Beneficiary families and low-income working families will get a boost of up to $25 a week as part of a child hardship package, which is the centrepiece of Bill English's seventh Budget.
It is the first increase in core benefits, apart from inflations adjustments, since 1972 and will affect 110,000 families.
Childcare subsidies for lower-income families will also be increased from $4 an hour to $5 an hour for pre-school or after-school care for up to 50 hours week.
But there will be a tightening of work tests for sole parents. They and the partners of other beneficiaries will be expected to be work-ready when their youngest child turns 3, instead of the present 5.
And there will small cuts to Working for Families for households earning more than $88,000 a year.
The child hardship package will cost $240 million a year when it is fully implemented and $790 million over the next four years.
Mr English said the Government had been watching the gap between benefit rates and low-income households grow over the years.
"We think it has actually grown enough," he told reporters in the Budget Beehive lock-up.
"So we think we can close it up without affecting the incentive to work."
Speaking about the changes to welfare and the increased work obligations on sole parents in the Budget, Mr Key referred to his own upbringing by a solo mum.
"I know my history. I know the struggle my mother had. Today is the day we've been able to stand up and just give them a little bit more."
He said the sign of a decent society was looking after those in need. However, that came with mutual obligation. "I say if you can work, you should work."
He said the left argued that people with children aged 3 should not have to work.
"Well, tell that to the tens of thousands of Kiwis who do."
Mr Key said some would argue the benefit increases were not enough.
"It's 25 times better than any other government has delivered in 43 years."
Mr Key also took aim at Labour leader Andrew Little, saying his predecessors had all delivered better responses to the Budget than Mr Little.
He said Mr Little had nothing to show for his time as leader, other than a meeting with former UK Labour leader Ed Milliband, who went on to lose the British election.
"He has done nothing. Nada. That's why the speech was so bad. He basically agreed with the Budget."
He said Mr Little was like one of the least favoured candidates in The Bachelor. "He's not getting a rose, that boy."
Mr Key also thanked his support partners, Act's David Seymour, the Maori Party and United Future.
Housing, KiwiSaver, and income tax
Mr English has set aside $52 million in contingency funding to fund work with private sector developers to build affordable houses on under-used Crown land - Housing and Building Minister Nick Smith will begin meeting developers on May 29 to discuss potential partnerships. Mr English said it was likely that iwi would get first right of refusal on some of the land.
One of the Budget surprises was the introduction of a levy on travellers leaving and entering New Zealand to boost biosecurity funding by $100 million a year.
The $6 for departing passengers and $16 for arriving passengers will be added to the cost of an airline ticket.
The other Budget surprise was the axing of the $1000 kickstart payment for people when they sign up to KiwiSaver, which is estimated to save $500 million over four years.
The annual Government subsidy for existing members of the scheme for up to $521 annually will remain.
Mr English said early estimates assumed the scheme would have 700,000 members by now but it already had 2.5 million members.
The Budget estimates that the current year will post a $684 million deficit, and forecasts a tiny surplus of $176 million for 2015 - 16, rising to $1.47 billion in 2016 - 17, $1.99 billion the next year and $3.62 billion in 20-18 to 19.
Gdp growth is forecast to be an average of 2.8 per cent over four years.
The new spending allowance in 2017 - 18 in $2.5 billion, compared to the $1 billion in new spending in this and the next Budget.
Mr English confirmed that one of the Government's priorities would be to "begin to reduce income taxes from 2017 - which is also election year.
The Budget forecasts that by mid-2019 there will be another 150,000 people in work and that unemployment will drop to 4.5 per cent. It is 5.8 per cent at present, and the average wage is is expected to rise by $7000 to $63,000 a year.
