Niue's premier, Toke Talagi, says interference from diplomats in Wellington is a key factor in holding the island back.
A New Zealand parliamentary committee report, which says Niue is fragile and economically unviable, has called for major changes in the relationship.
The committee says 40 years of aid has produced little, the public service is too great a burden and having 20 MPs is an abuse of trust and responsibility.
Mr Talagi contends the island is viable and will be more so with a flourishing tourism industry.
But he says foreign affairs officials in Wellington are stalling progress.
"That has been part of the problem we are faced with. We have business plans, great. [But] who actually does the rationalising in Wellington. It isn't the Department of Tourism, it isn't the Department of Fisheries for fisheries issues, it isn't even the Department of Economic Development. It is the diplomats. How is that possible?"