On Tuesday, the federal government revealed it was dumping a promised Family Tax Benefit Part A increase - which was to be as much as $300 a year for families with one child and $600 for those with two or more children.

The increase was meant to be paid with revenue from the government's mining tax.

However, the independent Parliamentary Budget Office estimated this week the controversial tax would raise just $800 million in its first year, less than half the $2 billion expected.

Illawarra Forum's executive officer Nicky Sloan described the government's axing of the increased payment as "disappointing".

"It's once again targeting those families who are most in need.

"A lot of families are really struggling and any small addition to their income over the year would make a big difference to their lives," she said.

Often family tax benefits were the final lifeline keeping families from poverty, Ms Sloan said.

"So we're really concerned about the effect that's going to have on children," she said.

"We know one in six children is living in poverty, so to target them once again is really disappointing.

"We understand the budgetary constraints but we'd think there might be better places to strike at than children."

Ms Sloan said that just yesterday, she had met a custodial grandparent raising two children on the Newstart allowance.

After paying rent he was left with just $140 each fortnight.

"You can just see that an extra $600 a year would make an enormous difference to families such as that," she said.

Ms Sloan said the increase actually would have acted as a catch-up payment as the family tax benefit had not been properly indexed for around four years.

It would also act as a stimulus for the region's economy with families likely to spend on essentials like food and clothing.