Australia's mental health system is failing those most in need – not because of neglect or underfunding, but because of overdiagnosis and misallocation, this report warns. It finds that despite decades of government spending on mental health, outcomes have barely improved. Suicide rates remain high, psychiatric drug use is at record levels, and ever-growing numbers of Australians are classified as mentally ill. 

The report shows that programs designed to expand access to care – including Better Access and the National Disability Insurance Scheme – have unintentionally created a system that treats ordinary distress as pathology, encourages diagnostic expansion and rewards long-term dependency over recovery. 

The report calls for fundamental reform built on five key principles. 

1. Replace diagnosis with functional assessment. Allocate support based on what people can and cannot do, not on whether they meet criteria for a psychiatric label. 
2. Reward recovery, not retention. Fund providers based on how many people return to work, education, or independent living – not how many remain in ongoing treatment. 
3. Address contextual causes before medicalising them. Many difficulties labelled as disorders are better addressed through housing, employment support and policy reform than clinical intervention.
4. Handle problems outside the mental health system wherever possible. Strengthen families, schools, workplaces and communities rather than defaulting to professional services. 
5. Collect data that measures what matters. Track functional recovery, duration in care and whether resources reach those with greatest need.