Finance Minister Bill English is rejecting reports that dairy farmers are not paying enough tax.
Latest Inland Revenue figures, obtained by the Labour Party, show the average annual tax paid by a dairy farm was $1506.
Mr English said the figures are interpreted wrongly in a media report, categorising turnover as income.
"A dairy farm, like any other business, can have a turnover of $10 million but if it's spending $11 million on wages and supplies, then its losing money."
Revenue Minister Peter Dunne says comparing farm tax with that paid by an average wage-earner is an inexcusable fudging of turnover and income.
Mr Dunne says its patently ridiculous to suggest $500,000 incomes when Federated Farmers says the average dairy farmer made a $50,000 loss in the year in question.
He says the figures Labour has released relate to the 2008-2009 year, when dairy farmers received very low Fonterra pay-outs and were servicing high debt.
Mr English says Thursday's Budget will contain measures to further tighten the taxation of farmers.
Dairy farmer Blue Read, a former chairman of the Fonterra Shareholders' Council, told Nine to Noon the figures relate to a year when production was down, there were severe climatic conditions and expenses were up.
"We had a compounding effect; no profit, poor season, big expenses," he says, the end result of which is minimal tax.
Mr Read says such tax figures need to be viewed in light of figures on average farm debt.