Davies said that under the fee-based policy, 30 were repatriated from graves in Malaysia and seven remained.
"Is this the yardstick for honouring those that have given their lives? How much money their families had?
"That bereaved families are asked to fund the return of their loved ones who gave their service is a blight on the honour of this country.
"I am sure you can imagine the outrage if such a demand was made today."
Addressing Key directly, Davies said he was "bewildered" by successive governments' unwillingness to repatriate a small group of soldiers.
It was breaking an unspoken social contract between governments and the soldiers they sent to war, he said.
Davies said he understood there was concern about the theme of his speech, but he made no apologies for it.
The Government was unmoved on its policy.
Prime Minister John Key said bringing the New Zealand soldiers home was hugely complicated.
"We are always happy to continue a dialogue. But it's not a straightforward issue."
There was a mixture of views within families, he said, and some relatives wanted soldiers to "rest where they fell".
"I can understand completely the emotions of some of the families but I don't think it's completely universal."
Australia recently changed its policy to bring home dead soldiers buried in South East Asia.
When asked whether this made New Zealand an outlier, Key reiterated the obstacles to repatriation.
"All I can tell you it is not straightforward. It's a more complicated issue than people might think."
