It also plans to expand its controversial shared responsibility agreements, target petrol sniffing and substance abuse, and build 20 schools-based sports academies.
By 2010, it hopes to have an all-indigenous boarding school operating in the Northern Territory's Tiwi Islands with 180 students under a shared responsibility contract.
The government will spend $10 million this coming financial year to help establish the college for years 7 to 12 students to be run by the local community.
It also plans to help set up a network of community stores throughout remote country areas through Indigenous Business Australia at a cost of $48 million over four years.
Sports academies based in schools will be rolled out across 20 locations based on a pilot, the Clontarf Football Academy, in Western Australia.
The academies are designed to encourage school attendance among indigenous teenagers and will cost almost $20 million over four years.
Exemptions stripped
But there are also plans to strip exemptions from activity tests for 14,000 indigenous job seekers in remote areas as part of moves to tackle what it calls "passive welfare".
This will force those welfare recipients to take part in mutual obligation activities in order to be eligible for their payments, like job searches and the work-for-the-dole program.
With more than $55 million over the next four years, drug abuse programs in central Australia will be expanded with a particular focus on petrol-sniffing initiatives.
Non-sniffable fuel will become more widely available and drug education programs will be expanded under the funding measures.
The government is using the budget to further its campaign to encourage individual home ownership in indigenous communities.
With an injection of $107 million over the next four years, it plans to extend lending for home buyers and provide additional funding for the construction of 45 new houses and discounts for renters who want to purchase their home.
Up to 460 Aboriginal families are expected to be able to buy a home under the measures.
There will be almost $22 million set aside to give up to 140 low-income families assistance to buy property.