Labour Party leader Phil Goff wants to cap the pay of public service chief executives at the same level as the Prime Minister's salary.
The Prime Minister is paid $393,000 a year but several chief executives in the state sector get paid significantly more. The highest earner is paid nearly $560,000 a year.
Mr Goff announced the policy in a state of the nation speech in Hamilton on Thursday afternoon, saying chief executives must also show restraint while workers are struggling with the after-effects of last year's recession.
Mr Goff says that, since 1997, the pay of state sector chief executives has gone up by about 85% - almost double the rate of inflation.
But while Labour would constrain their pay, existing chief executives getting more than the Prime Minister would not have their salaries cut - although they could not expect any more increases.
Under Labour's policy, Cabinet approval would be needed for a chief executive to be paid more than the Prime Minister.
Mr Goff believes chief executives in the private sector should also exercise restraint.
Radio New Zealand's political staff say the policy announcement comes as the Labour Party tries to woo support from those on low and middle incomes, struggling in the wake of the recession.
