The social services minister has defended the government’s welfare reforms, saying too much intervention denies citizens the opportunity to achieve something for themselves.

Kevin Andrews’ comments came as the opposition leader, Bill Shorten, sharpened his attack on the budget. Shorten said Australia could not afford to go the same way as the US, where a visiting Tony Abbott would be driving past homeless people sleeping on subway grates and universities unaffordable for working class people.

A government-commissioned report on the welfare system is due by October, with the interim report due in coming weeks. It is expected to recommend the streaming of benefits into four or five payments, the expansion of Work for the Dole and the tightening of criteria for disability carers payments.

In a speech at the Australian Council of Social Services conference on Thursday, Andrews confirmed he would set up a panel to focus on prevention and early intervention in social issues in the next month, and justified reforms announced in the budget, such as taking unemployed people under 30 off income support for six months at a time.

Andrews said if the government became too involved in charities it put at risk what helped citizens form their “virtue” and referenced the prime minister saying people were denied the chance to achieve something for themselves when the government tackles problems best addressed in the community.

He attacked a “one size fits all approach to social problems, ensnared by contractual obligations designed to fit governmental silos, which rob many of individual initiative and personal initiative which should initiate charitable activity”.

“Worse, it endangers the vibrancy of the institutions that help to form us as citizens in the virtues. The act of giving, whether it be finances or services or council, becomes a professional activity and indeed a function of the state rather than an act of charity and love directed towards our fellow human beings,” he said.

“This is not to say the state has no role in other spheres of society … The political community, I believe, should be at service to civil society, which is that collection of relationships, resources, culturally and associative, that are relatively independent of the political and economic spheres of activity. Government should act therefore for the people's benefit.”

Andrews said there was a danger of the government seducing community groups into becoming its mouthpiece. He said the voluntary and not-for-profit sector should be separate from the government, not an extension of it.

He confirmed a future reduction in government programs relating to the community sector and more flexibility for the agencies who deliver them. The government is aiming to have single contracts with the Department of Social Services, and five-year contracts rather than three-year agreements to give more certainty of funding.

Shorten addressed the conference after Andrews and spoke of Tony Abbott’s current overseas tour which has taken in New York and Washington as well as Canada and France.

“Our prime minister needs to tour Australia. He needs to visit Australian families, similar to his trip overseas. In Washington and in New York, he will have driven to meet important people but he will have done so driving past doorways where there are beggars asleep, where people sleep over the grates of the subway for warmth. He might have gone near one of America's overstrained public hospitals and their overstrained medical system. He may well have passed a campus of the university which is so expensive that some American families do not believe their children can attend university,” he said.

“He may have missed these sights in America but he cannot leave young unemployed Australians with no financial income for six months. Fairness and the Abbott government are most certainly in conflict.”

Shorten said he had been told opposing so much in the budget was bad for his electoral prospects and could damage him personally.

“My answer to them and my answer to you here today about Labor's intentions is this, the Abbott government is a small minority determined to divide Australia and Labor will not retreat,” he said.

The interim report on the welfare system will be in the style of a discussion paper with no recommendations, according to Andrews. It is expected to be released when Abbott returns from overseas and a full report with recommendations has been flagged to be released by the end of October.