Society's most vulnerable will suffer further disadvantage if the government pushes ahead with the national rollout of compulsory income management, welfare groups warn.
The federal government wants to force welfare recipients in disadvantaged areas to spend half of their payments on essentials like food and clothing.
The quarantining already applies to 73 indigenous communities in the Northern Territory, under the federal intervention to curb child abuse and neglect.
The government says it has had a positive impact in the prescribed communities, and should be extended across the country.
"The reforms will help fight passive welfare and means more money goes to food, clothes, rent and less to buying alcohol and gambling," Families Minister Jenny Macklin said.
"There are families and children who need this support in many parts of Australia."
But the nation's peak welfare group - The Australian Council of Social Service - has urged caution against the move.
The council's CEO Clare Martin says disadvantage remains high in communities that have had quarantining in place for more than two years.
"There has been no improvement in school attendance and sales of cigarettes have remained steady," she said in a statement.
One of the largest community service providers - Uniting Care Australia - says the measure will "demonise" people who need support.
"What is not acceptable is involuntary and indiscriminately quarantining ... and failing to deliver on the deeper causes of hardship and deprivation," national director Lin Hatfield Dodds said in a statement.
The Australian Greens say it's a "paternalistic approach" that will severely restrict the choices of the disadvantaged.
"It is unbelievable the government thinks that because some people are unemployed or single parents they can't look after their children or manage money," community services spokesperson Rachel Siewert said.
Senator Siewert says the government is also using the plan to justify the failed intervention.
The move will also ensure that the government can maintain income management in the NT without contravening the Racial Discrimination Act.
The government plans to reinstate the act, which was suspended by the previous Howard government to allow for some of the intervention's more extreme measures, including grog and pornography bans.
The government will repeal the intervention income management measures, but continue income management in the communities under the new plan.
The measures will be rolled out across all disadvantaged areas across the NT from next year.
They will then be reviewed, before being extended across the country.
Requests for exemptions will be based on an individual's proven record of responsible parenting.
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