Finance Minister Bill English has vetoed proposed changes to extend paid parental leave from 18 to 26 weeks.
Labour MP Sue Moroney had put forward a bill to seek the paid parental leave extension.
She had enough support to get the bill through Parliament at the next sitting session, so the government moved to stop that happening by exercising its power of financial veto.
Ms Moroney said she was frustrated and disappointed the government had killed the bill, and that it showed it was out of touch with pressures and demands on families.
"Look, it's years of a parent's life raising a child, and the ability to have that child get the best out of life is all that New Zealand families were asking for," she said.
"Around 30,000 families per year rely on paid parental leave to do just that, and it's those parents and their children that the government's actually taken a veto out against today."
Mr English said the estimated cost of the legislation - $278 million over the next four years - would be a significant unbudgeted cost to the government.
"The cost of this proposal is pretty high. We weigh that up alongside other priorities we've had such as the pressure in health, the pressure for families in hardship and so on," he said.
"It's not to say that those discussions won't continue, they almost certainly will."