Young Australians who receive welfare payments could undertake internships for businesses such as Bakers Delight as part of a new deal announced by the prime minister, Malcolm Turnbull.

On Monday Turnbull and the employment minister, Michaelia Cash, announced that the government, in partnership with the Australian Retailers Association, is broadening its PaTh program, first introduced in the 2016 budget.

Under the scheme the government will pay businesses $1,000 to take on young, unemployed people as interns for up to 12 weeks. The young jobseekers working as interns would receive $200 on top of their fortnightly welfare payments.

“The program we are undertaking is bringing young Australians into the workforce,” Turnbull said.

He added, “120,000 over four years will get the opportunity to get some prework training and then get an internship that will set them on the pathway to fulltime employment.”

The program will apply to Australians aged between 15 and 24 who are seeking employment, which the government says will help curb the increasingly high youth unemployment rate in Australia. A recent report found that almost one-third of Australian young people are unemployed or underemployed.

But the president of the Australian Council for Trade Unions, Ged Kearney, said the program was a “kick in the guts” for working Australia. At a press conference on Monday she said the program provided a “perverse incentive to not offer young people a job”.

If there are 10,000 positions available in retail then give people a real job. Turnbull's plan is a PaTH to nowhere - @GedKACTU #auspol pic.twitter.com/qdQYDtv3dA — Australian Unions (@unionsaustralia) July 3, 2017

Some retailers, including Bakers Delight and Coffee Club, have already agreed to participate in the program and take on interns.

Industrial relations is becoming an increasingly strong focus for both the government and the Labor party.

The Fair Work Commission’s cuts to some penalty rates in the retail and hospitality sector, which came into force over the weekend, has drawn heavy criticism from trade unions. Turnbull has supported the commission’s decision, saying it would be “reckless” for parliament to set penalty rates.

The opposition leader, Bill Shorten, has committed to reinstating penalty rates if the Labor party forms government at the next election.

The policy director at Interns Australia, Clara Jordan-Baird, said the proposal risked normalising internship culture in the retail sector.

“My first job was at Bakers Delight. I didn’t need to do unpaid work experience for 12 weeks to learn how to do it. Nobody needs to. After a short period, you are performing productive work and deserve to be paid for it as an employee.

“It shouldn’t be normal to pop into your local Coffee Club and see an ‘intern’ waitress working for free.”