Right: cattleman knight Sir Graham McCamley, who says the reintroduction of knighthoods is not necessary.
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Background information
The British Imperial honours system
The Normans, who took England from the Anglo-Saxons in 1066, introduced knighthoods as part of their feudal government. The first English order of chivalry, the Order of the Garter, was created in 1348 by King Edward III. Since then, the British honours system has expanded from a system of rewards to those in favour with the monarch into a means of recognising individuals' personal bravery, achievement, or service to the United Kingdom and the British Overseas Territories.
Under this system, citizens of British colonies and former colonies were awarded knighthoods and other honours directly by the reigning British monarch, mainly on recommendation from the government of the colony or former colony.
The Australian honours system
The imperial system was in place in Australia until 1975, when the Whitlam Labor government created the Australian honours system, which included the AO, or Order of Australia, and other honours. The highest honour under this new system was Companion of the Order of Australia.
Under the system instituted by the Whitlam government, the Federal Government would recommend only the Australian honours to the Queen, who, as the Queen of Australia, would follow her government's advice. However, State Governors could still, on the advice of their State Premiers, submit recommendations for imperial honours, such as the Order of the British Empire, or OBE. (This was a hangover from pre-federation and, despite the former colonies becoming states in the Commonwealth of Australia, the individual state governors were still viceroys, or representatives of the British monarch in the various states.)
When the Whitlam Government lost power, late in 1975, the new Liberal Government, led by Malcolm Fraser, retained the Australian honours, but reintroduced recommendations for some imperial awards. The Fraser Liberal Government advised the Queen to create the categories of Knight and Dame of the Order of Australia. Over the next ten years, twelve knights and two dames of the Order of Australia were created.
In 1986, the incoming Hawke Labor Government advised the queen to discontinue the categories of Australian knight and dame. States governments were given a decade to cease making recommendations to the Monarch that such titles be conferred. Most of the states followed suit. Tasmania and Queensland made imperial honours recommendations in 1989 but, after the defeat of their governments later in that year, no British imperial honours were put forward by any Australian government. In 1992, Prime Minister Paul Keating announced that no more recommendations for British awards would be made. Australian citizens, however, remained eligible for honours in the personal gift of the Sovereign, such as the Royal Victorian Order or the Order of the Garter.
In March 2014, the newly-elected Liberal Prime Minister of Australia, Tony Abbott, announced that he had advised the Queen that the categories of knight and dame of the Order of Australia should be reintroduced. Mr Abbott named the outgoing Governor-General, Quentin Bryce, and her successor, Peter Cosgrove, as the first persons to receive these honours under the new regime.
Mr Abbott has indicated that just four knighthoods and / or dameships would be bestowed each year upon the recommendation of the prime minister. New and outgoing governors-general would automatically receive the title and other recipients would, generally, be those who have accepted public office rather than sought it.
Note: In reintroducing knights and dames, Tony Abbott was not reinstituting imperial honours. The knight and dame of the Order of Australia are purely Australian titles.