Migrants could be made to wait four years before being able to access welfare support under the federal budget's single biggest savings measure.
The coalition plans to save $671 million over five years by imposing the cost-cutting line item.
The budget papers suggest the savings would be "redirected by the government to fund policy priorities".
Most migrants are already denied immediate access to income support when they first arrive in Australia.
However, the restrictions are not uniform across different allowances.
The length of wait periods, how the time is calculated, and who it applies to can vary from payment to payment.
The latest budget measure seeks to impose a consistent set of rules.
Craig Wallace from the ACT Council of Social Service described the savings measure as cruel and unfair.
"Waiting times for migrants to wait, four years, is deeply unfair, cruel, unusual and hurtful," he told reporters in Canberra on Wednesday.
"It contradicts the calls that we are seeing from many, including business and international students, for migration to return."
Net overseas migration is expected to be in the negative by 97,000 this year and 77,000 next.
Treasurer Josh Frydenberg was asked whether he should be showering new migrants with bouquets of flowers, rather than seeking to punish them.
Mr Frydenberg denied the $671 million savings measure was underpinned by a punitive program.
"We're not stripping support," he told the National Press Club.
"What we're seeking to do is to provide the support to those migrants in the same way that we always have.
"But at the same time when it comes to net overseas migration, ensure that it rebuilds when it is safe to do so."
Mr Frydenberg claimed there were a range of other measures in the budget to support new arrivals.
Australia's tightly sealed border is expected to restrain population growth for several years, with net overseas migration unlikely to return to pre-pandemic levels until the middle of the decade.
Treasury expects a population one million people fewer than previously forecast will hit the budget bottom line through lower tax revenue, and weigh on the outlook for economic growth.
The government does not expect a gradual return to temporary or permanent migration until the middle of 2022.
In the meantime, the government has set aside $465 million over two years to increase capacity at the Christmas Island immigration detention centre.
The budget papers explain the funding will address ongoing capacity pressure caused by the coronavirus pandemic, making it harder to remove "unlawful non-citizens" from Australia.
The government will maintain the migration program at 160,000 places per year, with a focus on granting permanent residency to those already onshore, including families and partners.
The humanitarian program will be maintained at 13,750 places over the next four years.
The coalition says the size of the refugee program will remain as a ceiling, rather than a target.
Australian Associated Press