Newly-arrived migrants will be forced to wait longer before receiving a range of welfare payments under a hardline new approach expected to save $1.3 billion.
It will be three years before migrants can receive Newstart or family tax benefits, paid parental leave or carer allowances.
The push to "encourage self-sufficiency" among new migrants was one of the headline savings measures announced by Treasurer Scott Morrison in a mid-year budget outlook on Monday.
Ethnic communities fear extending wait times for Centrelink benefits will create an underclass of migrants.
"The reality is that migrants who come here have always needed time to establish themselves in housing and employment," said Mary Matetsos from the Federation of Ethnic Communities' Councils of Australia.
"These changes make it harder for migrants to settle in this country, for the sake of what is a relatively modest government budget saving."
But Social Services Minister Christian Porter suspects many people would be surprised to learn migrants could access some family and parental payments immediately after arriving in Australia.
"Australians' expectation of newly-arrived migrants is that they contribute socially and economically for a reasonable period before having access to our nation's generous welfare system," Mr Porter said.
Vulnerable people as well as New Zealanders who enter the country under a special visa stream will be granted exemptions.
The changes will require legislation and are due to take effect in July 2018.
Roughly 50,000 families and 30,000 others receiving Centrelink benefits are expected to be stung by the time the scheme is fully implemented in 2020-21.
The Turnbull government also expects to save about $1 billion over the forward estimates by cracking down harder on family daycare payments.
But the government will walk away from a raft of welfare savings measures it has failed to get through the parliament, at a cost of $581 billion.
Money remains allocated for a controversial plan to drug test welfare recipients, despite the trials being put on ice.
Finance Minister Mathias Cormann said the divisive drug testing regime was still coalition policy.
"We remain committed to it and we continue to work with all non-government senators in order to a secure majority (support) for what is a very, very important welfare reform measure," he told reporters in Canberra.
