The Productivity Commission says New Zealand uses capital and labour inefficiently, which is partly to blame for reducing productivity here compared with Australia.
The commission has published a working paper that finds average labour productivity in New Zealand has been losing ground to Australia since the 1970s, and is now almost a third lower than across the Tasman.
It says this has a big impact on different living standards.
The report adds that multi-factor productivity is 22% lower in New Zealand and Australia.
This measurement combines how well both workers and machinery are used together.
The report says the majority of New Zealand industries under-perform from a productivity perspective compared with their counterparts in Australia.
It says this covers large sectors such as mining, manufacturing, construction and retail.
