The Prime Minister says Labour's proposal to tax businesses that are not training New Zealand workers is "senseless".
Labour leader Andrew Little has proposed a tax on employers who rely on workers from overseas instead of training local workers, saying it is a way to make sure businesses are "doing their bit".
The "training levy" would be imposed on businesses in areas of skills shortages - such as chefs, construction, IT and tour guides - where migrant workers are used.
However, companies that could prove they were already actively training New Zealanders for such jobs would be exempt.
"I don't think it's a very sensible idea to say to a small business we're going to put a tax on you if you don't take on a young person," Prime Minister John Key said.
"A far better thing to do is to drive the economy as we are ... the unemployment rate now is under 5 per cent, we've got a youth unemployment rate that is falling dramatically.
"Encouraging businesses ... is the right thing to do, not discouraging them by putting on another tax."
Key said the Labour at the moment was in chaos.
"They basically are making policy announcements on the hoof. They came to Mt Roskill where we are today and announced they were going to spend $1.4 billion, not all of it would be future Governments' money.
"Then the mayor has come out and said, 'well we don't really think that's not necessarily a great idea at this time'.
"They came out announcing there'd be lots more police but they don't know how to fund it or where the money's coming from, and now they're coming out saying they're going to put a tax on small businesses and they can't explain their own policy."
Key said it didn't feel as if Labour was acting like a Government-in-waiting.
"We certainly want to see young people in employment and apprenticeships, and that's why we have a record number, we've got 42,000 apprentices under us, there'd be 50,000 in a year or so ahead," the Prime Minister said.
"I don't think going to a business saying we are going to slap a tax on you is the right approach, I think it's far better to do what we are doing which is to provide an environment where they feel encouraged to take on staff, whether they're young, middle-aged or older."
Key said New Zealand was now the number one country in the world for ease of doing business.
"Labour wants to reverse that and make New Zealand a harder place to do business, that can't make any sense," he said.
The proposal for a training levy is included in Labour's "Future of Work" Commission report which was released at the party's annual conference in Auckland on Saturday.
On TV3's The Nation, Little denied it was a measure aimed at deterring businesses from bringing in migrant labour, saying immigration would always be needed.
"It's about creating opportunities here for people who are here working with business and industry to make sure they are doing their bit."
He said in any industry some businesses were investing in training local workers and taking on apprentices.
"But they do it and others in the same industry don't do it.
"And there are some employers who are saying 'listen, we are meeting all the cost, we are taking all the risk, we are providing that channel of future skills to the rest of the industry. How about as a matter of fairness, we share the cost, share the risk'. And this skills levy proposal is a way to do that."
Little said it would raise revenue to train New Zealanders.
The Future of Work report says the availability of skilled staff is the main concern of many employers.
"Skilled immigration is being used to compensate for our failure to train our own local workforce for the jobs that are available."
The report was released by Labour's Finance Spokesman, Grant Robertson, on Saturday afternoon. It contains a raft of recommendations and Labour will consider whether to make them into formal policy.