The two rivals head into Sunday's showdown at White Hart Lane with immense pressure on the visitors.
Arsenal lie 13th in the table, having suffered a horrendous start to the season. Although green shoots of recovery are visible after three successive wins in all competitions (Bolton in the Premier League, Shrewsbury in the Carling Cup and Olympiacos in the Champions League) - Harry Redknapp's men will provide a far tougher test.
And Graham, who played 227 games for Arsenal and managed them for 9 years, thinks his former club are no longer the dominating force in North London.
In comments quoted by the Daily Mail, Graham said: "For the first time I can remember, I think Tottenham have a better team than Arsenal.
I am concerned by what's been happening, by the club's slide. I admire what Arsene [Wenger] has brought to the club, the beautiful football his team's have played, and the success he has brought to Arsenal," he continued.
"But it feels like Arsenal's position, as a club permanently in the top four of the Premier League, is slipping away.
"It's the first time in his life that Arsene has had to deal with a big blip and, through his record, he has rightly earned the time from the Arsenal board to rectify matters. Yet there do seem to be more answers than questions right now - and that's sad.
"Are Arsenal slipping because they cannot - will not - pay to buy really top class players? Or break their wage structure? Six years ago, Arsenal went through an entire season in the Premier League without losing a game as that team, The Invincibles, had not one, but many world class players: Thierry Henry, Patrick Vieira, Dennis Bergkamp, Gilberto, Robert Pires, Ashley Cole.
"Who's world class for Arsenal today? Robin van Persie, possibly; Jack Wilshere maybe in the future, but that's it. Are Arsene's hands tied in the transfer market?
"Why didn't Arsenal sign replacements for Fabregas, who was obviously looking to leave, and Nasri before they were sold? Instead, Arsene was reduced to signing Per Mertesacker, Mikel Arteta, Alex Oxlade-Chamberlain, Ju-Young Park, Andre Santos and Yossi Benayoun all at the last minute.
"No one from the club has said we have enough money for Arsene to buy whoever he wants. I'm not talking about a £10m player, I'm talking about players of real quality, those costing £30m to make a big difference.
"Even though Arsenal haven't won a trophy for six years, they have still been close. Last season, they were in the hunt for four trophies until the last couple of months, but still came up with nothing.
"Was that a surprise? Not to me. Arsenal again declined to buy the kind of quality players in the January transfer window that could have given them the impetus to win something.
"Arsene's transfer record has been outstanding, but all eyes are on him now for the players he bought in at the last moment. If Arsenal can finish in the top four this season, it will be one of Arsene's finest achievements.
"But I think that's going to be tough, and the odds are lengthening after the squads that Tottenham and Liverpool have assembled.
"I know Arsene's whole philosophy is geared towards playing positive, attacking football. Only he can answer why, over the years, he didn't buy an outstanding central defender before Thomas Vermaelen. I do like him but what he needs is a Tony Adams alongside him.
"In football, we're all quick to judge,' added Graham. 'But if Tottenham win, as seems likely, then the questions for Arsene will get louder. It's going to be an interesting season for him."