He also said giving state-owned enterprises such as Mighty River Power an injection of private capital would allow them to expand their business without having to go cap in hand to the Government.
"But if they are constantly going to be looking to a cash-strapped Government for further investment, that investment won't take place," he told the northern regional conference in Mt Wellington.
Partial state asset sales is one of the clearest policy differences between Labour and National.
Labour promises to sell none - and 62.4% of voters in last week's Herald DigiPoll survey opposed the policy.
National has identified five - Air New Zealand, Meridian, Mighty River Power, Genesis and Solid Energy - that would be partially sold, with the Government retaining at least 51%.
National avoids the term asset sales and instead uses the term "mixed-ownership model".
Mr Key said, whenever he spoke at Grey Power meetings, someone raised concerns about selling shares in state companies and generally that concern was shared by the audience.
But when asked, most of the audience had usually had some investment in a failed finance company and when that was raised, they saw it from a different perspective, he said. It made no sense for New Zealanders to be able to invest in a KiwiSaver account but not be able to invest in a good New Zealand asset, he said.
"I think that is crazy logic and that's the reason why we should stay very committed to the mixed-ownership model," he said.
It would help the New Zealand stock exchange grow, encourage other companies to list on the stock exchange and provide investment opportunities for the $60 billion expected to be in KiwiSaver accounts by 2020.
If Labour thought the mixed-ownership model was so bad, why had it not bought 100% of Air New Zealand instead of deciding on part ownership, Mr Key said.
"And the answer is actually having some competitive tension in there. Some external analysis and some other shareholders from [other than] the Government in our view will produce not only better-run companies but greater opportunities."
