More than 22,000 Canberrans will be $300 poorer a fortnight when the coronavirus supplement is wound back from Friday.
However industry groups say the high rate has been making it tough to fill vacancies, as businesses recover from the COVID-19 pandemic.
From Friday, the welfare top-up introduced in March will be slashed from $550 to $250.
The supplement effectively doubled payments to people on JobSeeker unemployment benefits, as well as students and single parents, after large parts of the economy were forced to shut due to COVID-19 restrictions.
ACT Council of Social Service chief executive Dr Emma Campbell said before the supplement was introduced, the rates of JobSeeker and other payments were well below the poverty line of $457 per week for a single person.
Now 22,676 people in Canberra stand to have that payment reduced.
"Analysis undertaken as part of our latest ACT Cost of Living Report found that prior to the coronavirus supplement the single rates for Newstart, now JobSeeker, and Youth Allowance were $173 and $226 below the poverty line respectively," Dr Campbell said.
"The addition of $550 per fortnight has seen these payments rise above the poverty line. But, when the supplement is reduced by $300 per fortnight on Friday, these payments will again fall below the poverty line by $45 and $97 per week.
"If the coronavirus supplement ceases completely at the end of the year, we will see the poverty gap return to around $170 and $222 per week for JobSeeker and Youth Allowance."
Before COVID-19, around 30,000 Canberrans were living below the poverty line.
Without the coronavirus supplement, this number would have increased by around 25 per cent, meaning nearly 40,000 people would have been below the breadline in the ACT, Dr Campbell said.
Conservatives say if you look hard enough for a job you'll find one but looking at the number of jobs available right now it's pretty clear unemployment is not a moral failing, it's a function of demand being down.Labor MP Andrew Leigh
However Australian Hotels Association ACT general manager Anthony Brierley said the boosted payment had made it difficult to find staff for hospitality businesses in Canberra.
"The rate needs to be high for people who need it but unfortunately businesses are finding it hard to recruit new staff because they have access to JobSeeker," Mr Brierley said.
"I'm hopeful the ability to work for that $300 a fortnight will make a difference but I'm not all that optimistic."
Mr Brierley feared the introduction of the lower, tiered rate of the JobKeeper wage subsidy from Monday would push more people onto the JobSeeker payment, as there would be less incentive to work.
Hospitality businesses were already struggling to get some staff on JobKeeper to come to work, as they received the wage subsidy whether they turned up or not.
"The number of sick days has been extra high. Some long-term casual employees on JobKeeper have reduced their available hours down to zero, and they still get JobKeeper even though they've made it expressly clear to their employer they cannot work," Mr Brierley said.
"Their employment cannot be terminated because you have to terminate for an employment reason and reducing your hours down to zero is not an employment reason."
However Labor MP Andrew Leigh said there was scant evidence people were refusing to work.
"There's always this debate around unemployment, conservatives say if you look hard enough for a job you'll find one but looking at the number of jobs available right now it's pretty clear unemployment is not a moral failing, it's a function of demand being down," Dr Leigh said.
"We shouldn't be beating up people who can't find work."
Analysis from Labor showed the number of people on JobSeeker and Youth Allowance in Dr Leigh's electorate had risen by 235 per cent since last December. In the seat of Canberra, it has grown by 221 per cent while in Bean, it rose by 221 per cent.
Cuts to flow to wider economy
Bean MP David Smith said the cuts would flow through to local businesses.
According to Labor estimates, around $4.4 million in coronavirus supplements were going out across the three ACT electorates per fortnight.
"We know that those on JobSeeker spend their funds locally, so these cuts will also hurt our local businesses. All at the same time when JobKeeper is being reduced," he said.
Modelling from Deloitte Access Economics found the cut to the JobSeeker supplement in the ACT would reduce consumption per person by $504, and result in the loss of 1120 full-time equivalent jobs in Canberra in 2021-22.
The coronavirus supplement could explain in part the surprising retail figures released on on Wednesday.
Data from the Australian Bureau of Statistics showed while retail turnover fell 4.2 per cent from July to August largely due to the Victorian lockdown, turnover was actually 6.9 per cent higher compared to August 2019.
The bureau's assistant director of retail trade, Ben Faulkner said businesses had reported customers had an ability to spend more than usual.
"We've had some providers saying it's been like Christmas over the last couple of months," Mr Faulkner said.
People started spending more in April and May kitting out their home offices, while in May and June they started spending money on home improvement, Mr Faulkner said. Spending on recreation and sporting goods like bicycles as well as children's toys was also higher than normal.
"We've been really constantly surprised over the past four months at the amount spent by households," Mr Faulkner said.
Canberra Business Chamber chief executive Graham Catt said it was critical to keep money flowing through the ACT economy.
He argued if that spending power was reduced, more jobs would be lost.
"Although I understand some sectors are struggling to find staff with the high rate of JobSeeker there are very strong arguments that the economic benefit of JobSeeker is quite significant and keeping money flowing through the economy," Mr Catt said.