Existing drought-assistance measures would go and no new areas would be drought-declared.

The draft Productivity Commission report finds that current measures encourage dependence and are beyond public scrutiny.

The commission says that weeks before the 2007 election, the Howard government declared 14 areas eligible for interim drought assistance without receiving applications from the communities or state governments concerned.

In late 2006, it lifted the maximum drought interest rate subsidy payable over five years from $300,000 to $500,000 and then a year later, before the election, raised it to $700,000.

Despite "stringent criteria" that limit the declaration of exceptional circumstances drought assistance to areas suffering from a once in 20-to-25-year drought, "as at June 2008, more than half of the country was declared and some areas had been declared for 13 of the past 16 years".

"When compared with rainfall records, it would appear that a generous interpretation of the criteria, rather than protracted low rainfall, is mainly responsible for such widespread declarations," the report says.

It says the entire process "lacks transparency" and that deciding who is eligible for assistance on the basis of "lines on maps" is "divisive within and between communities".

It quotes farmers who say the process promotes "worst-practice farming, ie to overgraze and overspend in good times, knowing the criteria for subsidy will be met in the drought".

The draft report proposes ending all drought-specific assistance schemes from mid-2009 and replacing them with assistance, available to all farmers in difficulty, set at the level of the dole and delivered through Centrelink rather than agricultural departments.

The payment would be subject to an assets cap and would be conditional on the farmers seeking independent financial advice about the viability of their business and taking action to improve their self-reliance.

No new areas would be drought-declared and all existing declarations would end on June 30, 2010.

The National Party's agriculture spokesman John Cobb described parts of the report as "garbage" and said not even the best farmers could have prepared for the current drought.

The National Farmers' Federation said it supported moving the criteria for farm support away from drought but that the Productivity Commission appeared to be putting nothing in its place.

The commission will deliver the final version of its report to the Government in February.