Let's leave aside the moral question of whether non-New Zealanders should be included in the government's welfare function, and just accept, morally repugnant though that view may be, that most voters probably think that New Zealand policy should care only about New Zealand residents. Even with that welfare criterion, there are a couple of problematic things in Labour's proposed policy.
First, according to the article, Mr Shearer wants to use government procurement as a branch of social policy:
Mr Shearer said that starting in the construction sector, Labour would impose a "one in a million" condition on companies that won significant government contracts, forcing them to take on one apprentice for every $1m of investment.and
Government agencies would have to give contracts to local firms wherever possible and undertake a wider economic analysis to ensure maximum benefit to the economy. (Emphasis added)
If it is good policy to require a firm to take on a certain number of apprentices, surely that is good policy independently of whether the firm has won a government contract. But worse, by imposing conditions other than value for money on firms winning government contracts, you will not only increase the price that firms are prepared to charge, even in a competitive market, but also lesson competition.
Second, it seems that Shearer wants to use immigration policy to restrict the supply of low-wage workers in order to influence wage rates:
Immigration NZ would have to assess the impact on wages and working conditions when it considered an application to bring in temporary workers.
[Mr Shearer] wanted to ensure the Canterbury rebuild was not used as an opportunity to bring in workers prepared to work 12 hours a day, seven days a week for minimum wages simply to undercut competitors.As a Christchurch resident, the thing that jumps out at me here is the notion that it seems that the main objective for the Christchurch rebuild should be to provide benefits to workers, not to get our city back as soon as possible without an excessive burden on future ratepayers. Benefits to workers are important, but workers are consumers and taxpayers too. If there is a pool of workers overseas willing and able to work long hours at low wages why wouldn't we want to avail ourselves of that resource? There are easier ways to increase after-tax wages without creating labour and procurment monopolies. The cost to government revenue from reduced economic activity of government-created monopolies would surely be less than the cost of a cutting the income tax rate at the lowest levels.
It is hard to square all this with the quote in boldface above. A proper "wider economic analysis", that considered both visible and invisible effects in a general equilibrium context is unlikely to ever suggest a bias to hiring local firms or local workers in preference to outsiders, so one can only assume that the analysis Shearer has in mind is more along the lines of dodgy economic impact studies.