Researchers have warned of an “intergenerational time bomb” in remote Indigenous communities, after finding that almost 6,000 mostly young people have disappeared from the remote work-for-the-dole scheme, and may be receiving no income support at all.

The Community Development Program, which the Indigenous affairs minister, Nigel Scullion, said was designed to “increase support for the most vulnerable job seekers, while ensuring more job-ready participants move into work” has seen a dramatic drop in participants that cannot be accounted for “by job placements or movement between regions”, according to Lisa Fowkes from the Australian National University’s Centre for Aboriginal Economic Policy Research.

When the scheme began in 2015, there were 36,642 people in the program. By June this year it had dropped to 30,380.

Almost 60% of those disengaging with the scheme were under 25, and another 31% were 25-34 year olds, Fowkes told an inquiry into proposed changes to the legislation.

“The disengagement of this group is extremely troubling, as they are at a critical stage for developing skills and work experience,” Fowkes said. “They’re also the group that has the highest suicide rate and are most likely to come into contact with the criminal justice system.

“It appears to be particularly younger people relying on families, or presumably some of them are finding other ways of trying to support themselves.

“The system continually reinforces peoples’ worthlessness.”

There are about 35,000 CDP participants in Australia, and 83% are Indigenous. As a condition of income support, they must engage in up to 25 hours of work for the dole across five days a week.

The CDP has seen a 740% increase in financial penalties since it replaced the previous remote job and communities program in 2015.

Remote workers are 25 times more likely to be penalised than non-remote jobseekers, and 50 times more likely to have a serious penalty imposed, which can mean up to eight weeks with no payment.

Submissions to the inquiry into proposed changes to the scheme claimed there were more onerous obligations on remote CDP participants in terms of work hours and flexibility, language barriers, lack of internet and phone reception, as well as disproportionate levels of ill health.

Damien McLean is the community adviser with Ngaanyatjarraku council at Warburton, in remote Western Australia.

McLean said Warburton, a community of around 560 people where 80% of adults were on income support, had received around 4,700 penalties since the scheme began.

McLean said many people had disengaged entirely and “they’re not on income support, they’re not getting anything”.

“If you have participation failure, then you call the Centrelink hotline, wait sometimes five, six or seven hours, and then they might reinstate you,” he said.

“Or you have to go to the office. Our nearest Centrelink is 1,000 kilometres away in Alice Springs, or 1,000 kilometres the other way in Kalgoorlie. There’s no public transport, and fuel is so expensive.

“I’m really concerned about people’s ability to live. People can’t buy food, or buy power cards to keep the lights on, or have hot water,” he said.

The CDP bill seeks to roll out a new compliance framework in remote communities that will remove penalties for one-off breaches and focus instead on people who are “persistently and wilfully non-compliant” according to the Department of Social Services website.

Penalties under the new compliance framework are non-waivable, based on a system of demerit points, and include payment suspensions of up to four weeks.

These compliance measures were rolled out in mainstream communities in July this year, but every written submission to the CDP inquiry was critical and expressed concerns about the government’s plan to expand it to remote areas.

The inquiry’s report is due to be tabled in parliament on Friday.

Scullion was approached for comment.