More than 500 people have had their benefits cancelled since the Ministry of Social Development began information sharing with Inland Revenue.
Co-operation with police also saw two people arrested last week for suspected welfare fraud of $375,000, Associate Social Development Minister Chester Borrows said.
Borrows said the work being done between government departments and agencies would save money.
"As at 31 March, 525 people's benefits have been immediately cut as they are earning above the income threshold and have failed to disclose their full circumstances."
Those involved were part of a larger group of 3500 people being contacted by MSD because they were believed to be earning above the threshold for welfare support, he said.
Any deliberate fraud would be prosecuted and action was being taken to recover all the money.
The 525 people whose benefits were cancelled were receiving benefits worth $5.6 million a year.
"That's money they were not entitled to, and I'm glad we've been able to put a stop to it... The Government is determined to clamp down on welfare fraud, and I'm pleased to see the measures announced in February are already paying dividends," Borrow said.
Beneficiaries are now regularly checked against income tax records.
Meanwhile, Social Development Minister Paula Bennett said there were 29,000 fewer people receiving a benefit in the last quarter - the lowest for the period since 2009.
There are now 310,146 people on benefits: 92,550 sole parents on Domestic Purposes Benefit, 58,208 on Sickness Benefits and 48,756 on Unemployment Benefits.
The Governments second round of welfare reforms passed in Parliament last week and are set to come into force later this year.
The changes include new benefit categories and greater work expectations, particularly for parents and disabled people on a benefit.
"The welfare reforms we're introducing include clear obligations and expectations and will mean more people get better support to move off welfare into work," Bennett said.
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