The Government wants 23,000 fewer long-term beneficiaries on its books by 2017 and the head of Work and Income could lose a bonus if the target is not achieved.
The welfare target is among 10 specific targets the Government has set for the public sector to achieve over five years in policy relating to welfare, vulnerable children, crime, skills and employment, and digital advances.
Prime Minister John Key said the targets were "not a wish-list - they are a to-do list".
Some would be very hard to achieve but with focus could be reached.
"We want targets that are going to stretch the ability of the public sector to deliver them, and will force change. This is not an exercise in ticking boxes."
The welfare target announced yesterday related to people on unemployment-related benefits, the sickness benefit, women-alone benefits and sole parents and widows whose youngest children are over 14, all of which would be called "job seeker support" from July next year.
Deputy Prime Minister Bill English is leading the project. He said laws would be changed to make public sector chief executives accountable for achieving the targets and give them more flexibility to achieve them.
That could mean greater control over their budgets and being able to make changes to programmes that aren't working and trying new ones.
"In the longer run if a department is not playing its role and doesn't appear to be focused on it, that will be taken into account in the performance assessment of those managers."
Ministers and chief executives are working on action plans to implement the targets and they will be published, along with regular updates on the progress of each target.
"Keeping one more teenager on the rails is going to be a low-cost outcome for taxpayers. Having one more prisoner that doesn't reoffend is certainly going to save us a considerable amount of money in the long term."
Public Service Association national secretary Brenda Pilott questioned how Mr Key could reconcile his targets with a "slash-and-burn approach" to the public service.
"It's interesting to hear John Key talk about setting ambitious targets for the public service while ... his Government is taking millions of dollars out the public sector and forcing government departments to do more and more with less and less."
Already 2500 public-sector jobs had been lost, with a resulting reduction of services to the public as a result.
That situation would only worsen with $1 billion slashed from departmental budgets this year, she said.
GOVERNMENT'S 10 TARGETS FOR NEXT FIVE YEARS
1. Cut the number of people who have been on a working-age benefit for more than 12 months by 30 per cent by 2017.
2. Raise participation in early childhood education from 94.7 per cent in 2011 to 98 per cent in 2016.
3. Increase infant immunisation rates from 92.8 per cent for 2-year-olds and 95 per cent for 8-month-olds by 2017; reduce the incidence of rheumatic fever by two thirds to 1.4 cases per 100,000 by 2017.
4. Reduce the number of assaults on children by 1000.
Skills and employment
5. Increase the proportion of
18-year-olds with NCEA level 2 or equivalent from 67 per cent in
2010 to 85 per cent in 2017.
6. Increase the proportion of 25-34 year olds with advanced qualifications from 52 per cent in 2012 to 55 per cent.
7. Cut crime rate 15 per cent by 2017, or 45,000 fewer each year; cut violent crime 20 per cent, or 7500 fewer violent crimes each year; reduce youth crime 5 per cent, or 600 fewer 14- to 16-year-olds appearing in court.
8. Reduce reoffending 25 per cent by 2017 - 600 fewer prisoners and 18,500 fewer victims a year from 2017.
Talking to Government
9. Businesses have a one-stop online shop for all Government advice and support they need to run and grow their business.
10. The public can digitally complete transactions with the Government, with an aim of 70 per cent of common transactions with the Government to be done digitally by the year 2017 compared with the 24 per cent it is at present.