Teenagers who have dropped out of school, work or training will be able to earn an extra $30 a week from the Government for going back to class or taking budgeting courses under a shake-up of the welfare system.

And solo mums who find work before they are work-tested will be able to keep their benefit for longer. It will fall by $100 a week until it disappears - an extra financial hand to help with the transition into work.

Opposition parties are calling the financial incentives a bribe that will have little effect if no new jobs are available.

But Prime Minister John Key remains confident the economy will pick up and increase the number of jobs available.


Yesterday, he announced that legislation would be introduced next month for the first stage of the overhaul of the welfare system, which he says is economically unsustainable.

From July, up to 14,000 teenagers aged 16 and 17 who are not in education, work or training and teen parents aged 16 to 18 will be coupled with a private provider to help them with budgeting courses, parenting courses, training or job-hunting.

Their basic costs such as rent and power will be paid by the state, and they will have a payment card for living costs that can be monitored to ensure they do not buy alcohol or cigarettes.

They will receive an allowance of up to $50 a week, but this can increase by $10 a week for a good attendance record at school or for completing a budgeting or parenting course.

Likewise, providers will receive extra funding, but Social Development Minister Paula Bennett said payments to them would be based on the results they achieved - what she called "real outcomes".

From October, the 30,000 people on the domestic purposes, widow's or woman-alone benefits will have to be work-tested for part-time employment once their youngest child turns 5, and for full-time roles when their youngest child turns 14.

Having an extra child while on a benefit will only bring a 12-month reprieve from these obligations - a disincentive to having more children.

Mr Key said that last year, 4300 children were born to mothers on a benefit and 220,000 children lived in benefit-dependent homes, "trapping them into a life of limited choices, poverty and poor health".


The Labour Party's social development spokeswoman, Jacinda Ardern, called the financial sweeteners a bribe that would do little to address the issue of creating jobs.

Greens co-leader Metiria Turei said the changes would result in solo mothers spending less time with their children during their most crucial development years.

But Mr Key defended the moves, saying the current welfare system cost $8 billion a year to pay benefits to 351,000 people - 13 per cent of the working population.

"It's costing taxpayers a lot of money but it's also not delivering good outcomes for those who are on it."

A second stage of welfare reforms - affecting the unemployment, sickness and invalids benefits - will take effect in July next year.

* For 14,000 parents aged 16 to 18 and for 16- and 17-year-olds not in education, employment or training: $10 a week for attending budgeting courses, parenting courses, or having good attendance at school.

* For 30,000 people on the domestic purposes, widow's or woman-alone benefit: Finding a job before you are work-tested allows you to retain the benefit while it reduces at $100 a week.