"If ever a country in a strong financial position owed something to some of its citizens - this nation owes to the farmers of Australia the support they need to get through this terrible drought," Mr Howard told reporters.
All eligible primary producers, including irrigators, in exceptional circumstances-declared areas will be able to access the extra money.
"Probably 25 per cent - one in four - of farmers receives assistance," Federal Agriculture Minister Peter McGauran said.
Mr McGauran said the new structure of the grants could potentially bring thousands of farmers under the scheme.
"You would be talking thousands rather than tens of thousands I would think, but as the drought worsens you can't be certain of the final figure," Mr McGauran said.
There are 65 regions across Australia under exceptional circumstances declarations, farmers in 18 of those areas will have their income support and interest rate subsidies extended until March 31, 2008.
"This will provide a great deal of reassurance and relief to people in the affected areas,” Mr Howard said.
"Clearly this is an area where, within reason, the government will commit the resources that are needed to help people," he said.
Opposition Leader Kim Beazley says Labor will support the government in providing whatever it takes to relieve the effects of the drought on farmers.