Key Points:

Labour plans to restrict third-party election spending to $60,000 by any one group in its "payback" electoral law reforms - a move that will effectively outlaw campaigns such as the Exclusive Brethren's $1.2 million effort last election.

It also plans to attack an important source of money for National by limiting anonymous donations from anybody, including trusts, to $5000.

National received $1.8 million in 2005, all but $140,000 of it from six trusts.

People can maintain their anonymity by donating to trusts, which then pass the money on to the party.

And as an answer to suspicions that National is funded by foreign backers - as Labour claimed last election - the Government is planning to ban political donations from foreign sources, unless they come from expatriate New Zealanders.

In 2005, that would have let Labour keep its $300,000 donation from Sydney expat Owen Glenn.

But wealthy foreigners, such as US billionaire Julian Robertson, who contributed to National last election, would be banned from donating if the money was sent from overseas.

National Party deputy leader Bill English said last night the third-party rules were "designed to accommodate the unions and stop everybody else, and that is clearly undemocratic".

"If a group of concerned citizens wants to attack some party Labour doesn't like, why should they have to go and get permission?"

The confidential proposals are part of sweeping reforms being drafted into a bill that will be introduced to Parliament within three weeks.

The Herald has learned more of the detail, which includes measures to:

* Require any third party (a group or individual other than a candidate or registered party) to register its intention with the Chief Electoral Officer if it plans to spend more than $5000 nationally and $500 in an electorate.

* Restrict any third party from spending more than $60,000 nationally or $2000 in an electorate.

* Restrict any third party to New Zealanders or New Zealand-based organisations.

* Make it clear that advertising does not have to state the party or candidate's name to be subject to restrictions. Advertising attacking a party can count too.

* Exempt from the new third-party rules groups such as unions or companies when they are communicating directly with their members.

* Require whatever the third party spends to be counted against its $60,000 limit and the limit of the party it is supporting.

* Lower the threshold for disclosure of donations from $10,000 to $5000 for parties and from $1000 to $500 for individual candidates.

* Ban foreign donations except those from expatriate New Zealanders.

* Include in the definition of donations loans at non-commercial rates, and a party's goods or properties sold well over their valuation.

The measures are in part the Government's response to the 2005 campaign, in which National made big gains on Labour.

National was supported by an attack advertising campaign on Labour and the Greens by leading members of the Exclusive Brethren Church, who at first tried to conceal their association.

Official Information Act disclosures showed that the Brethren told the Chief Electoral Officer before the campaign they wanted to support National without affecting the party's election expenses return.

Advertising attacking the Greens and Labour allowed it to do that.

At present, expenditure by third parties that positively support a party or candidate has to be approved by the party and is counted against its expenses.

Labour says it would be unfair not to include negative advertising by third parties.

Mr English would not comment on what effect the disclosure proposal might have on National's funding.

But he defended the right of people to donate anonymously.

"We live in a small country where political opinions matter, affect people's business and affect their standing in a community, and they should be allowed to support parties without everybody knowing who they are supporting."

National would not accept rules that prevented New Zealanders taking part in the democratic process with their own money.

"The rules in the past have been pretty reasonable," he said, "and while they can be modified, we don't believe there should be fundamental change because that will prevent people taking part who otherwise wouldn't [be prevented]."

Trusting Donors

* At present, political parties can get unlimited amounts through donations. Donors who give more than $10,000 must be identified.

* National got $1.8 million in donations in 2005, all but $140,000 of it through six trusts.

* People who give money to trusts can do so anonymously.

* The biggest donor in 2005 was the Waitemata Trust, which gave $1.25 million to National.

* The trust is believed to have been set up at least 10 years ago to channel money to National.

* The Crown Law Office says such donations do not breach the $10,000 disclosure rule.

* Labour listed no donations from trusts in 2005 but did list eight "anonymous" donations totalling $315,000.