I woulds say (A)
for one, you can eliminate (E) since it doesn't matter that referendum is the only way to distribute power, that wouldn't help the argument. Let's say that you know of another system that distribute powers equally, like citizen assemblys. How would that help the argument.
Break it down (i don't mean start dancing, break the argument down) and reword it to make sense to you:
p1: Large-scale government projects that are supposed to help everyone, usually benefit one group of people more, initially
p2: The more equally and widely political power is distributed among the citizenry (for example referendum), the less likely such projects are to receive funding.
C: Hence, government by referendum rather than by means of elected representatives tends to diminish, not enhance, the welfare of a society.
Or in layman terms: it's saying that large scale gov't projects won't receive the funding they need to be put in place if they are chosen by referendum. So, they won't be implemented. Since htey won't be implemented, they can't benefit society. BUT WAIT! Who says they benefit society in the first place! Answer choice A says they do!! That's the missing link. I think you probably got confused becasue you took the first premise to be equal to "welfare of society". but it's not. it's just saying some people benefit more that others initially.
Also, there's a test for assumption questions: take the opposite of the answer choice and ask if it weakens the argument. If it does it's an assumption.
A) Large-scale government projects sometimes enhance the welfare of society.
E) Government by referendum is the only way to distribute political power equally and widely.