The Morrison government is under attack for wanting to broaden the cashless welfare card rather than increasing Newstart.
Welfare advocates have condemned reports the Morrison government is working on a sweeping expansion of its cashless welfare card, saying it will compound the shame many people feel about being unemployed.
Nine newspapers say the government is working with the big four banks, along with supermarket chains Coles and Woolworths, on technical issues to expand the scheme that will impose new controls on social security payments.
The scheme blocks spending on items such as alcohol and gambling.
The Australian Council of Social Service described the expansion as a "shameless attempt" to distract from the mounting support for Newstart to be raised after 26 years without a real increase.
"People on social security know better than most about budgeting and don't need the federal government to teach them," ACOSS CEO Cassandra Goldie said in a statement on Saturday.
"The cashless debit card costs thousands per person to administer. This is a waste of money going to the big banks. These public funds should be going towards increasing Newstart."
But Social Services Minister Anne Ruston told Nine there was "absolutely" a case to introduce the cashless welfare card in major cities given the results in regional Queensland, South Australia and Western Australia.
"The reason we haven't done it in the major cities is because we need to deal with the technology issue, which we are now close to resolving," she said.
"For this to be a mainstream financial literacy tool for Australia it does need to be rolled out away from just rural and regional communities."
Labor frontbencher Jason Clare said while the government wants people to manage their money better, he didn't think this was the way to do it.
He reminded reporters in Sydney that Newstart recipients are not the stereotype dole bludger surfing on the coast.
He said one-in-four people on Newstart is over the age of 55, who have "worked their guts out their whole life" and been thrown on the economic scrap heap.
"Now the Government wants to whack this card on them. Punish them. Holding them in contempt," Mr Clare said.
"You know, I just don't think this is the right approach."
The Greens described the plan as the government's "ideological obsession" with punishing people on income support.
"There is absolutely no evidence to show that income management works and its just plain cruel to go ahead with a damaging and expensive scheme like this when we have people living in poverty on Newstart," Greens senator Rachel Siewert said in a statement.