Queensland has introduced legislation that will allow it to discriminate against New Zealanders by blocking access to government aid.
The legislation is contained in amendments to the state's Anti-Discrimination Act, included in a bill to establish boot camps for young offenders.
It follows an out-of-court settlement with disabled New Zealander Hannah Campbell, who has cerebral palsy and requires fulltime care.
In a hearing New Zealand advocates hoped would become a test case for the increasing exclusion of Kiwis from a wide range of benefits, concessions and government assistance across Australia, 20-year-old Ms Campbell challenged the refusal of disability payments on the basis of discrimination.
The claim centred on the fact that the special category visa applies only to New Zealanders, and exclusion on that basis contravened the Anti-Discrimination Act's provisions covering race, nationality and ethnicity.
The Queensland Government defended its position by defining Ms Campbell as a temporary resident because of the special category visa she was granted on arrival in 2006.
All New Zealanders arriving after February 2001 are subject to such visas, which allow unlimited residence and employment, but deny them access to the dole, and many social welfare payments and other safety nets.
Recent exclusions include ineligibility for emergency housing in New South Wales, and student travel concessions in Victoria.
Australians living in New Zealand are eligible for most benefits and other payments.
The Queensland Civil and Administrative Tribunal said Ms Campbell appeared to have a strong case of direct discrimination under the state's anti-discrimination laws.
"The claimant's position should be regarded as strong, and any reasonable settlement ought to obtain a result close to that of a successful claim."
But the state's decision to settle denied New Zealand advocates the opportunity of a test case to use in other litigation, and the Queensland Government is now preparing to sidestep further challenges by amending the Anti-Discrimination Act.
The amendments are included in the Youth Justice (Boot Camp Orders) and Other Legislation Amendment Bill, the primary purpose of which is to allow the sentencing of young offenders to a month in a boot camp centre, where they would take part in physical training, health and substance abuse programmes.
The changes are covered in a section of the act overriding requirements of citizenship and visa status in government eligibility policies.
"The exemption will only apply to government policies for the provision of financial or other assistance, services or support and will only extend to citizenship or visa status criteria," Attorney-General Jarrod Bleijie told the State Parliament.
"It is not a blanket exemption for government policies in relation to other grounds covered by the Anti-Discrimination Act.
"Public resources are finite. Limits must often be placed on who is ligible for government-funded assistance.
"The exemption will ensure that government entities can adopt and implement assistance policies based on citizenship or residency without being exposed to litigation which would further deplete scarce public resources."
New Zealand advocate David Faulkner said the amendments, which would legalise discrimination on the grounds of nationality or visa status, were clearly a response to Ms Campbell's case.
"It seems to be targeting New Zealanders."
* Special category visa.
* Applies to New Zealanders arriving in Australia since February 2001.
* Allows unlimited residence and employment, but denies access to many social welfare payments, including the dole, and other safety nets.
* Recent exclusions include ineligibility for emergency housing in New South Wales, and student travel concessions in Victoria.