The Ministry of Social Development has released a report showing all people who were receiving a benefit from June last year would cost a total of $78 billion over their life-times if they stayed on a benefit.
This is the first time a welfare system has forecast how much it will cost if a group of current beneficiaries stay on a benefit for life.
In September last year Cabinet agreed to fund the $1 million research carried out by Australian company Taylor Fry Consulting Actuaries.
The aim was to use the valuations to better target welfare reforms and classify groups who are the most welfare dependent.
Taylor Fry estimated the full cost of providing benefits for all people who received a benefit in the year ending June 2011, until they reach the age of 65.
The $78b cost estimated by Taylor Fry is higher than the $45b figure previously estimated by the Ministry of Social Development.
The total cost covers the main tier benefits - unemployment, domestic purposes, sickness and invalids benefits.
Invalids beneficiaries will cost the most; $19b, along with domestic purpose beneficiaries who will cost an estimated $17.8b over a lifetime.
Domestic purposes beneficiaries and invalids beneficiaries make up just under half the total number of beneficiaries in New Zealand.
Unemployment beneficiaries make up just five per cent of the $78.1b cost.
Other benefits were included in the valuation as subsidiary costs - the accommodation supplement makes up 13 per cent of the $78b but is usually tagged to other benefits.
The Taylor Fry report finds young people who enter the welfare system aged under 18 years have the highest individual lifetime cost, estimated at $180,000 per youth. The 4000 clients aged under 18 make up $1b of the liability.
It finds the longer a person is on a benefit, the less likely they are to return to the workforce.
Up until March 31 the Government has spent $1.36b on the domestic purposes benefit, $668m on the unemployment benefit, $994m on the invalids benefit and $581m on the sickness benefit.
The Ministry has set a target to reduce long-term welfare dependence and reduce the number of people receiving job seeker support for more than 12 months by 30 per cent - from 78,000 to 55,000 by 2017.
The Government would also spend $1.1m over four years on the Work and Income board who will advise the ministry on how to best implement welfare reform and report to the social development, finance and state service ministers.
Former Commerce Commission chairwoman Paula Rebstock will head the panel overseeing the ministry's decision to have an "investment approach" to welfare in New Zealand.
The Taylor Fry valuations do not include the impact of welfare reforms.
Social Development minister Paula Bennett said the figures showed that the Government needed to put more focus on people on the sickness or domestic purposes benefit rather than the unemployment benefit, which made up only five per cent of the $78.1 billion.
She conceded there were many variables in the figures, but said the exercise would force Government to be more accountable.
She said the figures showing youth were likely to cost the most in lifetime costs was not a surprise.
"We've known the unemployment benefit has relatively low numbers and people move on and off it quite consistently, yet it's where we put most our employment assistance, most of our resource, most of our energy and most of our spend."
She said the figures warranted a change to that.
"The reality is the system to this point has left many alone to stay for long, long periods on welfare and this can change the way we work with them."
Mrs Bennett said the old welfare system passively expanded to meet demand, with interventions aimed almost exclusively at those on Unemployment Benefits.
"We're reforming the benefit system so it actively targets support to those who are capable of working, but are most likely to become long-term welfare dependent without some help.
"The valuation tells us those on unemployment benefits make up a very small proportion of lifetime costs on welfare when compared to sole parents and those on sickness and invalid's benefits. So unemployment beneficiaries represent just 5 per cent of the lifetime costs of welfare, but receive the lion's share of support to get off welfare into work.
"We can do much better than this, by providing more support to sole parents and others who've historically received very little help to get off welfare.''
Finance Minister Bill English said that change in focus would not come at the expense of support for those on the unemployment benefit - he was currently in negotiations for next year's Budget and expected to approve more funding for the welfare reforms on top of the $237 million this year.
- APNZBy Kate Shuttleworth @K8Shuttleworth Email Kate