The new entity, Te Matawai, would cost about $2 million a year to run, including fees to its 10 members representing iwi and Maori language bodies.
Te Matawai would also replace the electoral college that oversees Maori TV.
In all, it would take charge of $53m for Maori TV and radio programming, up to $20m for language initiatives such as mentoring and marketing (including a significant boost in next month's Budget), and would also appoint nearly half the members of the NZ on Air board.
The law change is Sharples' last stand before he retires from Parliament at this year's election. But he said it was not about writing himself into the history books or creating a cushy retirement job.
"I'm not here to build a legacy, it's not about that to me."
The law change could provide an election year "win" for the Maori Party. If it is returned to Parliament, it will provide a potential coalition partner for National.
The Herald on Sunday has seen draft Cabinet papers that confirm the two agencies would "cease to be Crown entities" and would be reconstituted as companies, subsidiaries to the new iwi organisation.
This has officials alarmed.
Te Taura Whiri advice, released to the Herald on Sunday under the Official Information Act, says the agency was set up on the advice of the Waitangi Tribunal to fulfil the Crown's obligation to protect the Maori language.
Now, it says, the minister's proposal will breach that obligation while creating "unnecessary duplication and cost".
Treasury and State Services Commission officials are reportedly worried the Government will lose control of millions of dollars of Crown funds, putting it at risk if there are spending problems similar to those of Whanau Ora and Kohanga Reo.
Sharples said the allegations of misspending at a Kohanga Reo subsidiary had sparked official "rumblings" that the new Te Matawai and its subsidiaries could be similarly unaccountable.
"I'm really disappointed about these rumblings," he said. "It's stereotyping, for sure, and that's a form of racism. But let's hope we can get past that. They're being clever officials, risk averse, saying look what's happening over here — we can't have it happening over there. But I think they should weigh it up on its own merits."
The opposition is not only from bureaucrats in Wellington; some Maori are also against the plan.
Willie Jackson, chairman of the Maori Television Electoral College and 21 Maori radio stations, said his board members were "furious" at Sharples' plans to hand off responsibility for the Maori language agencies.
"These are the very people who drove the Maori language renaissance, and now he seeks to sideline them.
"What's ironic is that the renaissance was born and driven by people like Pita in the cities, in West and South Auckland, in Porirua and Wellington, because the tribes didn't give a stuff.
"Iwi are not ready — I know that for a fact. I'm worried for Maori Television, that the iwi and language fundamentalists will take over."
Mana leader Hone Harawira said: "It wipes out 30 years of activism around our reo, and is a huge kick in the face for those who fought long and hard for these gains — and the tens of thousands of whanau who've slogged their guts out for decades to ensure its survival.
"I sincerely hope they're not going to be brought off by the promise of a few high-up jobs for their mates."
