The government decides whether a "national interest" clause will be introduced in the Overseas Investment Act.
The associate finance minister, David Parker, today announced at a beehive to business conference in PWC that the public consultation on the reform would begin in the first half of next year.
According to Parker, other countries, including Australia, had similar veto rules.
"Many other countries have a fairly wide discretionary power to refuse foreign investment in some sectors.
"It is rarely used, but can be used, for example, if there was a overseas customer of infrastructure with monopoly properties, which the government would think would be owned by New Zealand and should not go into overseas hands," he said.
"It is a wide discretion that is rarely used, but must be there – we do not have that protection in New Zealand."
It is the second phase of a rewrite of the Overseas Investment Act.
The first included the ban on foreign buyers purchasing existing homes, which will enter into force on 22 October, as well as measures to encourage foreign investment in forestry.
The review would also look to make it easier to get foreign investments over the line.
"Our goal is to reduce complexity and increase investor security by reducing unnecessary bureaucracy and ensuring that investments are consistent with New Zealand's national interests.
"We know that more can be done to simplify the law for those who make productive investments in our economy and we want to improve that while protecting our most sensitive assets."
The government has today released the terms of reference.
"It will probably be broad if we continue – a broad freedom to refuse investments that we believe are not in New Zealand's national interest."
Mr. Parker said the sale of the Wellington production line, Wellington Electricity Lines Limited, could be stopped by a clause such as a Chinese company a few years ago.
"One of the examples that the deputy prime minister mentioned earlier was the purchase of the Wellington line company by a company overseas, but now that is a monopoly and there are some people who wonder if that is the right thing to do.
"We are not proposing to settle any of those things, but we think the government should have the discretion to refuse such things on that basis."
Green Party co-leader Marama Davidson said she was happy with the government's move.
Earlier this year, Ms. Davidson, the spokesman for the party, said that the party had government support to see if more powerful tests had to be done for the sale of land with water.
"Of course this is a green victory."
She said there were many things that could be considered under a test of "national interest."
"The community is worried, which is very clear throughout the company, but especially in the Whakatane Creswell case, which also understands the kaitaki responsibilities of mana whenua.
"The long-term sustainability of our water and our water tables and our environment – these are some of the ideas."
Mr. Parker said that any amendment to the law will not take effect until 2020.