Removing that provision would be partly compensated for by lowering the party vote threshold needed to get into Parliament from five per cent to four per cent.
Mr Peden said lowering the party vote threshold from five per cent to four per cent would be a 20 per cent reduction in the number of votes needed to get into Parliament.
However, it was still high enough to prevent a glut of very small parties making it into Parliament. He said it was a significant change, which would mean parties could get into Parliament with about 92,000 votes rather than 115,000 votes.
Mr Peden said he could not say whether changing the rules would stop such events happening, but said it was impossible to take politics out of the electoral system.
The Commission also recommended scrapping the provision for overhang seats. It proposed keeping dual candidacy, under which candidates can stand in both an electorate and on the party's list, and leaving the formation of the party lists in the hands of parties themselves.
Mr Peden said parties should be able to protect good candidates who were standing in marginal electorates or in unwinnable electorates. There was a perrception list MPs were unelected and therefore not accountabe to voters.
"This is not true. List MPs are accountable to voters just as much as electorate MPs are."
He said overall the commission had concluded relatively few changes were needed, but those opted for would increase public confidence in MMP. He did not believe a referendum was required to implement the changes, which should be able to be in place by 2014.
If the proposed changes had been in place for the 2011 elections, National would have 58 seats instead of 59, because it would lose a seat to prevent the current overhang of one seat. That would mean it would require the Maori Party to get a majority of 61. It can currently secure a majority with only Act's John Banks and United Future's Peter Dunne.
There would have been a much more dramatic effect on the 2008 Parliament. Under the changes, NZ First would have had five MPs rather than none and Act would only have had one, instead of five. National would have had two fewer seats, but could still have secured Government - but the Maori Party would have been the 'kingmakers' and it would have had to rely on the Maori Party votes to get a majority.
The proposals would go out for a further round of public submissions until September 7.
The Government had promised MMP would be reviewed if a majority of voters voted to stay with MMP in the referendum on the voting system last election.
The Commission began the review in February by seeking public submissions, and about 4700 submissions were received.
The proposals being suggested by the Electoral Commission:
The one electorate seat threshold for the allocation of list seats should be abolished
The party vote threshold for the allocation of list seats should be lowered to 4 per cent
Candidates should continue to be able to stand both in an electorate and on a party list at general elections
List MPs should continue to be able to contest by-elections
Political parties should continue to have responsibility for the composition and ranking of candidates on their party lists
The provision for overhang seats should be abolished for parties that do not cross the party vote threshold
It recommended identifying 76 electorate seats (in a 120-seat Parliament) as the point at which the risk of proportionality from insufficient seats becomes unacceptable. New Zealand is likely to reach that point before 2026.
The gradual erosion of lists seats relative to electorate seats risks undermining the diversity of representation in Parliament - recommended Parliament should review.
