Nationals MPs are pushing for an extra $1.3bn in government stimulus for drought affected communities, arguing direct community support is needed to help the party hold on to seats at the next election.

The push for more government spending comes as the National Farmers’ Federation also calls for more commonwealth action, flagging the need for council rate relief and exit packages for stressed farmers wanting to leave the land.

But the former Nationals leader Barnaby Joyce, who is pushing a backbencher plan on drought relief, dismissed the idea of exit payments, saying he “preferred” the proposal developed by the Nationals that has been put to the prime minister, Scott Morrison, for consideration.

“The National party has been working very hard on a policy as a group, and our policy involves working with the community at a local level, furnishing them with a substantial amount of money per shire and letting the community make decisions at a local level about what the best use of it is,” Joyce told Guardian Australia. “Ours is about supporting people in the drought, not removing them from the farm.”

Joyce said that his previous comments about farmers needing to consider whether their businesses were viable if they needed extended government assistance was not about them leaving the farm or the community.

“It is no good recommending someone stay in perpetual poverty, but it might be assistance to someone saying, ‘Stay on the farm, but find another job’. It’s about finding another income.”

Under the plan being spearheaded by Joyce, drought-affected councils would receive $10m each, co-funded with state governments.

There are 123 councils that have been deemed eligible for funding under the Coalition’s existing drought communities program, with the total cost for the proposal estimated at $1.3bn.

The Nationals policy document says that the drought is a “seminal issue” for the economies of the regions and for “the politics in our representation to these regions”.

“It is essential that we deliver an unambiguous package that addresses both issues. It must clearly be branded Nationals as it is us who have to fight the next election on this issue.”

Tensions have been flaring between the Nationals and the Liberal party about the government’s drought response, with calls from regional MPs for the government to do more, and frustrations about One Nation stealing the limelight in regional areas.

Labor’s shadow agriculture minister, Joel Fitzgibbon, called on the government not to “run up the white flag on our farmers”, calling for more financial assistance rather than funding for exit payments.

“The National Farmers’ Federation has declared it is all too hard and I don’t accept that,” Fitzgibbon said. “When farmers are struggling and they’re dealing with the psychological impact, they don’t want to hear the National Farmers’ Federation, they don’t want to hear Barnaby Joyce say they should just get out of the business.”

Mike Guerin, from the Queensland agriculture group Agforce, said he expected only a small number of farmers to take up exit payments if they were offered by the commonwealth but said it was a welcome initiative.

“To allow those that would like to leave with dignity to do so I think is an important thing to do,” Guerin told Guardian Australia. “But we have a sense that it would only be a small percentage that would take it up …it wouldn’t be a wholesale walkout.”

NSW Farmers Drought Taskforce chairman, Wayne Dunford, said he thought exit payments might help struggling farmers who were working with financial counsellors make the difficult decision to leave the land with some financial assistance.

“It could be the thing that helps them make that decision,” Dunford said.

But he said that the most important measure needed for communities suffering from the extended drought was a “cash injection”, and said he supported the NFF’s call for council rate relief.

Exit packages for farmers have previously been offered by the federal government, with an “exceptional circumstances” exit payment announced by the Howard government in 2007 taken up by only 138 individuals.

The Productivity Commission recommended the payments be scrapped, finding that there was low uptake of the packages because of the grant’s strict eligibility requirements and a failure to address the non-monetary reasons why many farmers remained on the farm.

In question time on Wednesday, the minister for the drought, David Littleproud, said the government was going “beyond the farm gate” to provide economic stimulus to communities as well as to farmers.

“That’s how you tackle this insidious disease that is drought,” he said.