Intelligence agencies should be free from annual budget cuts biting the public service, a committee of MPs has urged.
Parliament's intelligence committee said it received evidence showing funding cuts were "negatively impacting" the operations of national security agency ASIO and Australia's foreign intelligence agency ASIS.
It used a report on Australia's intelligence agencies to call for the government to quarantine ASIO and ASIS from the "efficiency dividend", an annual cut to Commonwealth agency budgets.
The high cost of security made it "very difficult" for intelligence agencies to find savings without undermining operations, the committee said.
ASIO and ASIS are undergoing a period of reform.
"The committee would consequently like to see these agencies exempt from the efficiency dividend or, if it continues to be applied, provided with funding measures sufficient to deliver the budget certainty required to sustain their operations and adequately respond to the changing security environment."
The efficiency dividend forces Commonwealth departments and agencies to find annual savings, and has reached as high as 4 per cent since Labor introduced it more than 30 years ago.
It will stay at 2 per cent over the next two years. In 2021-22 it will drop to 1.5 per cent, before falling to 1 per cent the following year.
The Coalition said in May it would permanently exempt two other intelligence agencies, the Office of National Intelligence and the Australian Signals Directorate, from the annual cuts.
Intelligence committee MPs - including six from the Coalition - said ASIS reported that funding offsetting the annual budget cuts was falling short.
"What's more, it is unclear whether the supplementary funding will be ongoing, whereas the application of the efficiency dividend to ASIS is expected to continue."
ASIO also reported that it had returned $25.4 million to the government in 2017-18, but that continued savings measures would have a "significant impact" on its capital and operating budgets.
Intelligence agencies reported growth in staff numbers in 2018, the committee report said.
MORE PUBLIC SERVICE NEWS:
ASIO's staffing grew 1.1 per cent, while the then-Office of National Assessments and Australian Signals Directorate also increased in size.
ASIS reported that following a drop in staffing in 2014-15, it had steadily grown since. A slight increase in staff had also made the Defence Intelligence Organisation the largest it had been since 2015-16.
ASIO's government funding grew by $60m in 2017-18, but the agency said its capital budget was under pressure as it replaced assets.
The government will also give additional money to ASIS, the committee said. Funding was estimated to be $528 million in 2017-18, up from $465 million in 2016-17.
The intelligence watchdog has also grown after receiving funding ahead of a recommended expansion of its task overseeing security agencies.