And he said National must broaden its focus beyond economic issues.
"The economy, the society and our environment are all interlinked."
Luxon said centre-right parties worldwide faced a perception problem, as too many voters thought such parties were not compassionate.
"We care deeply about people. That's why we're here."
Luxon said "lower rungs on the ladder of social mobility seem to be breaking down" and National could make powerful, targeted interventions to help people achieve more.
"It's not caring and it's not kind to people...just to write them off."
He said National wanted to improve access to education and help people aspire to be more than beneficiaries.
Luxon said it was not enough to tell people to pull themselves up by their bootstraps.
He told National MPs the party would not be successful unless it leaders got of the Wellington beltway and meaningfully engaged with voters.
Time was of the essence, and National had to demonstrate its centre-right principles could help improve society.
Luxon said George Osborne, who helped reform the Conservative Party in the UK, had addressed the caucus.
On why the retreat was stged in Queenstown, he said the town typified current economic problems, as seen in its battered tourist and hospitality industry.
Luxon said he'd recently visited a few other towns where people outlined concerns.
"Lots of New Zealand's doing it tough."
He said Government spending was out of control and if the current trajectory continued, austerity measures would be necessary.
"The people that get hurt the most are the poor and vulnerable as a consequence."
"We're not going to consign you to that inter-generational welfare."
He suggested income tax credits might be implemented to assist people move from welfare to work.
Education standards 'slipping'
Luxon said the Government had ignored advice to get people "work-ready" and instead was funnelling more cash into a bloated, inefficient welfare system.
Education was also a priority, he said.
"It's not working at the moment, Our standards are slipping."
On internal party politics, Luxon said he and deputy leader Nicola Willis had already urged MPs to stop squabbling, and the party was now more cohesive.
"We've got to know follow the words up with actions."
Asked how he would get voters to associate National with environmental issues, he said New Zealand was falling behind meaningful renewable energy goals.
He said Labour had made "big sweeping declarations" but minimal progress on the environment.
On the Greens, he said: "I think only three of their ten MPs actually care about the environment."
He said National MPs had a moral responsibility to care about policies which could improve the lives of people.
'Turning the page' - Luxon on Collins
Asked about former leader Judith Collins, he said: "I'm not going to go there today. We're moving forward, we're turning the page."
He said the case of Charlotte Bellis showed the MIQ system was absurd, and pregnant women needed exemptions.
"Charlotte Bellis is a no-brainer."
Luxon said for every Bellis, there were many other women suffering from the same unkind system.
Most of the retreat is closed to public and media - as is the case with every party caucus retreat.
The retreat began on Monday morning with a briefing from former British Chancellor George Osborne, who is filling in for former British Prime Minister David Cameron, who would have given the briefing but came down with Covid.
The pair rose to the leadership of the British Conservative party in the last days of the Blair-Brown Government (a young Jacinda Ardern happened to be working for the British Cabinet office at the time). They successfully detoxified their party's brand and led it to a sort-of victory in the 2010 election, ousting Labour and governing in coalition.
Luxon will probably not want to focus on the fact that after the pair's second election victory in 2015, Cameron triggered and lost the Brexit referendum, unleashing five years of instability in British politics.
Luxon goes into the retreat buoyed by some positive polling. Last week's 1 News-Kantar poll showed National still trailing Labour, and not in a position to form a Government, but the party has cracked the 30 per cent ceiling that it had not breached since the last election.
The gap between the Labour-Green and National-Act blocs has narrowed to just six points, closer than at any time since the election - a four-point swing would tilt the balance in favour of National.
Luxon is also beating Ardern's approval rating; the same 1 News-Kantar Poll had Luxon's approval at +22, with Ardern's at just +15, her lowest since 1 News began polling approval in 2019.
The poll showed Ardern to be a more polarising figure. More people approved of her, than approved of Luxon, but more people disapproved of her too. Luxon's rating was propped up by a large numbers of people (37 per cent) who didn't know whether they liked him or not.
Fifty-two per cent of people approved of Ardern versus 42 per cent for Luxon, but 37 per cent of people said they disapproved of Ardern - nearly twice as many as Luxon.