Prime Minister Helen Clark has ruled out selling Kiwibank to New Zealand shareholders and says it's doing fine as it is.
New Zealand First leader Winston Peters has come up with a plan to float Kiwibank shares which could only be bought by New Zealand residents and citizens, and not sold to foreigners.
He also wants the Government to put all its $55 billion a year business through Kiwibank rather than the Australian-owned bank it uses at present.
Mr Peters said last night Australian-owned banks were moving $4 billion a year in profits across the Tasman every year, and giving the business to Kiwibank would drive down interest rates.
Asked in Auckland today whether she favoured the idea of selling Kiwibank, Miss Clark replied: "Absolutely not. Kiwibank is proudly owned by the people of New Zealand through the Government.
"They've taken to it like ducks to water, we're very much in favour of keeping it as it is."
Miss Clark wasn't in favour of putting government business through Kiwibank either.
She said it was already competitive and it had to stay "lean and mean and profitable".
Progressive Party leader Jim Anderton, who effectively founded Kiwibank by persuading the Government to back it, said Mr Peters' plan was "erratic and confusing" and would risk destroying the bank.
"Why would you say you want to sell shares in the bank to New Zealanders when they already own it?" he said.
"Selling Kiwibank would destroy it as fast as some political parties' secret donors could get their hands on it."
Mr Anderton said when Mr Peters was Treasurer in the 1990s under the National/New Zealand First coalition he had proposed a similar plan to restrict share ownership to New Zealanders in the float of Auckland Airport shares, and it had failed.
"It went offshore as fast as a wide-bodied jet," Mr Anderton said.
Greens co-leader Russel Norman also criticised the Peters plan for Kiwibank.
He said having a government-owned bank that raised all its capital locally had provided stability during the current international financial crisis.
"Privatising Kiwibank will inevitably lead to its overseas ownership like all the other big banks," he said.
But Dr Norman agreed with Mr Peters' view that the Government should channel more of its business through Kiwibank.
Mr Peters reacted to criticism of his plan by saying he was suggesting a partial float with the Government retaining a 75.1 percent stake in Kiwibank.
"The float of shares will ensure that Kiwibank will have the capital it needs to expand its capacity to deal with being the Government's banker," he said.
"Currently Kiwibank does not have the capacity to take on the Australian banks -- to do this it must expand."
Mr Peters said the best way to achieve that was to give the 600,000 Kiwibank customers the opportunity to invest and help expand their bank.
"Jim Anderton may have created Kiwibank -- and he should be congratulated for that -- but New Zealand First wants to make it a great bank that is capable of taking on and beating the Aussies," he said.