Newcastle sport advocates have criticised the NSW government for scaling back and means-testing the Active Kids voucher program.
Premier Chris Minns said the "new and permanent means-tested scheme" will begin in February next year.
Under the scheme, $50 vouchers will be offered twice a year - at the start of terms 1 and 3 - to those receiving Family Tax Benefit Part A.
Previously two $100 Active Kids vouchers and one $100 Creative Kids voucher were available for all school-aged children each year.
The new vouchers will be available to about 600,000 out of 1.35 million NSW schoolchildren at a cost of about $28 million a year, compared to $190 million this year for the existing program.
The Newcastle Herald reported last week that the voucher program had injected $38 million into the Hunter over five years.
Learn to Surf Newcastle owner Miles Niddrie said "there are other areas of government expenditure that could be reduced than sporting funds".
"It will be harder for parents to come up with the money to fund their kids' sport more now than ever, especially with cost of living pressures," Mr Niddrie said. "Personally I think there's lots of waste in government that they could trim that affects a lot more wealthier people."
Adamstown Rosebud treasurer Kerry Conquest said the change to the program was "a step backwards".
"We have a very good rate of people claiming those vouchers at our club," Ms Conquest said.
She said the changes will "severely affect a lot of people" and "maybe affect whether their child plays sport".
"Kids spend a lot of time sitting in front of computers. They should be out in the fresh air," she said.
Newcastle Soccer CEO Russell Henry said the decision to "slash and take away" vouchers would "disappoint a lot of people".
As an interim measure, the current Active Kids and Creative Kids vouchers will be extended from July 1 this year, but reduced to $50 until the new scheme is in place from February 1 next year.
The First Lap swim program will be extended for 12 months with $50 vouchers.
School-aged children will also be eligible for a new $50 Creative Kids voucher from July 1, if they haven't used their existing voucher.
Mr Minns said it was "a tough but economically responsible decision".
"I want kids from low and middle income families participating in sport, creative activities and learning to swim," he said.
"This new program ensures we can continue these important initiatives in a fairer, more sustainable way."