One of the most notoriously politicised bodies, the Administrative Appeals Tribunal, will be abolished after the attorney-general declared its reputation had been irreversibly damaged.
Attorney-General Mark Dreyfus said the former government made dozens of politicised appointments to the AAT in its time in office, and that he would end the "cronyism".
"By appointing 85 former Liberal MPs, failed Liberal candidates, former Liberal staffers and other close Liberal associates, without any merit-based selection process … the former government fatally compromised the AAT," Mr Dreyfus said.
"Australians rightly expect honesty, integrity and accountability in government."
A new review body will be established in the new year, and already-appointed tribunal members will be invited to continue with it.
For almost 50 years the AAT was tasked with reviewing the decisions of government, including on matters of taxation, immigration and social security.
Appointments to the AAT were made by the government of the day for terms of up to seven years, though members could be re-appointed.
Mr Dreyfus said the new body would have a merit-based process for appointing tribunal members, after he accused the former government of sometimes appointing members to review issues such as taxation despite having no expertise in the area.
"The AAT's dysfunction has had a very real cost to the tens of thousands of people who rely on the AAT each year to independently review government decisions that have major and sometimes life-changing impacts on their lives," Mr Dreyfus said.
"Decisions such as whether an older Australian receives an age pension, whether a veteran is compensated for a service injury or whether a participant in the NDIS receives funding for an essential report."
Shadow Attorney-General Julian Leeser said the government's abolition of the AAT made it less accountable to the public.
"This government is all about settling political scores," Mr Leeser said.
"I don't buy Mr Dreyfus's spin there will be a new system up and running almost immediately and that nothing will fall through the cracks. It just won't happen."
Politicised appointments reportedly spiked under Morrison
Accusations of politicised appointments have been levelled at former governments of all stripes, though progressive think tank The Australia Institute found a significant rise in what it deemed political appointments after the Coalition won office in 2013.
The think tank found around 5 per cent of AAT appointments under the Howard, Rudd and Gillard governments had been made to people with political connections, but that jumped to more than one-third of appointments under the Morrison government.
It also found a quarter of senior AAT members who were political appointments had no legal qualifications.
Plum jobs that paid as much as $500,000 were sometimes offered to people in the dying days of government before a federal election.
Former NSW state Liberal minister Pru Goward, former WA Liberal minister Michael Mischin, and Mr Morrison's former chief of staff Anne Duffield were among those appointed to the AAT in the final days of the Morrison government.
The AAT had also faced several accusations of bullying by its members since 2016.
Bill Browne, The Australia Institute's democracy and accountability director, said reform was urgently needed.
"Whatever body replaces the AAT must be robust and independent, and that means the AAT’s replacement must be carefully designed with an open and transparent appointment process that ensures only qualified, independent members are appointed," Mr Browne said.
Australian Lawyers Alliance spokesman Greg Barns SC welcomed the AAT's abolition.
"Mr Dreyfus has the chance to create a new, impartial and fully independent tribunal that deals with thousands of cases each year involving Centrelink issues, tax issues and military compensation, to name some of the areas," he said.
"Today is a win for the rule of law."
Justice Susan Kenney has been appointed as the acting president of the AAT to guide its transition to the new system.
Mr Dreyfus said the new review body would be given 75 additional staff to help clear backlogs, at a cost of $63.4 million.
He said legislation to establish the body would be introduced next year, though likely not until the second half of the year.
Editor's note (16/12/2022): An earlier version of this story said former Liberal minister Don Harwin and musician Tina Arena were appointed by the Morrison government to the AAT. This was incorrect. They were appointed to the Australian Council for the Arts.
