Mr Smith said nine million litres of bottled water was exported each year - a fraction of the trillions of litres of water in New Zealand's lakes, rivers and streams.
Banning exports to preserve freshwater was "about as silly as suggesting that we are going to solve our traffic problems by banning tricycles," he said.
The amount of water exported in bottles is so small that it is irrelevant to the important discussion on better managing New Zealand's freshwater resources, Mr Smith said.
The Government's argument has always been that nobody owns the water, and to a degree this is correct, but as soon as it's out of the ground and put into a bottle the bottling company owns it and can then sell it for whatever it likes - and use the produced from clean, green NZ tag as a marketing tool to get top dollar.
Mr Smith's figures have been challenged by Labour's environment spokesman David Parker, who said they took into account all available freshwater including floodwater.
Freshwater which was pristine enough to bottle or use in irrigation, on the other hand, was scarce, he said.
The issue has seen a 15,000-signature petition calling for a moratorium on bottled water exports being delivered to Parliament, and protests were held outside 21 council offices around the country, including in Whangarei.
The proposal was supported by Labour, Greens, New Zealand First and the Maori Party.
Labour and Greens want a price on freshwater extracted for commercial purposes.
Mr Smith said this raised problems about fairness and cost.
A total ban would mean some freshwater users were cut off while others were not, and a price on water would add large costs to extensive water users such as horticulture or dairying.
Jen Branje, the founder of protest group Bung the Bore, said some communities were struggling to get access to clean, safe water.
"Yet bottling plants come here and take our pure, deep groundwater for free. And while they're taking it, we get nothing."
"We ask why we're forced to drink chlorinated and fluoridated water from our taps while our pure water is shipped off to other countries."
Mr Parker said claims by Mr Smith that trillions of litres of water was produced in New Zealand each year was false.
"He counts the water coming out of national parks, the water in those floods in Auckland that we just saw in the weekend. In truth, our very clean water that is clean enough to bottle or drink without treatment is a precious and scarce resource."
He said it was unfair that a public resource could be used for private profit without consultation and without any benefits to the local community.
Green MP Catherine Delahunty called for greater protections for aquifers, and said there should be a price on commercial use of water.
Mr Smith though said New Zealand's annual freshwater resource is 500 trillion litres of which 2 per cent, or 10 trillion litres, is extracted. Statistics New Zealand reports that last year 8.7 million litres of bottled water was exported, down from 9.8 million litres in 2015.
This means bottled export is 0.000002 per cent of the total water resource or 0.0001 per cent of the total water extracted.
The debate will no doubt trickle on and on, with all sides trying to make something stick against the other in this election year, with the race for power predicted to be tight.
I take issue with Mr Smith's statement that "The amount of water exported in bottles is so small that it is irrelevant to the important discussion on better managing New Zealand's freshwater resources."
In a Government that is business-focused I have to ask does it make good business sense to give a natural resource away when there is obviously a huge demand for that resource and you could make some serious money from it for our coffers?
Would we do the same with other natural resources such as gold, oil, minerals or fish?
Of course we don't. They are all something that are in huge demand and we make a fair amount of money every year from them.
There's an old business mantra of supply and demand and if the demand is huge then the product for supply is usually charged at a premium.
Given that it may cost many millions, if not billions to sort out "the important discussion on better managing New Zealand's freshwater resources" then surely it would make sense to charge a fee for that water that's currently earning overseas companies huge profits.
Then that money could be put towards helping to better manage our freshwater resources rather than making taxpayers fork out for it. If not, who else is going to pay for the privilege?
