Opposition Treasury spokesman Joe Hockey has called for reform of the welfare system, including the quarantining of Centrelink payments to drug and gambling addicts.

In the lead-up to the May budget, Mr Hockey has set out his case for changes to the welfare system.

He says there should be closer case management of long-term welfare recipients, to improve their chances of employment.

He also proposes giving Centrelink the power to quarantine payments to parents with a gambling or drug addiction.

"We have to meet head-on the challenge of growing welfare dependency," he said.

"This is particularly important for families where children may be at risk from parental drug abuse, gambling, or other lifestyle afflictions.

"If a state department of community services identifies families in which welfare payments are being used to fund addictions like drinking or gambling, they should have the capacity, indeed the responsibility, to work with Centrelink to put in place income management arrangements for that family.

"For such a scheme to work effectively, it will be necessary to review privacy laws so that there can be a sharing of information between Commonwealth and State welfare agencies."

Mr Hockey says his plan would be breaking new ground.

"My proposal for case management at an intensive level family by family is a relatively new concept," he said.

"Previously it's been very difficult to do because of the huge costs involved but I'm confident that with new technologies and with a cooperate arrangement with the states it can now be delivered."

But the Council of Social Services' Cassandra Goldie is against the idea.

"There's still very little evidence to say that compulsory income management is making a positive difference," she said.

She says better employment support would work better than any extension of welfare quarantining.

"Right now the money available to provide support to people is very limited - it's only on average about $500 a year for many people who've been out of paid work for one, two, three years or longer," she said.

But Ms Goldie agrees there is scope for closer ties between federal and state agencies.

"There's some really important initiatives that are already underway on that front and we certainly would want to continue to encourage that kind of collaboration," she said.

"We have to be very careful about privacy issues but obviously we would want to see a good system a positive system that's really looking after children and appropriately supporting parents."