Victoria will introduce new caps on how much money major political parties can withdraw from their fundraising war chests and lock in a 10-day early voting period ahead of a High Court challenge to the state’s donation laws.

The changes, which are set to be introduced to parliament on Tuesday, will limit political parties to withdrawing a maximum of $500,000 from their nominated entity during an election period, while independent candidates will be able to access a tenth of that, with a $50,000 cap.

Under the current system, Labor, the Liberal Party and the National Party have been able to withdraw unlimited sums from their multi-million dollar fundraising bodies, known as “nominated entities”, while a 2020 cut-off effectively blocked new parties from setting up similar financial structures.

Former independent candidate Melissa Lowe, who ran as a teal in the seat of Hawthorn in the 2022 state election, said the concession put independents in a David and Goliath battle against the major parties.

The about-face on caps comes after The Age last week revealed the government had conceded in its High Court defence that the pre-2020 deadline was “discriminatory” to newer political parties, “not justified” and must be “severed”.

However, the government defended its broader donations scheme in its submission, arguing Victoria should keep the exemption that allows parties to receive uncapped donations from their decades-old fundraising bodies, while newer parties could do the same, but would only be able to raise money under tighter caps.

The High Court challenge has been brought by Lowe and another independent candidate, Paul Hopper, who contested the Werribee byelection in February.

In 2018, Labor announced the donation caps that restricted donations from any individual or organisation to $4850 over a four-year period, but provided a carve-out to three nominated entities – the Liberal Party’s Cormack Foundation, Labor’s Labor Services & Holdings and the Nationals’ Pilliwinks – which had decades of stockpiled cash and investment income. Those nominated entities were permitted to donate uncapped amounts to the major parties.

Labor Services & Holdings reported $3.1 million in net assets last financial year and transferred $4.6 million to the ALP during the 2022 election. The Nationals’ Pilliwinks trust has generated $2.6 million in investment income since 2018, while the Liberal-aligned Cormack Foundation holds almost $90 million.

As part of the newly announced changes, the nominated-entity model will be opened to more candidates, but there will be limits on how it can be used. Minor parties, independent candidates and sitting MPs will all be able to appoint their own nominated entities.

Both Hopper and Lowe argue the donation system introduced by then-premier Daniel Andrews bakes in an advantage to the major parties and say that nominated entities have become entrenched financial weapons for the major parties. Rather than expanding or tweaking the existing loophole, they say the only fair outcome is to close it entirely and abolish the practice.

Under the government’s proposed changes, Victoria’s early voting period will also be reduced from 12 days to 10. The change follows a review into the 2022 state election which found the lengthy pre-poll period put parties, candidates and the Victorian Electoral Commission (VEC) under pressure to prepare materials in time.

A bipartisan committee recommended reducing the early voting period from 12 to seven days with early voting to start on the Saturday before election day.

If passed, the amended laws will also give the VEC more time to prepare for elections by changing the deadlines for registering political parties and candidates. The timeframes for the close of electoral rolls and sending postal voter ballot packs will also be altered.

Premier Jacinta Allan said the latest reforms would make elections fairer and easier to run.

“Fair elections are the bedrock of democracy, and we are delivering these reforms to ensure Victorians can be confident in their electoral processes.”

In its High Court defence, the government insisted that apart from the 2020 cut-off, the rest of its donation laws must remain in place because they help prevent corruption and undue influence on elections. In its submission to the High Court, the government says the general cap was designed to reduce the risk that candidates and MPs become beholden to single donors.

The case is scheduled to be heard in early February.

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