The mental health system is making us sicker
The 20th century was the age of diagnosis. The 21st must become the age of recovery, measured not by how many people we enrol in the mental health system, but by how many no longer need it.
Australia has a mental health crisis, but not the one we think. Despite decades of soaring expenditure—funding has more than doubled in real terms—our national mental health hasn’t improved. Suicide rates remain stubbornly high. Psychiatric drug use is at record levels. And each year, more people are diagnosed as mentally ill than the year before.
We’re spending more and getting worse. That paradox should trouble us.
The problem isn’t a lack of compassion or commitment. It’s that we’ve built a system that produces patients rather than health. By medicalising normal distress, tying support to diagnosis, and rewarding ongoing treatment over recovery, we’ve created a diagnostic-industrial-government complex, a self-reinforcing system where everyone benefits from more diagnoses except the patient.
Consider the incentives. Clinicians need billable diagnoses to claim Medicare rebates. Schools access additional funding when students are labelled. Universities grant exam accommodations based on diagnostic status. Pharmaceutical companies expand markets. Advocacy groups grow membership. Governments get to appear responsive. And distressed individuals learn that the gateway to help requires adopting a medical identity.
The result? ADHD prescriptions have exploded from 500,000 annually in 2010 to 4.5 million in 2024. Autism diagnoses increased 350% between 2009 and 2022. One in five Australians now meets the criteria for a mental disorder in any given year. Among young people aged 16-24, it’s approaching 40%.
Yet for all this diagnostic expansion, population well-being hasn’t improved. The proportion of adults reporting high psychological distress has increased from 11% in 2011-12 to 15% by 2022-23. Something is badly wrong.
Are we just getting better at diagnosis?
That’s the conventional explanation, but the evidence doesn’t support it. If awareness and reduced stigma were the main drivers, we’d see proportional increases across all conditions. Instead, psychoses, the most stigmatised disorders, show stable prevalence, while autism, ADHD, and anxiety surge dramatically.
The expansion is concentrated precisely where diagnostic boundaries are most ambiguous and institutional incentives are strongest. The youngest children in each school year, for instance, are diagnosed with ADHD at twice the rate of their older classmates. That’s not biology. That’s developmental immaturity being pathologised because we set arbitrary school entry dates and expect all children to meet the same behavioural standards regardless of age.
Meanwhile, those with genuinely severe conditions are being failed. According to the Australian Productivity Commission, roughly half of all Medicare-subsidised mental health services go to people with mild or moderate symptoms, while those with severe, life-limiting psychiatric illness often receive fragmented care or none at all. A person with schizophrenia and a university student stressed over examinations compete for resources from the same pool. This is compassion without proportion.
The ‘Thriving Kids’ test case
The Australian government’s recently announced ‘Thriving Kids’ program, a multi-billion-dollar early intervention initiative, represents a critical test. It could support families without diagnostic labelling, expect developmental catch-up, and measure success by how many children avoid long-term dependency. Or it could become another pipeline channelling children into permanent therapeutic identities. How we design it will reveal whether Australia is ready for genuine reform.
What reform looks like
Reform requires five fundamental shifts:
First, replace diagnosis-based eligibility with functional assessment. Allocate support based on what people can or cannot do, not whether they tick boxes in a diagnostic manual.
Second, adopt stepped care. Reserve expensive, intensive services for those who genuinely need them. Start with low-intensity interventions and step up only when necessary.
Third, address contextual causes before medicalising them. Many difficulties we label as disorders are better addressed through employment support, affordable housing, or policy reforms than through clinical pathways.
Fourth, reward recovery rather than retention. Reward providers for helping people return to work, education, or independent living, not for keeping them in ongoing treatment.
Fifth, measure what matters. Track functional recovery and how many people exit the system, not just spending and sessions delivered.
None of this means abandoning people who are suffering. Severe psychiatric conditions require intensive, often lifelong support, and those affected should receive it without question. But drawing millions into treatment dilutes resources, creates dependency, and teaches people that normal struggles signify pathology.
A humane system sharpens compassion by distinguishing those who truly need lifelong care from those who need understanding, structure, and the opportunity to recover. It celebrates discharge as achievement, not abandonment.
If the twentieth century was the age of diagnosis, the twenty-first must become the age of recovery, measured not by how many Australians we enrol in the mental health system, but by how many no longer need it.
This article is drawn from my new report on mental health, Drowning in a Sea of Diagnoses, published by the Centre for Independent Studies.
When the mental health field as an industry is raking in hundreds of billions of dollars per year (referencing the USA), it has a very vested financial interest to see to it that the patients are 'treated' but not cured. So long as the problem persists, therein lies the road to continued revenue. This applies to other fields dealing with complex problems as well.
Steven, this really bothered me. The perception over here on the US west coast is that A'strailia is alive and well, but it sounds like you are having the same problems we are. Local consensus says that possibly if clinicians weren't so quick to diagnose, it would help. We think that in this affluent western culture, people have too much time on their hands and when they are diagnosed with a mental illness, they just give up because their perception is that, "I'm f*d up and so why try?"