Prominent indigenous academic Marcia Langton says Aboriginal people in big cities are not disadvantaged, and handing out taxpayer funds to help them is hurting those in desperate need.
Professor Langton, from the University of Melbourne's Indigenous Studies department, said she was "prepared to stand up and say: yes I am indigenous but I am not disadvantaged".
"We have to get a bit tough and up to 50 per cent of the indigenous population could stand with me and say I am indigenous but I am not disadvantaged like people in the Northern Territory," she said at the Garma Aboriginal festival in Arnhem Land.
The Commonwealth Grants Commission allocates GST funds to the states and territories under the horizontal equalisation formula aimed at tackling areas in need, with indigeneity an important factor.
But the Northern Territory is experiencing a decline in its share of the national indigenous population, according to census data relied on to hand out funds.
But it is not the reality with increasing numbers of people in cities identifying as Aboriginal when they complete the census, Professor Langton said.
"It is drawing money away from a desperate need in the Northern Territory," she said.
"Those states are able to take grants commission allocations for an Aboriginal population with none of the needs of the population here."
She also estimated you could add another 25 per cent to the NT's Indigenous population including people not counted on the census.
That equalisation system had to change and she accused the grants commission of not publishing data on its model for how they assessed benefits for remotely-based indigenous people and having a "lot to hide".
Prof Langton also criticised the Territory Government, accusing it of spending vast amounts of Commonwealth money meant to tackle Aboriginal disadvantage but instead used for "white towns" in the 40 years since self-government was granted.
"What you have here is a very sick form of apartheid that the Commonwealth funds which grows worse every year," she said.
"The Northern Territory is a failed state."
Accountant and former NT council of social services president Barry Hansen presented more than a decade's data that found the NT government was at times underspending by $500 million-a-year - funds that were supposed to be spent on indigenous disadvantage.
Garma festival director and chief executive of the Yothu Yindi Foundation Denise Bowden also accused the NT government of siphoning hundreds of millions of dollars meant to address Aboriginal disadvantage.
The NT's Aboriginal Affairs Minister Selena Uibo rejected Ms Bowden's comments as very unhelpful and "blanket statements" given without context.
The NT's education system, for instance, was moving towards a needs-based model that supported vulnerable Indigenous students, she said.