Prime Minister Stephen Harper recently announced that he intends to cut the taxpayer per vote subsidies to political parties  and will campaign on the issue in the next election. This subsidy has been in effect since January 2004,  and in 2010, the cost was $27.4-million.

Since Finance Minister Jim Flaherty  announced in the “Economic Statement” on  November 27, 2008 that the per-vote subsidy (PVS) was  to end on April 1, 2009, and withdrew the proposal two days later, there have been several bouts of discussion on the issue (see The Hill Times, March 29, 2010). However, there has been almost no examination of the other subsidies for parties and candidates, most of which were introduced in an earlier form in1974 (see Stanbury, Money in Politics, Dundurn Press, 1991).

The purpose of this article is to put the cost of the per vote subsidy into perspective by reviewing the nature and estimated cost of all the other subsidies provided for federal parties and candidates. For each subsidy, I briefly trace its origins and evolution. A subsequent article will outline some possible alternatives to the elimination or reduction of the per vote subsidy.

The PVS was instituted by the Chrétien government as part of a set of amendments to the Canada Elections Act which for the first time limited contributions by individuals and organizations (corporations, trade unions, and non-profits). The PVS was set at $1.75 per vote (indexed to the Consumer Price Index) in the previous general election provided a registered party received over two per cent of all valid votes cast at a general election or at least five per cent of the valid votes cast in the electoral districts in which it ran a candidate.

The amount of the PVS is said to have been based on the objective of leaving the Liberal Party “revenue neutral” based on the contributions over $5,000 it had received from corporations, trade unions, and individuals from 2000 to 2003, but it overshot the mark (see Flanagan and Coletto, “Replacing Allowances for Canada’s National Political Parties,” University of Calgary, SPP Briefing Papers, Vol. 3 (1), January 2010.) The per vote subsidy went into effect on Jan.1, 2004, and payments have been made quarterly since then.

In 2010  five  parties received $27.4-million from the per vote subsidies. The Conservatives received $10.4-million; the Liberals received $7.3-million; the NDP received $5.0-million ; the Bloc Québécois received $2.8-million; and the Green Party received $1.9-million.

Compare the per vote subsidies to the amounts raised by direct donations from individuals to the parties. The  Elections Canada’s website indicates that in 2009 (the latest full year available), the Bloc Québécois raised $834,762; the Conservatives raised $17,770,477, the Greens raised $1,166,874 ; the Liberals raised $10,120,312 and the NDP raised $4,039,104 (The Hill Times, March 29, 2010).The total equals $33.94-million.

With the most recent adjustment for inflation, the per vote subsidy was raised $2.04 per year for 4Q 2010.

Income Tax Credit

The personal income tax credit began when the first comprehensive regulation of federal political finances was enacted in January 1974. It then applied to contribution by individuals and by corporations. Initially, the was 75 per cent of the first $100, 50 per cent on amounts between $100 and $550, the 33.3 per cent on amounts between $550 and $1,150. The maximum credit was $500 based on contributions totaling $1,150 during the calendar year (see Stanbury, pp. 35-39).

Effective Jan. 1, 2004, the income tax credit for political contributions by individuals was increased to: 75 per cent on the first $400; 50 per cent on the next $350; and 33.33 per cent on any amount over $750 up to the limit. The maximum tax credit is $650 and it is hit with donations totaling  $1,275 in a calendar year.

The tax credit applies to the following: (i)  Contributions that do not exceed a total of $1,100 (during 2010 and 2011)  http://www.elections.ca/content.asp?section=loi&document=fs02&dir=gui&lang=e&textonly=false - note in a calendar year to each registered party; (ii)  Contributions that do not exceed a total of $1,100  in a calendar year to the registered local associations, candidates and nomination contestants of each registered party. This $1,100 applies to all these entities combined. (iii) Contributions that do not exceed $1,100 http://www.elections.ca/content.asp?section=loi&document=fs02&dir=gui&lang=e&textonly=false - note per election to a candidate who is not a candidate of a registered party.

So, in most cases, the maximum an individual can give each year is $2,200.  The tax credit does not apply to contributions to leadership candidates which are limited to $1,100 per contestant.

Note that the tax credit  it is the only subsidy for parties and candidates that is not indexed to allow for inflation. Tom Flanagan (The Globe and Mail, Aug.14, 2009) pointed out that “inflation has already eroded the value of the tax credit by about 13 per cent since it was [increased] in 2004 .”

The estimated and projected cost of the tax credit for political contributions  increased from  $22-million in 2004 (an election year) to $26-million in 2005, $24-million in 2006 (another election year). Then it dropped to $20-million in 2007 only to increase to $32 million in 2008 (another election year ). The projected amount for 2009 is $20-million, and $21-million in 2010 (Source: Canada, Department of Finance, Tax Expenditures and Evaluation, 2010).

The cost of the tax credit depends heavily on the “take-up rate”—the percentage of donors who actually claim the tax credit.  My previous research based on Revenue Canada data showed that between 1974 and 1988, the take-up rate for individual donors was in the range of 43 per cent  to 65 per cent (see Stanbury, Table 8.4). 

Candidate Election Expenses Rebate

The 1974 legislation provided for candidates who received 15 per cent of the votes cast were to be reimbursed for part of their “election expenses” based on the sum of the following: (i) the cost of a first class letter to all electors (then 8 cents) ;(ii) 8 cents for each of the first 25,000 electors;(iii) 6 cents for every elector over 25,000 (Stanbury, Money in Politics, p. 37). For the 1979 election, the average rates of reimbursement for the candidates of the big three parties (Liberal, PC, NDP)  was 54.7 per cent. For the 1980 election, it was 57.1 per cent  (Stanbury, Table 12.1)

In November 1983, the law was changed to provide that candidates who received 15 per cent of the vote in their riding were to be reimbursed for 50 per cent of the paid “election expenses.” (The change was prompted by the fact that the cost of a first class letter had increased from 8 cents in 1974 to 32 cents in 1983.) For the 1984 election for the big three parties, the average reimbursement rate was 48.3 per cent and for the 1988 election it was 47.0 per cent (Stanbury, Table 12.1).

Since 2004, all candidates who obtain at least 10 per cent of the total vote in their district were  reimbursed for up to 60 per cent of their “election expenses” plus allowable “personal expenses.” 

In the 2006 election, 882 (or 54 per cent) of the total of 1,636 candidates were eligible for reimbursement. Elections Canada indicates that $24.6-million was paid out, of which 99.5 per cent went to 879 of the 1,307 candidates who ran for one of the top five parties. Of the 308 Conservative candidates, 303 were reimbursed at an average rate of 55.8 per cent of their paid “election expenses.”

Elections Canada has not published the comparable data for the 2008 election, but my estimate is that the cost of reimbursing candidates was $28.7-million. (Based on Election Canada’s estimate of the costs of reimbursing both candidates, $57.9-million, and parties less the actual cost of reimbursing parties, $29.2-million.)

Party Election Expenses Rebate

For the 1979 and 1980 general elections (the first two subject to the 1974 legislation), registered parties were entitled to be reimbursed for 50 per cent of their campaign expenditures on electronic media. This was changed in November 1983 to  22.5 per cent of the party’s “election expenses” if a party spent at least 10 per cent of their limit (Stanbury, p. 42).

Since Jan. 1, 2004, registered political parties, are entitled to a reimbursement of 50 per cent of their actual “election expenses” if they obtain at least two per cent of the total valid votes cast in a general election, or five per cent of the valid votes cast in the ridings where they have endorsed candidates..

For the 2006 election, five of 15 registered parties were eligible, and the total amount of reimbursement paid was $27.18-million. (Note that the  other 10 parties total “election expenses” were only about $120,000.)

For the Oct. 14, 2008 election, five parties were eligible for reimbursement. Collectively, their “election expenses” totaled $58.4-million.  They received $29.2-million in reimbursement, distributed as follows: Conservative Party, $9.71-million; NDP, $8.38-million; Liberal, $7.26-million; BQ, $2.44-million; and Green, $1.40-million.

Free Time on Radio and TV

Amendments to the Broadcasting Act in 1974 required TV and radio network operators to make free-time programming periods available to registered parties during the period from 29 to two days before polling day. It did not have to be prime time. The free time was allocated among the parties in the same fashion as the limits on paid time (6.5 hours of prime time). The total amount of free time was to be established by consultation between the CRTC and the parties (Stanbury, pp. 37-38).

Under S. 345 of the Canada Elections Act, each registered party is currently entitled to a certain amount of free broadcast time computed by the Broadcast Arbitrator (since 1983) based on each party’s maximum allowable paid broadcast time. It’s value is not included in “election expenses,” and it need not be provided in prime time. For the 2008 election, the arbitrator’s total time budget for 18 parties was 62,120, and 120 minutes, respectively, for the three radio networks. For the four TV networks, the amounts were 62, 62, 214, 214 minutes respectively.

Only an expert on paid media could put a reasonable estimate on the market value of this free broadcast time.  Much depends on the time of day the ads were run. The price of a 30-second ad during prime time is much higher than during most morning or late shows. Despite considerable effort to solicit advice, I have not been able to estimate the cost of this subsidy.  Note, however, that it is paid by radio and TV networks, not taxpayers.

Conclusions

In summary terms, the cost of the various subsidies has been as follows: total per vote subsidies in 2010 were $27.4-million; total tax credits in 2010 were $21-million (probably an underestimate); reimbursement of parties for 2008 election expenses  were $29.2-million; reimbursements of candidates for 2008 election expenses were $28.7-million; and there is no estimate for the free broadcast time in 2008 election.

The annualized cost of all the subsidies for federal parties and candidates depends on the length of the time between general elections. If we assume three years, the average cost is about $68-million per year (at current levels and excluding the value of broadcasting time). If we assume four years between elections, the average cost is about $63-million per year.

If the per vote subsidy (which cost $27.4-million in 2010) is eliminated, on average, total subsidies fall by 40 per cent and 43 per cent respectively—assuming the parties do not raise more in donations and hence increase the cost of the income tax credit.

W.T. Stanbury is professor emeritus, University of British Columbia.

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