Some welfare recipients could permanently be on cashless debit cards, as questions are raised on whether the plan breaches the new Closing the Gap agreement.
A Senate inquiry has recommended the bill underpinning the plan pass parliament, but Labor and the Greens have handed down dissenting reports.
Labor says about 68 per cent of people impacted by the bill are First Nations Australians, arguing the plan is racially discriminatory.
"Labor senators are also incredibly disappointed that the government's insistence on this bill is counter to the prime minister's commitments to a new partnership approach to Closing the Gap," they wrote.
"It is not consistent with genuine partnership, or with a First Nations controlled approach to service delivery."
Labor senators pointed to evidence provided to the committee from Australian National University's Tony Dreise, who said the new agreement was about government sharing decisions with Indigenous groups on policy that affect their community.
"I think that this bill risks breaking this promise, just months after the agreement was signed," he said.
"Commitments to a new relationship between government and First Nations peoples need to be taken seriously when considering the current bill before the parliament."
Greens senator Rachel Siewert also says the bill should not pass parliament.
She's dismayed about the government's lack of evidence to support claims the cashless welfare card is beneficial.
The government has not committed to releasing data analysis of the cards before the legislation passes, and the minister had not received the report before deciding to make the scheme permanent.
Senator Siewert is also concerned about the lack of community consultation on the plan, with the measure surprising stakeholders when it appeared in October's federal budget.
The cards freeze up to 80 per cent of Centrelink payments so money can only be spent on what the government deems essential.
It prohibits people from spending money on alcohol, drugs and gambling.
Almost 25,000 welfare recipients in the NT and Cape York would be shifted onto the cards under the changes.
Welfare recipients in South Australia's Ceduna region, the East Kimberley and Goldfields in Western Australia, and Bundaberg and Hervey Bay in Queensland, would also be permanently lumped with the cards.