The 12-month delay will save the Government nearly $3 billion, it says in its national budget.
The chief executive of World Vision, Tim Costello, says up to 200,000 lives will be lost as a direct result.
"Those dollars just aren't a figure, they play out in how you care for people who aren't getting good yields in agriculture, and feeding their children," he told Radio Australia's Pacific Beat.
"How you actually get the techniques and agricultural improvements to them, how you get the clean water to them, how you get the trained midwives and attendants."
Other aid groups criticised the Government's delay, as part of its efforts to achieve a budget surplus.
Beneficiary nations in the Pacific will see a mix of moderate rises and cuts as a result.
The Government is forecast to save $2.9 billion over four years by deferring its goal to raise foreign aid spending.
The rise was to take aid to 0.5 per cent of gross national income in 2015.
The foreign aid budget will still increase from $4.8 billion this financial year to $5.1 billion for the next year in absolute terms.
There will be moderate increases for Vanuatu, Samoa and Fiji.
But Papua New Guinea and Solomon Islands will see a reduction from their 2012 allocations.
The Australian Treasurer, Wayne Swan, says Australia will still be among the biggest donor countries.
But aid groups say the Government is walking away from its commitment to the millennium development goals - under which 190 nations promised they would lift aid spending from, in an Australian terms, 35 cents in every $100 to 70 cents.
Oxfam Australia's executive director, Andrew Hewett, says he is bitterly disappointed.
"The casualties of the Government's broken promise are some of the poorest people in the world, they're people who lack access to clean water to sanitation to health care, to education," he said.
"The aid program was an investment in them and an investment in a more stable and prosperous region."
Around 70 per cent of Australia's foreign aid is spent in the Asia-Pacific region.
Meanwhile, Immigration Minister Chris Bowen says the government will designate 13,750 places under its humanitarian program next financial year.
"Our main resettlement focus will continue to be on refugees from the three key regions of Africa, Asia and the Middle East," he said.
Around $52 million will also be spent over the next five years to increase Australia's diplomatic presence overseas, creating two new mission posts in China and Senegal.
Company tax cuts
The government is scrapping billions of dollars worth of company tax cuts, instead redirecting the money to welfare payments as it reaches for a budget surplus.
The company tax cuts were promised as part of the mining tax but were unlikely to pass the Parliament because of opposition from the Greens and the Coalition.
Treasurer Wayne Swan says he will not allow the "parliamentary gridlock" to get in the way of sharing the benefits of the mining boom.
"These new measures are good for low- and middle-income families because they will help them make ends meet and get ahead," he said.
"It's a Labor budget to its bootstraps."
As expected, the government has announced billions of dollars in savings to return the budget to a modest surplus of $1.5 billion in 2012-13.
Path to surplus
The government is predicting a further $7 billion blowout in this year's budget deficit to $44.4 billion, largely because of a further write-down in company tax receipts and bringing forward some support payments.
But it is forecasting a return to surplus in 2012-13 on the back of significant cuts, which the Treasurer says will give the Reserve Bank more flexibilty to cut interest rates.
"Tonight we make a forceful statement that ours is one of the world's strongest economies and fairest communities," he said.
"The deficit years of the global recession are behind us. The surplus years are here."
The government has announced net savings of $17 billion over the next four years - including $5.4 billion from Defence. The civilian workforce at the Defence Department will be cut by a further 1,000 positions while some major projects have either been cancelled or deferred.
The government has also scrapped plans to introduce a 'standard deduction' in tax returns - which would have made filing a tax return simpler. The move will save just over $2 billion.
Spreading the benefits of the boom
A key element of the budget is a new plan to redistribute the revenue from the mining tax.
Those on Family Tax Benefit - Part A will receive an increase to their payments from July 2013.
The Government estimates around 1.1 million families will get an increase of at least $300 per year.
However, there will be new eligibility criteria so that families will no longer receive the payment if their child is over 18 and not in full-time study.
There is also $1.1 billion to fund a new Supplementary Allowance for those on welfare support.
"We understand the pressures Australians face, paying for electricity, housing, groceries, petrol or even a simple family outing," he said.
"That's why we've gone into bat for working families."
The extra payments will be funded by scrapping the proposed company tax cut that was designed to help those sectors of the economy struggling from the high Australian dollar.
The major spending initiatives are:
- $1 billion to start the National Disability Insurance Scheme
- $1.1 billion for a new Supplementary Allowance for welfare recipients
- $1.8 billion to increase Family Tax Benefit - Part A
- $513 million to improve dental services
Major budget savings:
- $4.7 billion by scrapping company tax cuts
- $5.4 billion from Defence (including cutting 1,000 staff)
- $2.9 billion by delaying Australia's foreign aid commitments
- $2 billion by cancelling plans for simpler tax returns