Services sector kick start outlined

Aviation has been identified as a sector facing international barriers. Photo / Mark Mitchell

Productivity Commission extols more competition and adopting cloud computing.

Fostering competition and embracing the cloud are key ingredients of the Productivity Commission's recipe for lifting the performance of the services sector.

The commission's final report on how to lift productivity in the sector which accounts for 70 per cent of economic output and three in every four jobs, but in which New Zealand underperforms its international peers, makes 31 recommendations to the Government.

To strengthen competitive disciplines in the services sector it recommends the Government work on reducing barriers to international trade in services, starting with some transtasman ones already identified relating to aviation, shipping, telecommunications and the Mutual Recognition Agreement.
Read the commission's final report here:

It suggests ways of making it harder for professional bodies to operate a closed shop.

It wants the Government to review section 36 of the Commerce Act, which deals with dominant firms misusing market power.

The courts have adopted a "counterfactual test" where a firm is only judged to have taken advantage of its market power if it can be argued it would have behaved differently in a competitive market.

The commission shares the Commerce Commission's concerns that this is too narrow a test.

The commission also stresses the importance of information and communications technology -- and of adapting business practices to make the most of it -- in lifting productivity among services firms.

While ICT investment as a share of gross domestic product is respectable by international standards, our GDP is not, leaving New Zealand lagging in ICT investment per capita.

A review of the KiwiSaver Act should consider options for making it easier for KiwiSaver providers to invest in private equity and venture capital.

Young firms in particular can struggle to attract the capital they need, as software and intellectual property are not the kinds of assets banks readily accept as collateral for loans.

The commission calls for action to make it easier for would-be ICT students to assess and compare the employment outcomes of different tertiary institutions, qualifications and fields of study.

The commission points to the ability of cloud computing to bring the benefits of huge economies of scale within reach of small firms.

It also increases their chances of finding a service which closely matches their particular needs.

The Government's preference for cloud services based in New Zealand, which it says are significantly more expensive than similar overseas services, is unduly risk averse, it suggests.

"The Government should address any data sovereignty, security and privacy risks associated with offshore cloud computing through international negotiations, with Australia in the first instance," it says.

The Government should pursue free-trade-in-data agreements with other countries.

"A reasonable aim of such agreements should be that the rights and responsibilities of data owners do not vary with the physical location of their data."

But it acknowledges the challenges the widespread adoption of cloud computing creates for taxation.