Solo parents will have to look for part-time work once their youngest child turns 6 or have their benefit halved.
But if they take a job they will be able to keep more of the money they earn before their benefit starts being reduced, with new thresholds for abatement rates that will immediately benefit 28,000 with part-time jobs.
Under a raft of tougher rules announced yesterday more beneficiaries will be pressed to return to the part-time workforce just as the economy is starting to pick up after the recession.
Social Development Minister Paula Bennett said however that if the work was not there, that beneficiaries would not be penalised.
The changes meant that the welfare system would be there for those who needed it "without becoming a lifestyle choice for those who don't".
Prime Minister John Key said he was advised that unemployment was near its peak, with 64,000 on the dole at present.
Of the total 97,000 on the domestic purposes benefit, 43,000 have their youngest child aged over six but about 14,000 have been in paid work in the past year.
The transition to the new work-tested benefit will happen in stages and Work and Income expect to be working closely with only 4500 on the DPB at any one time to get a job.
In other moves the Government has targeted hardship grants - which totalled $245 million last year from one million grants - for tougher rules for anyone applying for three or more grants.
A new medical certificate for the invalids benefit will be designed which is expected to shift more people from the benefit to the lower sickness benefit.
People on the dole will have to reapply for the benefit every year and the job seeker "agreements" that exist now will be dumped. They will be obliged to undertake activities to get themselves prepared for work and their agreement will not be required.
The crackdown on welfare was well-signalled by National in the run up to the 2008 election campaign.
The moves are expected to cost $88 million over four years but savings are estimated to be around $100 million over the same time.
At present 345,000 people are on a benefit and the annual welfare bill is $4.8 billion.
Changes were also announced to the childcare assistance paid to providers meaning that fewer well-off families will qualify - though current users won't be affected.
From September, qualifying threshold annual incomes for one child will be cut from $77,272 to $72,800; for two children from $88,296 to $83,200 and for three or more from $99,320 to $93,600.
Estimated savings will be $57 million over four years. Mr Key said the reforms were not focused on saving money in the short term but on "improving outcomes for beneficiaries." But they would also help the sustainability of the welfare system.
If just 5 per cent of sole parents with a youngest child age over six got a job, there would be savings of almost $200 million over the next 10 years.
Me Key at a press conference referred to the fact that both he and Paula Bennett had had first-hand experience of the welfare system.
"When I was young, and my father died, my mother relied on the widows benefit until she could get back on her feet and into a job.
"The minister was a young sole parent who received the domestic purposes benefit on and off for a number of years. As a result both of us have a strong commitment to the safety net that welfare provides."