Mr Di Natale is in New Zealand for the Asia Pacific Greens Federation congress.
He told Radio New Zealand's Sunday Morning program that the entire debate around refugees and asylum seekers in Australia has been deplorable, and the government's position is shameful.
Mr Di Natale said Australia locks people up in offshore jails and turns boats back on the high seas, risking lives.
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"It's now emerged that we've been paying people smugglers, effectively bringing Australia into the people smuggling business, to turn boats around."
Mr Di Natale said a cloak of secrecy had enveloped Australia's refugee policy and allegations of payments to boat smugglers had been made, and "I understand they've been confirmed by people within Indonesia".
He said the number of refugees heading to Australia by boat was tiny compared to the total immigration program.
If Australians were aware of what was going on they would be appalled and that was the reason for the secrecy, he said.
Immigrants had made an enormous contribution to Australia and Australia had a moral responsibility to "settle these people", he said.
Labor is demanding Prime Minister Tony Abbott provide an "emphatic denial" of reports the government is paying people smugglers to turn back asylum seeker boats.
The demand came as Indonesia's Foreign Minister Retno Marsudi sought an explanation from Australia's ambassador Paul Grigson over claims the navy paid crew members of a boat thousands of dollars to turn back.
Mr Abbott has refused to deny the reports, instead saying authorities had been "incredibly creative" in coming up with ways to stop asylum seeker boats making it to Australia.
Opposition immigration spokesman Richard Marles believes that refusal leaves the door "wide open" to the idea the government is handing wads of taxpayers' cash to smugglers.
Labor leader Bill Shorten said the government must explain the "jaw-dropping" reports as a matter of urgency.
Indonesia has launched its own investigation over claims that six crew members of a boat carrying 65 asylum seekers were each paid $A5000 after being intercepted by Australian border protection personnel.
"What we do is we stop the boats by hook or by crook," Mr Abbott said on Friday.
The Australian Greens will try on Monday to win Senate support for a motion requesting the government table documents detailing any payments to individuals on board asylum seeker boats.
