The proposed reforms would mean new migrants would need to be residents for three years to access payments, including Newstart and the Youth Allowance.
The waiting period has been two years since 1997.
Social Services Minister Dan Tehan says significant growth in welfare expenditure means the changes are necessary to secure the future of the welfare system.
"Fiscally responsible decisions are required to ensure the ongoing sustainability of the welfare-payment system. This bill will extend the existing waiting period from two years to three years. This will ensure that migrants support themselves for longer when they first settle permanently in Australia, reducing the burden on the welfare-payment system. Three years is a reasonable period to expect permanent migrants to support themselves, whether through work, existing resources or family support."
Also making migrants wait three years to access low-income and senior concession cards, plus bereavement, widow, parenting and carer payments, is projected to save as much as $1.3 billion.
Existing exemptions, including for humanitarian entrants and New Zealanders, would continue.
Federation of Ethnic Communities' Councils of Australia spokeswoman Mary Patetsos says the measures risk creating an underclass. "It just doesn't make sense for us to do anything that creates vulnerable people at the bottom end of a socio-economic ladder who feel so susceptible and challenged to succeed that they give up."
"It's just not the way we've run this country, and I don't think we should be like that in the future."
Ms Patetsos says migrants have always needed time to establish themselves in housing and employment.
She says the proposed legislation could have dire repercussions for the settlement process.
"It's really about what it is that makes successful migration, and then settlement, occur. Any introduction of further hardship which puts at jeopardy successful settlement, I think, is problematic."
Multicultural Youth Advocacy Network chairwoman Carmel Guerra says she agrees.
She says measures such as delayed access to Newstart and the Youth Allowance are particularly troubling.
"It's always deeply concerning when government is constantly looking at cutting the benefits from young people when, generally, they are the group of new migrants who have the most optimism to want to contribute. And it feels like we're often punishing them because they do contribute in a short to medium term. And I think the savings are minimal to the benefits they gain if they give young people income to live and contribute to the community."
Ms Guerra says communities would be placed under enormous stress.
She says there are fears some members of the community would be forced to find other, less-than-ideal ways to get money.
"Creating a different level of benefits for people living in a country like Australia which has had a history of a safety net can only lead to situations where some people will feel undervalued and maybe resorting to other ways of meeting their everyday needs if they're not getting an income."
