Cuts to JobKeeper which start on Monday will remove critical support from the economy, Labor says.
But the federal government insists now is the right time to taper payments, as business and consumer confidence starts to recover.
From Monday, people on the top rate of JobKeeper will see their payments cut by $200 a fortnight, while workers on the lower part-time rate will face a cut of $100.
Labor finance spokeswoman Katy Gallagher said 1.6 million Australians relied on the payment.
"These cuts will reduce critical support from the economy including from small businesses, regional communities and vulnerable Australians at a time of heightened uncertainty and new COVID-19 outbreaks," she said.
The reduction comes as 2.2 million Australians are looking for work or more work, and government figures show unemployment is expected to hit 7.5 per cent in the March quarter.
Labor industrial relations spokesman Tony Burke said there was added stress on businesses particularly in parts of Sydney and surrounding tourist regions.
"Many business owners are seeing holiday bookings cancelled or empty tables in their cafes and restaurants at what is usually their busiest time of the year," he said.
Government support must be tailored to changing economic conditions and targeted to the hardest-hit parts of the economy, Labor said.
Treasurer Josh Frydenberg told AAP the government had always said JobKeeper was to be a temporary program designed to taper off as economic confidence and momentum builds.
"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," Mr Frydenberg said.
He said the government's economic recovery plan also included a range of stimulus measures to keep Australians in jobs and business in business, including personal income tax cuts and the JobMaker hiring credit.
"With our economic recovery well under way, Australians have cause for optimism and hope as we emerge from the COVID-19 recession."