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1 – Overview

This is a report from Statistics New Zealand’s feasibility study into how change in the productivity of government services in New Zealand might be measured. The feasibility study has focused on the measurement of government health care and education productivity as these are perhaps two of the most important government services as far as many people are concerned. Furthermore, these are the services which receive the highest public expenditure, and which have been studied the most by other countries and international organisations.

The main conclusion from the feasibility study is that it will be possible to estimate change in the productivity of government health care and education services in New Zealand according to the best current practice worldwide. Indeed, the statistical quality of existing estimates of health care and education services is already as good as that of many other countries.

The feasibility study notes that there are some big challenges for the compiler, the main ones being:

(i) Scope: There are a number of different ways of looking at what constitutes the scope for government productivity estimates. The three main ones being: the industry perspective (how much does the health care or education industry contribute to total economic output?); the public /private perspective (how do publicly-owned parts of the health care and education systems contribute to the economy?); and the financing perspective (how well are taxpayer funds, or government controlled funds, being used in delivering health care and education?) Dealing with this challenge requires the establishment of what the question(s) is (are) for users with an interest in government productivity estimates. A first step should be to address the industry perspective to provide estimates of government productivity that are consistent with Statistics NZ’s existing market sector productivity estimates.

(ii) Defining government output and dealing with quality change: it is generally acknowledged that measuring change in services (for example, legal and banking services) is more difficult than measuring change in goods (for example, bread and motor vehicles). Government tends to produce services rather than goods. And while there are many sources on the number of health care and education services, there is a relative dearth of systematically-available information on how the quality of those services is changing over time (and how the different aspects of quality can be drawn together into a single whole). This feasibility study concludes that estimates of change in the quality of services should not be combined with estimates of change in the quantity of services, until there is an international consensus on how this should be done.

(iii) Lack of prices: In the government sector, there are either no prices, as services are typically provided for free, or the amounts paid do not reflect the relative value given by the price in a competitive market (due, for example, to subsidisation). An alternative method for placing a relative value on government services is needed. Consistent with international guidance, this feasibility study concludes that the costs of production are the most suitable way of establishing the relative value of those goods and services for which there are no prices.

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