Kiwis may have to start paying for local phone calls if the Government gets its way, Labour says.

A Cabinet paper prepared by Finance Minister Bill English proposed scrapping the Kiwi Share and the Telecommunications Service Obligation (TSO) which limits phone line rental increases to the rate of inflation and guarantees free local calls, Labour communications spokeswoman Clare Curran said.

The Kiwi Share clauses in Telecom's constitution prevent any shareholders from acquiring more than 10 per cent of the company, without first getting the approval of the finance minister.

Overseas shareholders that did get permission to acquire more than 10 per cent of Telecom would need separate approval to take a majority stake. The Kiwi Share also requires that at least half of Telecom's directors are New Zealand citizens.

Treasury is to lead a review looking at the Kiwi Share and TSO, Curran said.

The Cabinet paper called for the "beginning of a regulatory review programme" which was part of the Government's first 100 day commitments.

However, Communications and Information Technology Minister Steven Joyce said Curran's suggestions of were scaremongering.

"Free local calls will not be axed under this government. The idea is not even on the table," Joyce said.

"Likewise, there are no plans to further loosen the rules around foreign ownership of Telecom."

The review's aim is to improve the quality of regulation which would "deliver big gains for the economy".

It will include a provision for the immediate removal of inefficient and superfluous regulation and will also create a system for future review.

In relation to the Telecommunications Act it is tasked with considering:

* Changing or abandoning elements of the TSO;

* Whether to retain the Kiwi Share requirements;

* The application of "network operator" to provide access to land for placement of telecommunications facilities;

* Changing the regulated services framework for recognising the applications of the way prices are set

The review will cover not only telecommunications but also the Resource Management Act, climate change, building, industrial relations, overseas investment, financial markets and local government regulation.

It appeared National was intent on "creeping dilution of our regulatory framework," Ms Curran said.

"We need to be putting rules in place that will strengthen the marketplace, look after consumers and enable businesses to run efficiently well," Ms Curran said today.

The telecommunications industry was under threat of becoming a "wild west", she said.

NZPA