The Government's plan to grow the economy "by removing more of the roadblocks" for business will deliver limited gains and more direct government intervention will be required, says Labour economic development spokesman David Cunliffe.
In an article published in Tuesday's Herald, Economic Development Minister Steven Joyce argued for the removal of "roadblocks" - such as opposition to mining - which prevented the creation and growth of businesses that in turn provided jobs for New Zealanders.
But Mr Cunliffe said that removing "roadblocks" was essentially more deregulation, when the country had one of the least regulated economies in the world.
"There's just not a huge upside in further deregulation and in fact there's real downside risk to our clean green brand."
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He added that removing more roadblocks and "simply exporting more of its existing product basket" would not close the gap with Australia.
"We can't simply milk more cows, ship more logs, dig more coal and close a 40 per cent value gap, there isn't enough water, you run into environmental constraints, there's not enough arable land, so therefore an alternative strategy is required that will require the migration of parts of the economy to higher value activities.
"That's got to happen against the background that we are a small, remote and in global trade terms, a sub-scale economy who have to fight extra hard to attract talent and investment."
Where Labour differed from National was that it would intervene in markets and sectors where they were not working properly, as it had done to challenge Telecom's dominance of the telecommunications industry last decade.
In an era where free market capitalism had "partially self-destructed" during the global financial crisis, Labour would be prepared to use strong intervention possibly including measures such as direct employment schemes if required.
The approach would differ from the previous Labour Government's "top down" efforts by drawing more heavily on the experience of successful businesspeople.
"Let's not pretend that politicians or civil servants have all the answers," he said.