Call for review of services sector performance

TOM PULLAR-STRECKER
Last updated 05:00 06/06/2014

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Powerful businesses such as airlines, banks, insurers and supermarket chains could come under greater scrutiny as a result of a Productivity Commission report.

The commission said competition law should be overhauled to boost the productivity of the services sector. The changes it recommends include giving the Commerce Commission new powers to conduct wide-ranging studies into any market.

The Productivity Commission said in a final report on the services sector released yesterday that services accounted for nearly three-quarters of New Zealand's economic activity but productivity growth had fallen behind that in the United States and Europe.

"Services in New Zealand have tended to underperform," commission chairman Murray Sherwin said.

The commission found weak competition in the small New Zealand market was part of the problem, but it was optimistic the increased uptake of cloud computing could help small firms in particular cut costs and boost productivity.

Its final report beefed up the recommendations of its January draft report.

The Productivity Commission came off the fence and said the Commerce Commission should be given the authority to undertake "broad-ranging inquiries into the state of competition" in any market. At the moment, the competition watchdog only has the power to undertake such studies with respect to the telecommunications industry.

Air New Zealand was among companies that argued against that change. First NZ analyst Greg Main said the supermarket, banking and insurance industries could be candidates for reviews.

The Productivity Commission said in its draft report that the costs and benefits of market studies would need "careful assessment", but its final report concluded the benefits were likely to outweigh the costs.

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- BusinessDay.co.nz

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