A $25 increase in welfare payments will be cancelled out by new obligations for parents to return to work sooner and for longer hours, advocacy groups say.
The benefit changes are the centrepiece of National's Budget, and are being considered by a Parliamentary committee.
If passed, the legislation would require beneficiaries to return to work once their youngest child turned three, instead of five.
Part-time work would be redefined as 20 hours a week, up from 15 hours a week, for parents who were required to work.
National Council of Women spokeswoman Judy Whitcombe said members had expressed concerns about the availability of suitable jobs for beneficiary parents and early childhood options for three-to-five year-olds.
"In addition, many members are concerned that many of the proposed changes will unnecessary stress on families and create a negative impact on children's development."
Dr Whitcombe said the changes were based on a short-term economic model which ignored the long-term benefits of investing in children under five years of age - a critical time for brain development.
The bill would raise core benefit rates for families with dependent children by $25 a week - the first increase in this area in more than 30 years - on top of CPI increases.
It would also increase the amount of free early childhood education for the poorest families and increase some tax credits.
Most submitters commended the higher payments, but several said the increases would only have a modest impact on child poverty.
Dr Whitcombe said the higher rates would have a negligible effect given rapidly rising rents and living costs.
"While the $25 increase was ... welcomed, it was felt the additional legislative changes contained in the bill will negate the monetary benefit," she said.
Council of Christian Social Services chief Trevor McGlinchey also commended Government's benefit increase.
But he said that as more obligations were placed on beneficiaries, more discretion needed to be used by Work and Income in issuing sanctions.
He said more than 80,000 beneficiaries had been sanctioned over 14-month period, which often meant losing a week's pay.
"The majority of the sanctions were because someone missed a single appointment.
"The impact of a losing a week's pay in vulnerable families often throws them into utter chaos. Power bills don't get paid, food doesn't get bought, the potential to be thrown out of your house increases dramatically."