Prime Minister Anthony Albanese says a decision to scrap the cashless debit card will empower communities where it was rolled out.
The government has introduced legislation to parliament for abolishing the cards, which would shift more 17,000 welfare recipients away from the scheme.
Despite criticism from the opposition, Mr Albanese said there was a mandate for the scheme's removal.
"We had a welfare system that was paying a private company to engage in activity with for-profit motive, which was resulting in ... issues being imposed on communities," he told parliament on Thursday.
The debit cards were introduced by the coalition in 2016 and introduced in several communities including Ceduna and Cape York.
The cards allowed for up to 80 per cent of welfare payments to be placed on them, that could not be withdrawn for cash or spent on gambling or alcohol.
Opposition Leader Peter Dutton attacked the decision to remove the cards, saying a university study showed it had led to a decrease in gambling in some areas.
Mr Albanese said it was important for people to have control over their money.
"One of things we have done is to make sure we're about empowering communities, not taking power away from them," he said.
It comes as new entrants will not be allowed to sign up for the cashless debit cards from Monday.
It's estimated about 100 new people per week were being transferred on to the cards.
Social Services Minister Amanda Rishworth said it was the first step in making income management voluntary.
However, she said talks were ongoing about the BasicsCard, which is used in some Northern Territory communities.
"We've said that we want to work with communities in the Northern Territory, about what the future of that type of income management looks like," she told ABC radio on Thursday.
"I would like to have a lot of consultation about that, but our first step is the cashless debit card and we need to meet with people individually."
Ms Rishworth said anyone on the cashless debit card who wanted to remain on voluntary income management would be able to use the BasicsCard instead.
The minister indicated the bill would not mean the end of income management, only for cashless debit cards.
"We said there would always be a voluntary income management option for individuals that chose it or communities that chose it," she said.
"When it comes to the BasicsCard which is broad-based in communities in the Northern Territory, we want to consult about how we move forward with that."
Income management is being used in 12 places across the country, which is not being changed by the legislation.
Those on the debit cards will be able to transition off the scheme from September this year.
