The recent increase in the prevalence and awareness of mental health inequalities within New Zealand necessitates an understanding of the factors responsible for such disparities. The current study quantifies income-related and ethnic mental health inequalities in New Zealand and investigates their association with a range of demographic, socioeconomic, lifestyle, health care system, and racial discrimination factors. Using the Kessler 10-item Psychological Distress Scale survey, released as part of the 2016/17 New Zealand Health Survey, a concentration index is constructed and decomposed to identify the prevalence of income-related mental health inequalities, as well as the proportional contributions of the five factor domains. The concentration index confirms the presence of income-related mental health inequalities in New Zealand that are detrimental to low-income households, females, and Māori, relative to their respective counterparts. The concentration index decomposition suggests the factors considered collectively explain 88.97% of income-related mental health inequalities, where the largest contributions arise from differences in socioeconomic and health care system factors. Furthermore, Blinder-Oaxaca decomposition is applied to average ethnic mental health inequalities to understand the degree to which they can be explained when an ethnic minority group receives the observed factor endowments of the ethnic majority group. The Blinder-Oaxaca decomposition implies the mental health inequality between Māori and the European/other population is over-explained by differences in the observed factor endowments, particularly those related to unmet needs in the health care system, whereas the mental health inequality between Asian peoples and the European/other population is under-explained by differences in the observed factor endowments, and is likely a result of unobserved, cultural-specific factors. The Blinder-Oaxaca decomposition results for Pacific peoples and the European/other population are not statistically significant. Policy-makers are encouraged to target a range of alterable factors that contribute substantially to income-related mental health inequalities, support the development of joint social and health policies to appeal to Māori norms and culture, and instigate further research to understand the factors that nurture strong reported mental health among Asian peoples.