The taxpayer could have to fork out up to $8 million to defend plain packaging of tobacco products, if the potential law change sparks a legal challenge from companies and tobacco-producing countries.
The government has agreed in principle to the move, but Prime Minister John Key on Monday warned it's "not a slam dunk", with officials still working out the legal and trade impacts.
Australia, which is planning to introduce plain packaging from December, faces a lawsuit from tobacco giant Philip Morris Asia, under a Hong Kong trade treaty, while three countries have taken a case against Australia to the World Trade Organisation (WTO).
Documents released on Monday reveal the New Zealand government has received estimates of up to $8 million in legal bills to defend a change to plain packaging.
A regulatory impact statement, released by the Ministry of Health alongside a consultation document on the move, says tobacco companies are also likely to seek compensation "based on the loss in value of the company's investments including its trademarks" - although that sum is not yet known.
It was likely it would cost $1.5-2.0 million to defend a WTO case, while defending an international investment arbitration could be "potentially substantially higher" due to the need for specialist legal and financial advice.
"Anecdotal evidence suggests that the costs of defending an international investment arbitration range from $3-6 million per party to the proceeding, for an average case," the document says.
Officials noted that the resolution of the Australian case could influence whether New Zealand would face a similar challenge.
British American Tobacco New Zealand on Monday warned that plain packaging could backfire on the government by diminishing intellectual property rights, making tobacco more affordable through increased price competition and growing the illegal tobacco market.
Company spokesman Nick Booth said the company was strongly opposed to removing branding, which it calls "our valuable property".
Philip Morris last week launched a new website called My Opinion Counts, and is urging the public to have their say on tobacco controls.
A ban on the display of tobacco products also came into effect on Monday.