Kiwis are richer - but more are on benefits than ever before due to a failing welfare system, a new report has stated.

With double the income-per-person than what was in 1970, a minimum wage up 50 per cent (inflation adjusted) and better medical care boosting life expectancy and reducing child mortality, you'd think New Zealand would be in its heyday.

But the facts are "tragically different" argued the Welfare, Work and Wellbeing report from the New Zealand Initiative - a right-wing think tank and business membership organisation in Wellington.

Instead, in 2012, the proportion of Kiwis of working age on a sickness or invalid's benefit was six times greater than in 1970.

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Now 10 per cent of the working-age population are on a main welfare benefit, compared with 2 per cent in 1970, and around 500,000 people received some kind of income support from the Ministry of Social Development this year.

Report author Dr Bryce Wilkinson said New Zealand has got a serious and entrenched problem of disadvantage coming through the welfare system. The social investment approach was the way forward and held the key to breaking intergenerational benefit dependence.

The cycle of intergenerational benefit dependence is high. The report found nearly three-quarters of all beneficiaries aged under 25 had a parent on a benefit while they were a child.

"Of course more money can help," Wilkinson said.

"But the Government has to take more responsibility than just passing out welfare cheques. It doesn't help people overcome their predicament.

"The important thing is continuing to thrust to find out what works to help people make more of their lives."

Social investment is about applying evidence-based investment practices to social services. It requires vast amounts of data to determine what social services work over the long term.

Auckland Action Against Poverty co-ordinator Vanessa Cole criticised the New Zealand Initiative's work focus and said social investment should be scrapped.

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She said it led to excessive sanctioning where people are punished for missing appointments and are thrust into jobs that don't increase their well-being.

"It's failing our families and our people. The kind of work people are being pushed into is not fulltime work with good wages, it's precarious with no guarantee for long-term employment.

"We need to reject the social investment model. It focuses on reducing government spending and treating people as numbers and as potential financial risks on the economy. This focus is not going to ensure their well-being."

Cole instead advocated for increased unconditional payments to ensure better health outcomes and enable beneficiaries to live in dignity.

"The first step is to get rid of all benefit sanctions. They are excessive and blame the unemployed."

An Avondale beneficiary, who wants to only be known as Peter, wants the welfare system to "work with me, not against me".

Peter has been on a job seeker support benefit for seven years. He had an accident and injured his legs badly as a young man. The injury progressively got worse and spread to his back. Now at 54 he can no longer stand, walk or even sit for long periods of time which prevents him from working.

He has a meeting with his case manager every month and always gets asked when he will be able to work again and whether he could do jobs like fruit picking or labouring in a warehouse.

He has experience in technology and IT but isn't able to sit in an office chair for longer than three minutes without getting excruciating pain.

"They should do a proper work assessment to see what my experience is and what jobs I can do based on my ability. I'm happy to work from home," Peter said.

"To me they're just trying to save costs without any care for the long-term solutions for the beneficiary."

Wilkinson said a beneficiary's shortage of money was a symptom rather than a cause of poverty. Instead efforts needed to be made to address drug addiction, alcoholism, mental illness, low skills, poor parenting and a lack of understanding of work habits.

Policies that increase job and income growth must be valued to complement welfare. The report stated the welfare system should "nourish rather than smother self-help".

"State welfare support is a balancing act. A good system must guard against beneficiaries who could work but do not. This is a waste of human potential and an unwarranted burden on their fellow citizens."

Minister for Social Development Carmel Sepuloni had not read the report at the time of writing but had been quoted in the past as saying she supported the concept of social investment. Rather than focusing on what financial implications a person might have Sepuloni was interested in looking at schemes that invest in people.