The Government will spend millions of dollars holding a referendum on whether MMP should be dumped - a system Prime Minister John Key thinks New Zealanders are increasingly comfortable with.

Mr Key said National would hold the referendum to honour its election pledge and let people "kick the tyres" of the electoral system.

But he did not believe there was any mood for change, as there was "increasing comfort that MMP is working".

The smacking referendum, which Mr Key ignored, cost the taxpayer $8.9 million.

The MMP referendum would probably cost much more, as a major public education campaign would be involved. Mr Key said it would be "reasonably expensive" but it was important people knew the issues.

He said the referendum would likely be held at the 2011 election, as high voter turnout was important for a constitutional issue.

Unlike the smacking referendum, this Government-initiated version would be binding.

Greens co-leader Metiria Turei said an independent review of how MMP was working with full public consultation would be better in the first instance than spending millions on a referendum.

It would also help New Zealanders to make an informed decision if need be.

She said MMP helped keep governments honest, increased the representation of women and ethnicities and had delivered policies like paid parental leave, Kiwibank and the home insulation fund.

Mr Key said the Cabinet was deciding whether the referendum should be based on one or two questions.

If it was one question, it would likely be whether MMP should be dumped. If the vote was to dump it, another referendum would be held on what system would replace it.

A two-question referendum would likely see a vote on whether MMP should be dumped, with a follow-up question of what system should replace it.

Mr Key doubted New Zealanders would return to first-past-the post, but thought it possible they would choose another system of proportional representation.

He has previously signalled his support for the supplementary member system where most MPs are elected under first-past-the-post and a smaller number on party lists.