"It's about assuring us that the spend is effective and is going to the people who are most targeted for that spend, therefore the most vulnerable," Edridge said.
But Council of Christian Social Services executive officer Trevor McGlinchey said the move was a step towards a "surveillance society" and would undermine people's trust in non-government agencies.
"The gathering of that identifiable data may cause some of the most vulnerable people with major issues not to come forward because they may feel that information could end up in the hands of the Government," he said.
"It may affect their benefit eligibility, it may affect a range of issues in terms of having to pay fines, being arrested for something - who knows?"
In a blog post, he said the change had the potential "to move organisations from being independent community agencies to being arms of the Government".
Although Edridge said the move had been signalled in broad terms since last year, McGlinchey said it was slipped into a new tender for budgeting services without consultation.
Budgeters who were notified of the tender outcome last week will be required to provide client details under new contracts taking effect from November 1.
Raewyn Fox of the Federation of Family Budgeting Services said people needed to trust budgeters with "in-depth embarrassing details" about their finances.
"If they have to sign a piece of paper saying we are going to give all your details to MSD, it makes it more difficult for the adviser to establish a relationship of trust and confidentiality," she said.
Women's Refuge chief executive Dr Ang Jury said there was "widespread opposition" to the move which could create risks for some women fleeing violent relationships.
But she said refuges already shared information locally with other agencies and every review of violent deaths had found that agencies needed to share information more, so she was "in two minds" about the new policy.
Alastair Russell of Auckland Action Against Poverty, which is not state-funded but works with beneficiaries, said many people would be scared to seek help from state-funded agencies in case their children were taken off them.
Guidelines for the new budgeting contracts say agencies can still help people who come to them voluntarily and refuse to share their details with the Government, but they will not get state funding in those cases.
For cases where people are ordered to do budgeting by Work and Income as a condition for hardship grants, the guidelines say: "We will be working on a solution in respect of clients who are obliged to attend a Building Financial Capability service in order to receive their sixth hardship grant, in the event that the client refuses to share their client-level data with the ministry. This solution will be in place by 1 December 2016."
The document says the data will be "anonymised" initially, but will identify individuals from next July.
"By 1 July 2017 we will move to collecting data for use on an identifiable basis
for specific and limited purposes," the guidelines say.
"We will be working between now and the end of March 2017 to determine the privacy and consent considerations that are needed to comply with the use of data in this manner."
