A loophole that allowed councillors including former Auburn deputy mayor Salim Mehajer to vote on development matters in which they or their colleagues have an interest will be shut by the NSW government under a crackdown to improve integrity in local government.
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Political donations for council elections will be capped for the first time at $2500 and misbehaving councillors who have received "ill-gotten gains" from their positions may be forced to repay the money.
The new rules were flagged by Premier Mike Baird and local government minister Paul Toole on Thursday morning as they announced details of 19 merged councils in NSW.
"We want the community to have confidence in councils again," Mr Baird said.
"Unfortunately this confidence has been shaken recently by councillors who have put self-interest ahead of community interest."
Under the changes councils will not be able to vote on any planning decisions in which councillors, general managers and their spouses and relatives have an interest.
Councillors who vote on matters in which they have a pecuniary interest face having any proceeds seized by the state government.
Councillors will also be required to disclose any income they make from property development.
People convicted of crimes that have potential jail terms of five years or more, or any kind of election funding offence will be barred from standing for council.
"These tough and practical reforms will safeguard the community interest and help banish self-interest from the council chamber," Mr Toole said.
The tough new rules come after a string of episodes where developer-councillors have profited from planning decisions voted on by their colleagues.
The since-suspended Auburn council has voted several times to approve multi-million dollar deals and developments involving Mr Mehajer and his colleague, former Mayor and developer Ronney Oueik. (Mr Oueik recused himself from the votes).
But the laws will close a loophole defence recently employed by Mr Mehajer that he was legally allowed to vote to increase the height of one of his properties without declaring a conflict of interest, because the law only required declarations when the purpose for which a property was used was changed, not its height or density.
Exceptions to the voting restrictions will be made for routine development applications relating to someone's home.
