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Tax breaks and incentives for mineworkers should favour those who live permanently near their workplace in a bid to discourage the use of fly-in, fly-out labour, a Federal parliamentary inquiry has recommended.

The inquiry's chairman insisted the report was not anti-mining but the industry warned changes could force up project costs and risk jobs.

The 18-month inquiry by Parliament's regional Australia committee into the use of FIFO workforces has savaged the practice, finding it could "hollow out" regional towns.

The report, Cancer of the Bush or Salvation for Our Cities?, has urged Canberra to review tax incentives that committee members feel have fuelled the increase in FIFO workers.

Among 21 recommendations to the Government, the report backed scrapping the fringe benefit tax exemptions enjoyed by mining companies who provide travel and accommodation for their FIFO workers and ending the exemption for mineworkers from the 12-month limit for the living-away-from-home allowance.

The zonal tax rebate, which can be claimed for working at least 183 days a year in remote areas, should be increased but paid only to eligible permanent residents.

The report also backed releasing land around mines to make housing more affordable and praised the WA Nationals' Royalties for Regions policy as a good way to boost rural infrastructure and services.

It highlighted concerns with the current system, including local residents taking home less pay than FIFOs despite doing the same jobs and housing supplied by companies to permanent residents often attracting FBT.

Committee chairman Tony Windsor said the system financially disadvantaged people living near their work.

"Rather than have an incentive to fly in and fly out, you could cancel the incentive and have an incentive to live there," he said.

The Government will consider the recommendations.

Industry groups attacked the report.

Association of Mining and Exploration Companies chief Simon Bennison said scrapping FBT exemptions could cost jobs. "Now is not the time to be adding any more costs on to industry," he said.

Australian Mines and Metals Association chief Steve Knott said FIFO arrangements were driven as much by employees' lifestyle choices as companies' needs.

WA Chamber of Minerals and Energy chief Reg Howard-Smith said it would be harder for companies to hire staff if they tried to force residential employment on their workforce.

Port Hedland mayor Kelly Howlett said removing the FBT exemptions would encourage local workforces.

Construction, Forestry, Mining and Energy Union national president Tony Maher said mining companies should have to prove they had no alternative before being allowed to fly in workers.