Unions and business lobby groups will be able to spend up to $1.1 million on political advertising for next year's NSW election after the Baird government backed down on a proposal that would have slashed the amount to $250,000.
In election funding laws that passed the NSW Parliament late on Tuesday night, the government has also ditched a proposal that would have cut the amount of taxpayer funding smaller parties can claim if they don't get a member elected to the Legislative Assembly, or lower house.
The Parliament has also voted to hand political parties potentially millions of dollars in extra taxpayer funds for administrative purposes.
But Labor and the Coalition rejected a Greens proposal to lower the $5000 cap on political donations for parties and $2000 for individual candidates to $1500 and $500.
The new laws were proposed by Premier Mike Baird after evidence of significant breaches of donations laws by Liberal candidates and private donors before the 2011 state election emerged at the Independent Commission Against Corruption.
The laws increase penalties for breaking donations laws and deliver the major parties millions of dollars in extra taxpayer funding for the March 2015 election in a bid to ease the pressure on them to raise private political donations.
However, they have been criticised for not also reducing the amount of private donations able to be raised and spent by parties, despite corruption concerns highlighted at ICAC.
The original version of the bill sought to cut the amount that third-party organisations, such as unions and business groups, may spend on election advertising from $1.1 million to $250,000.
The move was seen as an attempt to hamper the Electrical Trades Union's ability to campaign against government plans to sell 49 per cent of the state's electricity network businesses. The policy is opposed by Labor and set to be a major election issue.
The Nurses and Midwives Association, which is campaigning against private sector involvement in public hospitals, had threatened a High Court challenge to the laws if they passed.
On Tuesday night the government agreed to leave the spending cap at $1.1 million.
The government also agreed to dump a provision that would have penalised smaller parties such as the Greens, Shooters and Fishers, and Christian Democratic Parties if they failed to get a candidate elected in the lower house.
The original bill stated that if they did not win a lower house seat they would not be eligible to claim back their expenditure at a rate of up to $4 per vote their received in the Legislative Assembly at the election.
To compensate they would have received $4.50 instead of $3 for each vote cast for them in the upper house, or Legislative Council.
On Tuesday night the bill was amended at the request of the Greens to state that as long as parties run at least 10 candidates in the lower house they will be eligible to claim back up to $4 per vote.
A Shooters and Fishers Party amendment to increase taxpayer funding to political parties for administrative purposes has also been passed. The change increases the amount parties can claim for their first three MPs elected from $450,000 to $600,000.
The amount paid for each subsequent MP rises from $83,000 to $100,000 for up to an extra 22 members.
In another change, parties will have to disclose donations received between July 2014 and March 1, 2015 before the election on March 28 next year. The initial proposal was for the disclosure period to end on February 1.
Greens MP Jamie Parker said he was disappointed by final shape of the bill because it "fails to comprehensively lock the door on corruption in NSW."
"The Government and Labor blocked Greens amendments that would have made substantial reductions to the amount of political donations and election campaign spending," he said.
Labor MP Adam Searle, deputy opposition leader in the upper house, said because the Liberal party's primary vote is expected to exceed that of Labor at the 2015 election, the new funding formula "massively advantages the government parties and relatively disadvantages all others".
Independent MP for Sydney, Alex Greenwich, said the increase to administration funding was "nothing more than a cash grab, and has nothing to do with the way the next election is run".
