A crumbling Southern Highlands mental health system has been reduced to a "pool of inexperienced, defensive and demoralised workers" according to a leading local psychiatrist.

Adding weight to the claims is a recent report showing the State mental health system lagging decades behind Queensland and spending less than 10 per cent on mental health care compared to Victoria.

A State parliamentary inquiry lasting more than a year suggested about 25 per cent of money budgeted for mental health in NSW was being redirected for administrative purposes.

The inquiry chose three people at random to relate their stories of a failing mental health system.

The three cases chosen came from the Southern Highlands.

Pointing to these "luck of the draw" case studies, Highlands mental health advocate and Triple Care Farm manager Warren Holt said the inquiry illustrated problems mental health carers were faced with in the region.

"There are some serious issues in the mental health industry," Mr Holt said.

"There have been attempts over the last couple of years to implement fundamental change but there are still outstanding issues."

Pointing to what he considers is a clear lack of funding for mental health care, Mr Holt said it was necessary to have a more transparent funding system.

"We need to know how much funding the State Government is giving and, more importantly, how these funding allocations are being used," he said.

Critics have spoken out from within the industry itself with psychiatrist Dr Susan Collingridge pointing to two issues which plagued Southern Highlands mental health.

"The first (issue) is a general over-bureaucratisation of the public service and the second is inadequate funding," Dr Collingridge said.

"These two factors have led to a depletion of workers' creativity, a reduction in productivity and general demoralisation.

"Many experienced workers have left the service over the past 10 years rather than attempt to operate under perverse regulations that punish innovation, promote inefficiency and divert scant funding inappropriately."

Dr Collingridge said the result of a spiralling mental health system left nothing more than a pool of inexperienced, defensive and demoralised workers in a service already inadequate in serving the mentally ill.