Powers that would require a person to provide a password or access to their electronic device will be useless if their material is instead stored online, Customs Minister Nicky Wagner admits.
However, Ms Wagner insists such a change to legislation is necessary and will still enable Customs to catch people with illegal material.
Customs' preferred option is to require passwords for electronic devices without meeting a threshold, such as suspicion of criminal activity.
Ms Wagner has indicated a "two-tiered" approach could be taken with some sort of threshold met before a password was required.
She would not say what that could mean for travellers.
"We are premature to be able to say where we have landed ... We want to manage it in the least intrusive way, but we need to catch the baddies."
Critics of the proposal, including the NZ Council for Civil Liberties, have cited what they see as serious workability issues around the proposed change to require passwords, including the fact a person can have documents or files in cloud storage, meaning they will not be kept on an electronic device.
"Yes, you can say, 'Well, you can put it in the cloud.' And if they had any sense that's what they would do. But actually, we catch [people with illegal material on devices]. It is still necessary," Ms Wagner said.
Currently, when Customs examines a person's electronic device the owner is not legally obliged to provide a password or encryption key.
The agency says if people refuse, it can leave no way to uncover evidence of criminal offending even when officers know the device holds that evidence.
Of nearly 90 submissions on a discussion paper on changes to the Customs and Excise Act, about 10 to 20 were opposed to Customs having the power to request a password, Ms Wagner said.
"That's a few people I think reading the paper, thinking 'this is outrageous', without really understanding the whole background and context."
The Customs and Excise Act was introduced before the extensive use of electronic devices, and Customs wanted greater clarity around its position that the content of devices is included in its examination powers.
Ms Wagner will take advice to the Cabinet later this year and expects a bill to be introduced next year.
Agency looks at info sharing
Customs wants new legislation to support wider sharing of the huge amounts of information it collects.
A report from the agency to Customs Minister Nicky Wagner, released under the Official Information Act, says the Ministry of Health wants direct access to its information at times of health alerts for quarantine purposes.
The police also want direct access to Customs' information system, the December report states.
Another example concerns the Ministry of Education and states, "Sharing passenger movement information could help match truancy information to more effectively intervene with children truant from school." Katrina Casey, from the ministry, said she was not aware of any discussions about such a proposal.
Ms Wagner said she believed the document's author "got a bit carried away".
"Remember, we could be writing this legislation for 20, 50 or 100 years. So we are trying to write the greatest flexibility into that system."