Sexual violence and counselling services are among groups from which the government is demanding private client information in exchange for funding.
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The Privacy Commissioner has launched an investigation into the proposal and is expected to report back in a month.
Social Service Providers Aotearoa says the information-gathering began with budgeting advisors, and is expanding to cover all Ministry of Social Development (MSD) contract-holders from July.
Social Service Providers national manager Brenda Pilott said the move required the handover of client names, birthdates, ethnicity and the personal details of any dependents.
"One of the effects is that people will just put the phone down or walk out the door and they won't get the help they're seeking" - Brenda Pilott
Women's Refuge, telephone counselling lines and citizen advice bureaus were among the many organisations that would be affected, she said.
"There's hundreds and hundreds of organisations.
"If you were to, for example, to go into a counselling service for a couple of sessions, MSD don't currently know about you - from July, they will."
Ms Pilott said she was concerned about the chilling effect that could create.
"Providers won't get funded if the person doesn't agree to their information being handed over, so that creates an immediate tension between the service user and the service provider.
"One of the effects is that people will just put the phone down or walk out the door and they won't get the help they're seeking."
Ms Pilott said organisations were already providing aggregate data to the Ministry of Social Development, but not to the extent of identifying details.
"So the numbers of people they're seeing, that kind of stuff, the outcomes that are achieved, through the work that's been done with them," she said.
"There's a reasonably high level of reporting but it's not about individuals."
The reason MSD had given for the change is that it would allow them to find out, over time, what services were effective.
"The problem we have ... is that I can't draw a line of sight from providing this kind of administrative information and private information through to information that tells you whether services are effective," Ms Pilott said.
"That's a very long bow to draw and we haven't seen a clear rationale and any real logic for why this is being done, let alone how the information's being handled [and] who will see it."
The "real sticking point" was the use of identifying information, she said.
There was no reason that anonymous data would not be effective.
The sector would continue to negotiate with MSD over the plans, but would be sending a paper to government ministers outlining services' concerns "and asking them to take their foot off the pedal", she said.
The Privacy Commission investigation would be crucial, she said.
"If he comes up with some very strong findings .. then the Ministry of Social Development will have to take notice of that."
MSD defends request
Ministry of Social Development deputy chief executive Murray Edridge said collecting private data ensured clients received the most effective service.
Mr Edridge said the ministry would listen to the Privacy Commissioner's findings and make changes if required.