The Associate Health Minister says aged care is not being underfunded by the Government.
Jo Goodhew's comments come after almost half the staff of New Zealand's largest rest-home chain Oceania Group walked out of work Thursday morning, for two hours, over a pay dispute.
Chief executive of Oceania Guy Eady is blaming a lack of funding.
He says the Government's contributions have been below inflation.
The Government's review of aged residential care in 2010 said demand would begin accelerating from this year but because financial returns in the industry are so low, new rest homes are not being built.
Government says funding has increased
Ms Goodhew says the Government has put an extra $125 million a year into the aged care sector compared to three years ago.
She says that is more than most other healthcare sectors.
Staff at Oceania began strike action in support of a 3.5% pay rise on Thursday morning.
Some 1500 workers from the Nurses Organisation and the Service and Food Workers union walked off the job.
The strike affected 20 rest homes from Auckland to Dunedin and included nurses, health care assistants and support staff.
Among those on strike were up to 30 workers at the special care unit at Elderslea rest home in Upper Hutt.
The striking staff, holding banners and flags, were joined by Green Party and Labour Party members on an Upper Hutt roadside.
Nicole Martin, who works in the recreational dementia unit, said she and her colleagues are struggling to survive financially on their present pay.
"It's not enough to basically pay the rent and buy the groceries.
They're all on a very small amount of money and ... everything's become a whole lot more expensive, and people are struggling to get by."
Paula O'Reilly, a health care assistant at Elderslea rest home, said she has been doing this work for 18 years and her pay has increased by only $3 an hour in that time.
Oceania has offered a 1% increase in pay which union advocates say does not give staff a reasonable cost of living increase.
Service and Food Workers Union spokesperson Alastair Duncan said the company has made claims about its requirement to repay debt and its profitability.
"But every time we've looked at it we've said there is nothing in the union claim that you couldn't meet from your current operating costs."
Mr Duncan told Morning Report that Oceania is paying up to a third of their staff within 11 cents of the minimum wage.
He said the strikes follow months of frustration for workers who asked last June for a modest pay rise which was less than the rate of inflation.
Oceania chief executive Guy Eady said Government money to pay for aged care has not included a cost of living adjustment for years, and cannot afford to pay more.
Last year the sector received funding less than the Consumer Price Index, he says, and the indications are that the situation will be the same this year.
"We have committed to passing on what the Government has given us through the DHBs. That's all we can realistically afford to give."
Mr Eady says his priority is ensuring rest home residents are not adversely affected the strike.