Brian Fallow

The Economics Editor of the NZ Herald

Scrutiny targets services sector

Govt instigates inquiry to look at improving productivity in area which covers significant portion of the economy.

In the farming sector, if the middling performers could be raised to the level of the best, the gains could be spectacular. Photo / APN
In the farming sector, if the middling performers could be raised to the level of the best, the gains could be spectacular. Photo / APN

The Productivity Commission has begun an inquiry, at the Government's behest, into how productivity in the services sector might be improved.

Such an inquiry intercepts the economy across a broad front.

Services account for about 70 per cent of the economy's output, or half that when the public sector (which is outside the scope of the inquiry) and the 9 per cent of gross domestic product represented by the housing services owner-occupiers derive from their properties are excluded.

The issues paper released by the commission this week says multi-factor productivity in the services sector grew on average by 1 per cent a year between 1988 and 2010, which is more than the goods-producing sector (0.3 per cent a year) but less than the primary sector (1.5 per cent).

But such figures mask wide variations among different service industries. Evidence of poor productivity levels and low growth rates in some service industries is concerning, it said, citing accommodation, restaurants and bars as among laggards.

Firms within the same industry can also vary widely.

As in the farming sector, if the middling performers could be raised to the level of the best, the gains could be spectacular, said Murray Sherwin, the commission's chairman and a former director-general of MAF.

In order to yield concrete policy recommendations the inquiry will focus on some particular issues or parts of the sector in more detail.

The commission is seeking the guidance of submitters on which they should be.

It is interested in the barriers to cross-border trade, investment and movement of people in services sectors, on the grounds that industries where there is international contestability and competition tend to be marked by higher productivity.

It is asking about what barriers there are to investment in, and making effective use of, information and communications technology (ICT).

It notes that New Zealand's investment in ICT, measured against the size of the economy, was similar to some comparable developed countries over the past 20 years. It wants to learn whether that investment lifted productivity.

It is also interested in views about how to raise productivity and wages in those service industries which traditionally employ low-skilled workers.

The commission said intangible assets such as intellectual property had become increasingly important sources of innovation and productivity gains.

It wants to hear, for example, about whether there are any policy issues around the financing of IP-based start-up firms.

Submissions on the issues paper are open for a month.

The commission expects to release two interim reports, each of which will also invite submissions, before completing its final report next February.

- NZ Herald

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