Welfare recipients could soon be required to report their actual fortnightly earnings to Centrelink, instead of providing a calculation based on their wage and hours worked.
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The federal government believes making the switch could save $2.1 billion in overpayments.
But Australia's peak welfare body has vowed to closely scrutinise the proposal, concerned it could lead to another robo-debt type of debacle.
Social Services Minister Anne Ruston said the currently system of calculating earnings could be confusing and lead to misreporting, especially when accounting for overtime or penalty rates.
"These changes will make accurate reporting much easier for people getting a social security payment," Senator Ruston said on Tuesday.
The changes would also allow welfare recipients' employment and income data to be pre-filled online, as occurs with tax returns.
By simplifying the reporting system, the coalition hopes Centrelink payments will become more accurate, and prevent welfare recipients being owed money or paid too much.
The proposal comes months after the government's welfare payment recovery system, known as robo-debt, was ruled unlawful after a challenge in the Federal Court.
The government has wound back the scheme, which is also facing a potential class action lawsuit.
The Australian Council of Social Services says it will scrutinise the draft legislation underpinning Tuesday's announcement to ensure automated income averaging isn't used, as was the case with robo-debt.
"We still don't know how much the government owes people who have paid false robo-debts over the past three years," ACOSS chief executive Cassandra Goldie said.
"Whatever savings the government expects to make with automating reporting of income, it must factor in money owed to potentially thousands of people who were wrongly charged with robo-debts since 2016."
The draft legislation is expected to be released for consultation this week, before parliament resumes next week.
Labor's government services spokesman Bill Shorten is yet to see the draft legislation, but has lashed the coalition for attempting to prop up its "unicorn surplus" by saving $2 billion from welfare.
"Labor supports legitimate and accurate debt recovery with proper human oversight," Mr Shorten said.
"If the government is serious about accuracy of welfare it needs to break its silence on its plan to repay Australians harassed by robo-debt into handing over money they did not owe."
Australian Associated Press
