Google has warned that new spy laws introduced by the Government could result in communications companies quitting New Zealand or scaling back their operations.

The company has joined a list of critics, from Telecom and Kim Dotcom's Mega to the Law Society, in raising concerns about the Telecommunications Interception Capability and Security Bill, which is in front of Parliament's law and order select committee.

The bill would force telecommunications companies to provide technical assistance to the Government Communications Security Bureau in making their services capable of lawful interception, and to get the spy agency's approval before making changes that affected network security.

In a written submission, Google, the United States internet giant, said the "significant additional costs, time and challenges" imposed by the proposed law change could discourage local and international communications firms from making new services available in New Zealand and could lead to some existing providers quitting the country or scaling back their offerings.

Google recognised "interception tools are necessary for the effective maintenance of law".

But the tools given to security agencies should be "proportional" and a lack of transparency in some processes set out in the bill "would likely raise public fears of unjustified intrusion into their privacy".

As "one of the most isolated countries in the world", New Zealand had benefited disproportionally from the internet, it said.

"Yet these social and economic benefits would be reduced by many of the additional obligations introduced by the bill," Google argued in its submission.

However, the Government runs the risk of deepening opposition from Telecom and Vodafone to the new legislation if it decides the requirement to co-operate with the GCSB should only apply to New Zealand's traditional network operators.

Telecom and Vodafone argued that it would tilt the playing field towards "over the top" services such as Microsoft's Skype with which they compete and which were already eating heavily into their revenues.

Telecom regulatory affairs manager John Wesley-Smith told the committee last week that Telecom believed the law change was unnecessary but he did not believe providers would quit New Zealand if the bill applied equally to them.