Announcing the policy this afternoon, Prime Minister Bill English said freshwater was at the heart of New Zealand's international branding for tourism and exporting and was prized by New Zealanders.
Asked why taxpayers should cover the costs of industry's pollution, English said farmers and others were already taking steps to deal with effluent control.
Smith said some council projects were being held up by lack of funding, and instead of "getting all pure" and insisting on polluter-pays, the Government wanted to "get on with the job".
Smith denied that the announcement had been timed to get in before Labour's policy release tomorrow. It had been scheduled for announcement at an environmental conference tomorrow, but was instead revealed ad-hoc in Parliament this afternoon.
Labour leader Jacinda Ardern is expected to say tomorrow that she will introduce a levy on water bottling companies if her party gets into power. The Greens and NZ First have already proposed similar policies.
Smith said the Government was open to water pricing and officials were expected to report back on possible options after the election, in December.
"It does need to be done with some care or you could do some brutal economic damage to New Zealand's most important industries."
Smith said a levy of 10c per litre would cripple farmers, costing them $600 billion a year.
Green Party co-leader James Shaw said no one was proposing a levy of 10c for all water users across the country. His party wanted a more sophisticated pricing method which varied according to location and water use.
The Greens also wanted more measures which stopped pollution from getting into waterways in the first place.
"Otherwise, as is seen from this announcement, you have to spend hundreds of millions of dollars cleaning it up."
Where the money's going:
Northland:$2,519,223
Auckland: $1,042,500
Gisborne: $847,450
Bay of Plenty: $8,250,000
Waikato: $1,641,638
Taranaki: $2m
Hawkes Bay: $3,496,156
Manawatu-Whanganui: $5,843,923
Wellington: $2,171,625
Tasman: $7m
Marlborough: $519,950
Canterbury: $2,693,586
Otago: $375,000
Southland: $5m