Party debts: the case for state funding

Bernard Grech’s frank admission that the Nationalist Party is in debt to the tune of €32 million and a report on newspaper Illum that Labour’s media is in debt to the tune of €10 million over unpaid VAT and National Insurance contributions to government, are a stark reminder not just on the precarious state of political party finances but also of Maltese democracy in general.

Indebted parties are even more vulnerable to pressures by donors who may expect something in return for their help. And the Opposition’s unsustainable finances raises doubts on its ability to scrutinise the government’s relationship with big business without being blackmailed by potential donors who may try to buy its silence.

But even when such suspicions are not backed up, the system breeds mistrust and suspicion, which can be exploited to shoot at political adversaries and which ultimately erodes confidence in the electoral process.

Only this weekend, the Nationalist Party gave former MP Jason Azzopardi a 24-hour ultimatum to substantiate his allegation that someone had donated money to the PN, in return for the party campaigning for their relative to be given a presidential pardon. This tallied with Grech’s previous declarations that he would consider a pardon for Tumas magnate Yorgen Fenech, if elected.

But instead of backing up this serious allegation, Azzopardi resigned from the party. It remains unclear how the PN could have influenced the granting of a pardon, which is the sole prerogative of the Prime Minister. But even if the accusation is a lie, it feeds on a climate of distrust created by opaque party finances, suggesting that the PN is so desperate for cash that it was willing to compromise with the ‘mafia’.

The question for Jason Azzopardi is: why didn’t he resign upon learning of the alleged donation, rather than using this information to lash out at the PN leader now, after he was discarded.

Trading in influence or victims of a protection racket?

What is sure is that faced with spiralling debts, parties are more likely to pester businesses for donations, in what over the years has become the Maltese, non-violent equivalent to the Italian ‘pizzo’.

This reality was recently denounced by former Malta Developers Association president Sandro Chetcuti in a recent interview with the Times. While denying that parties are conditioned by donations, he suggested that parties regularly pester business-people for donations. “Sometimes, it feels like harassment. Some business-people get embarrassed by their persistence.”

In short, faced by this kind of harassment, businesses may fear present and even future exclusion from government contracts, if they do not dig into their pockets.

Even Gozitan developer Joe Portell, a beneficiary of Labour’s planning policies, confirmed that his companies donate monies to both political parties, even if he suggested that businesses do so respectfully and willingly. “You can’t donate the amounts of money that people think we do. There are laws. But yes, we do help them. Out of respect. And we help both parties,” Portelli said.

Yet while Portelli and Chetcuti suggest that many businesses give donations, donation reports by political parties suggest that this is not the case. At law registered political parties have to present statement of accounts on an annual basis and name corporate or individual donors who donate over €7,000, in annual donation reports.

But donation reports dating prior to 2018 have identified only a handful of donors. In fact previous PN reports have only identified Rabat notary Sam Abela as a PN donor, while the only corporate donors named in Labour’s reports were Tarcisio Galea Properties, Attard Bros, Eurocraft, Sea View & Sons, Camland, GAP Holdings, Hal Mann, and BV Formosa. Moreover. donation reports and accounts submitted by political parties for 2019 and 2020 are still not available to the general public as the Electoral Commission is still reviewing these reports after auditors identified “deficiencies” which required further verification.

One reason why so few donors are mentioned is that businesses are actually giving smaller donations just below the legal requirement. Donations of up to €50 may be made anonymously; those of up to €500 can be kept confidential by the party, however the Commission may request information if it suspects wrongdoing. Donations between €500-€7,000 cannot be received in a confidential manner and must show the donor’s name if requested. Donations exceeding €7,000 must be registered with the Electoral Commission and be published online.

The mother of invention

Another reason may be that parties have found ways to circumvent the rules.

For although parties are obliged to publish the names of donors who give them more than €7,000, this does not cover commercial arrangements involving companies they own as well as loans made to political parties.

It may also be the case that donations are being hived off to the party mediam which is not covered by party financing laws.

This issue came to the fore following revelations that donations by the DB Group to the PN were disguised as Net TV advertising. This prompted the Electoral Commission to appoint an investigative board to probe all the cases of alleged breaches of the law. But this investigation was brought to a halt after the Constitutional Court declared that by acting as investigator, prosecutor and judge, the Electoral Commission breaches the Constitution and the European Convention, including the right to a fair hearing.

News that Bernard Grech’s own head of secretariat had relinquished his political post to join the DB Group as director has once again thrown a spotlight on the proximity between the party and the commercial group which it had criticised in the past. When quizzed on this move by Andrew Azzopardi on 103FM, Bernard Grech seemed indifferent to the move, saying Bezzina had “made his choice”.

“The party was vociferous about its (db Group) project and this will continue. Political consistency will remain my trademark. I will accept donations from anyone, except the corrupt or criminals, but donations will not stop me from taking positions in favour or against,” he said. In short, Grech expects the public to trust his party in making a distinction between “corrupt” business groups and legitimate ones.

Commercialising party assets

Moreover, to address their financial shortcomings parties are also being forced to commercialise their properties, thus becoming actors in the property market, which they should be regulating in the first place. For how can parties argue for a revision of local plans and possibly lower building heights in certain areas if they stand to gain from policies which maximise the price of their properties?

For example, the Planning Authority is still considering a zoning application presented in 2018 by the Fino Group which foresees the application of the Floor Area Ratio mechanism for Australia Hall which it had previously bought from Labour for €582,000. The PN also contends that Labour benefits from an unfair advantage, thanks to a decision by the Labour government in 1979 which offered the Raffles and Australia Hall as compensation for the loss of a printing press in Marsa.

Still, by using their assets to create a steady revenue stream parties could become more self reliant and less dependent on donations. At face value Labour’s deal with a company to use the Raffles property as a child care centre in return for an annual ground rent of €220,000 falls in this category.

But there are also risks in political parties turning in to business operators. For this also raises questions on whether commercial transactions involving political parties deserve extra scrutiny in view of the risk that these could be a way to circumvent party financing laws. A favourable property deal may well be an alternative to a direct donation.

Loan schemes like the PN’s opaque ċedoli scheme introduced by former PN leader Simon Busuttil could be another way to circumvent the rules. Through this scheme the party entered into a private agreement with individuals who lend it €10,000 for 10 years against an interest payment of 4%. The scheme affords anonymity to lenders and has been criticised for going against the spirit of the political party financing law, that makes it incumbent on parties to publish the names of individuals who donate €7,000 or more.

Need for a firewall

It is only natural that the public recoils at any suggestion of the state bailing out political parties by introducing a state financing system, especially in the absence of public trust in the state’s ability to enforce any conditions on the way this money is spent.

Fearing a public backlash political parties have not been keen on state financing. Former Prime Minister Lawrence Gonzi had himself ruled out any state funding of political parties in 2011 at a time when the party was suffering a backlash after increasing the salary of MPs, by stealth.

Understandably from the opposition, Labour did not press on this issue, preferring to focus on improving its image as a business-friendly party and thus indirectly benefitting from more private donations. Yet this may well have contributed to an incestuous relationship with some business groups, which returned to haunt Labour after Joseph Muscat was forced to resign following the arraignment of Yorgen Fenech over the assassination of Daphne Caruana Galizia.

It was only when the shit hit the fan after the 2013 defeat that the PN started calling for state funding, in what many saw as a desperate attempt to get bailed out by the State. In fact the demand was shot down by then justice minister Owen Bonnici, who argued that “political parties first need to prove that they are committed to transparent management of their funds by adhering to the new financing law.”

Ironically over the past years, parties have failed to secure public trust by showing any such commitment for transparent management of funds, making it even more difficult to make a case for state funding.

So paradoxically, while the poor financials of political parties make the case for state funding, a more urgent matter due to the increased dependence on private donors and deals with commercial operators entrusted with party assets, it also makes it harder for any politician to make a strong case for state financing.

Yet revelations by MaltaToday that party media houses owe €4.75 million in dues to utility bills company ARMS suggests that parties are already benefitting from a form of state assistance, which at the very least results in an uneven playing field where parties are treated with kid gloves.

But there is a reason why mature democracies like Germany have for decades implemented a state financing mechanism through which parties are paid by the state for every vote they get in a general election. In this way political parties will not have to beg for money in telethons, which may well be charades aimed at disguising more substantial donations and back-room dealings.

Parties may also be required to scale down media operations to match the limited funding they get from the state. Closing down partisan TV stations, which have become a burden on political parties, may well be a blessing in helping reduce partisan tension in the country.

Ultimately, we have to realise that democracy comes at a price and we have to start paying for it, or else obscure and sinister forces may end up paying for it instead.

The question we must face is: do you prefer political parties to be financed from your taxes or by people, including shady characters, who expect a return on their investments?