A report by retired High Court judge Ian Callinan, released in Canberra, says the outbreak could have been avoided if fundamental biosecurity measures had been implemented.
The report is scathing of Australian Quarantine and Inspection Service (AQIS) officers, saying they failed over a number of years to implement adequate biosecurity measures.
"Had such biosecurity measures been in place, it is most unlikely that there could have been any escape of equine influenza from (Sydney's Eastern Creek) quarantine station," the report says.
"Fundamental biosecurity measures were not being implemented in the largest government-operated animal quarantine station in Australia.
"This constituted a serious failure by those within the Department of Agriculture, Fisheries and Forestry and AQIS, who were and had been responsible for the management of post-entry quarantine arrangements."
The report fingers the Eastern Creek Quarantine Station as the source of the outbreak, which swept though NSW and Queensland last August and shut down the industry in those states for three months.
"The best explanation for the simultaneous presence of infected horses at Eastern Creek and (Melbourne's) Spotswood Quarantine stations is that there was a common source of infection and that it came with the horses from Japan rather than the United States," Mr Callinan said.
"The most likely explanation remains that the virus escaped from Eastern Creek on the person, clothing or equipment of a groom, a veterinarian, farrier or other person who had contact with an infected horse and who then left the quarantine station without cleaning or disinfecting adequately or at all."
The report recommends that a position primarily responsible for horse importation be established without delay, and that an inspector-general of horse importation also be appointed.
It also recommends the import conditions for horses provide for a blood sample to be taken while a horse is in pre-export quarantine.
Facilities for unloading and transferring of horses at Sydney Airport should be upgraded without delay and facilities at Tullamarine Airport in Melbourne be constructed urgently.
Mr Callinan was appointed by the previous Howard government to investigate how EI came into Australia.
He handed his report to new Agriculture Minister Tony Burke in April, who released it today.
The virus was first detected in a shuttle stallion at the AQIS-run Eastern Creek quarantine station in Sydney in August last year.
It spread to the broader thoroughbred and leisure horse populations in NSW and Queensland, forcing racing and equestrian events in those states to be shut down for more than three months.
The outbreak also caused severe disruptions to the thoroughbred breeding season.
Earlier this week, Mr Burke announced the federal government would cover the $108 million cost of EI eradication. The government has now spent close to $350 million in the fight against EI.
Mr Burke says the federal government will accept all 38 recommendations of the Callinan report.
"The government is accepting every single one of them," he said.
"Those that can be implemented immediately, will be implemented immediately. We will be working our way through everyone of those recommendations.
Mr Burke said a cultural change in Australia's quarantine systems was urgently needed.
"We have to drive cultural change in our quarantine and biosecurity systems so that Australians can have public confidence in them," Mr Burke told reporters.
"The report found clear inadequacies in Australia's quarantine system."
The deputy secretary and executive director of AQIS, Stephen Hunter, has stood aside as the director of quarantine over the horse flu breakout, Mr Burke said.
The government has appointed Professor Peter Shergold - former head of Prime Minister and Cabinet - to oversee the implementation of the recommendations during the next two years.
© AAP 2008