The Government says better employment support for people with mental illness is the aim of its first social bond system, which will privately contract out some services.
Budget 2015, included $28.8 million for four social bond programmes.
Through its social bonds, the Government will pay a return to investors, determined by whether or not agreed social targets have been achieved.
The Government said social bonds were about the private and public sector organisations operating together to fund and deliver services.
It said for some people, being supported and encouraged to achieve employment was an important part of their treatment and ongoing care.
Health Minister Jonathan Coleman said mental health was an area where the Government had not had a lot of success.
"If we can get some results out of this, we are going to be really doing well by this population of mental health clients, if we don't well actually there's not going to be any money that's been wasted out of the public purse."
Mr Coleman said details of how the mental health social bond would be structured were still to be agreed by the Cabinet.
However, the Labour Party said the Government's testing of social impact bonds will affect some of the most vulnerable people.
Labour's health spokesperson Annette King said the Government was ignoring advice provided to the Department of Internal Affairs which questioned whether the bonds could be successful.
She said for the pilot project, a multimillion-dollar mental health initiative, to be bankrolled by private investors was a disaster in the making, tantamount to gambling on New Zealanders' mental health.
The Mental Health Foundation says people with mental illness are worried about the implications of a Government plan to privatise some social services.
Mental Health Foundation chief executive Judi Clements said it was too soon to say how well the system would work.
"I know there's people with mental health problems that are feeling quite unsettled and quite afraid by the announcement they've made in the last 24 hours, I've had people contacting me asking what's going to happen to them, are they going to be in some way disadvantaged."