ROME, Feb 20 (Reuters) - Italy's parliament passed a law on Thursday that will phase out state financing of political parties, in response to public anger over its high cost and the tendency for it to breed waste and corruption.
The law will replace the current system, which generously reimburses parties for the money they spend in campaigns, with financing by private citizens by the end of 2017.
The law was introduced by outgoing Prime Minister Enrico Letta in December, a week after Prime Minister-designate Matteo Renzi won a primary vote to take the leadership of his Democratic Party (PD).
Renzi's rise in popularity over the past two years was linked to his stinging criticism of the old PD leadership and its dependence on public funding, which he repeatedly said should be abolished.
Eliminating state funding was also a signature policy proposal of the anti-establishment 5-Star Movement, which won a quarter of the votes at last year's national election and accepts no such contributions.
The 5-Star Movement, which says it will stay in opposition under a Renzi government, criticised the law and said parties should follow their example and simply give back the public funds they are entitled to.
The law will reduce public financing by 40 percent this year, 50 percent next year, and 60 percent the year after. State financing will be fully phased out in the fourth year.
Under the new system, citizens who choose to give money to political parties would be able to deduct the contributions from their taxes. (Reporting by Massimiliano Di Giorgio and Steve Scherer; Editing by Larry King)