The federal government is in talks with banks about a controversial proposal to issue welfare recipients with a card that would ensure they used their benefits for things like food and clothing and ban spending on gambling and alcohol.

The proposal was recommended by mining magnate Andrew Forrest in his review of indigenous employment and training, released in August. The government has been examining Mr Forrest's 256-page report, which also suggested parents lose family payments if their children wagged school and tax-free status for innovative indigenous businesses.

The welfare card proposal, which would limit what welfare recipients can spend their benefits on, was recommended by mining magnate Andrew Forrest. Credit:Getty Images

Mr Forrest's welfare management scheme would see all welfare payments to all Australians, other than age or veterans' pensions paid into a savings account, which could be accessed by a "health welfare card". It would be fully redeemable at any Australian shop that accepts Visa and MasterCard with electronic and EFTPOS payment facilities.

This would direct "spending to purchases that sustain and support a healthy lifestyle for the recipients and any children … and to savings for larger expenses". It would require the government to work with banks to issue the card using debit card technology.