Schools should employ "mental health and wellbeing" counsellors for children, according to a billion-dollar proposal put forward by the Federal Government's key economic advisory body.

Key points: The Productivity Commission estimates mental illness costs Australia $180 billion annually

The Productivity Commission estimates mental illness costs Australia $180 billion annually It has released wide-ranging recommendations for the Federal Government to consider

It has released wide-ranging recommendations for the Federal Government to consider It is offering possible solutions for schools, hospitals and the housing and justice sectors

The idea is just one of many contained in the latest Productivity Commission report, which warns mental illness and suicide is costing the country an estimated $500 million per day.

The Government last year asked the commission to examine the effect of mental health on economic participation and productivity.

In its draft report released on Thursday, it has documented long-standing problems in the system, including under-investment in prevention programs, an over-reliance on clinical services, difficulties in accessing support, and a lack of clarity between governments about their roles and responsibilities, leading to "persistent wasteful overlaps and yawning gaps in service provision".

"Substantial reform of Australia's mental health system is needed and there is no quick fix," the report states.

The commission's recommendations extend beyond just the health system and schools and into workplaces and the housing and justice sectors.

Chairman Michael Brennan said he believed there was government appetite for changes.

"Mental health remains one of the most significant policy challenges we face," he said.

"It is an important health issue, an important broad social policy issue, but it is an economic policy issue as well; it has very significant economic costs which we estimate to be $180 billion per year.

"But that really represents what underlies that is pain felt by individuals and families who are spending years in mental ill health and not necessarily having services they need available to them."

Almost $1b annually for wellbeing teachers in schools

A key focus of the report is children, proposing that existing physical examinations of infants be expanded to include social and emotional wellbeing checks.

It also recommended all primary and high schools have a full-time teacher with the responsibility for "mental health and wellbeing".

The report noted the approach was being rolled out across UK schools with early signs of success.

But it will not come cheap.

The cost of the positions is estimated to be up to $975 million each year for both public and private schools.

Wellbeing counsellors could be put into schools if a Productivity Commission recommendation is implemented.

Pressure off emergency departments

The rate of mental health presentations at emergency departments has risen by about 70 per cent over the past 15 years.

The report noted this was in part due to the lack of community-based alternatives to emergency departments, and exacerbated the distress of those with a mental illness.

It said it also frustrated and diverted emergency clinicians, paramedics and police, and that was an expensive way to treat acute mental illness.

To close some of the critical gaps in services, the commission has recommended after-hours and mobile crisis services be set up specifically for mental health patients.

It also recommended more beds for mental health patients both in hospitals and within community care.

Following up after a suicide attempt

The report has made sweeping recommendations, in ranging complexity.

One of those is formalising follow-ups after suicide attempts.

About a quarter of people who attempt suicide will try again, but only half of those discharged from hospital after they try to kill themselves will attend follow-up treatment.

The report notes that responsibility and accountability for follow-ups is unclear and inconsistent.

"In different states, in different systems, the degree of proactive follow-up is variable. We think it should be formalised," Mr Brennan said.

"This can make a big difference. It's estimated it could reduce subsequent suicides by around 20 per cent on those who present to an emergency department. That could reduce the overall suicide rate by 1 per cent, which may not seem like a lot, but that's 30 lives."

Better support for workers

The report also notes questions it will pose as it holds public hearings in the coming year.

It wants to know if so-called "mental health days" should be formalised as "personal care days", to allow workers to take time off without a doctor's certificate.

In the short term, it recommends workers' compensation schemes be amended to provide clinical treatment for all mental health-related workers compensation claims — regardless of liability — until the injured worker returns to work, or up to six months after the claim was lodged.

Funding cycles extended and resources pooled

Service providers are typically funded on an annual basis.

The report recommends state, territory and federal governments extend that for peak bodies to a minimum of five years to strengthen system advocacy.

"I think it is fundamentally important that service providers have a degree of certainty when they're contracted to government, and aren't burdened by red tape," Mr Brennan said.

"We need to ensure people are getting on with delivering service on the ground to people who need it," he added.

It also recommends that the Commonwealth, states and territories identify and pool their resources to improve care, and use taxpayer funds more efficiently and effectively.

The Productivity Commission will report back to the Government in 2020.