Political parties should get an extra £23m of taxpayers' money to reduce reliance on "big money" donations, an independent inquiry has said.
The Committee for Standards in Public Life also recommended a £10,000 annual cap on individual donations from 2015.
Union members should have to "opt in" to fees paid to Labour if donations are to be counted individually, it says.
Chairman Sir Christopher Kelly urged parties to adopt the ideas but parties were lukewarm about more state funding.
All three main parties will have to agree on the proposals if they are to go forward.
Sir Christopher admitted the proposals would make "uncomfortable reading" for some but said leaders must "show courage" and work together to "clean up this part of politics".
The first proposal is for a cap of £10,000-a-year on donations from any individual or organisation - including trade unions - to any political party with at least two MPs or two representatives at the Scottish Parliament, the Welsh and Northern Ireland Assemblies.
At present there are no limits on donations, but the name of anyone who gives more than £7,500 to a party is made public.
Sir Christopher dismissed the Conservatives' preferred annual cap - of £50,000 rather than £10,000 - as it amounted to twice the average salary and over a five-year Parliament added up to £250,000, which must be considered "big money".
He said trade union affiliation fees could be counted as a collection of small individual payments - but only if members were required to "opt in" to the fees, rather than opting out as at present and if other conditions were met to "ensure that undue influence cannot be exerted".
"All three main parties now depend on large donations from a very small number of rich individuals or organisations for the funds necessary for their survival," Sir Christopher said.
"This cannot be healthy for democracy."
The report notes that both the Conservatives and Labour would be hit by the proposals - while the Lib Dems, whose income is far lower, would be likely to benefit.
50p per voter
It recommends increased state funding - worth £3 for every Westminster election vote received for parties who have at least two MPs or representatives in the devolved assemblies - ruling out UKIP, the BNP, and others. There would also be funding worth £1.50 a vote in the devolved and European elections.
Sir Christopher said it amounted to 50p, per voter, per year and said people would understand that that was necessary to take "big money" out of politics.
The report says the increased taxpayer support, and proposals to allow Gift Aid-style tax relief on donations of up to £1,000 and party membership fees, will not replace all the money lost by parties through the cap - but is aimed at getting parties to "broaden the basis of their support" and get more people involved in politics.
Separately, current limits on campaign spending in the run-up to elections should be cut by 15% the committee says. Currently parties can spend up to £30,000 per seat in the run-up to a general election - or £19.5m overall, if all 650 Westminster seats are contested.
Deputy PM Nick Clegg said: "The government believes that the case cannot be made for greater state funding of political parties at a time when budgets are being squeezed and economic recovery remains the highest priority."
'Not a priority'
Sir Christopher responded that he was not suggesting changes be made immediately - but at the start of the next Parliament in 2015.
He said he hoped that "knee-jerk reactions" would be superceded by close reading of the proposals in their entirety.
Labour said it would "study in detail" the report's proposals but said "in the current economic environment" that increased state funding for parties was "not a priority". Shadow minister Michael Dugher also said the party had "concerns" regarding trade union affiliation fees.
For the Conservatives, party co-chairman Baroness Warsi told the BBC she "broadly welcomes the report" but expressed concern about increased state funding for parties: "I'm not convinced, even in better economic circumstances ... that that is a wise way for us to be spending taxpayers' money."
Lib Dem party president Tim Farron said any move "to limit undue influence on the political process by private individuals, businesses and the trade unions can only be a good thing".
He said: "While it is clear now is not the time for more public money to be spent on politicians, that shouldn't stop us taking immediate action to reform political funding."
But UK Independence Party Treasurer Stuart Wheeler, who gave evidence to the inquiry, said there was a danger a "political cartel" would be created - particularly if parties like UKIP were excluded from the taxpayer-funded support.
"It is essential that parties should be defined in such a way that a party like UKIP, which obtained nearly a million votes in the last general election, and which came second, beating both Labour and the LibDems in the European election in 2009, should be included."
The report says it expects the financial impact of the recommendations to "be reasonably even-handed between the largest two parties" although it cannot be sure - and recommended further work before it was brought in.
UK political parties spent £31.1m at the 2010 general election.