Key Points:

The bill overhauling the law around electoral funding is so bad that even those who want to support it are opposing it.

The Coalition for Open Government, a strong advocate of law reform, has become an active critic - with a heavy heart.

The Greens have long wanted electoral law reform but they have serious misgivings about parts of it.

Even the Government has given up defending the Electoral Finance Bill barely three weeks after its introduction.

In Parliament on Thursday, Deputy Prime Minister Michael Cullen referred four times to the fact that it is expected to be changed in select committee - and submissions on the bill haven't even closed yet.

The bill is Labour's response to the stealth campaign mounted last election in support of National by seven wealthy businessmen who belonged to the Exclusive Brethren.

Its original aim was to restrict and expose wealthy backers of political parties. But its sweeping provisions on political expression affecting almost the entire election year will change the democratic process for active individuals and interest groups.

Critics all call it "regulated criticism".

Forest and Bird and the Sensible Sentencing Trust are among the affected groups. They were active in the run-up to the last election, assessing all parties' policies against their own agendas, and as well as their own issues campaigns they produced voter guides.

Both groups have grave concerns at the restrictions the bill would place on their activities.

Both will be making submissions to the justice and electoral select committee for major changes.

Kevin Hackwell, the advocacy manager for Forest and Bird, is not against applying some new rules to groups such as his, known under the bill as "third parties".

"Pressure groups do put pressure on around election time for different issues," Hackwell says.

"The idea that there may be some constraints on what they can do in that period, reasonable constraints, I don't have a particular problem with. But it has to be reasonable and for us to stretch out for a whole year is absolutely unreasonable."

Garth McVicar, of the Sensible Sentencing Trust, calls it "a corrupt piece of legislation."

The bill will prevent groups such as his spending any more than $60,000 - from January 1 in an election year to the election itself - on advocacy of issues that they live and breathe.

Given that election dates are edging back to November, that means regulated political expression for 11 months.

Under the present law, political parties' expenditure is regulated for three months and outside groups are not restricted at all, but their expenditure counts if they support a particular party.

Within the $60,000 limit for outside groups must also be counted the value of many discounts that such groups attract for expenses from sympathisers.

It will also require them to forfeit anonymous donations above $500.

They will have to declare to the chief electoral officer their previously private donations - above $500 given at any time in the three-year election cycle, information which then becomes publicly available.

As a third party, organisations such as Forest and Bird, will also have to appoint a financial agent and file a return of their own election expenses to the chief electoral officer.

Hackwell says that under the bill, the costs of the campaign Forest and Bird is running at the moment - to ban set-net fishing to save endangered Hector's and Maui's dolphins - would be counted as an election expense in an election year. "Clearly that [campaign] is asking for political action. We are asking for the Government to move. That will be covered absolutely by the legislation and we don't think it should be. It is a general advocacy. It is generic. It is about issues and to be constrained for a whole year we think is unfair."

Hackwell is also resentful that the organisation will be forced to forfeit anonymous donations over $500.

"We get donations for 101 things that have nothing to do with the political election cycle.

"It is not fair that you have to give up your donations.

"The irony there is that you don't have to give up your [anonymous] donation if you're a political party."

Last election the Sensible Sentencing Trust, like Forest and Bird, produced a checklist of parties' policies against their interests.

McVicar wasn't sure whether it would have been under the $60,000 because many of his trust's campaigns get heavy discounts from media outlets as a "charity of choice". "A $100,000 campaign costs us $5000 because of the discount we get as a charity of choice."

He said the trust did two or three campaigns that would have cost $200,000 or $300,000 at market value "and actually cost us $15,000".

McVicar said the trust's board of advisers was "very smart around this type of area" and would be working out ways for the trust to comply with the new law, perhaps through other trusts.

"We won't be hampered in our message just because Parliament says so."

Labour might argue that the sort of expenditure outlined by McVicar is the very target of the proposed new law.

So how does the bill work?

The bill broadens the definition of what constitutes an "election advertisement" to include words or graphics that could be regarded as "taking a position on a proposition with which one or more parties or one or more candidates is associated."

This is the "driftnet" definition that has horrified so many, including firm advocates of electoral law reform.

"It hurts my heart to talk about the third party stuff because ultimately reasonable controls are a really good idea on spending but I just think these go too far," says Steven Price, media law specialist and spokesman for the resurrected Coalition for Open Government.

Greens co-leader Jeanette Fitzsimons says the bill needs another look. "There is a fine line to tread between controlling ways of bypassing parties' spending caps and completely muzzling freedom of speech by many citizens' organisations, and this bill goes a bit too far."

She said in Parliament that while she did not agree with Roger Dickie of the Kyoto Forestry Association on the allocation of forest Kyoto credits, "I will stand up for their right to put that view publicly."

Dickie's group has threatened to breach the spending caps set out in the bill.

His group is wealthy and uses sophisticated communications.

Under the bill's definition of "election advertising" combined with a very broad interpretation of what it mean to "publish" an election advertisement - including electronic messages and the internet, but not blogs - almost every person or group publishing a political view will be caught by the new regulatory regime and will need to register or make a statutory declaration.

Even small-fry groups and individuals will not be able to run an election ad without making a statutory declaration to the publisher stating that their expenditure in the regulated period won't be more than $500 for a candidate or more than $5000 total.

Price believes that the courts would try to "read down" a lot of the law "but it doesn't take very much imagination to start thinking there's an awful lot of stuff that gets caught under that."

"It makes it really easy for parties to take a position on something and all of a sudden anybody who takes a position associated with it - meaning in favour of it or against it - suddenly has the whole regime applying to them."

The bill was given the Bill of Rights tick by Crown Law, something that surprises Price.

Despite the uproar over the coverage of third parties, he says the worst feature of the bill is its failure to control secret trusts and anonymous donations.

"They do it for third parties but they don't do it for themselves."

Greater transparency for political party donations was the collateral when the inflation-adjusted state funding plan failed to muster enough support to include in the bill.

According to the formula in Labour's original wish-list set out in a cabinet paper, Labour and National would have received $1.14 million a year in return for virtually abolishing anonymous donations - parties would have been able to accept anonymous donations only if they were less than $5000.

But public opprobrium cemented small-party opposition to state funding. It was dropped, as were reforms for party donations.

Prime Minister Helen Clark has admitted the cause and effect and those matters will be referred to a later independent inquiry.

The blogosphere has been fast to pick up on the bill, lampooned in Stalinist style by David Farrar on Kiwiblog and analysed in detail by Graeme Edgeler, who is Price's colleague on the Coalition for Open Government website.

Edgeler concludes that the legislation is so poorly drafted that an unintended consequence is that political parties themselves won't be able to publish issue-based advertisements in election year.

He also concludes that the bill means that Government departments undertaking promotional campaigns for Government policy such as the KiwiSaver scheme or Working for Families would be caught by the law and have a $60,000 ceiling on election-year expenditure, unless an exemption is written into the bill.

The minister responsible for the bill, Justice Minister Mark Burton, rejects that. He said in the Herald this week that a government department ad should comply with Cabinet office guidelines. "Its purpose is to inform the public of Government programmes, not to advocate them."

He says Government advertising that abides by these guidelines does not take "a position" on party political issues and would therefore not be caught by the definition of election advertisement in clause 5 of the bill.

National Deputy leader Bill English is already making mileage out of the bill and this week wrote to more than 500 interest groups about the potential affects it could have on them. Labour has not made the case for such "draconian" reform. The real issue with the 2005 campaign was that there was no effective enforcement of the law.

"The only problem we've had here is people who broke the law didn't get prosecuted," English said

"If you are going to write something so draconian you need to be quite clear about what the problem is, and the Government hasn't demonstrated that there is a problem with the law as it applies to third parties or individuals." The processes set out in the new bill to comply with the new election rules were so ridiculous that they would be broken all the time "wittingly and unwittingly".

If a National government had promoted the same bill "there'd be a riot out the front of Parliament by now. Just because Labour has done it, doesn't make it any more acceptable. It is just indefensible."

Bill's purpose

* Extends regulatory period from three months before an election to start from January 1 of an election year.

* All parties and candidates and third parties must appoint a financial agent and file returns of election expenses.

Third Parties
* New restrictions on "election advertising" by people or organisations other than candidates or parties.

* Those spending more than $5000 over the 11-month regulated period must register as a third party.

* Third party spending cap $60,000 overall, or $2000 for a candidate.

* "Election advertising" widely defined as any form of words or graphics taking a position on a proposition with which a party or candidate is associated.

* Third parties must submit after an election a return of all donations over $500 received at any time and an election expenses return.

* Third parties must forfeit any anonymous donation of more than $500 to the chief electoral officer.

* Exemptions from registration only if spending is less than $500 in a constituency campaign or less than $5000 in total.

* Those exempt must make statutory declaration that spending will be below thresholds.

* Third party communications to members are exempt.

Spending Caps
Remain the same at:

* $20,000 for a candidate in a general election

* $40,000 for a candidate in a byelection

* $1 million total for a party in a general election plus $20,000 for each constituency contested.

* Disclosure thresholds remain the same; all donations over $10,000 to a party or $1000 to a candidate must be declared.

* Anonymous donations still allowed.

* Donations from trusts still allowed.

* New requirement for donations of $20,000 or aggregated donations that reach $20,000 and multiples of $20,000 must be declared within 10 days.

* Election expenses to include advertising space at discount price.

* Removes political appointments from Electoral Commission, which allocates broadcasting money.