The existing $250 fortnightly supplement is due to expire on December 31.

It will then be reduced to $150 per fortnight and extended until March 28, tying the pandemic payment to an expiry date for JobKeeper wage subsidies.

Single people on JobSeeker will receive $357 a week under the tapered rate.

"As the economy starts to move back and confidence lifts and jobs come back, we cannot allow our safety net to hold people back," Prime Minister Scott Morrison told reporters in Canberra on Tuesday.

"We want them to be able to bounce back and get back into the jobs that are increasingly becoming available."

The extension is expected to cost $3.2 billion over the three months.

The income-free area, which allows welfare recipients to earn $300 per fortnight without having their payments docked, is also being extended.

So too will the elevated partner taper rate and expanded eligibility criteria for sole traders and the self-employed.

Labor has been pushing for the supplement to remain at $250 a fortnight, keeping unemployment benefits above the poverty line.

Opposition social services spokeswoman Linda Burney plans to speak with welfare groups on the government's announcement, to shape Labor's view on what a permanent increase should be.

"I'm just astounded they have not announced a permanent increase," she told ABC radio.

The temporary reprieve will not satisfy community organisations, business groups and economists calling for a permanent increase to the dole.

Business Council of Australia chief executive Jennifer Westacott agrees on the need for a permanent solution.

"Why shouldn't unemployed people have the same certainty and predictability, instead of living from three months to three months, and get a decent, adequate allowance that allows them to live with dignity?"

More than 1.5 million Australians on JobSeeker, Youth Allowance and parenting payments are receiving the boosted welfare payments.

Once the coronavirus supplement is stripped away altogether, the dole will return to its pre-pandemic rate of $40 a day.

Mission Australia chief executive James Toomey said the boosted dole had made a huge difference in enabling people to pay for housing, education and healthcare.

"We are perplexed that the federal government is considering further cuts to income support payments in early 2021," he said.

"Now is the time to provide certainty beyond March and lock in a new, permanent and adequate rate of income support to restore dignity and so that everyone is included in the recovery ahead."

Australian Associated Press