Cabinet Paper CAB-19-SUB-0321: Productivity Commission Inquiry into Maximising the Economic Contribution of New Zealand’s Frontier Firms: Terms of Reference

1This paper seeks agreement to the attached terms of reference for a Productivity Commission (the Commission) inquiry into maximising the economic contribution of New Zealand’s frontier firms.

2It provides information on the independent review of the Commission and my plan for publicly releasing this review.³³

3The Commission undertakes two inquiries per year following referral from the Minister of Finance and other referring Ministers as required. It is established practice to gain Cabinet agreement to inquiry terms of reference before referral.

4The Commission is due to finish its inquiry into local government funding and financing on 31 November 2019. I propose that the Commission then commence an inquiry into maximising the economic performance of New Zealand’s frontier firms.

5While aspects of New Zealand’s recent economic performance have been strong, productivity growth is persistently weak and is a significant drag on living standards and well-being.

6This inquiry focusses on a central aspect of New Zealand’s productivity performance – the performance of New Zealand’s frontier firms. Frontier firms are the most productive firms in the domestic economy within their industry. These firms play an important role in shaping aggregate productivity performance, both through their own performance and through the way they diffuse new technologies and business practices throughout the New Zealand economy.

7While New Zealand has some world-leading firms, on average our frontier firms are not performing as well as their international peers, and the diffusion of innovations from the domestic frontier to other domestic firms seems slow.

8The purpose of this inquiry is for the Commission to identify policies and interventions that could maximise the performance and contribution to the economy of New Zealand’s frontier firms through:

9This requires using the Productivity Commission’s high quality independent analytical capacity, and its links with OECD research and analysis, to accurately characterise the New Zealand situation and identify and evaluate relevant policies and interventions.

10As the final report will be delivered in the year that New Zealand is hosting APEC, its substance could inform discussions through the Economic Committees.

11The attached terms of reference set out more detail about the scope of the inquiry.

^{33 9(2)(f)(iv) - to maintain the current constitutional conventions protecting the confidentiality of advice tendered by ministers and officials.}