The New Zealand Institute of Economic Research says cuts to Working for Families unveiled in Thursday's Budget are not radical enough.
Under the reductions, the Government says some 7000 households will no longer be eligible for the tax credit.
Finance Minister Bill English says the changes will save $448 million over the next four years, and the cost of the scheme will reduce to $2.6 billion in 2014/2015.
The institute's chief executive, Jean-Pierre de Raad, says these moves may well be a first step and a "marginal and incremental" change within a very complex policy.
Mr de Raad said it is very hard to make changes while keeping the policy's integrity, and to make real strides, a radical reform of the policy is needed.