Private investors will soon be given the opportunity to invest in mental health services, Government confirmed this morning.
Finance Minister Bill English and Health Minister Jonathan Coleman have announced plans for New Zealand's first social bond, which will focus on the mental health sector.
The Labour Party described the new policy as an untested experiment which used New Zealand's most vulnerable people as "guinea pigs".
Social bonds allow Government to contract out services and funding to non-government or private organisations, with agreed targets and timeframes.
If the targets are met, Government pays back the investors, and also pays a return on their investment. The return depended on the level of results, up to an agreed maximum.
"The Government is focused on achieving better results for individuals and families in highest need," Finance Minister Bill English said in a statement.
"Where we succeed, there are opportunities to help people fulfil their potential, a chance to break inter-generational cycles of dependency and, in the long term, potential savings for taxpayers.
"So social bonds are a consistent fit with our wider social investment approach which aims to better understand both the drivers and risks of social dysfunction and where we can have the greatest impact in improving people's lives."
The National-led Government gave the green light to a pilot scheme in September 2013, and has now confirmed the first four social bond contracts.
Nearly $29 million has been put aside in the Budget to expand on the pilot, which provided employment services to people with mental health conditions.
Dr Coleman said social bonds were an "innovative" way for the Government to contract social outcomes.
Labour's Annette King said the policy went against official advice and was a "disaster in the making".
She said not only was there a lack of evidence from overseas trials that social bonds delivered on outcomes, but none of the international pilots provided the expected return on investment.
Mrs King said it was an experiment that had been instigated behind closed doors. It also went against advice provided to the Department of Internal Affairs, which warned that New Zealand should not "engage in trials or implementation of a social impact bond".
Mrs King said the risks of the policy were huge, because in order to meet targets providers were likely to focus on "easier-to-help" clients and not difficult and expensive ones.
"When it goes wrong it will be the taxpayer once again picking up the tab."