Prime Minister Jacinda Ardern says the National Party's proposed tax cuts would result in higher debt or funding cuts to essential services like healthcare and education.
National Leader Christopher Luxon hit out at the Government during his State of the Nation speech on Sunday.
Luxon accused the Labour Government of "economic mismanagement" and "unfocused spending" - criticising the billion dollars allocated for the "Three Waters asset grab", the $500 million to restructure the health care system, and the $15 billion for Auckland's "underground tram vanity project".
Luxon also warned New Zealand has a cost of living crisis, with food, petrol, rents, and house prices shooting up, all while Labour carries out a "massive tax grab". He promised to repeal Auckland's Regional Fuel Tax, the proposed Light Rail Tax, the 10-year bright-line test extension, the new 39 percent top income tax rate and the income insurance scheme proposal.
He also called for income tax thresholds to be adjusted to account for inflation.
But speaking with AM on Monday, the Prime Minister hit back at Luxon's suggestions, saying health and education would suffer as a result.
"What the Opposition proposes cuts billions of dollars out of our revenue as a Government and our ability to spend on things like health and education.
"So there are two choices, they [National] are either going to fund these billions of dollars worth of cuts by for instance cutting health or education or they are going to increase debt."
The Prime Minister acknowledged many Kiwis were finding it tough but said inflation is predicted to ease over the coming year.
"Yes these times are tough, we have seen the impact of inflation, but we have also seen people predict we'll be coming out of that throughout this year. Things will start to get better and ease."
Ardern said now is not the time to cut spending on essential services.
The Prime Minister also refused to call the increasing cost of living a crisis.
"I wouldn't describe it that way, there is an impact that people are feeling undeniably but I wouldn't describe it in that way," she said.
Finance Minister Grant Robertson also criticised National's plan on Sunday, saying it's clear "National would leave New Zealanders worse off".
"Let's be clear, what National outlined today will mean cuts to important services. They need to front up to Kiwis and say which health, education and housing services they will slash to make that happen," Robertson said.
"The reality is that Christopher Luxon's proposals will just make things worse. There will be more congestion on Auckland's roads, it will be harder for first-home buyers to buy a house and those on low incomes will fall further behind."
