Why nearly 90,000 Kiwis aren’t working

Tuesday, 4 November 2025

New Zealand’s welfare system is facing growing strain from rising mental distress, particularly among younger people - many of whom, Ministry of Social Development (MSD) analysis shows, are increasingly unlikely to ever return to work.

Almost 90,000 working-age New Zealanders now rely on a benefit because of psychiatric conditions such as depression, anxiety, and trauma. It is the single largest health-related reason for people to be on a benefit, and marks a striking shift for a system designed and once dominated by physical illness and injury.

Behind the numbers, released to Stuff under the Official Information Act, many of those affected are young and face an uphill battle to find lasting employment. MSD analysis shows beneficiaries aged under 25 are projected to spend at least 20 of their working years on welfare - a sign, officials say, of deepening disadvantage and long-term dependency.

It comes as the National-led coalition stakes out a harsher approach to beneficiaries it argues will encourage a culture of personal responsibility which will lead more people back into work.

It is also part of Social Development Minister Louise Upston’s plan to reduce the number of people on welfare by 50,000 within six years, including by increasing the use of sanctions - whereby a claimant’s benefits are docked or stopped altogether - if they don’t comply with their obligations.

Part of the approach involves a policy to means-test whether 18- and 19-year-olds can access a benefit, based on their parents’ income. Upston revised the plan after she got Cabinet backing in principal ahead of the May Budget, even after her officials warned it created “perverse incentives”, including a marriage loophole because it only applied to single teens.

Officials raised further concerns about its final version. While it closed the loophole, applying it to all teens regardless of relationship status, they pointed out it could incentivise teen pregnancy as a way to access a benefit and instead suggested MSD put more resource into training and education. Despite the warnings, ministers plan to pass the policy as law.

Upston rejects the increased use of sanctions is “unduly” harsh or could worsen the issue, pointing out the regime has been in place for 25 years.

“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,” she added.

How did mental health become the number one health issue for beneficiaries?

The change has been years in the making. But what began as a slow climb through the 2010s was accelerated by the Covid-19 pandemic, then supercharged by the cost-of-living crisis.

Lockdowns, isolation and economic uncertainty helped push thousands out of work. Now, as the economic shocks linger and everyday costs grow, a larger number of New Zealanders have dropped out of the workforce than during the pandemic.

By the numbers

As many as 86,232 New Zealanders now receive Jobseeker Support and Supported Living Payments because mental health conditions prevent them from working. That’s up from 51,345 in 2015 — a 68% increase in a decade.

On the short-term Jobseeker Support Health and Disability benefit, 47,832 now list a mental health condition as their main barrier to work, just over half of all recipients. In 2015, the proportion was 43%.

Of those on the long-term Supported Living Payment, the number of people with disabilities or other health issues which stop them working has grown from 27,675 to 38,400 over the same period, rising from 32% to 40% of the caseload.

Those pressures have only deepened in recent years. During the pandemic, lockdowns and uncertainty saw the number of Jobseeker-Health clients citing a psychological condition as the reason they couldn’t work jump by nearly 9000 between March 2020 and December 2021.

After a short plateau, the trend began rising again from mid-2022 as soaring living costs and interest rate hikes added further strain.

The sharpest increase came in the year to June, when another 6500 people were added to the Jobseeker–Health mental health category.

The Supported Living Payment, designed for people with long-term or permanent incapacity, has also continued to grow steadily, up by more than 4300 since 2022.

At the same time, unemployment has been steadily rising, with the rate now at 5.2% (about 158,000 people) in the four months to June, according to Stats NZ.

But more than 400,000 people are underutilised — that is, they’re either unemployed, in work but wanting more hours, or want a job but aren’t currently in one.

The cohort of young people not in work, study or training has also been tracking up.

Calls for a new approach

MSD said helping people into work remains its top priority, with dedicated staff, health teams, and funded programmes aimed at improving wellbeing and building skills.

Support is tailored to individual needs, recognising that some face greater challenges in finding and keeping a job.

Graham Allpress, group general manager of client service delivery, said staff help jobseekers gain and retain employment, while regional health and disability teams ensure those with mental health conditions get the right support.

“We understand that gaining work can be harder for some, and provide a range of assistance to help people with specific needs into work,” he said.

But the Mental Health Foundation says a fresh approach is needed for younger beneficiaries with mental health issues who have dropped out of, or struggle to enter the job market.

Chief executive Shaun Robinson cited OECD analysis estimating that mental ill-health costs New Zealand around $20 billion a year in healthcare, lost productivity, and wider social impacts.

He warned that more than a quarter of young people now face moderate to severe mental-health challenges, with access to support getting harder. He said they need integrated help - including clinical care, income, housing, and education - to manage their health and participate fully in work and community life.

“Our mental health system is letting far too many young people fall through the cracks,” he said.

“Investing in youth mental health now is both the right thing to do, and the smart thing to do in the long term.”

Green Party MP Ricardo Menendez-March, who previously worked with people on income support, said the true scale of mental distress linked to poverty is likely higher than MSD’s figures suggest, because many people can’t afford to see a GP to get the diagnosis needed for support.

“Getting the Supported Living Payment is hard enough — getting a mental health diagnosis is even harder,” he said.

He pointed to a 2018 government inquiry that found strong links between poor mental health, poverty, social exclusion and trauma. The report warned that when families struggle to meet basic needs, the resulting chronic stress can have lasting effects, which include making it harder for people to find and stay in work.