Firstly your MIL sounds like a *fabulous* lady... NOT!

I don't have any advice on the saving for a deposit, I'm in the same boat I would LOVE to have our own place.

BUT I do have advice on living on centrelink.
IF we crack down on spending on stuff that is a luxury we can bank minimum of $50 a week.
I have my bills allocated a week in the month they need to be paid, it's the only way I can keep them paid and food on the table.
For eg.
Week 1 - DH's cc, leco & layby's. - I have just paid off DH's cc, so that money will be moved into paying extra on the other ones I pay on week 2.
Week 2 - My cc, overdraft, leco & layby's
Week 3 - phone, leco & laybys
Week 4 - [all going good] is only leco & laybys
Rent is paid fortnightly on my bigger pay week, however I would dearly love to be able to get it back to weekly.

I know $50 doesn't sound like much. But when you are living on such a low income it is a massive amount.
And it will add up eventually. And when you can add a little more do it. We have a change jar all the change goes into after shopping day is done. That gets banked too. It's amazing how much $$ you can have in change at the end of the day!