Minister for Social Development Carmel Sepuloni said she was ditching the scheme because of the concerns of the Privacy Commissioner and non-government organisations.
Under the scheme, which was already on hold because of implementation problems, social sector agencies would have been contractually obliged to provide individual client information.
The former National-led government had come under fire over the ethics of the proposal and the discovery an IT platform designed to hold sensitive information had been insecure.
Organisations such as Rape Crisis spoke out against it, saying it could put people at risk.
Anglican Family Care director Nicola Taylor, of Dunedin, was relieved by Ms Sepuloni's ''common sense'' decision.
''Any barrier in the way of a person in a vulnerable circumstance putting a hand out for help is scary.
''There is absolutely no problem that data is collected and analysed, but to have the client identified in this way is just going over the top.''
Mrs Taylor is hopeful the new Government will more generously fund the social sector.
She said social problems in the regions, particularly in fast-growing Queenstown, needed more recognition.
Methodist Mission chief executive Laura Black said she had had no ethical objection to the proposed data collection, but the implementation was so incompetent it was right to ditch it.
''It was a bit of an omnishambles from the get-go.''
Ms Black was not confident of increased funding to the sector as a whole, saying the new Government had many spending promises to fulfil.
