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ELECTIONS NEED MONEY BUT ALSO PROTECTION FROM MONEY

Relevance: GS 2 – Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Why in the News?

• Electoral bonds are Bearer bonds used to fund political parties in India.
• The Supreme Court of India declared them unconstitutional on Feb 15, 2024, citing lack of transparency & violation of Right to Information.
  • Bought anonymously, raised concerns about anonymous funding & potential for corruption.
  • Bypassed donation limits, raising concerns about undue influence on parties.
  • Future of political funding in India now uncertain, with debate ongoing.

Challenges in Electoral Finance Transparency

• Minimizing Illicit Funds: Illicit funds can distort the democratic process and undermine the integrity of elections.
• Party Income Transparency: Ensuring transparency in party income is crucial. Voters should be aware of the sources of a party’s income to make informed decisions.
• Campaign Fund Transparency: Transparency in campaign funds is essential for maintaining the integrity of elections. Voters have the right to know how much money is being spent on election campaigns and where it’s coming from.
• Expenditure Transparency: It’s vital for voters to understand how parties and candidates are spending their funds during campaigns.
  • Transparency in expenditure helps prevent undue influence and corruption in the electoral process.
• Promoting Free and Fair Elections: Voters’ trust in the electoral process relies on knowing the origins and usage of funds by parties and candidates.

Methods of Fundraising for Political Parties

• Membership Fees and Donations:
  • Political parties often raise funds through membership fees and donations from individual supporters.
  • Members and individual donors contribute financially to support the party’s activities and campaigns.
• Private Donors and Organizations:
  • Parties may also receive funds from private donors, including individuals, unions, trusts, and companies.
  • Private entities contribute to party coffers, potentially influencing policy decisions and political outcomes.
• Corporate Donations:
  • Despite controversy, some parties receive donations from corporations.
  • Concerns arise over the undue influence of corporate donors on policy making and political agendas.
• State Funding of Elections
  • Several countries, primarily in Europe and some states in the US, implement state funding of elections.
  • European nations allocate state funds to parties, particularly to promote women’s representation and voter education.
  • Scotland incentivizes state funds tied to political participation, such as promoting representation for persons with disabilities.

U.S. Political Financing Model

Parties rely on a combination of sources to finance their campaigns.

• Political Action Committees (PACs): They play a crucial role in funding election campaigns.
  • PACs, including Super PACs, social welfare groups, and lobbyists, contribute to election campaigns through financial support.
• Party Committees and Individual Donations:
  • National, state, and local party committees, along with individual donations, contribute significantly to election campaign funds.
• Matching Funds for Presidential Candidates:
  • The Federal Election Commission (FEC) sets out matching funds for presidential candidates from major and minor parties who meet specific criteria.
  • This system aims to support a level playing field for candidates by providing public funds.
• Tax Checkoff System:
  • It involves taxpayers contributing a portion of their taxes to the Presidential Election Campaign Fund.
  • Taxpayers voluntarily decide to allocate a portion (e.g., 83) of their taxes to the fund through a federal income tax form.
  • Low Participation Rates: Despite the existence of the public funding program, reportedly only around 4% of taxpayers choose to contribute.
    • Nominees often opt for alternative sources of funding, such as private donations, due to the limited interest and participation in the public funding program.

German Model of State Funding

Germany’s model of state funding is considered one of the most equitable. It aims to ensure fairness and transparency in political financing.

• Matching Grants:
  • Up to 50% of a party’s income, but not exceeding, comes from the state.
  • The amount allocated to a party is determined based on its vote share in the latest election (European, national, regional).
  • Funds are distributed at a flat rate per vote, with the rate increasing based on higher vote shares.
• Disbursement Ceiling:
  • There is a limit to the total amount of funds available from the state kitty.
  • This ensures fiscal responsibility and prevents excessive reliance on state funds.
• No Limit on Private Donations:
  • Parties are not restricted in raising private and corporate donations.
  • However, public funds cannot exceed the sum of private funds raised independently by a party.
• Immediate Reporting of High-Value Funds:
  • High-value funds received must be reported promptly to maintain transparency.
  • This helps prevent the influence of undisclosed large donations on the political process.
• Use of State Financing:
  • State funding is utilized for both party management and election campaigns.
  • Parties can receive funds gradually from after the election until the next one, allowing for sustained support.
• Support for Smaller Parties:
  • Matching grants ensure that smaller parties, which surpassed the threshold of 5% vote share in the last election, receive guaranteed income from the state.
  • This promotes diversity and representation in the political landscape.
• Penalization Measures:
  • In January, Germany’s top court reduced funding to a minor far-right party deemed to be undermining German democracy.
  • State funds can be used as a mechanism to penalize parties that violate democratic principles or engage in activities detrimental to the democratic process.

Challenges of Public Funding of Elections in India

• Intra-Party Democracy:
  • In India, intra-party democracy is not widely practiced, with party leadership often controlling the allocation of funds.
  • This means that state funds may remain concentrated within the party leadership rather than being distributed to individual candidates.
• Centralized Elections:
  • India’s first-past-the-post electoral system, especially in Lok Sabha elections, tends to be highly centralized.
  • Funds allocated based on vote shares may disproportionately benefit larger national parties, disadvantaging smaller regional parties and independent candidates.
• Voting Behavior and Perception:
  • In the pursuit of making their vote count in a winner-takes-all system, voters often opt for the party perceived to be winning, regardless of their actual support.
  • This trend can further skew funds allocation towards major parties, neglecting smaller regional parties and independent candidates.
• Disadvantage for Independents:
  • Independent candidates are at a disadvantage as they are unlikely to meet the vote-share thresholds required to qualify for state funds at the state or national levels.
  • This lack of access to state funds hampers their ability to compete effectively against party-backed candidates.
• Inability to Address Illicit Donations:
  • State funds alone cannot solve the problem of illicit donations from companies and other entities.
  • Despite public funding, there is still a risk of undisclosed and illegal contributions influencing the electoral process.

Advantages of Public Funding of Elections

• Reduced Dependence on Corporate Donors:
  • State funds can lessen parties’ reliance on corporate donors and local patronage networks during elections.
  • By providing an alternative source of funding, public financing can mitigate the influence of wealthy donors on political parties.
• Mitigation of Patron-Client Economy:
  • Public funding can help reduce the patron-client economy prevalent during election periods.
  • By providing parties with resources independent of local networks, it promotes a more equitable electoral environment.
• Strengthening Parties:
  • Implementing matching grants for small donations from supporters can strengthen parties by encouraging grassroots participation.
  • When the electorate financially supports parties aligned with their interests, it fosters a sense of ownership and engagement.
• Effectiveness in Mixed Electoral Systems:
  • Matching grants work well in countries like Germany with mixed electoral systems.
  • In such systems, where seats are allocated based on both direct votes and party lists, funding based on vote shares ensures proportional representation and fair allocation of resources.
• Interconnectedness with Electoral System:
  • The manner in which parties are funded is closely linked to the electoral system.
  • Understanding the relationship between funding mechanisms and electoral structures is crucial for designing effective reforms.

Source:

https://timesofindia.indiatimes.com/elections-need-money-but-also-protection-from-money/articleshow/107828339.cms

Mains question

In the context of electoral finance reform, how does public funding reduce dependency on corporate donors and patron-client networks, particularly in mixed electoral systems? Discuss.