Labour says the Finance Minister's comments that higher incomes in Australia could benefit New Zealand in the long run show the government is failing to address the worsening economic outlook.
Bill English said on TV One's Q+A that the country's lower wages compared to Australia could attract more trans-Tasman business in the next few years.
He said Australian companies should be looking at bringing activities to New Zealand because "we're so much more competitive than most of the Australian economy".
The comments have been criticised by unions and political analysts as trying to make a virtue out of the failing of the government.
And Labour Leader Phil Goff says there is growing pessimism about the economic outlook, with recent surveys showing business confidence dropping.
"With the rising cost of living and more people worried about their job security, middle and low income earners are worse off," said Goff.
He said the depressed position will get worse and National is planning cuts in the Budget which will further reduce demand.
"It's hard to understand why National's plan on behalf of the New Zealand taxpayers is to sell off successful assets like power companies producing a total average return of 17.5% while bailing out failed private companies," Goff said.
Labour's leader said New Zealand needs a strategy for upskilling New Zealanders and changes to monetary and taxation policy that promote growth in the productive and export sector and growth in real wages.
Victoria University political scientist Jon Johansson said trying to make a virtue out of the government's failure to close the wage gap with Australia is "breath-taking".
And Mainfreight chief executive Don Braid questioned why New Zealand is trying to compete with Australia.
"We should try and work with them...and that's if they want us...this obsession with comparing ourselves with Australia and competing with Australia - let's get on and run our own race," Braid said.
English said the 30% difference in incomes between the two countries is a way of competing.
"If we want to grow this economy we need capital and we're competing for people too."
However, the new stance seems to fly in the face of the election promises National made during its successful campaign in 2008.
It set the goal of matching Australian wages by 2025 and set up a special taskforce, led by former Reserve Bank Governor and former National Party leader Don Brash, to recommend ways to achieve this.
The government has since shied away from this aspiration, and has disregarded some of the working group's recommendations as not politically palatable.
English said the government has a long term plan to grow the economy and attracting more overseas investment is an important part of the strategy.
"I think we can have a very positive attitude about the direction our economy is going.
"Outside of the resources sector, we are going to be a more competitive economy than Australia and over the next four or five years we should take advantage of that by attracting Australian investment to New Zealand.
"If we can attract more Australian activities here that would help us create jobs and raise incomes."