New Zealand's top companies are failing to keep up with global counterparts.
A Productivity Commission inquiry's found our frontier firms - which are the most productive firms in the domestic economy within their own industries - are only about half as productive as those in other small, advanced economies.
It wants lawmakers to ensure employers have access to skilled workers, while reducing the inflow of low skill or short-term workers, and is urging businesses to move away from exporting basic commodities and bolster innovation.
The report notes New Zealand has had the highest number of temporary work permits issued in the OECD, per head of population.
Productivity Commission Chair Ganesh Nana says our low productivity is a sobering statistic.
"And indeed something that we really have to get beyond if we are going to challenge ourselves to build frontier firms that are the best and able to compete."
He says we need to provide more distinctive products, which can't be emulated abroad.
"That means putting in effort in focused areas rather than spreading our marmite thin across anything and everything."