Around 28,000 Canberrans already on the brink were being pushed into further financial destitution, the ACT Council of Society Services has warned.
Cuts that take effect this month include up to a $200 decrease per fortnight for JobKeeper payments, and a $100 decrease per fortnight for the Coronavirus Supplement to JobSeeker.
The government said now was the right time ease up on welfare support payments, but Labor called it premature and a handbrake on the economy.
A single unemployed person without a child would now receive $358 per week or just over $50 per day, while a person with a child would receive $381 per week or $54 per day.
When the supplement was first introduced it doubled the unemployment payment.
ACTCOSS chief executive Dr Emma Campbell said it allowed people to remain physically and mentally healthy while they looked for new job or retraining opportunities.
"For the first time people were able to buy fresh fruit and vegetables, they didn't worry about covering their rent, they were able to go to the dentist, they were able to get their car fixed, they were able to buy clothes for their kids," Dr Campbell said.
"What I don't understand is why it was deemed appropriate to have that level of support then, but now for the tens of thousandas of people who are unemployed in the ACT it's acceptable to lower the rate back to levels that make people financially destitute."
The cuts would also hurt the local economy, Dr Campbell noted, as people on low incomes spent it immediately on food and essentials from their local shops.
"Not only are we causing real cruelty to some of those who are incredibly vulnerable, but we're taking money out of the economy at a time when we really, really need to keep our small businesses going," she said.
Treasurer Josh Frydenberg said the JobKeeper payment was designed to taper off as economic confidence returned. He said Australians had cause for optimism and hope as the nation emerged from the COVID-19 recession.
"We're seeing that through the 734,000 jobs created over the last six months, with fewer businesses and their employees in need of JobKeeper and other temporary economic support," he told The Canberra Times.
The Coronavirus Supplement of $150 per fortnight will end on March 31, 2021. Further announcements on JobSeeker changes would be made this year, the government confirmed last week.
Labor leader Anthony Albanese said the JobSeeker and JobKeeper cuts were unwise and premature, hurting individuals, families, and businesses by reducing economic activity at a time when there was still a major handbrake on the economy.
A permanent increase to JobSeeker should be made, he said, but not necessarily back to the levels of the first Coronavirus Supplement.
"There needs to be a withdrawal at some point in the future of additional payments in terms of JobKeeper support and JobSeeker - we never argued should be maintained at double the old Newstart rate. However, JobSeeker should be increased permanently, and the government should announce that," Mr Albanese said.