The reforms faced backlash from the opposition, Greens, independents and transparency and integrity organisations as it proposed banning anonymous requests, introducing new charges and making it easier to reject some requests.
Finance Minister Katy Gallagher officially dumped the bill in the Senate on Thursday, saying it was clear the government didn't have enough support to pass the legislation in its current form.
The government needs support from either the Greens or the coalition to pass legislation in the upper house.
"We have an open mind and we'll continue to engage on the final form on the important reforms that we will bring back to the parliament to get on with fixing the FOI system," she told the chamber.
Human Rights Law Centre associate legal director Kieran Pender welcomed the bill's death knell, saying the changes would have undermined the public's right to access information and weakened the system.
"And, in turn, weakened our democracy," he said, calling on the government to now adopt an independent and comprehensive review of the laws.
Centre for Public Integrity executive director Catherine Williams backed that call for a comprehensive review, saying the system was in crisis due to extensive delays and increased secrecy, with it becoming harder for people to access information.
Shadow attorney-general Michaelia Cash described it as a "win for democracy", and accused the government of being addicted to secrecy.
"The coalition will never support the Albanese government silencing Australians," she added.
Labor argued the laws needed to be updated as they hadn't been reformed in decades, pointing to large and complex requests backing up the system and costing the government hundreds of millions of dollars.
The reforms would make it easier to reject vexatious and frivolous requests, the government said when revealing the proposed changes, arguing AI bots and potential criminal and foreign actors abusing the system were threatening its viability.
Still, during a parliamentary inquiry into the matter, departments couldn't produce evidence of AI bots or criminal or foreign actors using the system for nefarious purposes.
Greens senator and the party's justice spokesman David Shoebridge criticised the government's lack of evidence to back up its accusations, saying the real threat was coming from inside the house.
"The threat to the public's right to know isn't from Russian bots, it's from the Labor cabinet," he said.
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