But those working at the two biggest agencies - Home Affairs and the Australian Taxation Office - could find themselves hauled in to public hearings and could even have their phones tapped as part of an investigation.

The Commonwealth Integrity Commission announced by Prime Minister Scott Morrison and Attorney-General Christian Porter on Thursday will cover all public servants, consisting of two divisions, one for law enforcement and one for public sector integrity.

The proposed two tier system would not make findings of corruption but refer cases to the director of public prosecutions, with priority given to incidences of systemic and serious corruption or conduct that could be considered specific criminal offences.

The public sector integrity division will cover public service departments and agencies, as well as statutory agencies, Commonwealth companies and corporations, MPs, senators and their staff. It will only investigate "corrupt conduct" that the commissioner believes could be a criminal offence. Matters can only be referred by agency heads and existing integrity agencies, not by members of the public. The government said this would avoid potentially minor irregularities or misconduct coming before the commission, but it has been criticised as too narrow.

Contractors and service providers to government would also be included under the public sector division, as would members of the public or private entities that deal with government funds "to the extent that their suspected corrupt conduct intersects with a public official's suspected corrupt conduct".

The law enforcement division would cover agencies already covered by the Australian Commission for Law Enforcement Integrity. It would also investigate corruption allegations in the Australian Competition and Consumer Commission, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, Agriculture and Water Resources and the Australian Taxation Office. The division would focus on systemic and serious corruption, with referrals possible from agency heads, members of the public and other public servants.

Both divisions will be able to force agencies and individuals to produce documents, to question people, to enter and search premises, and hold private hearings.

But only the law enforcement division will be able to hold public hearings, to make arrests, to seize evidence and to undertake controlled operations and even assumed identities, as well as integrity testing.

Around 20 per cent of public servants would be covered by the law enforcement division, with the other 80 per cent in the public sector division.

It is yet to be decided if the public sector division will have the ability to access telecommunications and have surveillance device powers, an issue that will form part of the consultation.

The commission won't make findings of corruption for those covered by the public sector division, instead referring findings to the Director of Public Prosecutions.

Two new aggravated offences would be added to the criminal code, one for repeated public sector corruption, where three or more offences are committed, and a failure to report public sector corruption. The failure to report would only apply to senior public service officials.

The commission wont replace existing integrity agencies, and the proposal said those agencies will continue to deal with complaints but would be able to refer issues to the commission.

Professor of public policy and law at Griffith University AJ Brown said the proposal was an important step as all parties across the political spectrum agreed on the need for a commission, and that the door had been opened for debate on how the reform should be implemented.

The two-tiered system was one of the biggest questions around the proposal, he said.

"So far there's issues of principle but also fundamental issues of practicality about having two different schemes -one for 10-20 per cent of the public sector then a different scheme for the other 80 per cent and politicians."

Professor Brown believes the government's proposal leaves gaps where conduct that isn't considered criminal but could still be serious high risk misconduct would revert back to existing codes of conduct.

"The problem with the 80 per cent that would only be subject to the criminal threshold ... that's automatically a narrow approach. I think it's a deliberate policy proposal that it should be narrow and it should be a criminal threshold but experience suggests that even though it's important not to have the commission behave as a court, it does need to be able to investigate and assess a broad range of conduct that may never get to a criminal standard," Professor Brown said.

He is also concerned about the lack of protection for whistleblowers and the lack of resources for the preventative function of the commission.

The main public sector union has previously signalled support for an anti-corruption commission, but Community and Public Sector Union national secretary Nadine Flood said the proposal doesn't go far enough.

"It’s important for the public to have confidence in this Integrity Commission once it’s up and running but it’s  also vital that public sector workers themselves know that this body is structured in a way that ensures procedural fairness and real outcomes," Ms Flood said.

"Too often we see one set of rules for politicians and agency heads and a far tougher regime for front-line public sector workers. Our members know that the overwhelming majority of people working in the public sector work with absolute integrity to provide services that are vital to the Australian people."