Continued cost-cutting could have "catastrophic" consequences for Australia's intelligence agencies, a parliamentary committee warns.
The joint houses intelligence and security committee, in a report tabled on Monday, said savings measures "places Australia's national security at risk".
The warning comes as the government prepares to boost the powers of the police and security agencies after raising the terror threat for Australia.
The report scrutinises the administration and expenditure of Australia's intelligence community (AIC), which comprises six intelligence agencies, over two years - 2011-12 and 2012-13.
In tabling the report, committee chairman Liberal Dan Tehan said budget constraints were placing the agencies under increasing pressure.
Mr Tehan said the agencies have warned of the impact on their operational capacity since 2010 and the warning was reiterated even more strongly during the current review.
The domestic spy agency ASIO told the committee that while it had so far adapted to tighter funding without significantly harming its core operations, it would be increasingly difficult to do so in the future without adverse operational effects.
The committee said it couldn't determine at what point there might be a "significant diminution of core operations".
While agencies were prudently absorbing the impact of the efficiency dividend and other revenue cuts, it was clear that they were reaching or had reached the point where they may no longer be able to address security priorities if current funding patterns continue.
The committee said it had sufficient evidence to demonstrate that continued cuts would affect operations.
"Further, as ASIO submitted, the unique skills and capability of our intelligence officers and agencies is acquired over time," the committee said.
"If agencies do not have the resources required to develop and maintain the skills necessary to meet the changing security environment, the consequences could be catastrophic.
"...the ongoing application of the efficiency dividend or other savings measures to the AIC places Australia's national security at risk."
The committee formally recommended that the government review the savings measures imposed on the agencies, with particular consideration given to the impact of cost cutting on operational capacity.
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