Key Points:

A Labour plan for state funding of political parties would give it and National $1.14 million a year each from taxpayers.

Money would be allocated to any registered party on the basis of party votes won in the previous election.

This would give the Destiny Party nearly $30,000 and the Aotearoa Legalise Cannabis Party more than $11,000.

The payments would be tied to the consumers price index, and so would rise at the rate of inflation.

The money would not be tied to election spending - parties would use it in any way they wished.

Labour also wants to extend the time for which election spending is regulated from three months before the vote to the start of the year in which the election is held.

That would stop spending early in election year, as National did before the last election on red and blue billboards contrasting its policies with Labour's.

The proposals are part of confidential discussions about what will be in an election spending reform bill to be introduced within three weeks and passed before the end of the year in time for next year's election.

Two other changes involve restricting third-party campaigning to $60,000 and removing anonymity for those making political party donations - including trusts - of more than $5000, as detailed in yesterday's Herald.

But the state funding proposal is likely to be the most contentious.

Labour justifies it by saying its plans to restrict third-party campaigning and reduce anonymity in donations would reduce parties' fundraising abilities.

It also says state funding would limit the influence of wealth, and maintain confidence in elections.

But Labour may have to persuade its support parties, New Zealand First and United Future, to at least back getting the proposal to a select committee for a hearing.

The formula being proposed would give parties $2 for each party vote they receive up to 20 per cent of the vote, and $1 a vote after that to a cap of 30 per cent.

Only Labour and National won more than 20 per cent of the vote in 2005.

Labour says the plan would cost $3.19 million a year.

New Zealand First leader Winston Peters said his party had always opposed state funding.

"Political parties should prove their market share in a political sense by going out on the streets ... and raising money that way," he said.

United Future leader Peter Dunne is not impressed by the idea of giving money to parties outside Parliament.

"I am very wary of handing over significant amounts of money to political parties," he said.

There was a difference between giving money to parliamentary parties and to parties that were outside Parliament and had no public accountability.

National deputy leader Bill English said: "Any state funding system is going to make parties lazy. Your ability to get public support is critical to your credibility."

He believed Labour was promoting state funding to offset the $800,000 of unlawful expenditure it had yet to pay back from the 2005 election.

But Labour Party president Mike Williams said Mr English's claim was "just not true".

The party was on target to repay the money before June 30 and had maintained its normal cash flow.

Cash For Votes

What parties would get:
* Labour $1.14 million
* National $1.14 million
* NZ First $260,230
* Greens $241,042
* United Future $121,720
* Maori Party $96,526
* Act $68,938
* Progressives $52,882
* Destiny $28,420
* Legalise Cannabis Party $11,496