The social services minister, Anne Ruston, has been accused of being “out of touch” and “spreading dangerous lies” after she said that an increase to the unemployment benefit Newstart would end up in the hands of drug dealers and pub owners.

Cassandra Goldie, the chief executive of the Australian Council of Social Service, said Ruston should retract the comments, made at a single mother’s forum in the South Australian Liberal stronghold of Barker and reported by the Murray Valley Standard this week.

“The minister’s out-of-touch, inexcusable comments make it clear she needs to spend more time with people on Newstart, who are skipping meals, sleeping rough and going without the very basics in our wealthy country,” Goldie said on Thursday.

“Instead of making irresponsible, stigmatising comments, the minister should focus on getting people through tough times by increasing Newstart, which 72% of the community agrees is overdue.”

Ruston, who has previously acknowledged that living on Newstart is not easy, sought to play down the comments on Wednesday, describing the reporting of her remarks as “misleading” and insisting she had been talking specifically about people who had addictions.

But Terese Edwards, who facilitated the forum, on Wednesday confirmed to Guardian Australia that Ruston had made the comments.

In a statement on Thursday, Edwards, the chief executive of the National Council for Single Mothers and their Children, went further, accusing Ruston of adding to the stigma already experienced by people on Newstart.

“At the event, I asked the minister to broker a meeting between the prime minister and people on Newstart about the urgent need for a real increase to the payment after 25 years,” she said.

“The minister’s deplorable comments make it all the more obvious why this forum needs to happen.

“People on Newstart, including 100,000 single parents trying to raise kids on next to nothing, should not have to put up with this sort of stigma while they’re doing everything they can to find paid work and make ends meet.”

Jeremy Poxon, a spokesman for the Australian Unemployed Workers’ Union, told Guardian Australia: “Thousands of our members have been telling minister Ruston and her government what they desperately need: money for food, rent, bills and immediate necessities so they can survive.

“Instead of actually listening to them, or offering any support, minister Ruston would rather spread dangerous and demeaning lies about the most disadvantaged people in our communities.”

As the Morrison government refuses to increase Newstart, recipients also expressed frustration at the minister responsible for the welfare payment, which has not risen in real terms in since 1994.

Ruston told Sky News on Wednesday that increasing the dole would not help people receiving welfare payments.

“Just constantly spending more money and not getting any better result is not the right thing for us to be doing,” Ruston said.

“We need to make sure that we investigate every possible way that we can to start getting a better result for getting people back into work.

“I think the issue around people who currently find themselves unemployed is much more complex than just the safety net that is provided by the Australian government’s taxpayer-funded welfare system.”

Welfare groups are calling for a $75-a-week increase to Newstart, which is currently about $280-a-week and has not risen in real terms since 1994. It would cost the budget $3.3bn a year.

The furore over Ruston’s remarks comes as the government pursues a trial to drug test 5,000 welfare recipients, which experts told a Senate inquiry on Wednesday was so “fatally flawed” it could not be used to “scientifically inform” a national rollout. The government said the proposal has been established as a trial to determine if it was effective.

Ruston’s office was previously contacted for comment.