NSW electoral funding reforms passed

More taxpayer dollars will be given to political parties in NSW to spend on the upcoming March election campaign in a bid to take away the corrupting influence of donors.

State parliament passed NSW Premier Mike Baird's electoral funding measures on Wednesday which will also hand tougher penalties and jail terms to politicians breaking donation laws.

They are a response to revelations before the Independent Commission Against Corruption (ICAC) of alleged rorting of donation rules by NSW Liberal politicians in the lead-up to the 2011 election.

The package of reforms includes a 10-year maximum jail term for politicians using slush funds to funnel illegal donations such as the one allegedly used by Liberals in the last election.

Mr Baird said the measures will start to restore trust in state politics.

"(Given) the circumstances that we have faced, that is a bold step for NSW," he told reporters.

The laws will boost public funding to political parties in order to reduce their reliance on raising money from donors.

Opposition frontbencher Penny Sharpe said the changes will do little to restore the public's trust in politicians.

"This bill is a minuscule step forward and a massive lost opportunity," she told parliament.

Many of the measures in the bill will only apply to next year's election.

Mr Baird says the government will wait for its expert panel into electoral funding reforms to hand down its report before making more long-term changes.

The panel, led by senior public servant Kerry Schott, is due to report back by the end of the year.

A Labor amendment to make the laws retrospective, so that they apply to Liberal MPs being investigated by the ICAC, was rejected by parliament.

However the opposition succeeded in blocking a provision which would have reduced the amount registered third parties can spend during election campaigns from $1.2 million to $250,000.

The move was seen as a targeted attack against Labor-leaning unions.

The ICAC probes have so far relegated 10 Liberal MPs to the crossbenches and dethroned former premier Barry O'Farrell.

Two of those MPs, Tim Owen and Andrew Cornwell, have quit parliament altogether.