A parliamentary committee has stopped short of recommending a federal anti-corruption commission, which if adopted would have broad powers to tackle institutional, political and electoral wrongdoing.
The proposed commission was seen as the national equivalent of state agencies like the NSW anti-corruption body ICAC, which has brought corrupt politicians to account.
But the committee's report recommends only that the Government give "careful consideration" to establishing and investigating a National Integrity Commission.
The anti-corruption watchdog Transparency International has slammed the decision as a missed opportunity to create a powerful national body with investigative powers to crack down on corruption.
Former NSW Supreme Court judge Anthony Whealy QC, now president of Transparency International, described the committee's decision as "a damp squib".
"Australia has been sliding down the integrity index for a number of years because we've been too complacent and we haven't addressed corruption issues adequately and strongly," Mr Whealy said.
"One disappointing result for Australia, to put it bluntly, is that we will be on the nose again in terms of corruption issues.
Mr Whealy criticised Labor and Coalition members of the parliamentary committee for putting the proposed commission in the "too hard basket".
"We all know the shortcomings of the present system and it's only politicians, especially the Coalition and some people in the Labor party, who've been holding out," he said.
"They're frightened of this. [Politicians] know they're under scrutiny but they know where to turn for advice and help. At the moment they just go into their offices, close their doors and close their ears. Nothing good comes out and the people of Australia know it."
Instead of endorsing the creation of a national commission, the committee has urged the Senate to review the question after the release of independent studies by Griffith University and Transparency International.
Politicians 'frightened' of federal anti-corruption body
The inquiry was initiated in February this year to examine government policy in addressing institutional, organisational, political, electoral and individual corruption.
The committee, which received 46 submissions and took evidence from 57 witnesses, was also asked to assess the effectiveness of existing agencies in investigating corruption.
Both Labor and the Coalition have dismissed the idea of a federal anti-corruption body, but data gathered by the ABC's Vote Compass in 2016 found a majority of Australians supported one.
If a national integrity agency is eventually established, the committee recommended the appointment of a parliamentary integrity commissioner to provide ethical advice to members of Parliament.
In its submission to the inquiry, Transparency International said the absence of an overarching anti-corruption agency was "clearly a stark deficiency in the eyes of the community".
It pointed to several parliamentary entitlements scandals as evidence supporting a new independent corruption watchdog to investigate corruption among federal politicians and officials.
"Australians do not consider federal politicians or officials to be immune from the types of corruption risks facing other politicians or officials," the submission read.
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