Social Development Minister says the Government hopes to get 46,000 people off benefits over four years because welfare should be a safety net, not a trap.
The Social Security (Benefit Categories and Work Focus) Amendment Bill, introduced to Parliament on Monday, replaces seven existing categories with three main benefits and imposes stronger obligations on jobless people to seek work.
Paula Bennett told Radio New Zealand's Morning Report on Tuesday that invalid and domestic purposes benefits are archaic and the welfare system needs modernising.
"I think it does become that safety net and I think over time what it instead has become is a bit of a trap for quite a few people when we've seen 161,000 people have been on for at least five of the last 10 (and) 139,000 for at least 10 years."
Ms Bennett says parents could be penalised if their children are not enrolled with a GP and in early childhood education, but there will be discretion where those services are not available.
The minister believes mothers should work when their children are at school because being jobless is demoralising. Women will be required to seek part-time work of at least 15 hours a week once their children turn five.
"Long-term benefit receipt is actually demoralising - the longer you're on, the harder it is to get off. And let's be honest, they're never going to be wealthy and living the high life while you're on it.
"So I want to give those sorts of supports to those women as well, and there's equally that kind of choice as to who is paying for it and how long should you be there."
But an advocate for beneficiaries says reducing the grace period during which people can still receive the domestic purposes benefit when their circumstances suddenly improve is mean spirited.
Paul Blair, from the Rotorua Peoples' Union, says people will struggle to get their affairs in order when the grace period is cut from eight weeks to four.
Mr Blair says it is not enough time for people to find somewhere to live and transfer a lease to a smaller house if their children leave home, or to rearrange their bill payments, and it is a benefit cut by stealth.
The largest category is Jobseeker Support, which will be made up mostly of people currently on the Unemployment and Sickness benefits.
All those on Jobseeker Support will be expected to be available for fulltime or part-time work, or have a temporary work exemption.
The bill introduces benefit cuts for parents on a benefit who fail to meet health and education requirements for their children.
There are also sanctions for beneficiaries with outstanding arrest warrants, and for jobseekers who avoid drug tests.
The bill will have its first reading in the next few weeks and changes are due to take effect from July 2013.