ACT says if it helps form the next Government, beneficiaries who "keep having children" will have their financial freedom taken away.
Speaking during a minor party leaders' debate on Saturday morning, leader David Seymour said having babies while on the benefit was an "outrage" to working parents, and "the biggest driver of child poverty in this country".
"What the ACT Party says is there should always be a safety net for people whose partners abuse them or run out on them, or any number of circumstances that can leave you without income and with children, but if you keep having children while you're on a benefit, then we're going to give income management," he told host Lisa Owen.
"We're gonna pay your rent, pay your power, pay for the groceries so the kids get the benefit of those resources and we break the cycle of child poverty in this country."
In July, ACT deputy leader Beth Houlbrooke caused outrage when she said people on low incomes could wait until they were 40 to have kids, despite the health risks that entails.
- Can't afford kids? ACT deputy suggests waiting until you're 40
- ACT says people who can't afford children shouldn't have them
Mr Seymour denied ACT would outright ban having babies whilst on the benefit.
"We don't want the state controlling people's reproduction. That's disgusting. What we do need to say is that we have a crisis in this country where one in five children are born into a family dependent on a benefit."
ACT's policy is to limit the amount of benefits that a person can collect in their lifetime, after which they go into a similar 'income management' regime as described above.
Only five years of support would be available to solo parents, and three years to jobseekers.
"It's not a hammock - it's a safety net."
Mana Party leader Hone Harawira said a better way to fight unemployment would be for the Government to offer work at times the private sector has none to offer - for example, fixing maraes, helping the elderly and working in schools.
"Right now, [the private sector doesn't] have those jobs so the Government has a responsibility to make sure people get the benefit they need but also contribute back to society."
The Opportunities Party leader Gareth Morgan said many of the jobs being lost nowadays won't be coming back, so instead wants everyone paid what's known as a Universal Basic Income (UBI). It's like the pension, except everyone gets it.
He said the current welfare model was designed in the mid-20th century for a world with plenty of jobs - which no longer exists.
"The world has changed. This is why people like [Facebook founder Mark] Zuckerberg and [Tesla founder Elon] Musk are screaming at Governments to move to a UBI as fast as possible. They are going to destroy jobs at a scale you can't even imagine - no bus drivers, no taxi drivers, no couriers, no shop assistants needed.
"We have to step towards the UBI, and design a tax and welfare system to actually support it."
He said the existence of the Working for Families scheme is evidence wages for the average worker have stagnated, falling behind the rising cost of living.