The Productivity Commission report notes there have been improvements in early child development, economic participation, and some areas of health and education.
Indigenous people must have input into policies that affect their lives otherwise structural racism will continue to prevent change, a report has found.
The Productivity Commission's eighth report into Overcoming Indigenous Disadvantage shows imprisonment rates, suicide and self-harm have increased.
The rate of First Nations children in out of home care has also tripled in the last 15 years, a figure community leaders say is leading to a loss of First Nations knowledge, identity and a disconnect from country.
But there have been improvements in early child development, economic participation, and some areas of health and education.
Productivity Commission chair Michael Brennan says the poorer outcomes are a result of the system, and don't occur because people are Indigenous.
"(It) can be attributed to the additional personal challenges and structural barriers faced by many Aboriginal and Torres Strait Islander people," he said.
"Removing these structural barriers is critical if the wellbeing of Aboriginal and Torres Strait Islander people is to improve."
Shared decision making
The call for shared decision making mirrors the approach in the new national agreement on Closing the Gap.
Commissioner Romlie Mokak says Indigenous people's involvement in policy and programs is important for change to occur.
"Governments, even with good intentions, are not those best placed to understand what works to improve outcomes for Aboriginal and Torres Strait Islander people."
The broader community must value Indigenous people and their cultures in order to forge stronger ties and ultimately improve the wellbeing of Aboriginal people, the report says.
The Productivity Commission highlights a range of programs where decision making is shared between Indigenous people and government, resulting in positive outcomes.
The Aboriginal Children's Forum was set up in Victoria in 2015 to ensure children in state care are connected to their culture and community.
It's helped ensure nearly half of the Aboriginal children in care in Victoria have their cases managed by Aboriginal community controlled organisations.
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