The Baird government faces a backlash in two damaging byelections less than seven months before its first re-election test after former Liberal MPs Andrew Cornwell and Tim Owen resigned from the NSW Parliament following damning evidence at a corruption inquiry.
Mr Owen, the member for Newcastle, and Mr Cornwell, the member for Charlestown, handed their resignations to the Speaker of the Legislative Assembly, Shelley Hancock, shortly before question time on Tuesday.
They came just hours after Mr Owen sensationally admitted to lying to the Independent Commission Against Corruption over receiving $10,000 in cash from a property developer - and conspiring with the businessman to mislead the commission.
Mr Cornwell last week admitted at ICAC to taking what he regarded as a $10,000 bribe from a property developer and using it to pay his tax bill. Another $10,000 payment from a separate developer was used for his 2011 election campaign.
Property developers have been banned from making political donations in NSW since 2009.
Shortly before the resignations, Premier Mike Baird had called on the MPs to "consider their positions" in the Parliament.
The Greens were due to move for Mr Cornwell's expulsion on Tuesday afternoon - a course of action strongly resisted by Mr Baird, who argued they were entitled to "due process", pointing out no finding had yet been made against them.
During question time, Mr Baird announced the government would push for byelections in Newcastle and Charlestown.
While the final decision on timing will be made by Ms Hancock in consultation with the NSW electoral commissioner, they are likely to occur within weeks. The NSW general election will be held next March.
Mr Baird told Parliament the government wanted to "continue the work we have been doing for the Hunter" and "provide an opportunity for that community to seek new members".
But the government faces an uphill battle to retain the seats, which it took in the 2011 landslide swing to the Coalition.
Charlestown is on a margin of 9.9 per cent, while Newcastle is held by a slender 2.6 per cent.
In an extraordinary development on Tuesday, Mr Owen confessed to the ICAC that he lied about returning an envelope stuffed with $10,000 in cash to property developer and now Newcastle lord mayor Jeff McCloy.
Mr Owen said he met Mr McCloy on Sunday and the two men "shook hands" on a deal to fabricate their evidence by telling the commission that Mr Owen had returned a $2000 cash donation from Mr McCloy before the 2011 election.
In fact, the envelope contained $10,000 and the money was spent on his campaign.
It is a criminal offence punishable by up to five years in jail to give false evidence to the ICAC.
Mr McCloy is expected to give evidence that he told Mr Owen on Sunday: “You’re rolling the dice, Tim, I’m telling you, you’ve got to tell them the truth."
The barrister for Mr McCloy, Ian Faulkner, SC, alleged that Mr Owen had said that his wife Charlotte would "divorce" him if he came clean about the cash because he had "sworn on a stack of Bibles that I didn't receive any money."
"That is not how it happened," Mr Owen said on Tuesday.
He had claimed a day earlier that Mr McCloy gave him a "thin envelope" containing an unspecified number of $100 notes before the election but he "dumped" the money back in Mr McCloy's letterbox because "it just wasn't a particularly nice look".
The shock admission comes days after Mr Cornwell admitted that Mr McCloy gave him a separate envelope stuffed with $10,000 in cash after a clandestine meeting in the developer's Bentley. He spent the money on his campaign.
The commission heard on Tuesday that Mr Owen had told Mr McCloy the ICAC had "overheard [on a phone tap] a conversation between Mr Cornwell and his wife about the $10,000 that you gave him".
Mr Owen admitted Mr Cornwell "mentioned something like that to me" but the ICAC has heard Mr Cornwell volunteered the information about the $10,000 to the commission.
"Did he tell you that he was going to come to ICAC and reveal that because he thought that they already knew it about him?" counsel assisting the commission, Geoffrey Watson, SC, asked.
"I can’t recall that," Mr Owen said.
On Tuesday Local Government Minister Paul Toole said Councillor McCloy should also "consider his position" as Newcastle lord mayor following the revelations at ICAC.
The resignations of Mr Owen and Mr Cornwell add to a growing government casualty list from the commission's hearings.
In April, Barry O'Farrell resigned as Premier after giving misleading evidence over the gift of a $3000 bottle of wine from businessman Nick Di Girolamo.
Police Minister Mike Gallacher resigned from cabinet after ICAC was told he would be accused of corrupt behaviour in relation to fund-raising before the 2011 election.
Energy minister Chris Hartcher resigned from cabinet last December after ICAC raided his electorate office in relation to its fund-raising inquiry.
Two other government backbenchers accused over fund-raising irregularities at ICAC, The Entrance MP Chris Spence and Wyong MP Darren Webber, have announced they will not recontest their seats.