Community leaders in the South Australian town of Ceduna are confident a new cashless welfare card which will ban spending on grog and gambling can save lives.

The Federal Government has signed a Memorandum of Understanding with the Ceduna council and five Indigenous organisations to start the trial in February.

The Coalition still needs to get the legislation underpinning the changes through Parliament.

Under the trial, welfare recipients will have 80 per cent of their payment restricted so it cannot be spent on alcohol or gambling. The rest will be provided as cash.

Ceduna Aboriginal Corporation chief executive Mick Haynes is among the local officials who have signed up for the trial.

"For far too long, members of our community have been dying," Mr Haynes said.

"There's alcohol-fuelled violence, domestic violence and people have been misusing their money. The community discussed all these issues and thought we need to change things for the better."

The town's mayor Allan Suter says he is confident the cashless card will lead to improvements in the isolated community.

"The principal concern we were trying to address was the very sad situation where a very small minority of people are spending the bulk of the benefits that they receive on the purchase of alcohol or gambling services," he said.

"We're hoping this will be one of a series of steps taken to break the cycle."

A map provided by the Federal Government (page 8 in the document below) shows the restrictions will affect those living in Ceduna and a large regional area surrounding the town.

The zone stretches west almost 480 kilometres to the West Australian border and north to the boundary with the APY lands.

The agreement says the trial will apply to all recipients of "working age payments" in the region. Pensioners can volunteer to be part of the trial too.

There would also be a way to access a higher percentage of cash, in return for meeting certain criteria including improved school attendance.

The Greens have been among the strongest critics of the card and spokeswoman Rachel Siewert said punitive measures would not address the core reasons for alcohol and gambling addiction.

"It will fail and people will be unnecessarily penalised," she said.

"It implies everyone is mismanaging their money. Drugs and alcohol and gambling are symptoms of a large number of other problems."

"People who are addicted will go and find these things elsewhere."

The Federal Government has promised a package of assistance measures to deal with drug and alcohol dependency, financial counselling, early childhood education and community safety in Ceduna.

Parliamentary secretary to the Prime Minister Alan Tudge has been leading the negotiations.

"In a community like Ceduna, unfortunately, they've got a hospitalisation rate from assault which is 68 times the national average, much of which is due to alcohol abuse," he told AM.

"Last year they had 4,500 admissions to the sobering up centre from a small community of just 4,000 people."

Mr Suter said he hoped the trial would save the council money, and could drive investment in new projects.

"We, for example, would like to start a wildlife park which would be staffed and operated by the Indigenous community," he told reporters.

"So we've got things that we'd like to do but we haven't been able to do because we're too busy spending money addressing the problem of this small minority."

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