Q&A: The election spending row

The Auditor-General's draft findings on unlawful taxpayer funding of campaigns during the 2005 election upset most political parties.

With their reputations, not to mention bank balances, at stake, they have screamed foul. But little by little parties are changing their positions as they take into account the electorate's view.

NZ First leader Winston Peters this week said he would repay money if the Auditor-General sets out a convincing legal case. His conditional offer follows promises by the Greens and Act to repay any spending identified in the final report as unlawful, and National and the Maori Party in having repaid money already. The Progressives attracted no demerit points from the Auditor-General.

That leaves Labour and United Future holding out.

What do Parliament's rules say?

MPs and parties can receive taxpayer funding for advertising if it is deemed to be part of their parliamentary business, but not for electioneering.

Parliament is guided by its own rules, and the prohibitions are more relevant in this case. Explicitly, the rules say that parliamentary business does not include a) soliciting subscriptions or other financial support for a political party or a candidate at an election; b) party political, promotional or electioneering material for the purpose of supporting the election of any person or party; and c) any work undertaken as a minister of the Crown and member of the Executive Council.

How was this interpreted?

Parliamentary Service, Parliament's bureaucrats, have paid out on virtually every invoice that does not explicitly ask for support for a person or party.

How did the rules change between the 2002 election and the 2005 election?

The late Green Party co-leader Rod Donald was the driving force behind a review of the rules after the 2002 election, mainly because of perceived breaches by National. Some of the rules changed: before 2002 only individual MPs were covered by the rules, afterwards political parties were covered too.

Previously, either the parliamentary crest or the MP's contact details had to be included on the material. The review insisted that both be included. Labour argues that these are not material changes and that Parliamentary Service approved its expenditure.

National argues that the key change was a willingness to stick to the rules and that the key change between elections was a clause saying that parties and MPs themselves, not Parliamentary Service, were responsible for what is produced. Leader Don Brash says he followed the rules and managed not to incur any findings of unlawful expenditure from the Auditor-General.

Were parties warned that things would be any different for the 2005 election?

Labour is correct in saying there was no explicit instruction by the Auditor-General to be especially careful, but the Auditor-General believes that he forewarned them with the report he issued three months before the last election entitled "Government and parliamentary publicity and advertising".

The inquiry began because of concerns over increasingly blurred lines between departmental, ministerial and political advertising, mainly prompted by the Working for Families advertising campaign. The report concluded with a chapter on advertising in the pre-election period. But the foreword points to there being a look at the rules after the election.

Who is responsible for approving MPs' advertising expenditure?

This is a major point of contention. Not only does National - and the rules suggest it is up to each party - but the Government's own lawyers, Crown Law, argue that Parliamentary Service has no discretion in a private legal challenge being taken by the Libertarianz party against taxpayer funding of the pledge card. Labour and other parties say that the practice has been that Parliamentary Service has approved advertising.

What about Labour's pledge card?

It is probably the biggest item that Parliamentary Service has ever approved. There is no way of knowing, because it is a secretive organisation accountable only to the Speaker and other MPs on the Parliamentary Service Commission. Parliamentary Service pays the invoices the parties present. Legal papers from a private case challenging the pledge card suggest that Parliamentary Service refused to pay a bill for $70,000 for the distribution of the pledge card and its accompanying brochure. But after a strongly worded letter from the Prime Minister's chief of staff, Heather Simpson, it coughed up in January this year, four months after the election.

How do Parliament's rules intersect with the Electoral Act and its definitions of election material?

There is no explicit link. But what complicates Labour's defence over Parliamentary funding of the pledge card is that two weeks before the election, the Chief Electoral Officer wrote to Labour saying he believed the pledge card was party election advertising (his concern was not actually who funded it but that it did not have party authorisation on it). Three days before the election Labour agreed under sufferance to include the pledge card in its return as with other electioneering material, but the following day it submitted its first pledge-card-related invoice to Parliamentary Service (for $313,008).

What if spending is found to be outside the rules?

The rules state that the Speaker may require an MP or a party to pay for material deemed to be in breach of the rules.

So why are the parties screaming about paying back this money?

Partly because under National's attacks of corruption, paying it might denote "guilt".

But it is also such a huge amount, for Labour anyway, that it would severely dent its ability to fund the next election campaign.

What is the Auditor-General doing?

Auditor-General Kevin Brady is examining whether the money paid by Parliamentary Service for party advertising in the three months before the election is within the limits of the expenditure as passed by Parliament in the 2005 Budget. Three months was chosen because that is the period within which statutory spending limits are applied to campaigning. In his draft report, he found most parties had been funded for advertising material unlawfully.

Could he find them corrupt?

No. That is a legal term under the Electoral Act being used in a political way by National. Time has run out for any prosecution under the Electoral Act.

Labour says the Auditor-General's draft findings are unfair because previous such expenditure had been ticked off by the same Auditor-General in 2002. Is that so?

The comparison is not valid. The processes in an annual audit are different from an in-depth inquiry. An annual audit does not involve examining every transaction, whereas an inquiry involves looking at every transaction within the scope of the inquiry. The comparison would be valid if the Auditor-General had been aware of similar material having been ticked off as lawful in 2002. But you can bet your bottom dollar that the A-G was not only shocked that Labour's 2005 pledge card had been funded from taxpayer funds, but also gob-smacked to discover the card had been similarly funded for the past two elections. One could take an educated guess and suggest the revelation that the pledge card was publicly funded was the catalyst for the current inquiry.

Can the Auditor-General make parties pay back money?

No. He has explicitly said that in his final report he will set out problems but not remedies. He will not recommend legislation or suggest the money be repaid. That is for Parliament to decide. As Controller he could stop money being paid, but in this case, expenditure has already occurred. If he reports as Controller rather than as Auditor-General, the minister responsible, in this case the Speaker, would report to the House on any breach and what remedy was proposed.

Would paying back the money be a legal remedy to unlawful expenditure?

No. Technically, any breach would have occurred when Parliamentary Service actually paid the invoice or reimbursed a party outside of the Speaker's rules. Paying back the money wouldn't technically correct or cancel the breach. That would be a political remedy. It is entirely within Parliament's power to decide what action to take, if any, after the Auditor-General has reported. It might be to take no action because money had been "repaid", or to pass validating legislation, or both or none. The problem that faces Labour, United Future and New Zealand First is a political one, not a legal one.

Where to next?

Political parties are completing their representations to the Auditor-General and he is due to report to Parliament by October 10. His findings are open to judicial review.