Stats NZ is partnering with cellphone companies to launch a new way of tracking people's movements every hour.
But the Finance Minister Grant Robertson said the security of people's privacy is the priority in any future roll-out of the pilot, citing issues with the online Census last year and the so-called Budget hack as reasons for concern.
Statistics Minister James Shaw said he was aware there could be perception issues around every step being recorded, but has full confidence the system would protect people's privacy.
The population density pilot will launch next month and will inform emergency planning and the tourism sector, among other things.
Mr Shaw said cellphone and credit companies already hold the level of detail that will be tracked, but for the first time Stats NZ is able to act as a data broker to create trends and patterns with the anonymised information.
Chief statistician Liz MacPherson told MPs at a select committee today that the data will provide Stats NZ with information on an hourly basis.
"The product that we are looking to be launching in July is a population density product which will allow you to see the movement of people between parts of the city, between parts of the region, on an hourly basis,'' she said.
Drew Broadley works for Data Ventures - a business unit within Stats NZ that has been working on the pilot - but said he could not divulge the telco companies involved because it's commercially sensitive.
"The point is to effectively get that data, anonymised aggregated from the telcos before we receive it, bring that together and absolutely be able to tell where people are, but no identifying features of those people, just at a point in time,'' he said.
Mr Robertson said a lot of water needs to go under the bridge before the pilot will be rolled out in full.
Asked whether trust had eroded in the government's ability to keep data safe given Treasury's systems had been breached ahead of the Budget, this was his response.
"One of the things we do take really seriously is data security and data privacy, clearly from time-to-time that can be breached. But that is part-in-parcel of any decision to go ahead with something like this is that there would be adequate privacy protections in place,'' he said.
But at the same time the government has to keep up with technology - although Mr Robertson also pointed to the failures of the Census moving to an online format as a reason to be cautious.
"Technology does change over time and we've moved from only paper-based Census to electronic. Clearly there are issues we need to deal with there so it will take some time but technology does move and we have to move with it,'' he said.
Mr Broadley said the pilot, which has been assessed by the Privacy Commissioner, will provide valuable data in a more timely manner.
"For things like emergency planning, just being able to understand the difference between people in the area at 3am versus 3pm. People don't have that information so it's really, really important to be able to understand for planning of evacuations.
"There's also a need around tourism because there's the transparency of the people entering the country but the number of people in the areas with tourism and natural attractions, they don't understand the number of people coming into those areas at the same time,'' he said.
Mr Shaw said Stats NZ is more than up to the job of keeping personal details safe.
"It is very rigourous and we've had criticism in the past of people saying it's really difficult to get access to that information to be able to use it for research purposes. Well, that's because it's under lock and key,'' he said.
Mr Shaw said there might come a point around 2030 when a traditional Census was not needed, but data collection was not good enough yet.