Details are in a tender document drafted and quietly released by the ministry this month.
The document - obtained by the Herald on Sunday - shows the Treasury, scientists and companies in the industry believe the country's "economic performance" is suffering because of strict laws around release of new organisms into the environment.
It says there is concern other countries with more relaxed rules will get a competitive advantage.
Officials say there is no current estimate on how much money restrictive laws cost New Zealand and they want to know if a relaxation will make a difference. They say they want to know how much money the country can make if the law is changed.
But Smith said: "I can give you an absolute assurance I was unaware of it.
"The National Party is ruling out any changes in relation to genetic modification. We think the regime is working adequately in that area."
Asked why his ministry would spend money on something that couldn't happen, he said: "I don't run a ministry that's not allowed to think for itself, albeit the Government makes the final decisions and the Government is ruling out any changes in respect to genetic modification."
Labour Party environment spokesman Charles Chauvel said the document exposed a "stealth" agenda. "If Nick Smith doesn't even know what his own ministry is doing, it's a sinister sign."
Chauvel said the study had not emerged before the select committee which reviewed the ministry and the Labour Party would consider cancelling the study if it became government.
Green Party candidate Steffan Browning said the National Party was creating a situation in which GE release was more likely. "A clean, green 100 per cent pure New Zealand is a pretty good aspirational target and GE doesn't fit into that."
Ministry for the Environment spokeswoman Ann-Marie Johnson refused to allow staff to be interviewed.
A written statement from communications manager Andrew Bristol said the study was being done to make sure laws such as the Hazardous Substances and New Organisms Act were working. He said the law itself was not under review.
The document shows officials will choose who has won the tender four days after the election. It is being pushed through in a rush. The document said the report needed to be finished by February, even though working through the holiday period meant it could be of a lesser quality.
The Treasury appears a key backer of the study. In a speech to lawyers at Russell McVeagh in Auckland last year, Treasury Secretary John Whitehead showed GE trials had dropped after the law was passed.
"These trials and outdoor developments are critical for innovation in biotechnology, a rapidly developing field where New Zealand has significant expertise," he said.
AgResearch subsidiary Grasslanz Technology Ltd's chief executive Dr John Caradus said the debate in New Zealand needed to be held again.
But he said the debate a decade ago was bruising. "I personally wouldn't want to be involved in it because I think it generates more heat than light," he said. "It wasn't pleasant. Logic doesn't always prevail."
Who would benefit?
The ministry believes these sectors might be interested in innovation using new/modified organisms:
* Pastoral farming
* Horticultural
* Medical technologies
* Aquaculture
* Food processing
* Forestry
* Waste
