Newly released documents show keeping on the good side of Washington was one reason the Government decided to share financial information with the United States authorities.
The Foreign Account Tax Compliance Act (FACTA), allowing New Zealand financial institutions to comply with a US crackdown on American tax evaders, was passed in June as part of an agreement between the two countries.
Under the agreement, the Inland Revenue Department could start collecting tax and penalties on behalf of the American tax authorities.
Financial institutions have to give the US tax department details of taxpayers living here who are American citizens or permanent residents.
Documents released to Radio New Zealand News show the Government considered the legislation important for the country's relationship with the US.
The Government had previously said the aim was to help financial institutions avoid hefty penalties and reduce compliance costs.
The released documents show the Government pushed through enabling legislation without the text of the agreement being able to be properly scrutinised by a parliamentary select committee.
Listen to more
Worst policy - Peters
Winston Peters. Photo: RNZ / Diego Opatowski
New Zealand First leader Winston Peters said the agreement was the worst piece of policy he had ever seen and questioned how the select committee was supposed to properly examine the legislation without seeing the agreement.
"They don't understand the paramountcy of Parliament or the sovereignty of this country, when we are asked to go through this sort of arrangement without knowing anything about the background deal or agreement. So in every way it's totally mickey mouse - and that's not an exaggeration."
Labour Party MP David Clark said the Government appeared to have capitulated to America's demands.
"It appears that the New Zealand Government were very slow to enter negotiations and from what we know to date, it seems that they were very willing to capitulate to everything that the US wanted, without really looking out for New Zealand's interests."
Green Party MP Julie Anne Genter said the legislation was pushed through Parliament in haste and was poor policy making.
"The power is being held by the executive, to make these decisions, and they're trying to avoid a situation where they have to come back to Parliament and go through a normal scrutiny when they're going to enter into agreements with other countries," she said.
"I think that this problematic. We have a Parliament so they can scrutinise legislation."
Costs to NZ banks
Bankers Association chief executive Kirk Hope said financial institutions faced millions of dollars of costs to comply with the Foreign Account Tax Compliance Act.
Chief executive Kirk Hope said banks had to make quite considerable system changes to ensure they could supply the information.
"We don't have a final cost assessment but it is in the millions, rather than the hundreds of thousands or anything like that. It's reasonably significant."
Mr Hope said as an example, the cost of compliance with FACTA in Australia was estimated by the banks to be about $400 million. "So if you think about the subset that operate in New Zealand, it's fairly high."
New Zealand taxpayers will also be picking up part of the tab, with nearly $12 million set aside over the next five years to ensure the IRD's systems can work with the US systems.