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Political parties lie at the heart of every democracy in the 21st century, championing the interests of different voters and contributing to society. Central to their continued growth is political financing and its regulation, which differs in the hundreds of democratic countries around the world.

In Policy IDEAS 29, Dr. Stefan Melnik outlines the role of political parties and the types of financing they receive, as well as identifying the key tenets that should be the foundation of any regulation of political financing.

Political financing is the umbrella term for party and campaign funding taken together. There are two types of funding, namely direct funding and indirect funding. Direct funding is derived directly through membership fees, donations, income (through advertisements at events), and public funding, whereas indirect funding is in the form of airtime for free advertisements during election campaigns, or the use of government funds for political purposes.

In the case of political financing, legislation should cover a) the do’s and don’ts of party financing; b) the reason why these rules exist, and c) effective punishments when these rules are not met/broken.

Essential to any type of regulation of political financing, legislators should keep in mind 5 principles:

  1. Presence of the rule of law – the legislation should apply to all equally, should be easily accessible for reference, are enforced by independent bodies, are subject to judicial review, and provide for appeal to the courts. In addition, judgment should be made as quickly as possible without compromising the law, and punishments should fit their crimes. Agencies under the government should only be able to act within their own power, and the law itself must be subject to judicial review to stay relevant;
  2. Fairness for all involved, namely voters and the political parties – any legislation made should account for private and public funding, to prevent large donors from forcing parties to be partial towards them. Diversifying sources of funding protects parties, and this can be done by offering tax breaks to encourage small donations, and providing public funds for parties that meet certain requirements;
  3. Transparency, accountability, and ownership by the electorate – by making provisions for political parties to be accountable by publishing their accounts, voters can see if their party represents their interests, and deters politicians from accepting policies favouring large donors. This also helps create a clean image of politics, playing by the rules;
  4. Checks and balances to prevent unlimited power, and;
  5. Exercise of political and civil liberties by the electorate.

The paper concludes by providing a checklist of questions to be answered as a guideline for making political financing legislation.

Click here to read the Executive Summary
Click here to Press Statement


About the Author

Dr. Stefan Melnik is a Public Affairs Consultant stationed in Berlin. He was educated at the University of Cambridge in the United Kingdom and the University of Bochum in Germany. During the initial period of the transition to democracy in central, south-eastern, and eastern Europe, he worked as a political consultant, and has, among other things, produced a short guide on electoral systems and electoral monitoring.

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