The Productivity Commission has heeded a call from RSL Tasmania to not transfer responsibility of veteran welfare, rehabilitation and compensation to the Defence Department.
The commission last week released its review of compensation and rehabilitation services for veterans, contained in a 930-page report titled A Better Way to Support Veterans.
It found the system, run by the Veterans' Affairs Department, placed unwarranted stress on claimants and that there were inefficiencies in having the responsibility of veterans support split between the department and the Defence Department.
An earlier recommendation the Veterans' Affairs Department be abolished was removed from the final report.
The commission has recommended more attention be paid to rehabilitation and transitional support as well as prevention of injury and illness.
It recommended an annual levy be applied to the Defence Department to cover future compensation claims under two separate schemes: one for older veterans with service experience and another for all other veterans.
The commission also recommended the Veterans' Affairs Department trail an allowance for veterans to participate in education or vocational training once they left the defence force.
RSL Tasmania was one of 300 organisations and individuals which made submissions to the review.
It said any notion of giving the Defence Department responsibility over veteran support services should be "strongly resisted".
"Defence do not appear to have a good record of responsibility of care for members with regard to rehabilitation, either during service, or once the member has transitioned from the military," it said.
"Defence are more interested in maintaining defence capability, as they should, and have little use of broken service men and women.
"It appears that the sooner they are gone, they may be able to get a fit replacement."
The organisation said any rehabilitation program being undertaken at the time of discharge should continue to be provided by the Defence Department until compensation claims were settled by Veterans' Affairs Department.
The Defence Department introduced work health and safety incident reporting system Sentinel in 2014.
The commission found during its investigation that incidences were often underreported.
Wynyard RSL sub-branch noted that the system was not user-friendly and was "highly impersonal".