Prime Minister Tony Abbott has denied claims by a Western Australian shipping company that a senior Federal Government bureaucrat suggested it consider sacking its Australian workforce and replacing it with foreign labour.

North Star Cruises Australia (NSCA), which describes itself as a luxury adventure cruise company operating in the Kimberley region, made the claim in a submission to a Senate inquiry looking at the Coalition's proposed deregulation of the shipping industry sector.

The Coastal Shipping Act amendments would include easing labour restrictions, allowing foreign-flagged ships to avoid paying local wages and conditions if in Australia for half a year or less.

The company's submission said the Department of Infrastructure and Regional Development official told the company: "If NSCA wanted to remain competitive with the foreign owned and crewed ships it should ... 'consider taking our ship 'True North' off the Australian Shipping Register, re-register the ship in a suitable foreign country, lay off our Australian crew and hire a cheaper foreign crew'."

"When she suggested this I told her that I could not believe the suggestion she made and she said ... 'to remain competitive in the world that is what we should do'."

Mr Abbott said the allegations were "just not true" and his Government wanted to "restore the situation which operated under the Howard government and end Labor's job-destroying, cost-inflating, coastal shipping regime".

"As a result of changes that the former government made to the rules governing Australian coastal shipping, the Australian coastal shipping fleet halved from 30 ships to 15 ships under Labor's watch," he said.

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"Costs for Australian shipping increased by almost 65 per cent in the first year of Labor's changes and the percentage of Australian freight carried by shipping in Labor's term of office, between 2007 and 2013 dropped from 27 per cent to 17 per cent.

"Labor were absolutely catastrophic for coastal shipping and for jobs in coastal shipping."

A department spokesman said in a statement that it "did not provide" the claimed advice to NSCA.

"The Australian Government is working to build a more competitive and efficient shipping industry and is committed to reforming coastal shipping," the statement read.

North Star Cruises representative Bill Milby told the ABC his company's research showed foreign crew were paid 50 per cent less than what they paid their Australian crews.

"So therefore, we just cannot compete, because the playing field is just not level any more," he said.

"We think that in trying to reduce red tape, the Government and the department has gone too far, and not considered the consequences of the rules and regulations that will be put in place," he said.

Opposition transport spokesman Anthony Albanese seized on the company's claim and attacked the proposed changes.

"That's what they're being advised is the only way they can respond to this act of unilateral economic disarmament," Mr Albanese said.

"No country in the world operates in a way in which this legislation envisages because it would simply destroy the Australian shipping industry.

"There are at least 10,000 jobs in the Australian shipping industry and this will mean that that industry simply can't survive."