Anti-Semitism envoy Jillian Segal on Thursday handed down her report on combating hatred against Jewish people.
She recommended Australia adopt the International Holocaust Remembrance Alliance's (IHRA) definition of anti-Semitism, which some groups argue conflates criticism of Israel.
The report also urges the government to cut funding to universities, programs or academics that enable or fail to act against anti-Semitism.
All public funding agreements with festivals or cultural institutions should include terms to allow for the termination of the agreement when they promote or facilitate hatred, it says.
Prime Minister Anthony Albanese is mulling over the findings, and is yet to commit to implementing the recommendations.
Senator Paterson said the IHRA definition was important, because what constitutes anti-Semitism is highly contested.
"It has been a very helpful tool and helpful guideline. No one in Australia, though, is proposing that (it) should be legislated or that there should be consequences under the law for transgressing IHRA," he told ABC's RN on Tuesday.
"I don't think anyone should propose that. I don't think that'd be consistent with Australia's approach to free speech."
Ms Segal has been called on to resign in recent days after revelations a trust linked to her husband made a donation to a right-wing lobby group.
Her husband, John Roth, is a director of Henroth Discretionary Trust, which gave $50,000 to Advance Australia in the 2023/24 financial year.
The envoy is not listed as a director or shareholder of the company, Henroth Investments Pty Ltd, which made the payment.
Ms Segal said she had no involvement with her husband's donations.
Former foreign minister Bob Carr said the envoy must clarify that she does not share her husband's political views.
"What I'm asking for her is a full bodied repudiation of views that are every bit as repugnant as the anti-Semitism that she focuses on and she addresses," he told Sky News.
Home Affairs Minister Tony Burke defended Ms Segal, saying she should not be held accountable for the actions of a man.
"It's a long time since we've been a country where you would blame a woman for decisions of her husband," he told ABC's 7.30 on Monday.
"She said she didn't know about it, and I've got no reason to do anything other than believe her."
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