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Economy Lab

Why parties won't miss the $2 per-vote taxpayer subsidy Add to ...

Mike Moffatt is a chemical industry consultant and a Lecturer in the Business, Economics and Public Policy (BEPP) group at the Richard Ivey School of Business





The Harper government has proposed scrapping the $2 per-vote subsidy for political parties.



Despite this, local campaigns can still have up to 90 per cent of their funding paid for by taxpayers. Here is how:



Under the Income Tax Act, contributions to political parties of $400 or less receive a 75 per cent rebate. If I make a $400 donation to the riding association, I am only out of pocket $100 (my 'real' contribution) and the taxpayer is on the hook for $300. The riding association then spends that money in the campaign and, so long as they receive 10 per cent or more of the vote, 60 per cent of it comes back in a rebate.



Now the party has an additional $240 to spend in the next campaign -- a total of $640, of which $540 came directly from taxpayers. This process continues over time -- at Worthwhile Canadian Initiative I calculated that a $100 out-of-pocket donation from a taxpayer can be matched by an additional $900 from taxpayers. In other words, even after the changes proposed by the Conservatives, up to 90 per cent of local campaign spending can come from taxpayers.



If there were some form of market failure or positive externality with local political campaigns, there may be some justification for subsidies. But where is the money in local campaigns largely spent? In many ridings, it is largely spent on signs placed on public property. We just completed a provincial election in Ontario. On every street corner near my office in London were at least a dozen candidate signs, with one corner featuring no less than 17 signs for the Ontario Liberal Party alone. If this were a federal campaign, 14 or 15 of those signs would have been paid for solely with taxpayer money.



I do not see how such use of taxpayer money can be defended on either efficiency or equity grounds. There is a belief that removing subsidies would mean a return to 'big money donations' into politics. Such a belief is unfounded -- there is no reason why donation limits would need to be raised if subsidies were cut. Under the current system and the one proposed by the Conservatives, taxpayers are forced to give money to parties so they can spend them making signs which are quickly disposed of after the election. There is no economic justification for such use of tax dollars.



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