Output measurement in New Zealand

New Zealand has followed the standards of the United Nation’s System of National Accounts in measuring the output of the public sector. For the entire non-market government sector, output in current prices is measured as the sum of the input costs (state-owned enterprises are considered to be part of the market sector and are measured accordingly). In constant prices, most government output measures are calculated using volume extrapolation, where base year value added is extrapolated using a volume index. For government administration and defence, the volume index used is based on deflated wages and salaries, an input measure. For education and health, the volume measure is based on direct output measures (McGrath 1999, Statistics New Zealand 1998).

NZ’s national accounts contain output measures for health and education.

For public hospitals, direct output methods were introduced in 1996 to replace a method that was based on a mix of input and output volumes. The output volume measure introduced is based on the number of inpatient discharges adjusted by case mix, the number of day-patient discharges, and the average length of stay in hospitals. Figure 1 shows the considerable difference adopting the new output measures made to the volume of public hospital output in New Zealand’s national accounts. A volume of output measure for education based on the number of pupils taught at different types of educational institution has also been introduced. Both these output volume measures have been backdated to 1986.

On introduction, these real output volume measures put New Zealand among the world leaders in measuring the output of public services. However, since the introduction of these measures, there has been considerable progress internationally in the measurement of output and in making quality adjustments that could be applied to New Zealand. In particular, the method for public hospitals requires a more comprehensive treatment of day-patient discharges that adjusts for complexity and quality of the treatments. The use of average length of stay should also be examined, as length of stay is not an output of hospitals; public hospitals exist to provide health services, not hotel services. Length of stay may change the quality of treatment and, if this is so, length of stay could be used explicitly as a quality adjustment. Both education and health output require quality adjustment.

Figure 1 - Comparison of input and output methods for public hospitals in New Zealand (seasonally adjusted)