The South Australian government plans to introduce what it describes as “world-leading” laws to ban political parties from receiving electoral donations at a state level but concedes the proposed reforms could be subject to a High Court challenge.

The draft legislation proposes to ban registered South Australian political parties, members of parliament and political candidates from giving or receiving electoral donations and gifts.

Loans to MPs, candidates and parties would also be banned, unless they came from a bank or other financial institution.

The proposed laws would allow new political candidates and parties to receive donations of up to $2,700 to ensure they are not disadvantaged when contesting against established parties.

The South Australian Labor Party promised to ban electoral donations at the 2022 state election, with then opposition leader Peter Malinauskas arguing such a move was necessary to restore trust in democracy.

Speaking at a University of South Australia event on Wednesday, the now premier said the proposed changes must ensure that the funding model is “fair, rational and reflective of community support”.

“But at the same time not create onerous barriers to entry for new groups and candidates — who may lack the resources of more established parties,” Mr Malinauskas said.

Those found in breach of the proposed donation laws could face a $50,000 fine or 10 years in prison.

SA government bracing for potential legal challenge

The government also wants to reduce the spending caps imposed on political candidates in the lead-up to a state election.

At the last election in 2022, the maximum spending cap was $111,513 for a candidate contesting a lower house seat.

Under the proposed new laws, the government would lower that limit to $100,000, which would then be indexed.

It’s also proposing that taxpayers pay registered political parties for “administrative expenditure”, which would see major parties able to access more than $1 million each year, in lieu of donations revenue.

In his address on Wednesday, Mr Malinauskas said the proposed reform was complex and could be subject to legal challenge, including in the High Court.

“It has been determined by the High Court – that the act of making a political donation – is a form of political communication,” he said.

“I want to be candid about the fact, that while we’ve taken the best advice available to us – any legislation could be sorely tested … That doesn’t mean we shouldn’t give it a red hot try, because what if we succeed?”

More stringent requirements for new political parties and candidates

As well as toughening up spending rules, the government also wants to increase the threshold for new political parties and candidates to contest elections.

Currently, candidates wanting to contest a lower house seat require at least 20 people to sign a nomination form.

Under the proposed new laws, that number would climb to 100.

Meanwhile, those wishing to contest upper house seats would need 500 signatures – double the current requirement of 250.

The laws are now out for a month of public consultation, which means the bill is unlikely to be brought into parliament until September after the mid-winter break.

ABC News has been told the government hopes the laws will come into effect ahead of the 2026 state election.

Before he entered politics, Mr Malinauskas led the South Australian branch of the Shop Distributive and Allied Employees Association, which is a regular donor to the Labor Party.