The head of the New South Wales anti-corruption commission has warned that funding cuts that will leave the agency with a $4m shortfall will have an “immediate and serious” effect on its ability to fight corruption.

The chief commissioner, Peter Hall, appeared before NSW parliament to deliver a dire warning about the $673,000 in cuts forecast for next financial year, which will leave it $3.94m short of the $28.84m funding it requires to “maintain the tempo” of its current operations.

“Such reductions would of course have an immediate and serious effect on the commission’s frontline services, and therefore its ability to fight corruption,” Hall said.

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Hall said the Independent Commission Against Corruption could make the savings only by cutting frontline staff, including “investigators, lawyers and other key staff”. Its back office had already been cut as far as possible to cope with previous funding reductions, he said.

Hall has proposed a new funding model for Icac that guarantees its independence and removes it from the whims of usual government funding of agencies. He has submitted a detailed report – which is yet to be made public – on the model to the premier.

“Something must be done, it must be done quickly,” he said.

“If the commission’s funding under the persuasion or influence of the executive of government, or for any other reason, is reduced or constrained, that of course would inflict considerable damage to the commission’s ability to function.

“While it may brighten the day of perpetrators of corrupt conduct to know that, it would be a sad day indeed for our community.”

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Hall, speaking to the NSW parliament’s committee on Icac, said the current funding model worked on a fundamental misapprehension that Icac was like any other government agency.

“The commission cannot park, or not investigate matters … on the basis that it might not have enough money in its budget, and leave it, or have to leave it to the next financial year,” he said.

“To do that would of course allow corrupt officials and those who deal with them to proceed on with their corrupt schemes and practices, unaffected of course, to the detriment of the state of NSW.

“We do not produce X amount of services per budget year … plainly anti-corruption work does not work like that. We reprioritise so far as we are able to and will always seek additional required funding if there is a case that warrants it in the public interest. Our funding should not be constrained, as government agencies are restrained, by the principle to which I have referred.”

Icac is currently engaged in two critical inquiries: one examining an alleged scheme to cover up $100,000 in unlawful donations to Labor, and another investigating the operation of lobbying in the state.

The NSW opposition has previously warned the watchdog is being starved of resources, as were the state’s ombudsman, the information and privacy commissioner and the Law Enforcement Conduct Commission.