NSW premier Mike Baird’s proposed changes to the state’s electoral funding laws could cost taxpayers more than $10 million extra per electoral cycle.

How much should taxpayers pay to subsidise the running of political parties and their campaigns? If the NSW government gets its way, the answer is going to be quite a lot more.

While its proposed changes have mostly been characterised by their welcome increases of penalties for those rorting the system, the real story is that, if passed, these changes will effectively provide “full public funding plus” for the major political parties. Not only will they get full public funding of their campaigns, but they will also still be able to raise and keep donations. For good measure, they will get a major increase in party administration funding as well.

The theory seems to be that the parties will be swimming in so much public money that they will be too lazy to make the effort to be corrupt.

Public funding of political parties in New South Wales started in 1981. The main political parties currently receive reimbursement of around 75% of their electoral communications expenditure during the six months prior to an election. This runs to around A$6.97 million for a party that endorses candidates in all seats.

Parties also receive significant administrative funding for their running costs, amounting to around $2.27 million per year for a party with 25 members or more in parliament. That amounts to $9.1 million for a major party over a four-year electoral cycle.

In the last election year of 2011, $15,076,709 was paid to political parties and $4,938,363 to candidates in reimbursement of electoral communication campaign expenses. That same year, $9,581,460 was paid in administrative expenses to parties. One might conclude that taxpayers are already making a very substantial contribution to parties, but it seems the parties still want more.

Recently, there have been calls to ban political donations and for full public funding of political parties by taxpayers in NSW.

The Baird government has given the impression that it has left this issue to its Expert Panel on Political Donations to advise upon. In the meantime, however, its bill, introduced into the Legislative Assembly on October 14, seeks to establish what is effectively a form of full public funding, at least for the major parties, by hiding it within a complicated new funding formula.

The bill achieves this by changing the public funding mechanism. At the moment, each party has a spending cap based on the number of seats in which it runs endorsed candidates in the Legislative Assembly. (A different formula applies to small parties that primarily run candidates in the Legislative Council.)

The caps increase each year with inflation, but the bill proposes to pull them back to the original 2011 figures, so it is these figures that are being used for this article.

A major party that runs a candidate in every lower house seat gets a cap of $9.3 million, being $100,000 for each of the 93 seats. Under that formula, parties are reimbursed on a sliding scale for their actual expenditure on electronic communications and some other campaigning costs, up to at least 75% of that expenditure.

For example, a party that spent up to the limit of its cap of $9.3 million would get back $6.97 million. It would then have to fund the rest of its campaign expenditure (including some other costs such as travel and research) from its own fundraising.

Under the proposed new scheme, major parties would get paid an amount of $4 for each first preference vote in the Legislative Assembly and $3 for each first preference vote in the Legislative Council. On the basis of the 2011 election figures, this would give the Coalition over $14 million in campaign funding, rather than the $6.1 million that it received in 2011 under the old formula. This amount, however, reflects the Coalition’s massive victory in 2011.

The 2007 election results give more representative figures to test the funding proposal. Using the 2014 formula with the 2007 first preference figures, the Coalition would have received around $9.7 million and Labor $10.6 million. In both cases, this would have exceeded the $9.3 million cap.

In other words, in normal electoral circumstances where the major parties are relatively evenly matched, the new scheme amounts to “full public funding”.

However, the expenditure caps and a reimbursement system still apply. Hence, the parties could get back only the amount that they had actually spent, up to the limit of the expenditure cap. On this basis, you would think that the major parties could receive no more than $9.3 million each in public funding, because they could not spend above this amount. But this is where the sleight of hand comes in.

For the purposes of working out public funding, the expenditure cap of the party under the proposed scheme is combined with the expenditure caps of its endorsed candidates (each of whom has his or her own local expenditure cap of $100,000). That brings the potential overall expenditure cap up to $18.6 million, allowing a party to pick up more than $9.3 million in public funding, as long as it has spent that amount under the combined expenditure caps of both the party and its endorsed candidates.

To help it expend larger amounts, the expenditure categories have also been expanded to include travel and research.

In addition, parties can continue to raise political donations, as long as they don’t exceed the $5000 cap for donations to parties. “Full public funding” is not a trade-off for the elimination of donations. Instead, the parties get both.

Parties also receive a boost in administrative funding. Parties with 25 MPs or more would receive an extra $374,000 a year for administration costs. One might well ask for what: surely not a reward for good behaviour?

While it is very hard to estimate how much extra these proposed changes will cost taxpayers overall – given that it depends on how much parties and candidates actually spend in their campaigns – the amount is likely to be more than $10 million extra per electoral cycle.

All of this money comes from taxpayers, who might well prefer the money to be spent instead on better health services, public transport, roads or schools. Yet it seems unlikely that the parties will ask or care.

NSW is introducing full public funding of major political parties – by stealth