Introduction

The government is a large, important part of the economy.

The public sector is responsible for producing a large proportion of goods and services in New Zealand. Government production and investment make up over 20% of New Zealand’s economy, notably providing the large majority of the health and education services, providing administration of the welfare system and providing justice and defence. The government, like any other part of the economy, produces goods and services, or ‘output’, by using a set of ‘inputs’ – labour, intermediate goods and services, and capital equipment. However, despite the considerable importance of the government’s output, often little is known about the level of output produced. Often more importance has been placed on how much is spent on inputs in a particular area rather than on how much output is produced as a result.

Traditionally the output of government has been poorly measured.

This predilection for measuring inputs rather than outputs is also reflected in typical national accounts treatments of the public sector. For non-market government services, the measure of output volume in gross domestic product (GDP) is often approximated by measures of input volume such as the number of hours worked (output = input). This output = input treatment implicitly assumes that the amount of output produced per unit of input is not changing, or, put another way, productivity is constant. This approach is deficient, as there is no reason to believe productivity in the public sector should not be changing over time.

However, things are changing …

In recent years, there has been a push to improve the measurement of output from the public sector to improve the quality of national accounts and to enable measurement of productivity for these services. This has been formalised in official national accounts standards set by the European Union’s statistical agency, Eurostat, and the United Nations (Eurostat 1995, 2001, United Nations 1993). Statistical agencies around the world are increasingly encouraged or required by legislation to replace input measures with real output volume measures. To date, considerable progress has been made internationally, particularly in the United Kingdom, and progress has also been made in New Zealand.

This paper summarises the techniques used by statistical agencies to measure the output and productivity of public services and examines the implications for New Zealand of the worldwide drive towards better public service output measurement. The focus of this paper is on national accounts’ treatments and uses the United Kingdom as the primary example, because progress is most advanced there. Over time, there will be increased pressure for New Zealand to update its measurement of the output of the public sector so that our national accounts remain comparable internationally and so that we continue to use best practice. And it will also be important to measure productivity to inform and motivate debate on the performance of the public sector.