Background Paper 10 1996-97
Easy Guide to the National Accounts
Michael Warby
Statistics Group
Abbreviations
ABS Australian Bureau of Statistics
GDP Gross domestic product
GDP(A) Gross domestic product-the average
GDP(E) Gross domestic product-expenditure approach
GDP(I) Gross domestic product-income approach
GDP(P) Gross domestic product-production approach
GNP Gross national product
GOS Gross operating surplus
IPD Implicit price deflator
Contents
Introduction
1 What are the National Accounts?
1.1 Background
1.2 Some Terms
1.3 Measuring Economic Activity
1.4 The National Accounts in Brief
1.5 Sectoral Accounts
1.6 Adjusting for Inflation
1.7 Terms of Trade
1.8 Original, Seasonally Adjusted and Trend
1.9 Historical Tables
1.10 ABS National Account Publications
2 The Conceptual Framework
2.1 A System of National Accounts
2.2 Production in the National Accounts
2.3 Exclusions
2.4 Imputations and Non-Market Valuations
2.5 Gross Domestic Product
2.6 Keynesian Aggregates
3 Domestic Production Account
3.1 Contents
3.2 Receipts Side of the Domestic Production Account
3.3 Payments Side of the Domestic Production Account
3.4 Examples-economic growth and its components
4 National Income and Outlay Account
4.1 Contents
4.2 Income Side of the National Income and Outlay Account
4.3 Disbursement Side of the National Income and Outlay Account
4.4 Examples-Saving
5 National Capital Account
5.1 Contents
5.2 Receipts Side of the National Capital Account
5.3 Payments Side of the National Capital Account
5.4 Examples-Investment and Saving
6 Overseas Transactions Account
6.1 Contents
6.2 Payments Side of the Overseas Transactions Account
6.3 Receipts Side of the Overseas Transactions Account
6.4 Examples-Openness of the Economy
Appendix-Selected ABS National Accounts Publications
The national accounts published by the Australian Bureau of Statistics
(ABS) represent an attempt to present in a useful and timely way a statistical
picture of income, expenditure and economic production in Australia.
This Guide seeks to explain the contents and range of the national
accounts. It does not presume any prior economic knowledge.
The national accounts aggregate a vast array of transactions in order
to present information on the Australian economy which is informative
and useful for policy purposes. The national accounts have a wide range
of data collections feeding into them, covering such diverse areas as
retail sales, motor vehicle registrations, house construction, wages,
profits, capital expenditure and so on. The national accounts constitute
a framework for putting these partial indicators into a coherent form,
without, for example, double-counting an item of production. Because
the national accounts sit on top of these other collections, there
are difficulties in getting information in a timely way and the national
accounts are therefore subject to revisions.
It is undoubtedly true that people often comment on particular economic
statistics, including national accounts statistics, without understanding
the context in which they operate-the limitations of the data and the
conceptual links with other factors. There are many problems with measurement
in compiling the national accounts due to such things as coverage problems
and reporting errors.
That some people misuse statistics, however, is not a reason to refuse
to collect them and, as the examples in this background paper illustrate,
there is much interesting and useful information in the national accounts.
1.1 Background
The national accounts published by the Australian Bureau of Statistics
(ABS) represent an attempt to measure in money terms the total amount
of economic production in Australia and to provide measures of income
and expenditure. They measure different components of national economic
activity in much the same way as company accounts or household accounts
record spending and income for businesses and families, but on a much
larger scale.
The ABS attempts to collate the economic transactions of firms, households
and governments in various national totals (known as national aggregates)
to get an overall picture of economic production in Australia. A large
range of statistical collections feed into the national accounts.
There are great difficulties in getting the appropriate information,
particularly on a timely basis. This is why the national accounts are
subject to considerable revisions over time. (The trade-off between timeliness
and accuracy is a general problem for statisticians.)
There are also various problems of definition and measurability which
affect aspects of the national accounts.
The total final value of all goods and services produced or imported
in Australia is defined as the national turnover of goods and services.
The main national accounting identities which describe the various components
of national turnover are shown in the chart below. The chart shows the
relationship between these identities (but not their relative size) and
is useful for understanding several of the terms used in this Guide.
1.2 Some Terms
The following terms appear frequently in the national accounts:
balancing item-an item put in to make the two sides of an account
balance. Accounting logic dictates that accounts must balance. Any imbalance
implies errors or omissions in the data used to compile the accounts
or is due to a key concept not being directly observed.
capital-a term used in two different ways in mainstream economics:
-
- goods or other assets (other than land) which are used to produce
goods and services but which are not totally used up in the course
of production in a given time period. In standard economic language
such capital is the produced means of production (as distinct
from those goods used up in the course of production in a given time
period, which are known as intermediate goods). This form of
capital is referred to in the national accounts as fixed capital
to distinguish it from-
-
- money the owner makes available for investment (e.g. in the form
of expenditure on capital) rather than using it for personal consumption.
Both meanings are used in this Guide.
flow-amount occurring over a particular time period (e.g. expenditure
for the year ended 30 June).
gross-total without deductions (e.g. gross operating surplus
(GOS), the national account equivalent of profit, is measured before
any deduction for the consumption of fixed capital).
net-total after deductions (e.g. net operating surplus is GOS
less the consumption of fixed capital).
residual-a measure found by subtracting one measure from another.
For example, if income is measured at $1000, expenditure is measured
at $900 and saving is estimated as the excess of income over outlays
(i.e. $1000 - $900 = $100) then saving is a residual.
saving-the excess of income over outlays. (This constitutes
net saving and is not to be confused with gross saving(1) which is the
sum of net saving and the consumption of fixed capital.)
stock-amount existing at a particular time (e.g. value of assets
at 30 June).
unrequited transfer-a transfer (e.g. of money, goods or services)
from one agent to another which does not involve a specific quid
pro quo such as reciprocal receipt of goods or services or the repayment
of a debt. Gifts, taxes, foreign aid and funds migrants bring to Australia
are all unrequited transfers.
value added-the addition to the value of a product (or service)
at a given stage of production. It is measured as the difference between
sales revenue and the cost of materials used to make the product. For
example, if wheat is bought at $600 a tonne and turned into $1000 worth
of bread, the value added (ignoring other ingredients) is $1000 - $600
= $400.
1.3 Measuring Economic Activity
In theory, there are three ways to measure in money terms all economic
production in Australia during a given time period. The first is to add
up the total money value of the production of all goods and services,
i.e. the value added at each stage of production-this produces GDP(P).
The production measure of GDP is used for industry accounts and is important
in the production of constant price measures (see 1.6).
The second is to add up all income received from the production
of goods and services (wages and salaries, taxes on goods and services
minus production subsidies, and profits)-this produces GDP(I).
The third is to add up all expenditure on goods and services
(consumption, capital expenditure, increase in stocks, plus export income
minus expenditure on imports)-this produces GDP(E). In each case, care
has to be taken to ensure that output is not double-counted.
In theory, these three approaches will produce the same result. (The
ABS booklet A Guide to the Australian National Accounts, Cat. No.
5235.0 provides more detail on the three approaches.) In practice, the
three measures produce slightly different results. The ABS therefore publishes
an average of the above three approaches known as GDP(A). GDP(A), measured
at constant prices (see 1.6), is the ABS preferred indicator of economic
growth.
The difference between the measure of all income from the production
of goods and services and the measure of all expenditure on goods and
services is known as the statistical discrepancy. It represents
the net effect of deficiencies in the data sources, not the gross effect,
as it does not include those errors in the two measures which operate
in the same direction. During the past ten years the statistical discrepancy
has ranged between -0.8 and 1.4 per cent of measured GDP(I).
The key data feeding into the national accounts come from business data
collections. A firm's accounts arrange information around income and expenditure
and the returns to the firm's owners. The national accounts takes data
and aggregates and re-arranges these to emphasize production and the way
in which the income from production accrues to the economy's stakeholders
(labour, capital owners, government) and is expended by them.
The unit of measurement used in the national accounts is the dollar.
The use of this unit of measure affects what is and is not included in
the accounts (see 2.4). Another difficulty with use of the dollar as the
unit of measurement is that the value of the dollar is not constant from
year to year (see 1.6).
1.4 The National Accounts in Brief
There are four main summary accounts in the national accounts:
-
- domestic production account;
- national income and outlay account;
- national capital account; and
- overseas transactions account.
These accounts are double entry accounts (i.e. each entry has a counterpart
entry) and are part of the carefully designed closed system which is the
national accounts. The conceptual background to the accounts is outlined
in Section 2. A more detailed examination of the accounts is given in
Sections 3 to 6.
Brief summaries of the four accounts are given below:
The domestic production account is a summary of all the economic
transactions which take place in Australia. On the receipts side it
shows domestic sales of goods and services produced in or imported to
Australia. On the payments side it shows the costs of production, viz.
wages, salaries and supplements, gross operating surplus and indirect
taxes less subsidies. This account records the level of GDP. The statistical
discrepancy is the balancing item in this account.
The national income and outlay account shows on the income
side the various types of income received (wages, salaries etc.) and
on the disbursement side the uses to which that income is put (consumption
or saving). This account records the level of national income. Saving
(specifically net saving) is the balancing item in this account.
The national capital account shows on the receipts side, the
consumption of fixed capital (which forms part of the gross operating
surplus in the domestic production account) and saving (from the national
income and outlay account). On the payments side it shows purchases
of capital goods, the increase in stocks of goods and net lending overseas.
This account records the level of gross capital accumulation in Australia-the
additions to national wealth that result from investment in durable
fixed assets and from investment resulting in an increase in stocks
and materials.
The overseas transactions account records transactions by Australian
residents with overseas economic agents (firms, households, governments).
Receipts from overseas for exports etc. are recorded on one side, payments
to overseas agents for imports etc. are recorded on the other. Net
lending to overseas-an item which records the net provision of capital
to (or from) overseas during the relevant time period-is the balancing
item in this account. (In Australia's case, such lending is usually
negative and therefore constitutes borrowing from overseas.)
1.5 Sectoral Accounts
In addition to the accounts covering the whole of Australia, the ABS
also produces State and sectoral accounts. The sectoral accounts cover
particular types of economic units-households (including unincorporated
enterprises), general government, corporate trading enterprises (including
public trading enterprises) and financial enterprises. (The rest of the
world also constitutes a notional sector of the economy.) These sectoral
accounts are particularly important for the national capital account,
as its receipts side is dominated by items from the sectoral income and
outlay accounts.
1.6 Adjusting for Inflation
The national accounts record the level of economic production in Australia
in money terms. This is not a constant unit of measure because the amount
of goods and services a given amount of money can purchase is reduced
over time by inflation. The ABS therefore presents national accounts data
in two forms. The first is in current prices or the dollars in
which the transaction actually occurred. These are also known as nominal
dollars. Nominal just means the dollar values have not been adjusted
for inflation, i.e. the number of dollars takes precedence over their
actual purchasing power.
The other way the ABS presents national accounts data is in constant
or average price terms. The ABS adjusts the nominal dollar amounts
to some constant unit of measure, i.e. the average prices prevailing in
a selected base year (currently 1989-90). Money values adjusted
for inflation are often also called the value in real terms because,
at least notionally, their purchasing power in terms of goods and services
remains the same.
The ratio of a national accounting aggregate (such as GDP) at current
prices to its constant price equivalent is known as an implicit price
deflator (IPD). Within the national accounts there are many IPDs and
they each refer to a different sector of the economy. IPDs provide an
estimate of the price change between the base year and any other period.
IPDs can be used to adjust various aggregates for inflation. A simple
example is given below:
In 1995-96, Commonwealth budget outlays in Australia
totalled $126.7 billion-$4.7 billion or 3.8 per cent more than in 1994-95,
when they equalled $122.0 billion. A component of this increase, however,
may be attributed to inflation. To determine whether there had been
an increase in real terms (i.e. after adjusting for inflation) it is
necessary to express outlays in some constant unit of measure for both
years.
The relevant deflator to use in this situation is the
implicit price deflator for GDP. This deflator equalled 112.6 in 1995-96
and 109.6 in 1994-95. By definition the IPD for 1989-90=100. Using this
information, it is possible to express outlays in both years at average
1989-90 prices as follows:
Outlays in 1994-95 at average 1989-90 prices = $122.0
x 100 / 109.6 = $111.3 billion
Outlays in 1995-96 at average 1989-90 prices = $126.7
x 100 / 112.6 = $112.5 billion
Therefore the increase in real outlays between 1994-95
and 1995-96 was 1.1 per cent.
Another method of adjusting for inflation is to express
all dollar amounts in terms of the average prices of the latest year.
Hence, outlays in 1995-96 remains at $126.7 billion while outlays in
1994-95 is expressed in terms of average 1995-95 prices. Therefore:
Outlays in 1994-95 at average 1995-96 prices = $122.0
x 112.6 / 109.6 = $125.3 billion
Outlays in 1995-96 = $126.7 billion
Therefore the increase in real outlays between 1994-95
and 1995-96 was 1.1 per cent.
Hence, whereas the increase in nominal outlays between
1994-95 and 1995-96 was 3.8 per cent, the increase after adjustment
for inflation was just 1.1 per cent. Another way of expressing this
is to say that the increase in the volume of outlays (as opposed to
value) was 1.1 per cent.
1.7 Terms of Trade
An important use of implicit price deflators is to calculate
the terms of trade. The ABS calculates an IPD for Australia's exports
of goods and services and an IPD for its imports of goods and services.
The terms of trade measures changes in the real purchasing power of Australian
production on world markets. Australia's terms of trade is the ratio between
the IPD for exports and the IPD for imports. A fall in the terms of trade
means the prices received for Australian exports have fallen relative
to the prices paid for imports to Australia (i.e. Australia must export
more to purchase the same amount of imports). A rise in the terms of trade
means the prices received for Australian exports have risen relative to
the prices paid for imports to Australia (i.e. Australia can purchase
more imports with the same amount of exports).
1.8 Original, Seasonally Adjusted and Trend
Quarterly national accounts figures are published in
original, seasonally adjusted and trend terms.
Original figures are the original numbers as
collected before any adjustments are made to calculate seasonally adjusted
or trend figures.
Seasonally adjusted means that the original
data have had predictable influences (such as holidays, harvest cycles,
taxation cycles etc.) removed. The adjustment is made to provide a clearer
indication of whether a movement from quarter to quarter in the original
figures represents a known pattern (i.e. seasonal factor), a random
effect or some significant shift. By adjusting for seasonal patterns,
we get some indication of the significance of quarterly movements.
Trend means that one-off irregular movements
or random effects which are still present in the seasonally adjusted
figures are removed. This is done by smoothing the seasonally adjusted
figures by applying a weighted moving average. Trend figures allow us
to see more clearly turning points in economic cycles. Unfortunately,
due to the properties of moving averages, the most recent observations
are calculated using a hybrid averaging process and so are more likely
to be revised as more figures become available.
1.9 Historical Tables
At the back of its annual national accounts publication
(Cat. No. 5204.0), the ABS provides a table of estimates for gross domestic
product, gross national expenditure and gross fixed capital formation
back to 1901. Other data are published back to 1948-49.
1.10 ABS National Account Publications
The ABS publishes a range of publications on the national
accounts or parts thereof. These are listed in the relevant section of
the ABS Catalogue of Publications and Products (Cat. No.
1101.0). A selected list of such publications is provided as an appendix
to this paper.
2.1 A System of National Accounts
The Australian national accounts is based on the System
of National Accounts (SNA) developed by the United Nations. The SNA was
first published in 1953 and fully revised in 1968 and again in 1993.(2)
The Australian national accounts represents an attempt to aggregate national
economic activity in ways which economic theory suggests is appropriate
and which is useful for policy makers.
2.2 Production in the National Accounts
Production is the process whereby labour, natural resources,
accumulated capital assets and knowledge are applied to the provision
of goods and services. It includes the application of services to add
money value to goods (e.g. transport, merchandising services) or services
which are bought and sold in their own right (e.g. the services of teachers,
doctors or plumbers).
2.3 Exclusions
While the national accounts are notionally an attempt
to measure all production, certain activities are excluded from the core
accounts. These include unpaid domestic labour (e.g. housework) and illegal
economic activity (e.g. sale of illegal narcotics). The former are excluded
on conceptual grounds, the latter for practical reasons.
It is also important to realise that the national accounts
only provide information on the productiveness of the Australian economy.
They do not, except partially and indirectly, provide information on the
well-being of Australians. For example, the birth of a child decreases
per capita GDP, yet it is likely to be a source of great happiness to
family and friends. Similarly, a choice of leisure over work may decrease
income but increase personal welfare. It should be noted that the national
accounts make no distinction between social goods (such as recreational
activities and housing improvement) and social bads (such as
natural disasters and illness). If they generate economic transactions
then they are recorded as activity in the national accounts.
Finally, there are some exclusions which make national
accounting concepts somewhat different from normal usage. For example,
for the purpose of calculating GDP, interest received is not included
as part of income while interest paid is not included as part of the expenses
in earning income (since interest is neither expenditure on, nor income
from, goods or services exchanged within the time period of the accounts).
2.4 Imputations and Non-Market Valuations
Generally, economic activities are valued in the national
accounts at their market price. Some economic activities, however, such
as many government services and activities of non-profit organisations,
are not offered in the market. In such cases, the activities are valued
at their production cost, i.e. the wages and salaries paid plus the cost
of purchased goods and services used plus an allowance for the consumption
of fixed capital.
For some goods and services not sold in the market place,
an imputed value is derived. This is done where the ABS believes there
is a reasonably satisfactory basis for valuing the implied transaction.
Imputations are made for rent of owner-occupied dwellings, income received
in kind, home improvements and producer-consumed goods and services as
well as services by financial institutions for which explicit charges
were not made.
2.5 Gross Domestic Product
The most widely recognised national accounting aggregate
is gross domestic product. The word gross means that no
deduction is made for the consumption of fixed capital used in
production-also known as economic depreciation. Thus the gradual
using up of the economy's productive assets is not taken into account
in GDP (partly because of difficulties of measurement and partly because
of international differences in how consumption of fixed capital is measured).
The word domestic means that it covers only production within Australian
territory. This differentiates GDP from Gross National Product
(GNP)(3) which covers all income to residents of a country regardless
of where the income is accrued. Hence:
GNP = GDP + residents' income from overseas property
or productive activity - income paid to overseas residents
That is:
As Australia has been a net importer of capital, GDP
is bigger than GNP, since the importation of capital has been financed
in part by the sale of Australian assets. In countries which have been
net exporters of capital, GNP is larger than GDP.
GDP seeks to measure economic production free of duplication.
Therefore, all goods and services which are used up in the course of production
by producers are treated as intermediate purchases (intermediate consumption)
and deducted from the calculations.
In summary, GDP is the total market value of goods and
services produced in Australia in a given time period, after deduction
of the cost of goods and services used up in the process of production
but before deducting allowances for the consumption of fixed capital.
2.6 Keynesian Aggregates
National accounts statistics have been developed from
the macroeconomic analysis of John Maynard Keynes. It is based on key
Keynesian aggregates such as private consumption , government consumption
(G), investment (I), gross saving (S), exports (X) and imports (M). An
example of basic economic analysis using these aggregates is the following
analysis of the connection between capital flows (saving and investment),
the external balance on goods and services (X - M) and net income paid
or transferred overseas (N).
The basic equation for GDP is:
That is, total domestic production is equal to private
and government consumption of (i.e. expenditure on) goods and services
plus expenditure on capital goods and stocks (investment) plus
expenditure on exported goods and services but not including expenditure
on imported goods and services.
Since all income is either consumed or saved (or transferred
overseas) GDP can also be expressed as:
Rearranging (2) we get:
Substituting into (1):
Moving everything but the overseas balance on goods and
services (X - M) and net income paid or transferred overseas (N) onto
the left hand side we get:
Obviously GDP - GDP equals 0, so we get:
This tells us that the difference between saving and
investment (i.e. Australia's net demand for capital) will equal export
income less import expenditure less net income paid or transferred
overseas.
3.1 Contents
The domestic production account is a summary of all the
economic transactions which take place in Australia (see Table 1). This
account records the level of gross domestic product. Items in the account
are arranged from the viewpoint of the producer. Thus the first half of
the table is the receipts side of the account since it records producer
receipts from expenditure by final consumers on goods and services produced
in Australia, i.e. the expenditure measure of GDP. The second half of
the table is the payments side of the account since it records payments
made by producers which in turn constitute the income that accrues to
factors of production, i.e. the income measure of GDP.
Table 1. Domestic Production Account
Year
1992-93 1993-94 1994-95 1995-96
Final consumption expenditure -
Private 254,277 266,479 284,003 303,836
Government 74,693 77,444 80,220 83,772
Gross fixed capital expenditure -
Private -
Dwellings 20,063 23,052 24,495 21,481
Non-dwelling construction 10,238 10,694 11,598 14,418
Equipment 27,153 29,527 34,833 36,133
Real estate transfer expenses 4,908 5,785 5,563 5,487
Public enterprises 10,337 9,509 11,383 11,281
General government 9,234 8,625 9,010 9,323
Increase in stocks -
Private non-farm -167 826 3,366 2,738
Farm -139 -139 453 690
Public marketing authorities 489 -7 -1,540 -191
Other public authorities -248 -105 246 16
Gross national expenditure 410,838 431,690 463,630 488,984
Exports of goods and services 76,396 82,361 86,502 97,822
less Imports of goods and services 77,993 83,910 96,148 99,518
Gross domestic product (GDP(E) 409,241 430,141 453,984 487,288
Statistical discrepancy -3,477 283 1,540 -1,112
Gross domestic product GDP(I) 405,764 430,424 455,524 486,176
Wages, salaries and supplements 200,766 210,955 223,960 240,062
Gross operating surplus -
Private trading enterprises -
Corporate 59,038 64,406 68,728 73,163
Unincorporated 43,055 44,224 44,585 49,314
Dwellings owned by persons 34,814 35,882 37,597 39,990
Public trading enterprises 19,084 19,899 20,909 19,857
General government 7,423 7,587 7,762 7,938
Financial enterprises - 8,362 8,084 7,114 9,293
less imputed bank service charge 12,514 11,617 11,576 13,952
Gross domestic product at factor cost 360,028 379,420 399,079 425,665
Indirect taxes less subsidies 45,736 51,004 56,445 60,511
Gross domestic product GDP(I) 405,764 430,424 455,524 486,176
Source: Table 23 of ABS, National Income Expenditure and Product (Cat. No. 5206.0)
3.2 Receipts Side of the Domestic Production Account
Final consumption expenditure
Private
Expenditure on all goods and services purchased by households
not used for further production (food, clothing, household appliances,
entertainment, imputed rent of owner-occupied dwellings etc.).
Government
Expenditure on all goods and services purchased by governments not used
for further production by government (the government is taken to be
the consumer of its own output for all services not offered for sale
for profit and which therefore do not have a market price).
(Plus) Gross fixed capital expenditure
Expenditure on capital goods (goods and services used
in further production-buildings, machinery, equipment etc.) without any
deduction for consumption of fixed capital during the production process.
Private Dwellings
Private capital expenditure on dwellings.
Non-dwelling construction
Private capital expenditure on non-dwelling construction.
Equipment
Private expenditure on equipment.
Real estate transfer expenses
Private expenditure on ownership changes for land and buildings.
Public enterprises
Expenditure on all capital goods purchased by government trading enterprises
and government financial enterprises.
General government
Expenditure on all capital goods purchased by government departments
and non-trading instrumentalities. By convention, expenditure on military
hardware (the produced means of destruction, perhaps) is not
included as capital expenditure but as final consumption expenditure.
(Plus) Increase in stocks
The net change in the value of goods held in storage,
including work in progress.
Private non-farm
Change in value of goods held by non-farming private enterprises.
Farm
Change in value of goods stored by farmers.
Public marketing authorities
Change in value of goods stored by public marketing bodies.
Other public authorities
Change in value of goods stored by all other government bodies.
(Equals) Gross national expenditure
The total expenditure in Australia on goods and services.
It is a measure of total domestic expressed demand. It is gross
national expenditure, as consumption of fixed capital is not deducted.
(Plus) Exports of goods and services
Income received by Australian residents for all goods
and services produced in Australia but sold to non-residents.
(Less) Imports of goods and services
Expenditure on all goods and services produced overseas
which are sold to Australian residents.
(Equals) Gross domestic product (expenditure approach)
Total expenditure, both in Australia and overseas, on
goods and services produced in Australia.
(Plus) Statistical discrepancy
The item inserted to make sure the measured expenditure
side of the domestic production account balances with the measured income
side of the account.
(Equals) Gross domestic product (income approach)
See below.
3.3 Payments Side of the Domestic Production Account
Wages, salaries and supplements
The total value of income from labour for production.
(Plus) Gross operating surplus
The income received by capital for production. It can
be distributed as profits, interest, dividends etc. The term operating
surplus is used instead of profits because it is the excess of
gross output over costs incurred in producing that output. It is gross
operating surplus as deductions for consumption of fixed capital have
not been made.
Private trading enterprises
The amount by which sales exceed purchases for private firms.
This is broken down into the operating surpluses for:
Corporate
Incorporated private bodies
Unincorporated
Unincorporated private bodies
Dwellings owned by persons
Private housing (gross rent, including rent imputed to be earned by
owner-occupiers, less operating expenses, not including interest payments).
Public trading enterprises
The difference between revenues and expenses of government trading enterprises.
General government
The consumption of fixed capital by general government. By convention,
the value of the output of general government is deemed to be the cost
of producing that output, including the consumption of fixed capital.
Since gross operating surplus is the excess of output over the cost
of producing that output not including the consumption of fixed capital,
that leaves general government's consumption of fixed capital as its
GOS. The net operating surplus (GOS minus consumption of fixed capital)
of general government is therefore zero.
Financial enterprises
The difference between revenues, including the imputed bank service
charge, over production costs incurred by financial enterprises.
(Less) Imputed bank service charge
The imputed service charge is a statistical construct
equal to the excess of interest received on loans made from deposits over
the interest paid on those deposits. It covers the way financial enterprises
actually derive income for their services (the margin between interest
paid and interest received) rather than via their service charges (which
are lower than their operating expenses-charges minus expenses would thus
generate a negative operating surplus but for the imputed service charge).
The imputed service charge is deemed to be paid by borrowers
and, in the sectoral accounts, is taken to be an operating cost (intermediate
consumption) of a notional industry. In the domestic production account
it is subtracted from gross operating surplus.
(Equals) Gross domestic product at factor cost
The income that accrues to the owners of the factors
of production (labour, land, capital and enterprise). Factor cost
is equivalent to the sale price of production excluding any indirect taxes
or subsidies.
(Plus) Indirect taxes less subsidies
The excess of indirect taxes over subsidies paid for
production.
(Equals) Gross domestic product (income approach)
The total income accruing from the production of goods
and services in Australia.
3.4 Examples-economic growth and its components
Apart from showing if the Australian economy as measured
by GDP is growing or shrinking, and at what rate, the domestic production
account is also useful for showing the components of growth and providing
the values of the specific aggregates covered. To return to the simple
equation covered in Section 2:
GDP = C + G + I + X - M
Where:
C is private final consumption expenditure
G is government final consumption expenditure
I is gross fixed capital expenditure plus
increase in stocks
X is exports of goods and services
M is imports of goods and services.
The ABS publication National Income, Expenditure and
Production (Cat. No. 5206.0) gives the following values for the above
aggregates for 1995-96:
Private final consumption expenditure = $303.8 billion
Government final consumption expenditure = $83.8 billion
Gross fixed capital expenditure = $98.1 billion, i.e.
the sum of-
private = $77.5 billion plus
public enterprises = $11.3 billion plus
general government = $9.3 billion
Increase in stocks = $3.3 billion
Exports of goods and services = $97.8 billion
Imports of goods and services = $99.5 billion
In 1995-96, substituting for C, G, I, X and M:
GDP = $303.8 + $83.8 + ($98.1 + $3.3) + $97.8 - $99.5
= $487.3 billion
= GDP(E)
The ABS measured GDP(I) in 1995-96 at $486.2 billion.
The difference is the statistical discrepancy of -$1.1 billion ($487.3
billion - $1.1 billion = $486.2 billion).
The statistical discrepancy affects the S - I = X - M
- N identity we arrived at earlier (see Section 2), as measured GDP includes
the statistical discrepancy (sd). That is:
GDP = C + G + I + (X - M) + sd
so the equation we finished with in Section 2 is now:
S - I = X - M - N + sd
4.1 Contents
This account records the level of national income, i.e.
the sum of all income of Australian residents arising from economic activity
(see Table 2). The first half of the table is the income side of the account,
while the second half is the disbursement side and shows how that income
is used. The balancing item in the account is the nation's saving-referred
to as net saving and not to be confused with gross saving
which is the sum of net saving and the consumption of fixed capital.
4.2 Income Side of the National Income and Outlay Account
Wages, salaries and supplements
The total value of income from labour for production.
(Plus) Net operating surplus
Gross operating surplus (see 3.3) less the consumption
of fixed capital.
(Equals) Domestic factor incomes
The total income from the factors of production-labour,
land, capital and enterprise.
(Less) Net income paid overseas
The sum of interest, dividends and labour income paid
overseas minus interest, dividends and labour income received from overseas.
(Plus) Indirect taxes
The total value of taxes on the sale of goods and services.
(Less) Subsidies
The total value of grants made by general government
to enterprises for the production of goods and services.
Table 2. National Income and Outlay Account ($ million)
Year
1992-93 1993-94 1994-95 1995-96
Wages, salaries and supplements 200,766 210,955 223,960 240,062
Net operating surplus 96,473 103,344 108,461 116,988
Domestic factor incomes 297,239 314,299 332,421 357,050
less Net income paid overseas 13,627 13,665 16,017 16,769
Indirect taxes 52,064 57,396 62,589 66,668
less Subsidies 6,328 6,392 6,144 6,157
National income 329,348 351,638 372,849 400,792
less net unrequited transfers to
overseas -662 -178 -524 -1,209
National disposable income 330,010 351,816 373,373 402,001
Final consumption expenditure -
Private 254,277 266,479 284,003 303,836
Government 74,693 77,444 80,220 83,772
Saving 1,040 7,893 9,150 14,393
Disposal of income 330,010 351,816 373,373 402,001
Source: Table 24 of ABS, National Income Expenditure and Product (Cat. No. 5206.0)
(Equals) National income
The total income received by Australian residents from
economic activity. It therefore includes returns to labour and to capital.
(Less) Net unrequited transfers to overseas
The total of income paid overseas for which goods or
services were not exchanged (taxes, pensions, donations etc.) minus the
income received from overseas for which goods or services were not exchanged.
(Equals) National disposable income
The total income available to Australian residents.
4.3 Disbursement Side of the National Income and Outlay
Account
Final consumption expenditure
Private
Expenditure on all goods and services purchased by households
not used for further production (food, clothing, household appliances,
entertainment, imputed rent of owner-occupied dwellings etc.).
Government
Expenditure on all goods and services purchased by governments not used
for further production by government (the government is taken to be
the consumer of its own output for all services not offered for sale
for profit and which therefore do not have a market price).
(Plus) Saving
Total net saving by households, governments and firms,
i.e. the excess of income over outlays.
(Equals) Disposal of income
The sum of final consumption expenditure and saving since
all income must either be consumed or saved.
4.4 Examples-Saving
The national income and outlay account provides the estimated
level of the saving, consumption and factor income aggregates. In conjunction
with the domestic production account, it enables saving to be calculated
as a percentage of GDP.
Since all income must be either consumed or saved (or
transferred overseas) we know that GDP can be expressed in terms of the
following equation:
GDP = (C + G) + S + N
Moving S over to the left hand side we get:
S = GDP - (C + G) - N
Where:
C is private final consumption expenditure
G is government final consumption expenditure
S is gross national saving
N is net income paid or transferred overseas
In 1995-96 the relevant aggregates were:
Gross domestic product = $486.2 billion
Private final consumption expenditure = $303.8 billion
Government final consumption expenditure = $83.8 billion
Net income paid overseas = $16.8 billion
Net unrequited transfers = -$1.2 billion
Substituting into the above equation:
Gross national saving (S) = $486.2 - ($303.8 + $83.8) - $16.8 - (-$1.2)
= $83.0 billion
= 17.1 per cent of GDP.
5.1 Contents
This account records the level of gross capital accumulation
in Australia (see Table 3). The first half of the table is the receipts
side of the account, covering the domestic sources of the financing of
capital expenditure. The second half of the table is the payments side
of the account and shows how saving was used.
5.2 Receipts Side of the National Capital Account
Consumption of fixed capital
That part of gross product required to replace fixed
capital used up in a given accounting period. It is also known as economic
depreciation.
(Plus) Other saving
The sum of increase in income tax provision (the
difference between income tax payable and income tax paid), undistributed
income (the various forms by which the corporate trading enterprise
sector and the financial enterprise sector save) and extraordinary
insurance claims paid (insurance claims sufficiently in excess of
normal claims to be considered separately).
(Plus) Household saving
The residual item in the household income and outlay
account.
(Plus) General government surplus on current transactions
The residual item in the general government income and
outlay account.
(Equals) Finance of gross accumulation
A measure of gross national saving.
Table 3. National Capital Account
($ million)
Year
1992-93 1993-94 1994-95 1995-96
Consumption of fixed capital 62,789 65,121 66,658 68,615
Other saving 5,844 11,622 11,984 10,744
Household saving 11,016 10,669 6,719 7,699
General government surplus on
current transactions -15,820 -14,398 -9,553 -4,050
Finance of gross accumulation 63,829 73,014 75,808 83,008
Gross fixed capital expenditure -
Private -
Dwellings 20,063 23,052 24,495 21,481
Non-dwelling construction 10,238 10,694 11,598 14,418
Equipment 27,153 29,527 34,833 36,133
Real estate transfer expenses 4,908 5,785 5,563 5,487
Total private 62,362 69,058 76,489 77,519
Public enterprises 10,337 9,509 11,383 11,281
General government 9,234 8,625 9,010 9,323
Total gross fixed capital expenditure 81,933 87,192 96,882 98,123
Increase in stocks -
Private non-farm -167 826 3,366 2,738
Farm -139 -139 453 690
Public marketing authorities 489 -7 -1,540 -191
Other public authorities -248 -105 246 16
Total increase in stocks -65 575 2,525 3,253
Statistical discrepancy -3,477 283 1,540 -1,112
Net lending to overseas -14,562 -15,036 -25,139 -17,256
Gross accumulation 63,829 73,014 75,808 83,008
Source: Table 25 of ABS, National Income Expenditure and Product (Cat. No. 5206.0)
5.3 Payments Side of the National Capital Account
Gross fixed capital expenditure
Expenditure on capital goods (goods and services used
in further production-buildings, machinery, equipment etc.) without any
deduction for consumption of fixed capital during the production process.
This item from the receipts side of the domestic production account is
further disaggregated in the national capital account as follows:
Private Dwellings
Private capital expenditure on dwellings.
Non-dwelling construction
Private capital expenditure on non-dwelling construction.
Equipment
Private expenditure on equipment.
Real estate transfer expenses
Private expenditure on ownership changes for land and buildings.
Public enterprises
Expenditure on all capital goods purchased by government trading enterprises
and government financial enterprises.
General government
Expenditure on all capital goods purchased by government departments
and non-trading instrumentalities.
(Plus) Increase in stocks
The net change in the value of goods held in storage,
including work in progress.
Private non-farm
Change in value of goods stored by non-farming private enterprises.
Farm
Change in value of goods stored by farmers.
Public marketing authorities
Change in value of goods stored by public marketing bodies.
Other public authorities
Change in value of goods stored by all other government bodies.
(Plus) Statistical discrepancy
Included here since, by convention, the statistical discrepancy
is defined as the excess of measured income over measured expenditure.
(Plus) Net lending to overseas
The net claim on foreign money by Australian residents
(in economic theory, the excess of domestic investment over domestic saving).
It is essentially the same as the current account deficit in the balance
of payments, though there is one difference between the national accounts
and balance of payments concepts (see Section 6).
(Equals) Gross accumulation
The increase in national wealth without any deductions
being made for the consumption of fixed capital during the production
process.
5.4 Examples-Investment and Saving
The national capital account is a useful source of information
on saving and investment in Australia.
One measure of aggregate business investment is private
gross fixed capital expenditure on equipment and non-dwelling construction.
In 1995-96 this came to $50.6 billion-$36.1 billion (equipment) plus $14.4
billion (non-dwelling construction). It is not a complete indicator of
business investment since it excludes dwellings bought by firms, a component
of private gross fixed capital expenditure on dwellings in the national
accounts. An alternative measure of private investment is provided in
the ABS publication New Private Capital Expenditure (Cat. No. 5625.0).
Gross saving may be calculated by summing together net
national saving (i.e. saving in the national income and outlay account)
and consumption of fixed capital. Gross saving appears in the national
capital account as finance of gross accumulation. In 1995-96 the relevant
aggregates were:
net national saving = $14.4 billion
consumption of fixed capital = $68.6 billion
Therefore:
gross national saving = $14.4 + $68.6 = $83.0 billion
The inclusion of net lending to overseas in the national
capital account indicates the connection between domestic saving, domestic
investment (i.e. capital expenditure) and flows of capital to and from
Australia.
6.1 Contents
This account records transactions by Australians with
overseas economic agents-firms, households, governments (see Table 4).
It is derived from the detailed balance of payments current account produced
by the ABS (see ABS, Balance of Payments, Cat. No. 5302.0).
Items in the overseas transactions account are named
from the Australian viewpoint. The first half of the account is the payments
side, which shows the use of current receipts from overseas, while the
second half of the account shows the source of those receipts.
6.2 Payments Side of the Overseas Transactions Account
Imports of goods and services
Expenditure by Australian residents on all goods and
services produced overseas.
(Plus) Property income to overseas
Payment of interest and other debt charges to overseas
lenders plus payment of earnings to overseas holders of equity in Australian
assets. Also includes payment of royalties to overseas.
(Plus) Labour income to overseas
Payment of labour earnings to non-resident labour providers.
(Plus) Unrequited transfers to overseas
Transfer of funds to overseas agents for which no good
or service was received in return (pensions, donations, gifts etc.).
Personal
Includes transfers of migrants' funds and personal donations,
gifts, remittances etc. to overseas residents.
General Government
Payments of aid, pensions, contributions to international organisations
etc. by the Australian government.
Table 4. Overseas Transactions Account
($ million)
Year
1992-93 1993-94 1994-95 1995-96
Imports of goods and services 77,993 83,910 96,148 99,518
Property income to overseas 17,192 17,221 19,267 21,548
Labour income to overseas 311 283 389 441
Unrequited transfers to overseas -
Personal 1,002 1,041 1,131 1,195
General government 1,432 1,583 1,591 1,572
Net lending to overseas -14,562 -15,036 -25,139 -17,256
Use of current receipts 83,368 89,002 93,387 107,018
Exports of goods and services 76,396 82,361 86,502 97,822
Property income from overseas 3,379 3,328 3,088 4,610
Labour income from overseas 497 511 551 610
Extraordinary insurance claims - - - -
Unrequited transfers from overseas-
Personal 2,269 2,009 2,420 3,055
Income taxes 827 793 826 921
Current receipts from overseas 83,368 89,002 93,387 107,018
Source: Table 26 of ABS, National Income Expenditure and Product (Cat. No. 5206.0)
(Plus) Net Lending to Overseas
Net provision of capital to overseas agents. As Australia
is historically a net importer of capital, this item is almost always
negative. It is the same as the balance on current account as shown in
the balance of payments but in national accounts form. (Net lending differs
in concept from the current account deficit by the net amount of reinvested
earnings.)
(Equals) Use of current receipts
The total of how Australia's current receipts from overseas
have been used.
6.3 Receipts Side of the Overseas Transactions Account
Exports of goods and services
Income received by Australian residents for all goods
and services produced in Australia but sold overseas.
(Plus) Property income from overseas
Receipts of interest and other debt charges to Australian
residents paid by overseas borrowers plus receipts of earnings to Australian
holders of equity in overseas assets. Also includes receipts of royalties
from overseas.
(Plus) Labour income from overseas
Overseas earnings of Australian labour providers.
(Plus) Extraordinary insurance claims from overseas
Insurance claims on overseas insurance companies sufficiently
in excess of normal claims to be considered separately.
(Plus) Unrequited transfers from overseas
Transfers of funds from overseas agents for which no
good or service was received in return (pensions, donations, gifts etc.).
Personal
Includes transfers of migrants' funds and personal donations,
gifts, pensions, remittances etc. received by Australian residents.
Income Taxes
Payments of income tax to the Commonwealth by overseas residents (usually
as withholding tax).
(Equals) Current receipts from overseas
The total of Australia's current receipts from overseas.
6.4 Examples-Openness of the Economy
The main source of information on Australia's overseas
transactions are not the national accounts but the balance of payments
publications which provide far more detail on transactions between Australian
residents and overseas agents.(4) Balance of payments aggregates are generally
the same as national accounts aggregates, though the labels are often
different. The only conceptual difference is in the treatment of reinvested
earnings, which explains the difference between net lending to overseas
as recorded in the national accounts, and its equivalent, the balance
on current account, as recorded in the balance of payments.
By comparing information from the overseas transactions
account to results from the domestic production account or the national
income and outlay account for the same period, it is possible to see how
open the Australian economy is, i.e. its proportional involvement
in the international economy. For example, the ABS estimated the Australian
GDP(I) for 1995-96 as $486.2 billion. For the same year, the ABS estimated
total value of Australian exports of goods and services as $97.8 billion
or 20.1 per cent of GDP. Alternatively, the ABS estimated national disposable
income for 1995-96 as $402.0 billion. During the same year, the ABS estimated
expenditure by Australians on imported goods and services as being $99.5
billion or 24.8 per cent of national disposable income. These figures
mean Australia is significantly affected by developments in international
markets.
Returning again to the equation covered in Section 3:
S - I = X - M - N + sd
Where:
S is gross national saving
I is gross fixed capital expenditure plus increase in stocks
X is exports of goods and services
M is imports of goods and services
N is net income paid or transferred overseas
sd is the statistical discrepancy
Transferring the statistical discrepancy to the left
hand side of the equation:
S - I - sd = X - M - N
In 1995-96 the values of S, I and sd were $83.0 billion,
$101.4 billion and -$1.1 billion respectively. Using these figures we
get:
S - I - sd = $83.0 - $101.4 - (-$1.1)
= $17.3 billion
And $17.3 billion is equal to net lending to overseas.
The single most important point to remember in economics
is the interconnectedness of economic phenomena. Taking the S - I = X
- M - N + sd equation, a key point to remember is that all investment,
without exception, must be funded from saving. If the demand for investment
funds in Australia exceeds the supply of domestic saving, then funds must
be obtained from abroad, i.e. Australia will draw upon foreign saving.
If such capital inflow (or the increased foreign debt and/or foreign ownership
that are its consequence) is viewed as a bad thing then either investment
must be decreased (sacrificing future economic growth) or saving increased
(sacrificing leisure and/or current consumption) or both.
Endnotes
- Also known as finance of gross accumulation-see 5.2.
- This Guide describes the current situation as
the ABS has not yet decided upon the extent to which the changes to
the SNA contained in SNA-93 will be adopted. The ABS does not expect
to complete revision of the ANA until 1998.
- Under the revised SNA, GNP becomes Gross National Income
(GNI). As part of the revision of the SNA, this aggregate is now explicitly
an income measure.
- Kryger, T. Easy Guide to the Balance of Payments,
Parliamentary Library Background Paper No. 5, Oct 1996.
Cat.No. ABS Publication Title
5204.0 Australian National Accounts: National Income, Expenditure
and Product-Annual
5206.0 Australian National Accounts: National Income,
Expenditure and Product-Quarterly
5209.0 Australian National Accounts: Input-Output
Tables-Three yearly to 1992-93; annual thereafter.
5215.0 Australian National Accounts: Input-Output
Tables (Commodity Details)-Three yearly
5216.0 Australian National Accounts: Concepts, Sources
and Methods-Irregular
5220.0 Australian National Accounts: State Accounts-Annual
5221.0 Australian National Accounts: Capital Stock-Annual
5228.0 Australian National Accounts: Quarterly Data
on Floppy Disk-Quarterly
5232.0 Australian National Accounts: Financial AccountsQuarterly
5234.0 Australian National Accounts: Multifactor Productivity-Annual
5235.0 A Guide to the Australian National Accounts-Irregular
5242.0 Australian National Accounts: State Accounts-Quarterly
5250.0 Australian Business ExpectationsQuarterly
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