The Federal Government's plans to overhaul Indigenous welfare have been condemned as racially discriminatory by Aboriginal leaders.

Indigenous Affairs Minister Senator Amanda Vanstone says she wants to see an end to remote community exemptions from mutual obligation rules in favour of shared responsibility agreements.

These could include sanctions for parents who do not care for their children properly or bans on children using community pools if they do not attend school.

But Indigenous rights advocate and former social justice commissioner, Professor Mick Dodson, says the Government is blaming Indigenous Australians for its own failure to provide for their communities.

"I think this is wrong, I think this is racially discriminatory, the ends doesn't justify the means in my view," he said.

"You shouldn't violate people's rights, their human rights, their right to be free of discrimination in order to put in place some sort of social experiment."

Aboriginal and Torres Straits Islander Commission (ATSIC) Central Zone Commissioner Alison Anderson also opposes the plans, saying they are a step back for her people.

She says state and federal Governments have failed to police truancy in remote Indigenous communities.

She has dismissed Senator Vanstone's appointed national advisory group, the National Indigenous Council.

"I think John Howard and Amanda Vanstone have caused separatism in this country," she said.

"There are two laws now, one for the non-Indigenous people and one for the Aboriginal people in this country.

"I think, like Pat Dodson said, I think this country has gone absolutely mad under the leadership of John Howard and Amanda Vanstone."

Regional chairman of Darwin's ATSIC Yilli Rreung Regional Council, Kimberley Hunter, says the proposal borders on being racist.

Mr Hunter says the Government is taking the wrong approach.

"Let's talk about some real gains in our communities," he said.

"Let's get back to the simple fact it needs resources, it needs a lot of work on addressing those issues."

'Timely' change

The Opposition's Kim Carr says conditions are so bad in Indigenous communities that radical action is required, but he is wary of moves to sanction parents.

"I'm very concerned about notions of punishment being imposed on people because the Government doesn't like the way they treat their kids," he said.

Senator Carr says he remains to be convinced that the changes will be introduced in partnership with the communities they affect, as Senator Vanstone has promised.

And the Liberals' parliamentary secretary for finance, Sharman Stone, says Indigenous families need support, not punishment.

"It's the Aboriginal elders themselves who can make that recommendation," she said.

"I don't think the non-Indigenous community of Australia can take a punitive approach which could only lead to resentment and hostility - not the outcomes everybody wants."

But Prime Minister John Howard has backed an end to passive welfare payments.

Mr Howard says the move is timely.

"The idea of passive welfare is an idea whose time has passed," he said.