And a jobs provider predicted an added abandoned plan to make front-line staff decide whether to punish job seekers who failed to front for appointments could increase the risk of "aggressive behaviour" towards staff.

The fierce backlash prompted a government retreat on the proposal.

The government received 60 submissions, most of which were scathing and recommended the government dump its plan, which critics said directly contradicted the Coalition's pledge to slash red tape.

Two leading business groups were among the organisations opposed to the proposal but the strongest criticism came from the agencies that try to connect job seekers with work.

Jobs Australia said the plan posed a "new sort of risk" for staff.

"The prospect of employment-provider staff being directly responsible for the suspension of their clients' benefits raises new risks of aggressive behaviour towards staff, and could require additional investment in security," it said.

Employment Minister Eric Abetz said the decision would continue to be made by the Department of Human Services and also dumped a controversial plan to make job seekers apply for 40 jobs a month, or "one in the morning, one in the afternoon", as previously described by the minister. He said he accepted the requirements would be a "burden" and "diminish" the value of genuine job applications.

The Australian Chamber of Commerce and Industry described the idea as "simplistic" and said it would "result in the unintended consequence of burdening employers with the task of sifting through multiple, possibly less than adequate, job applications".

ACCI warned: "This may cause employers to withdraw contact with employment service providers altogether."

The Business Council of Australia said in its submission: "It will divert company resources towards managing 'spam' applications and recommended against the idea."

The Salvation Army's Employment Plus said the idea was "unnecessarily punitive" and would lead to job seekers being repeatedly rejected for jobs they were never qualified to apply for.

"We believe that the inevitable and substantial increased volume of applications and enquiries from Job Seekers will lead to Employers simply refusing to engage with both individual Job Seekers and with the broader Employment Services sector," the Employment Plus submission said.

Carers Australia described the plan as "highly impractical" and "counter-productive for employers".

Labor said the government's decision to abandon its plans constituted a "humiliating backdown" and the "stupid idea" should never have seen the light of day.

"They're gradually backing down on some of their dumbest ideas," Opposition Leader Bill Shorten said.

But Prime Minister Tony Abbott defended the decision and said it showed the government was genuinely listening.

"The only fair dinkum consultations are consultations that can and do result in some refinements and, where necessary, some changes, and that's what we've done" he said.

Jobs Australia welcomed the government's retreat and said it was a "sensible" move.