Smith said it was not about stopping people from having fun but "removing the potential for alcohol-related harm" after hearing shocking stories.
He said the harbour master had also warned of the potential risk around drunk people and the lakes.
Queenstown Beach has for many years attracted hundreds of people having an "orphan's Christmas" — a nod to the resort's strong immigrant and backpacker community.
Councillor Valerie Miller said banning alcohol consumption in public areas would not combat a growing problem with "party pills", a sentiment echoed by Queenstown Lakes Mayor Jim Boult.
This week Queenstown police made six arrests related to drug dealing and the mayor commended officers for their work.
A similar ban on public drinking was introduced to Queenstown for Crate Day after antisocial behaviour and littering got out of hand in 2016.
Councillor Glyn Lewers raised concerns the council was playing "wack-a-mole" by not covering all public spaces in the district with the ban.
Council parks and open spaces planning manager Briana Pringle said there had been little issue with other areas on Crate Day, although some people had taken to drinking in Sunshine Bay.