Tony Abbott has left the door open to expanding welfare quarantining, but in a more limited form than proposed by the mining magnate Andrew Forrest, who wants almost all government benefits to be paid into income-management accounts.

Forrest’s review of Indigenous training and employment has called for the introduction of a “healthy welfare” card to dictate how Australians on welfare should spend their payments, a wide-reaching proposal described by the Greens as a “scary picture”.

The government-commissioned Creating Parity report, released on Friday, recommends that the welfare card should be compulsory for all Australians, Indigenous or not, in order to manage incomes and “stem passive welfare”.

The card would see all welfare payments, apart from age or veterans’ pensions, paid into a savings account accessed by the card, which could “block the issue of cash and the purchase of alcohol, gambling and illicit services, and gift cards at the point of sale”.

“This card directs spending to purchases that sustain and support a healthy lifestyle for the recipients and any children of those recipients (e.g. essential goods such as food, clothing, utilities, rent) and to savings for larger expenses,” the reports states.

Financial institutions would assist with this radical escalation of income management, with the card able to be used at any Australian retail store or online facility that accepted credit or debit cards, except for alcohol and gambling outlets.

Retailers that accepted the welfare card as payment for prohibited goods or to issue cash could be hit with fines of $2,000 for every $100 of value.

The report adds that police commissioners should be “alerted that, in the short term, as lifestyles are adjusted, levels of petty crime may be temporarily elevated, before falling to levels lower than they were previously due to the elimination of drug and alcohol abuse.”

Counsellors should be available in communities to assist people who came off serious alcohol or drug addictions, it says.

Abbott played down the prospect of the far-reaching income management proposal suggested by Forrest when the pair released the report in Sydney on Friday.

“We have no plans to expand welfare quarantining as widely as Andrew is recommending, but welfare quarantining has been in place for quite some time,” the prime minister said at a combined media conference.

“It began in the remote communities of the Northern Territory as part of the intervention back in 2007. It was expanded by the former Labor government to all long-term unemployment beneficiaries in the Northern Territory regardless of their race or culture or location. It was subsequently trialled in a number of areas in Western Australia and elsewhere.

“So while we are not currently planning the breadth of expansion that Andrew is recommending, I certainly don’t rule out wider quarantining in the months and years ahead.”

Abbott said some people may wish to embrace the proposed healthy welfare card “voluntarily as a way of better budgeting for their own personal circumstances” rather than as a “punitive” measure.

“It’s actually an opportunity for people to ensure that the income that they are deriving from the taxpayer is as effectively and efficiently deployed for the benefit of them and their families as possible,” he said.

Forrest denied that his proposal involved “wide income management” or “welfare quarantining”, arguing the card would give people “complete freedom”.

“You can buy whatever you like with it. We’re just simply asking the Australian people: should the hard-earned dollars of taxpayers be used to also buy alcohol and illicit drugs? And it’s with that question we’re introducing a mainstream financial product … which encourages people to make better short-term choices,” Forrest said.

The opposition leader, Bill Shorten, warned against stigmatising recipients of government payments: “Not everyone who receives a government pension of working age is incapable of managing their own finances.”

The Greens senator Rachel Siewert said the proposal would subject 2.5 million people, including those who receive carers’ payments and the disability support pension, to income management.

The report was “more a wish list of a multi-millionaire than an evidenced-based analysis of the action needed to overcome disadvantage faced by Aboriginal and Torres Strait Islander peoples”, she said.

The government will consider the report’s 27 recommendations and invite community feedback as part of a six-week consultation period.

Abbott signalled his strong support for the report’s call for governments to work together to improve school attendance and ensure better measurement against targets.

Forrest suggests a new mutual obligation requirement for parents to ensure children attend school in return for receiving the family tax benefit. Financial penalties would be applied to parents whose children fell below the benchmark of 90% attendance for the school year.

Abbott said he was at one with Forrest “on the fundamentals of Indigenous policy, which are the kids go to school, the adults go to work and communities are safe” and he agreed with further sanctions on families if the kids did not go to school.

Asked what sorts of penalties the federal government could pursue, the prime minister said an implementation feasibility taskforce would consider the issue.

In the report, Forrest says “seismic” change is required to end Indigenous disadvantage, but his proposed alterations reach far beyond the Aboriginal population.

The “cash barbecue” that is apparently available to young people should end, the report states, with the government only funding training which is linked to a guaranteed job.

The unemployment benefit should be cut for those aged under 21, to less than the full-time student allowance, to “avoid creating incentives to leave study”, the report recommends. In addition, Centrelink should not grant welfare exemptions for “capable” working age people.

The “complex” income support system should be pared back, with the Community Development Employment Projects wage of $575 a fortnight abolished.

“Financial penalties and the suspension of payments are rarely applied, despite the fact that for most people a quick, small ‘hit to the wallet’ can be the most effective incentive to change behaviour,” the report laments.

In its Indigenous-specific recommendations, Forrest’s report calls for more local decision making, reforms of remote housing and engaging the private sector to provide jobs for Indigenous people.

“In a nutshell, it’s time to end the paternalism, to expect able first Australians to stand on their own feet and become independent, and for governments and government-funded non-government organisations (NGOs) to remove the impediments so that they can,” he says.