New Zealand’s welfare system is facing growing strain as mental distress becomes the leading reason for benefit receipt, particularly among young people.
Nearly 90,000 working-age New Zealanders now rely on welfare because of psychiatric conditions such as depression, anxiety and trauma, “the single largest health-related reason for people to be on a benefit.”
“A striking shift for a system… once dominated by physical illness and injury,” officials said. About 51,345 people were on such benefits in 2015; today that number has risen to around 86,000, a 68 per cent increase in a decade.
Ministry of Social Development (MSD) analysis shows that beneficiaries aged under 25 are projected to spend at least 20 of their working years on welfare. Officials warn this points to “deepening disadvantage and long-term dependency.”
On the short-term Jobseeker Support Health and Disability benefit, 47,832 people now cite a mental health condition as their main barrier to work, just over half of recipients. The long-term Supported Living Payment has also shifted, with the proportion of clients prevented from working by health or disability rising from 32 to 40 per cent of the caseload.
The surge in mental health-related claims accelerated during the pandemic, when lockdowns, isolation and uncertainty pushed thousands out of work. Between March 2020 and December 2021, the number of Jobseeker-Health clients citing psychological conditions rose by nearly 9,000. A further 6,500 joined in the year to June as the cost-of-living crisis and higher interest rates added strain.
The National-led government aims to reduce welfare rolls by 50,000 within six years through tighter eligibility and renewed use of sanctions.
Social Development Minister Louise Upston has defended the approach, saying the regime “has been in place for 25 years.” She added, “I support all frontline MSD staff working with job seekers. They care about their work and the people they’re working with, including those with health issues.”
Part of the plan includes means-testing benefits for 18- and 19-year-olds based on their parents’ income, a proposal officials warned could create “perverse incentives” such as teen pregnancy or marriage loopholes. Ministers have nonetheless confirmed it will proceed.
While the government focuses on reducing dependency, advocates warn that tougher rules could push vulnerable youth further from work. Shaun Robinson of the Mental Health Foundation said, “Our mental health system is letting far too many young people fall through the cracks.” He called for integrated help covering “clinical care, income, housing, and education.”
The rising tide of mental distress poses not only a welfare challenge but also a test for the labour market.