Auditor-General has been asked to decide whether or not to undertake an inquiry. Even if the matter had not been referred to the Auditor General – or even if the Auditor-General decides not to investigate further – the transparency around the donation has lead to important debate in the press and forced the Government to respond and explain its process.  

It is difficult to predict whether the Auditor-General will make a decision to undertake an inquiry based on the timing and the amount of the donation alone. On its face the procurement process for awarding the contract looks robust and appropriately arm’s-length from any government influence. However there is arguably a public interest, given the timing and amount, in reassuring the public that the procurement process was rigorously followed. Hagaman himself has called for an inquiry in order to remove speculation. Odds are nothing untoward will be revealed, but the public could take some comfort in a finding that gives the all clear.

Finally, it should not be too readily assumed that procurement processes will have been properly followed. New Zealand dropped to fourth place in 2016 on the Corruption Perceptions Index after topping the index in 2012 and 2013. It fell to second place in 2014 and to fourth place in 2016. Transparency International has cited specific examples, including a government procurement process, as reasons for the drop in ranking.

It is hard to imagine that, until relatively recently, political party donations could be secretly made (noting that some argue there are still loopholes in our system). Our current disclosure requirements provide a critical constitutional safeguard and the recent mud-slinging evidences a system that is healthy and working. It is now in the hands of the Auditor-General who will exercise objective judgement as to whether a formal inquiry is justified.

In politics

In the news

Progress of legislation

Bills awaiting first reading

Consumer Guarantees (Removal of Unrelated Party Lender Responsibility) Amendment Bill
Customs and Excise (Prohibition of Imports Made by Slave Labour) Amendment Bill
Education (Charter Schools Abolition) Amendment Bill
Legislation Amendment Bill
Ngā Rohe Moana o Ngā Hapū o Ngāti Porou Bill
Public Works (Prohibition of Compulsory Acquisition of Māori Land) Amendment Bill
Social Security Legislation Rewrite Bill
Te Ture Whenua Māori Bill


Bills awaiting second reading

Bills that have recently been reported back to the House from a Select Committee are in bold and the Select Committee reports on these Bills are linked.

Building (Pools) Amendment Bill (as reported by the Local Government and Environment Committee)
Child Protection (Child Sex Offender Register) Bill
Electronic Monitoring of Offenders Legislation Bill
Evidence Amendment Bill
Health Practitioners (Replacement of Statutory References to Medical Practitioners) Bill
Hineuru Claims Settlement Bill
Keep Kiwibank Bill (as reported by the Finance and Expenditure Committee)
Land Transport (Admissibility of Evidential Breath Tests) Amendment Bill
Māori Purposes Bill
New Zealand Public Health and Disability (Southern DHB) Elections Bill
Ngāruahine Claims Settlement Bill
Policing (Cost Recovery) Amendment Bill
Residential Tenancies Amendment Bill (as reported by the Social Services Committee)
Riccarton Racecourse Bill and Riccarton Racecourse Development Enabling Bill
Smoke-free Environments (Tobacco Plain Packaging) Amendment Bill
Social Security (Extension of Young Persons Services and Remedial Matters) Amendment Bill
Taxation (Income-sharing Tax Credit) Bill
Taxation (Transformation: First Phase Simplification and Other Measures) Bill


Acts awaiting assent

Te Pire mō Te Reo Māori / Māori Language Bill
New Zealand Business Number Bill


In the week ahead

In committee

Speeches of note

In trade

In consultation

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