The Federal Government’s remote work-for-the-dole scheme has been labelled ineffective and potentially harmful.

A new report from the Australia Institute says the $1.3 billion Community Development Program (CDP) has failed. The report found that fewer than one in five participants go into an ongoing job, and fewer than one in 10 keep that job for six months or more.

“The CDP is not doing a very good job. It's costing taxpayers more and it's providing disadvantaged jobseekers with less than the programs that came before it,” the report's author Rod Campbell said.

He said people were being “punished … for not having a job”.

The scheme – which runs primarily in areas with a high Aboriginal population – requires participants to complete jobs and activities to receive their Newstart allowance. They usually work 25 hours per week, for about $11.20 an hour.

Welfare recipients are fined for non-attendance or refusing suitable work.

There were 47,729 fines issued in the three months to September 2017 under the Jobstart program — which has 760,000 participants, while in the same quarter 54,758 fines were issued under CDP – which has just 33,000 partiticpants.

The Australian Council of Social Services (ACOSS) and Aboriginal and Torres Strait Islander organisations wants the punishments reduced.

“People [including reports of pregnant women] are going without food for days at a time, and some are disengaging from the social security system entirely,” a letter from ACOSS to the Federal Government obtained by the ABC allegedly states.

“The loss of income is harming people's health, causing deep distress and leading to a loss of social cohesion.”

But Indigenous Affairs Minister Nigel Scullion says ACOSS and Aboriginal organisations have fabricated a “blatant misrepresentation”.

“These allegations are alarming, however I strongly question their validity,” he told reporters.

“I am very concerned that if there is evidence that if this is occurring within communities, that you have not brought this to my attention sooner and in person.”

The Australian Council of Trade Unions (ACTU) wants the CDP scrapped, accusing it of being “racist” because it applies more heavily to Aboriginal and Torres Strait Islander people.