The Government will limit how 16 and 17-year-old beneficiaries and 18-year-old teen parents can spend the state's money to ensure they are not buying items such as alcohol or cigarettes, Prime Minister John Key announced today.

It will also change the law to make it easier to track disengaged 16 and
17-year-olds - regardless of whether they are on a benefit - when they leave school so they can be better monitored and targeted with support.

Mr Key flagged the changes in his speech to the National Party conference today, and the party will campaign on the changes in this year's election.

Between 8500 and 13,500 16 and 17-year-olds are not in education, training, or work at any one time; 90 per cent of these people will go onto a benefit once they turn 18, and around 1600 are already on a special benefit for 16 and 17 year olds.

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"That's why we are making this group the first priority - because 90 per cent of them will go onto a fully-fledged adult benefit, unless we do something to intervene," Mr Key said.

While details were still being worked through, he proposed:

* essential costs, like rent and power, will be paid directly on the young person's behalf

* money for basic living costs like food and groceries will be loaded onto a payment card that can only be used to buy certain goods and cannot be used to buy things like alcohol and cigarettes

* a certain, limited amount will be available for the young person to spend at their own discretion

"We are not going to hand over benefit money every fortnight," Mr Key told the conference.

"We simply cannot continue to give them money and trust they will do the right things with it. That approach has not worked."

Young beneficiaries will also be obliged to attend budgeting programmes or parenting courses, if required.

The Government also flagged amending the Privacy Act and the Education Act to require schools to inform the Government when a 16 and 17-year-old leaves school, so the Education and Social Development ministries can share that information.

"For the first time, we will be able to find out who all these disengaged 16 and 17-year-olds are; what circumstances they are in; what problems they have had at school; and what their risk of long-term welfare dependency is," Mr Key said.

He said funding for support services for teenage beneficiaries will increase, and the Government was providing 7500 training opportunities through its Youth Guarantee programme next year and a further 4500 placements over the next two years through Trade Academies.

"Young people who are receivinng these payments will have clear obligations, for example to attend budgeting or parenting programmes. Most importantly, each of these young people will have to be in education, training or work-based learning," Mr Key said.

"That means everybody, including teen parents.

"We will be insisting that teen parents continue with education or training, and we will cover the costs of the childcare involved."

He said the Government will expect teen parents to be in training or education by the time their child turns one.

He said the policies will cost between $20 million and $25 million a year, but the numbers still had to be finalised.

The policies will not affect those on an invalid's benefit.

Legislation to implement the policies is planned to be introduced from early 2012.

While the overall unemployment rate in New Zealand is 6.5 per cent, the rates for young people ages 15 to 19 is 27.6 per cent.

Of all unemployed, 43.8 per cent are aged under 25.