Opposition Leader Peter Dutton says instead of increasing the JobSeeker payment by $40, the government could lift the cap on how many hours JobSeeker recipients can work before it affects their payments.
The federal government has committed in the federal budget to lifting the base rate of JobSeeker by $40 per fortnight and extending eligibility for a higher rate to people over 55.
The lift has been widely criticised for being insufficient, with advocates saying it will fail to lift recipients out of poverty.
As an alternative, Mr Dutton said the government should consider making it easier for JobSeeker recipients to work more.
"We think the better approach is to allow people on the JobSeeker payment to work say five or 10 hours a fortnight," Mr Dutton said.
"It would give them a lot of extra money in their pocket compared to the $40 that the government is offering.
"We want to get them off welfare and into work".
JobSeeker recipients currently have their payments reduced if they or their partner earn more than $150 a fortnight.
Mr Dutton said there were more than 400,000 job vacancies that could be filled by people on unemployment benefits.
But Australian Council of Social Service CEO Cassandra Goldie said lifting the JobSeeker rate was the absolute priority.
"People who receive the woefully low JobSeeker and other income support payments, including people who are studying, younger people, people who are caring, single parents, people who have an illness or disability and older people [are] all facing financial destitution," Ms Goldie said.
"The Economic Inclusion Advisory Committee found that JobSeeker is so low, it acts as a serious barrier to people getting paid work.
"This won't change unless payments are substantially increased."
Department of Social Services figures from last year showed more than 350,000 people on unemployment payments were unable to work full time due to illness or disability.
That included people with cancer, respiratory illnesses, musculoskeletal conditions and most commonly psychological or psychiatric conditions.
That cohort, about 43 per cent of JobSeeker recipients, had a "partial capacity to work" 15 to 30 hours a week.
Prime Minister Anthony Albanese dismissed Mr Dutton's proposal, saying the Opposition Leader had an opportunity to improve JobSeeker when he was in cabinet in the former government, but did not act.
However, the PM said, that there was an opportunity to find more work for some people receiving JobSeeker.
"There are many job vacancies, there are many people who need and want work, how is the system working to get those people into employment?" Mr Albanese asked.
"That is something that we have a committee looking at, about how employment services reform can work in the future."
A raft of independent MPs — including Allegra Spender — had pushed for substantial JobSeeker lifts ahead of the government's federal budget.
Ms Spender said the scheme also needed longer-term fixes, and she would consider the detail of Mr Dutton's proposal.
"I support the principle of withdrawing JobSeeker more gently as people return to work to ensure people return to work," Ms Spender said.
"But it wouldn't be enough to support all the long-term unemployed back into work. We need to have a hard look at our programs for supporting people into the workforce."
