The federal government commissioned the report and is considering its response to findings that:

* $2.9 billion has been spent on the Tasmanian Freight Equalisation Scheme over the past 36 years with little improvement, so it should be scrapped.

* Businesses are addicted to the scheme and some may exist only to take advantage of it.

* Neither road or rail infrastructure is up to scratch.

* International shipping is unlikely to return to Bell Bay so the state and federal governments should dump a $150 million expansion plan.

Report author Michael Deegan, of Infrastructure Australia, concluded that the state's freight system was reactive, disjointed, fragmented and costly.

``I am disturbed that despite nearly 36 years of subsidy for Tasmanian freight a series of inequities and inefficiencies remain,'' he said.

He wants the scheme wound back but made recommendations on what should happen if it continues, including referring allegations of fraud to police and asking the nation's competition watchdog to review the system.

Both the state and federal governments have rejected the controversial idea of scrapping the scheme.

A spokesman for federal Infrastructure and Transport Minister Anthony Albanese said he was carrying out another recommendation from Mr Deegan - how to spend $20 million set aside to compensate Tasmanian exporters - and considering the rest.

However, Australian Federal Police last night confirmed officers were investigating.

Mr Deegan said that he had not mentioned fraud lightly, saying: ``I have been a very senior public servant for many years and the fact that I'm even raising this means I take it very seriously.''

Bell Bay Industry Group chairman Bob Gozzi said $100 million a year spent on the Tasmanian scheme was a pittance compared to the money spent on mainland roads.

``It seems to me that this is a bureaucratic view rather than one made in the real world where dramatically increasing costs are making it difficult for Tasmanian exporters to compete on a level playing field,'' he said.

Mr Gozzi said he was not aware of fraud allegations, but had lobbied the Commonwealth to simplify the administration.

His group is pushing for the scheme to be expanded, and also revealed that it would ask the Commonwealth to double the $20 million in compensation and maintain that each year until international shipping returned.