Massimiliano Allegri's side have won just three league games this season and sit 11th in Serie A following a 2-0 defeat to Fiorentina on Saturday.
Gattuso, who spent 13 years at San Siro before managerial stints at Sion and Palermo, claims the club have been held back by president Silvio Berlusconi's reticence to sanction heavy spending in the last couple of seasons and insists this must change if the club is to catch up with the likes of Juventus, Napoli and Roma.
"You have to spend a lot of money to build strong sides," he told Che Tempo Che Fa.
"This is a moment in time where little investment is being made, the opposite from what president Silvio Berlusconi has done throughout his reign.
"Today, Roma, Napoli and Juventus have something more than Milan because they have spent a lot on new players."
Milan's next match sees them face Spanish champions Barcelona at Camp Nou in Group H of the Champions League on Wednesday.