A new union has been launched for Indigenous people who are part of a controversial work-for-the-dole scheme amid claims the Government has created a "pool of free labour" that is denied basic workplace rights.

Key points: Peak union body created the First Nations Workers' Alliance to represent CDP participants

Peak union body created the First Nations Workers' Alliance to represent CDP participants Union spokesperson says CDP workers don't have typical workers' entitlements

Union spokesperson says CDP workers don't have typical workers' entitlements Coalition dismisses criticism and denies scheme is "racially discriminatory"

Jobless people in remote Australia must work 25 hours a week to receive welfare payments under the Community Development Programme (CDP), which is up to three times longer than city-based unemployed people need to work.

More than 30,000 people are covered by the CDP, most of whom are Aboriginal.

Australia's peak union body has established the First Nations Workers' Alliance to represent CDP participants.

"We do believe that it's racially discriminatory," said Kara Keys from the Australian Council of Trade Unions (ACTU).

"It is hard to mount the argument [that CDP is not racist] when … above 80 per cent of workers in this scheme are Aboriginal and/or Torres Strait Islander."

The alliance was launched about a month ago to campaign against the scheme and the ACTU said it had attracted more than 100 members.

It is free for Indigenous CDP participants to sign up, while workers who are members of other unions can pay to support the alliance.

Businesses can access free labour in 'work experience opportunity'

CDP participants undertake activities including hygiene classes, t-shirt dyeing and art making.

But they can also spend up to six months in a workplace, which the Government describes as a "long-term work experience opportunity".

Ms Keys said it was outrageous the Government had "created a pool of free labour for employers to access".

"But those employers have none of the responsibilities that we would normally expect," she said.

"They don't have any annual leave [or] sick leave.

"They are also specifically excluded from things like federal occupational health and safety and workers' compensation legislation.

"We have put together the First Nations Workers' Alliance to be a collective voice for the workers in this scheme."

Coalition denies CDP racially discriminatory, slams union

A spokesman for Indigenous Affairs Minister Nigel Scullion dismissed the criticism.

"The ACTU is simply continuing its hypocritical and political campaign," he said.

"As the minister has said on numerous occasions … the CDP is not discriminatory and applies to all jobseekers living in remote Australia.

"This is simply a political campaign motivated by the self-interest of the union movement rather than the best interests of remote communities that have called for an end to passive welfare and better engagement in communities."

More than 200,000 fines blamed for poverty, hunger

Fines under the CDP scheme are blamed for driving up hunger and poverty in some remote Aboriginal communities.

More than 200,000 penalties have been imposed on people who miss activities or are late, with thousands of participants repeatedly docked payments.

For a person on unemployment benefits, which are typically less than $290 a week, penalties range from about $48 to $57 for each infringement.

The Government spokesman said the minister was working with Indigenous leaders and communities to improve remote work-for-the-dole.