"It is still not clear why it costs so much more for the New Zealand Government to make a passport. Most countries can provide the service for a fraction of the cost."
He said the Government had used passport fees as a "stealth tax" when it should be based on cost recovery.
Mr Key defended the cost, saying it was cheaper than Australia's $268 passports. He said that by law the fees were based on a cost-recovery basis and the Government made no extra revenue from it.
It was the first price increase since 2005 and although staff costs would fall as a result of the change, there were also high fixed costs in processing passports. It was also important to pay for new passport security technology to prevent misuse such as identity theft and fraud.
He said the Treasury had recommended charging "a lot more" to build up a buffer as the last five-year passports were phased out over the next five years. However, he believed Internal Affairs should look at how it could manage its costs.
"We've done everything we can to try and get costs down."
Internal Affairs Minister Peter Dunne said adult passport fees also "heavily subsidised" the cost of children's passports to make it more affordable for families. Children's passports would remain at five years because of the significant changes in appearance as children grew.
Last month, transport research website GoEuro listed New Zealand in its top 20 most powerful passports in the world because of the high level of visa-free access it granted to 170 countries.
The passport term was reduced to five years in 2005 in response to international concerns about passport security in the wake of the 2001 terror attacks in the US, although countries including Australia, the US, Britain and Canada stayed with 10-year passports. At the same time, the cost increased from $71 to $154 to pay for the change to biometric passports. The fee was reduced again to below cost in 2012 after Internal Affairs built up a surplus in revenue from the fees.
The Government has argued increasing the term could imperil the visa-free status New Zealand had with many countries. Early last year, it ruled out a change saying the five-year terms made it easier to adopt new technology more quickly.
Mr Key first signalled in April that a move on passports was likely. The changes will require law changes which Mr Dunne hopes to have in place by the end of the year.
Back to the future
• 10-year passports to return by the end of the year.
• Cost of the 10-year passport: $180 (compared with current $135 to renew the five-year passport)
• Children's passports to remain at five years.
• Online applications for new passport applications expected to be introduced.
