A report has criticised the way New Zealand driver licensing is handled.

Serious concerns have been raised in a damning report on New Zealand's driving licence system.

The inquiry was prompted by an investigation into the sale of fake licences and calls for a complete overhaul, labelling the system as ineffective.

Other concerns include actual licence testing and the processing of those for overseas drivers.

The report by KPMG calls for wholesale changes, saying that just about every aspect of the process is flawed.

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"What is very very clear is the system has been a shambles," Road safety campaigner Clive Matthew-Wilson said.

"There's widespread corruption. It was completely predictable that this would happen and it has caused many people, myself included, to doubt whether actually large numbers of people on the road actually have licences in the first place.

"This investigation is simply looking at the corruption we are aware of. But the whole system was set up for corruption," Matthew-Wilson claimed.