Judges and magistrates would be required to take into account an offender's Aboriginal background and consider ways to reduce the Indigenous prisoner population under a radical overhaul of sentencing laws drafted by leading lawyers and submitted to a national inquiry.
The blueprint for reducing Indigenous incarceration rates also recommends mandatory sentences be repealed across the country because the laws disproportionately affect Aboriginal offenders.
Attorney-General George Brandis announced an inquiry last year into Aboriginal and Torres Strait Islander incarceration rates, headed by the Australian Law Reform Commission.
In its submission to the inquiry, the NSW Bar Association sets out a series of proposed reforms, including amending state and territory sentencing laws "to expressly require courts to consider the unique systemic and background factors" affecting Indigenous offenders.
Under the plan, the laws would be changed to recognise that the purpose of sentencing includes "ameliorating the over-representation of Aboriginal and Torres Strait Islander peoples in custody" and "providing equal justice in sentencing decisions", among other objectives.
The Bar Association proposal was prepared by a joint working party, including former NSW attorney-general Bob Debus and District Court judge Stephen Norrish, who was a senior counsel assisting the Royal Commission into Aboriginal Deaths in Custody.
The submission is in part a response to a 2013 High Court decision, Bugmy v The Queen, in which the court said the same principles of sentencing applied to Aboriginal and non-Aboriginal offenders and the background of any offender, including social disadvantage, might mitigate the sentence imposed.
The High Court noted sentencing laws in Canada directed judges to give "particular attention to the circumstances of Aboriginal offenders" but this was not the law in NSW.
Bar Association president Arthur Moses, SC, said Indigenous incarceration rates were a "national shame".
In 2015 Aboriginal and Torres Strait Islanders accounted for 27 per cent of the prisoner population - up from 14 per cent in 1991 - while making up just 2 per cent of the general population.
"It is obvious from the increasing rates of Aboriginal incarceration, both in NSW and nationwide, that the justice system as a whole is failing to adequately deal with Indigenous offenders," Mr Moses said.
Legal experts have long called for mandatory sentencing laws, which differ significantly between jurisdictions, to be scrapped to tackle the high rates of Indigenous incarceration.
The Bar Association submission also recommends all levels of government "review provisions that impose mandatory and presumptive sentences with a view to repealing mandatory sentencing provisions".
It said this should be done in conjunction with creating alternative forms of sentencing, including community-based options, "to give effect to culturally appropriate, individualised justice in sentencing cases".
Mr Moses said the association was also concerned that current funding arrangements for Aboriginal and Torres Strait Islander legal services had "not kept up with increased demand and the cost of service delivery".
NSW Attorney-General Mark Speakman told Fairfax Media "the rate of Aboriginal over-representation in NSW prisons is unacceptable" and the government was working on a multi-faceted plan to tackle the problem, including a focus on reducing re-offending.
The government was currently trialling a Youth Koori Court and was considering a proposal for a specialist Indigenous Court for adult offenders, which would be a division of the NSW District Court.
Mr Speakman said he had also announced "a series of criminal justice reforms [in May] including providing judges a broader range of community-based sentencing options, including Intensive Corrections Orders designed to directly address the causes of a person's offending".
In addition, the Justice Department was trialling a program across 46 courts aimed at reducing domestic violence in Aboriginal communities.
Shadow attorney-general Paul Lynch said: "NSW Labor regards the over-representation of Aboriginal people in the criminal justice system as a very significant concern that goes to the core of the sort of society we are."
Mr Lynch said Labor opposed mandatory sentencing and "its impact on imprisonment rates in other jurisdictions has been very serious".
"We look on the Bar Association submission with great interest and have considerable sympathy with the principles they express," he said.