Paying $900 cash bonuses to dead people is stupid, absurd and reckless, the federal coalition says.
But the Rudd government says it's just a fact of life that when people die money goes to their estate.
The Australian Tax Office says $40 million of Labor's second stimulus package has gone to dead people and Australians living overseas.
Finance Minister Lindsay Tanner says it would have been impossible to determine which taxpayers had died recently or were living overseas temporarily before sending out the $900 cheques.
He insists the bonus payments weren't wasted.
"Even where they go to people who are dead, they go to the estate (which) typically is going to consist of ordinary Australians who will in turn get the payments ... and over time spend them," Mr Tanner said.
Further, a substantial proportion of expats living overseas would be coming back to Australia in the "not too distant future".
But that didn't wash with Opposition Leader Malcolm Turnbull.
"It just demonstrates the absurdity of this cash splash," Mr Turnbull told reporters.
"Just shrugging your shoulders and saying it was unavoidable when you're wasting billions of dollars of reckless spending is not good enough."
Opposition treasury spokesman Joe Hockey said the Rudd government's stimulus strategy was a mistake.
"The fact that 16,000 dead people and 27,000 people living overseas are receiving $900 cheques from the Rudd government to stimulate the Australian economy says everything about their financial incompetence and their disregard for taxpayers' money," Mr Hockey told ABC Radio.
"It proves that it was just stupid to send out $900 cheques."
Liberal MP Stuart Robert said the stimulus payments also went to prisoners and pets who were left estates when their owners died.
"This whole thing is bungled, it is rushed," he said.
But Labor argues the $40 million going to dead, overseas and jailed Australians is a fraction of the money paid out as cash bonuses.
"Around 99.5 per cent of the stimulus money went exactly where we intended it to go," Small Business Minister Craig Emerson told ABC Television.
"Do you sit and wait and try and get that up to 100 per cent and have no stimulus ... or get the money out to support Australian jobs?"
Labor MP Janelle Saffin said the payments to the dead were not an error, because that was how the tax system had worked for many years.
"Yes, it's unfortunate and sad that sometimes people die and that money goes to their estates," she said.
"(But) no one is going to change the system while we are in the middle of a global economy sort of falling off the cliff."
About $8 billion has been paid to 8.7 million people so far through the second stimulus package.
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