The panel, headed by Liberal MP Andrew Hastie, recommended that both bills be redrafted to offer additional protections for citizens.
In its report, the panel said it backed the concerns of those who had made submissions arguing that protections for individual rights should be more clearly outlined.
The bills are officially known as the Identity-matching Services Bill 2019 and the Australian Passports Amendment (Identity-matching Services) Bill 2019.
"Together, the bills aim to make identity-matching easier for prescribed entities whose responsibility it is to safeguard citizens and to reduce identity theft."
The report recommended that both Bills be re-drafted according to principles relating to privacy, transparency, governance, and user obligations.
A hearing into the two bills on 18 October was cancelled.
The report said: "The Committee recommends that the Identity-matching Services Bill 2019 be re-drafted taking into account the following principles:
- "the regime should be built around privacy, transparency and subject to robust safeguards;
- "the regime should be subject to Parliamentary oversight and reasonable, proportionate and transparent functionality;
- "the regime should be one that requires annual reporting on the use of the identity-matching services, and
- "the primary legislation should specifically require that there is a Participation Agreement that sets out the obligations of all parties participating in the identity-matching services in detail."
The PJCIS said the other Passports bill should "be amended to ensure that automated decision-making can only be used for decisions that produce favourable or neutral outcomes for the subject, and that such decisions would not negatively affect a person’s legal rights or obligations, and would not generate a reason to seek review".
It said both bill should be re-submitted for the committee's scrutiny after they were redrafted.
Both bills were presented to Parliament before the May election and hence had to be re-presented after the new government was elected and the new session of Parliament began.