IEC input on enhanced party funding regulation

Ad Hoc Committee on the Funding of Political Parties

17 August 2017
Chairperson: Mr V Smith
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Meeting Summary

The IEC Deputy Chairperson said that the IEC believes that it is doing a good job of managing elections but to take on the administration of an enhanced political party funding system would be a bridge too far and could impact negatively on its ability to run free and fair elections. It recommended a separate regulatory body with the power to monitor and enforce both private and public funding of parties. It was an extensive and onerous task to manage the Represented Political Parties Fund as prescribed. The situation was aggravated by the inability of smaller parties, especially, to meet the accounting and other financial management requirements.

He noted that the 90/10 formula maintained the status quo and failed to promote multi-party democracy and therefore the formula should be changed. 220 political parties were registered in South Africa but only 40 parties had contested the last national election. The requirements for a large deposit to contest an election was to avoid an unwieldy process in which hundreds of parties participated in an election.

He pointed to the US Federal Election Management Commission, which managed only political funding, as a good example to follow. He recommended that the guidelines of the International Institute for Democracy and Electoral Assistance (IDEA) should advise the current legislative process. The IEC confirmed that a number of provinces had enacted legislation enabling them to make political party payments from public funding. The IEC provided the amounts of the money involved but said that it had no jurisdiction over those funds.

The EFF raised its concern about the high cost of registering for elections which seemed to be undemocratic. It also noted that there were parties which had not paid PAYE to SARS and that the IEC had not been checking the tax clearance certificates of political parties. This gap in regulation was acknowledged but that it was something that Parliament had to remedy through regulation.

The DA suggested that the link between disclosure and a lack of corruption was only a perceived link. It also raised its concerns about the abuse of state resources, saying that it had to apply to the courts for relief during previous elections. The IEC responded to this concern noting that they had increased capacity for monitoring and dealing with non-compliance.

The ACP asked for the conceptual basis on which the 90/10 split was determined. Both the National Assembly and provincial legislatures had proportional allocation but only provincial legislatures had the equity allocation. This was not fair to national representatives. The Chairperson acknowledged this gap.

The ANC believed that, with additional resources, the IEC could manage the enhanced funding proposal The ANC's position was that people should know who funds whom so that if parties did not adhere to the voice of the people, people would know that the funds of the rich were determining policy. Additional state funds were required to eliminate private funding.

The FF+ asked if the IEC could continue dealing with public funding whilst another body dealt with private funding and also raised the concern about equity party of the formula covering only provincial representation.

Meeting report

Opening remarks
The Chairperson reminded the Committee that there would be a political discussion at a later date and that the researchers would compile something so that the Committee could engage with it. The research team would produce a framework for the Committee to work on before the 22 August meeting. The team would base the paper on the Committee mandate and insight gained from the submissions.

The IEC would today present the shortfalls, gaps and its view of the process going forward.

Independent Electoral Commission (IEC) briefing
The IEC Deputy Chairperson, Terry Tselane, made apologies for the other Commissioners who were unable to attend, including the Chairperson who was at that time engaged in consultation with the President. He was accompanied by Esther de Wet, CFO, Mlungisi Kelembe, Manager of Communications Services, Marco Granelli, Senior Manager for Research, and Manager of Electoral Operations, Sy Mamabolo.

The IEC currently managed the Public Funding of Represented Political Parties Act as promulgated on 1 April 1998. As an organisation, they had no firm proposals for the Committee but would make policy recommendations. The IEC was moving from the premise that political parties required funds to manage their operations. The CFO at the IEC was responsible for administering the Represented Political Parties' Fund and would be able to answer questions on that. The problem was that the Act made provision for administration and management of funds, but did not provide for funding. The legislation required the accounting of the Fund to be based on GAAP, an accounting system no longer used in South Africa. It was an extensive and onerous task to manage the Fund as prescribed. The situation was aggravated by the inability of smaller parties, especially, to meet the accounting and other financial management requirements.

Sources of funding currently permitted included “moneys from other sources” which included foreign donations, although the only money currently in the Fund was the public funding from Parliament. If funds were received, larger political parties would still receive the majority of the funds. Funds could be used for any purpose compatible with a political party’s functioning in a modern democracy. However, parties had to account for money allocated to it, specifically in terms of personnel, accommodation etc.

Unrepresented parties and independent candidates had no access to the funds and funding was allocated according to the 90/10 formula, thus maintaining the status quo. This failed to promote multi-party democracy and therefore the formula should be changed. Funding was insufficient and so political parties were largely dependent on other sources of income to support their election campaigns. Regulated donor funding might play a greater role in campaign funds, although the funding would have to be regulated. Currently there were 830 seats across Parliament and provincial legislatures. The enforcement of compliance regulations was included in the mandate of the IEC but the IEC had never had a need to take action to enforce compliance. Mr Tselane pointed out that the enforcement of compliance would be a very expensive exercise. The IEC recommended a separate regulatory body with the power to monitor and enforce both private and public funding of parties.

The Deputy Chairperson looked at the advantages and disadvantages of the Act. A comprehensive system would be needed to ensure that political party fundraising would not be captured. In the view of the IEC, the gender issue had also to be addressed. Additional forms of public funding included constituency allowances and provincial allocations. The IEC managed national funding but provincial legislatures managed political party public funding in the provinces. Some provinces had established such a mechanism, but others had not. The new regulations needed to be comprehensive and include the provincial funding, which also came from the fiscus. Other forms of support included public election broadcasts. Private funding was unregulated, including the use of private companies as investment vehicles. That had inherent risks.

In international best practice, the US Federal Election Management Commission managed only political funding. There were many models for party funding. 32% of countries relied only on private funding but the majority of countries had a system of both public and private funding. The IEC noted that it did not have the capacity to receive funding from donors. The International Institute for Democracy and Electoral Assistance (IDEA), of which South Africa was a member, provided guidelines for political party funding and the Code of Conduct in the current Electoral Act included guidance from IDEA. The IEC supported a hybrid system of funding, both public and private. The IEC suggested a consideration of extending public funding to include local municipalities which would require an amendment to the Act. A review of the current formula was recommended and that a portion of the funding be set aside for goals such as gender equity. It said strict limits should be set on foreign funding and the setting of donation limits for corporate and individual donors. The IEC recognised that there were both advantages and disadvantages but many of the points raised were already in South African electoral law and it might be possible to use those.

The IEC recommended a comprehensive Political Finance Act covering all aspects of party and candidate finance. International practice was to establish an election management body to monitor campaign expenditure by political parties. While setting up an election management body within the IEC would allow for all election and political party matters to be under one roof and be subject to credible oversight, management of such a fund entailed complex and detailed processes that would divert the IEC from its core business of running elections and it might be difficult to both support parties and to “police” parties.

The IEC provided information on political parties in South Africa, saying that 220 parties were registered in South Africa but that only 40 had contested the last national election. The requirements for a large deposit to contest an election was to avoid an unwieldy process in which hundreds of parties participated in an election.

The Chairperson invited questions of clarity but noted that the real debate would begin the following week.

Ms L Mathys (EFF) agreed with the GAAP accounting principle being changed as it was outdated and added a substantial administrative burden to smaller parties. She referred to the proposed multi-party democracy fund and asked what the IEC take was on such a fund. Why could the IEC not take on the function? Was the Act clear on the 90/10 formula, because legislatures had changed the formula and some worked on a 100% proportional basis and others on an 80/20 split. Surely such policies had to be based on an Act, so were they acting illegally? She asked the IEC if every party had to pay the same registration fees to participate in an election.

Mr A Lees (DA) spoke about funding for parties at local government level. Did the IEC see additional public funding for this or a re-allocation? What was the mischief in public funding of political parties? Could IEC give a total picture of public funding paid out to political parties across the country? Mexico and the US had the greatest transparency but those two countries had enormous corruption. That bore out his contention that the link between disclosure or transparency and a lack of corruption was only a perceived link.

Mr J Selfe (DA) referred to the abuse of state resources, pointing out that in the last election the DA had to go to court to deal with abuses of state resources that it had encountered. The IEC needed to regulate state resource misuse and have the backbone to manage it. He noted that there were different forms of foreign funding and agreed that there should be no funding from foreign governments. However, the large number of South Africans living abroad could vote, so why could they not contribute to political parties? What about fraternal parties around the world? He was worried about new entrants. Some, such as the EFF, did well, but there was a need to strike a balance between serious and fly-by-night political parties. What were the IEC’s views? If the IEC suspected an abuse of the Code of Conduct, the typical way to deal with it was through the Electoral Court. In the new regime, could the Electoral Court not be the “enforcer”? He said the IEC presentation made assumptions that private funding undermined transparency. Was there any empirical evidence to give credence to such a claim?

Prof N Khubisa (NFP) said the IEC referred to a specific electioneering campaign fund for use at the height of elections. Where could such funding come from? He said donor funding had to be regulated. Did the IEC not think that undisclosed funding leads to corruption and bias? There was mention of a multi-party democracy fund. Could the IEC please expand on that?

Mr B Bongo (ANC) welcomed the beautiful presentation that shed light on all aspects of political party funding. The previous day some issues were raised very sharply, such as proportionality. What was the IEC view on proportionality as it would be unfair that a new party would be able to get the same amount of funding as parties with large numbers? In the local sphere, individuals contested the elections. How would funding be aligned around that? Could the IEC assist the Committee? What amount was fair? People had suggested that without a cap, there could be vote buying. Did the IEC agree and, if so, what should the cap be? He appreciated the input on transgressions. Lastly, the IEC had commented on foreign government funding of political parties. He had been informed of foreign governments funding certain political parties. Did the IEC know anything about this and what was the IEC’s recommendation?

Mr T Godi (ACP) welcomed the IEC recommendation to review the political party public funding framework and look at how public funding could assist all political parties at national and provincial level. That would mean changing the 90/10 formula which would disadvantage the ANC. He believed that there was a need to look at the constitutional imperative to encourage multi-party democracy. The proportional allocation applied to national and provincial representation in the National Assembly and provincial legislatures but the equitable split of the formula was based entirely on representation in the provincial legislatures. How had the country come to equate equitable with provincial representation? How did the country come to that conclusion and how could that mean equity?

Mr N Singh (IFP) said that figures showed that a party with one seat at provincial level got more money than a party with two seats in the National Assembly. What was the thinking? Funding was made to political parties in KwaZulu-Natal through an Act of the provincial legislature. The slide showed figures for 2012/13 and so needed to be updated. Was the legislation passed in the spirit of the Constitution and within the norms of national legislation? What checks and balances were there for provinces to adhere to national norms? Almost 100% of political party public funding seemed to be allocated on a proportional basis. As far as he knew, even the constituency funding was proportional. Was that a correct assumption?

Mr M Dlamini (EFF) referred to the Constitution and the right of people to participate in democratic structures. The IEC had over 200 registered parties. A party just needed signatures to register as a party but extremely high registration fees prevented parties from entering the election process. Was that not a financial barrier? Asking for R600 000 to contest an election commercialised the entire process. Everything in the country was commercialised. He also pointed out that that the political party public funding did not assist with elections as it was only given to a party after the party had obtained a seat. Enforcement looked at compliance in spending the money but what about the tax laws? What processes did the IEC have in place to check on PAYE compliance and payments to SARS? Parties, including ruling parties, did not pay PAYE and therefore did not have tax compliance certificates. Lastly, the ruling party wanted to take money from the public purse and give it to itself. Ordinary people did not own political parties. Should more public funds be allocated, especially when the IEC could not manage?

Ms L Maseko (ANC) commented that parties should speak for themselves and not misquote other parties. Did the IEC think the 90/10 allocation was a fair allocation, or would the IEC propose another formula? She referred to the concept of funding unrepresented parties such as the KISS party and the Soccer party that emerged at every election but never won a seat. There were over 200 registered parties and 45 parties that contested the elections. Mr Dlamini was saying that every party, even at local government level, should be funded, even if they do not get a seat. His argument was that citizens had the right to contest elections. The purpose of registering was voluntary and the group was then a party, but it was that party’s decision whether to contest elections or not.

She asked IEC about the amount of funding given and whether parties had to use it for voter education. It was a problem when government undertook voter education programmes as it seemed like campaigning. She approved of gender parity. She also believed that it was good for South Africa to be part of international standards. Several public submissions had raised questions about the capacity of the IEC to manage the funds. What was the view of the IEC? In Gauteng, the number of seats allocated to that legislature was not proportionate to the current population. Gauteng had originally been granted 73 seats but the vastly expanded population meant that more seats should be allocated to Gauteng.

Mr Dlamini disputed Ms Maseko’s assertions about what he had said. The Chairperson asked that Members did not talk to each other but talked to the Chairperson.

Mr Gumede thanked the IEC for assisting the Committee. It was critical to promote the voice of the poor so that their voice was not drowned out by the voice of the rich. The suggestion was that people should know who funds whom so that if parties did not adhere to the voice of the people, people would know that the funds of the rich were determining policy. There should be transparency and easy language in the legislation because international funds could be used to influence parties in South Africa. Many people did know that international governments provided funding to drown the voice of the poor. He asked if it should be the responsibility of the IEC to manage political party funding. It was important for the monitoring body to protect the voice of the poor, know who pays what and ensure that the rich did not drown out the voice of the poor. That was the ANC’s position. He assured the IEC that its presentation would receive full consideration. Additional state funds were required to eliminate private funding.

Ms C Ncube-Ndaba (ANC) spoke about mushrooming parties. Why was the Act not amended so that parties that got funding should pay back the money if they did not get a single seat? That would assist with the issue of money.

Ms Mathys called a point of order saying Ms Ncube-Ndaba was stating something that was untrue.

The Chairperson dismissed the point of order. He warned Ms Mathys not to interrupt. He asked everyone to have a little patience. They could disagree but not interrupt the proceedings.

Ms Ncube-Ndaba asked the IEC if they knew that foreign governments were funding NGOs and other organisations for election purposes. As for the anonymous donations, these promoted another form of corruption. There was a need to guard against corruption. Donors could donate to the IEC or another body but the Committee could not allow anonymous funding.

Mr Lees asked if the IEC was aware of funding paid out by certain metropolitans. Some legislatures gave political parties a lump sum to spend on travel, regardless of the destination of legislature members.

IEC response
The IEC Deputy Chairperson, Mr Tselane, said that the CFO would deal with all questions related to Fund and the formula and he would deal with other questions, supported by his colleagues.

Ms Esther de Wet, IEC CFO, explained that the 90/10 formula came from Regulation 2(1) of the Electoral Act: 90% was to be distributed proportionately amongst political parties in any legislative body according to the number of seats held by a party. As regards the example of a party with two representatives in Parliament and one in a provincial legislature, it was possible for the provincial representative to get more. Regulation 2(1)(b) stated that the funds had to be divided equally amongst the participating parties in the provinces.

The IEC Deputy Chairperson said that the IEC believed that registration and de-registration should fall under one body. Once private funding was regulated, many laws would have to be put in place. Certain countries had a separate entity to deal with the administration of private funding. He listed all the functions performed by the United States Electoral Management Committee (US EMC). The IEC’s primary responsibility was to manage elections and to manage funds so there would be certain inefficiencies if their mandate were extended. There should be another body to manage this. Even if resources were put into IEC, they would require a large amount of resources, so why not put it into another body? He confirmed that it was not impossible for the IEC to manage private funding but it was not preferable.

He told the EFF that the IEC was trying to ensure that there were only serious parties contesting the election. It was a balancing act. In the DRC, the ballot paper was like a newspaper. It was difficult to manage a 6-page ballot paper and it was difficult for voters to find their party on such an extensive list of parties. The money paid for registration was to manage the electoral process and parties got their money back when or if they got a seat in Parliament.

On local election funding, he said additional funds or a re-allocation had been explored by the IEC but estimations needed to be done in conjunction with National Treasury. IEC had not done a complete study on possible changes and was thus unable to give concrete suggestions about the formula and so on. The IEC had presented another way of looking at issues and how it could be managed. The Constitution said that the system was largely proportional and that there had to be an emphasis on proportionality in the formula. The IEC was managing the Act but provinces had introduced their own legislation to distribute money to Members of the Provinicial Legislatures. The IEC did not know if it was consistent with the Constitution. The Deputy Chairperson assumed that it was.

Mr Tselane said that there was an issue with private funding and how it linked to corruption, as queried by Mr Selfe. The IEC was using data largely from IDEA which indicated countries which were vulnerable to corruption were the unregulated countries. The IEC was trying to minimise corruption. Transparency in any system did deter corruption. The IEC could provide studies in that regard. IDEA recommended the regulation of political funding to minimise elements of corruption.

What was meant by foreign funding? Mr Tselane replied that foreign funding referred to foreign governments funding political parties. There were also other organisations from outside of the country who were classed as foreign donors. The IEC submission was based on international studies but the reference was to foreign governments, not to the South African diaspora playing a role in South African political parties.

Fly-by-night parties tended to disappear on their own without any intervention needed on the part of the IEC. The IEC had to manage the electoral process and charging a high registration fee, meant that the process became manageable. The IEC Deputy Chairperson asked how else was one to deal with the masses of political parties that were registered in South Africa. Some parties had previously got funding and then disappeared, never repaying the funding that they had got.

The process in the last elections was that when a party submitted a complaint that there had been a violation, the IEC would investigate. Complaining political parties sometimes did not provide sufficient information about the transgression but expected the IEC to find the evidence. Ahead of the 2016 local government elections, capacity had been increased to deal with violations of the code of conduct and that capacity continued to exist. In response to the question on why a party with a million members should pay the same amount as a party with 10 members to register for the elections, he could only say that the IEC was informed by the provisions of the Constitution. Capping of funds had not been considered by the IEC but the Commission believed in principle that the matter of a cap needed to be explored further.

On compliance with tax laws, Mr Tselane explained that the IEC operated on the basis of the powers that it had. If something was not in the legislation, it was assumed that another body was dealing with the matter, such as tax. The IEC adhered strictly to the powers allocated to it. Parliament would have to allocate additional powers if the IEC were to check for tax clearance certificates. Voter education was difficult as the IEC was often compromised in trying to do voter education. All resources given to IEC were needed to run elections. Already more resources were needed to deal with the court requirement that addresses be checked. The provincial seat allocation of 1999 was determined by a formula determined by the National Assembly. Gauteng had been raising the issue of under-representivity for almost ten years but it was not in the capacity of the IEC to make changes. He referred the matter once again to Parliament to look into it and decide what to do. He was also unable to express an opinion on something that the IEC had not studied but the IEC was of the view that the issue of anonymous donors was contrary to a transparent system. The IEC was not aware of any metro or municipality allocating monies to political parties They were not aware of any provincial funding other than that indicated in their presentation.

Mr Singh thanked the IEC for the response and requested updated figures on provincial funding.

Dr C Mulder (FF+) asked whether the IEC was only responsible for nationally-provided funding. Could the IEC not continue managing public funding and someone else deal with private funding?

Prof Khubisa asked about requirements for a regulator of donor funding.

Ms Mathys noted that there seemed to be disarray in terms of who was responsible for public funding. She did not know of any provincial Act, as opposed to national regulations, on public funding. She suggested that there were other ways of determining the validity of parties, such as requesting 20 000 names of supporters and the IEC should look at those options. There was a contradiction. The Constitution spoke of proportionality, and of supporting multi-democracy. The IEC should say what they had found in their experience and research. It was very unfortunate that the IEC could not advise on foreign funding.

Mr Godi asked the IEC whether Section 2.3.6 related to both national and provincial bodies. If his question was outside the scope of IEC, he understood but how had they got to the point of determining that equity was determined by provincial representation. Was there a need to change the formula to support everyone? Even at 80/20, the ACP would be negatively affected because of this reliance on provincial representivity as an indicator for equity.

Mr Dlamini believed that Standing Committee on Public Accounts (SCOPA) had to deal with the fact that the IEC did not have the power to deal with tax clearance certificates. As a government institution, the IEC had to adhere to tax compliance. Did the IEC not check tax compliance certificates for their service providers? He requested the IEC to check whether all political parties (all 48) were tax compliant.

The Chairperson explained that that matter was not in the IEC mandate but it was a matter for Parliament.

Mr Bongo mentioned concerns that had been raised in public submissions about the capacity of IEC to manage the politcal fund. The IEC should determine what had to be tightened up when the Committee created the legislation so that it could manage the funds.

Mr Lees was not sure whether the IEC could determine where all the funds paid at the local level were and to investigate the matter. Could the IEC do it or should another means be found?

Ms de Wet replied that the IEC did not have the capacity to do research but National Treasury was collecting and preparing information on that. It was a very dark hole. The books of political parties were audited by the auditors of each of the political parties. The auditors had to declare whether the funds of the political party were in order or not. It was one of the many questions asked in the audit process. In the previous year one party had not paid UIF to SARS and IEC had deducted the monies owed and paid them over to SARS.

The IEC Deputy Chairperson spoke to the capacity of the IEC for the activities to be undertaken and said that the IEC was neither resourced nor capacitated to undertake those functions. In the US, the EMC did not manage elections and that would be the preference of the IEC, i.e. that the management of political party funding was handled by a separate body. It was not impossible to be managed by the IEC but it would be extremely challenging and would introduce inefficiencies that the IEC was trying to avoid. That body could also take over all funding issues and the registration of political parties. The Fund could be accommodated by that entity and it could also deal with campaign funds.

Regarding provincial statutes, Mr Tselane was aware that Gauteng had a statute. He assured the Committee that the IEC could provide information on funds and regulatory mechanism and would submit the information, including an updated provincial allocation, in writing by the following day. On the problem of the money required for participation in elections, he believed that there were mechanisms other than funding and he would take the recommendation forward and see what could be put in place.

Mr Mulder asked for clarity about a new body being created for private funds. Could the IEC continue to handle public funds?

The IEC agreed that that proposition was not an insurmountable as they had the requisite capacity.

Mr Godi asked for an answer to his question as to why equitable was available for provincial representatives only. What was the rationale for not treating the National Assembly equitably?

The Chairperson explained that there was current legislation that had been crafted in that way. However, the current process gave the Committee the opportunity to cover that gap.

Dr Mulder commented that the Committee would set them free.

The Chairperson noted that the recommendations that had come out of the presentation were going to need a decision of the political parties and the parties would have to take responsibility for whatever came out of the Committee. There would be discussion about what the Committee wanted to achieve politically the following day when the researchers would highlight issues that had come out of the hearings. The researchers would then be given a mandate to prepare a document for discussion on 22 August. Two mornings had been provisionally scheduled for the process to meet consensus. If additional time was required, the Committee would be required to meet after hours.

Meeting adjourned.

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