Balance of Payments

Concepts and Definitions

Each quarter the Australian Bureau of Statistics produces a record of economic transactions by Australian residents with the rest of the world. This record is known as the Australian balance of payments.

There are three types of economic transactions:

  •  transactions in goods, services and income-recorded in the current account;
  • special entries required to record 'one-sided' transactions such as gifts and donations, split according to purpose into current and capital transfers-recorded in the current and capital accounts respectively; and
  • financial transactions involving investment between Australia and the rest of the world-recorded in the financial account

Under the double-entry system for recording all balance of payments transactions, the balance of payments always balances. This means in theory that a deficit (or surplus) on the current account will always be offset by a surplus (or deficit) on the combined capital and financial accounts. In practice however, some transactions are not measured accurately or not measured at all and balance between the accounts has to be achieved with the help of a balancing item. The balancing item is shown outside the three accounts.

Changes to the Balance of Payments Series

In the September quarter 1997 the ABS began publishing Australia's balance of payments and international investment statistics on a new basis, consistent with the most recent international standards for these statistics. The main reason for this change was to improve the international comparability of Australia's statistics.

Prior to September 1997, the balance of payments consisted of just two accounts-current account and capital account. The new system comprises three accounts-current account, capital account and financial account. The financial account is the same as the old capital account. The new capital account has been created for the recording of capital transfers, such as the assets migrants bring with them into a country, previously included within the current account but more reasonably regarded as capital in nature. The new capital account thus bears no relationship to the old capital account. The new current account is very similar to the old current account except that it now excludes capital transfers.

The Current Account

The largest items in the current account are exports and imports of goods-the difference between these is the balance on merchandise trade. Other items included in the current account are services (eg freight and insurance charges); income (eg interest and dividends) paid to and received from the rest of the world; and current transfers such as pensions paid to Australian citizens living abroad and tax revenue received from non-residents.

The net result of all transactions recorded in the current account is the balance on current account. Australia has almost always run a deficit on its current account.

Meaning of the Balance on Current Account

The balance on current account is equal to the imbalance between a country's level of national investment and its level of national saving.

If a country's balance on current account is in surplus in a period, then national saving exceeds national investment and the country is a net provider of investment funds to the rest of the world. If, on the other hand, a country's balance on current account is in deficit in a period, then national investment exceeds national saving and the country is a net recipient of investment funds from the rest of the world.

A current account deficit contributes to the level of foreign debt but the size of the deficit does not necessarily equate with a corresponding increase in debt. For example, a current account deficit that was entirely financed by foreign equity investments would have no impact at all on the level of debt.

Historical Data

The balance on current account is often shown as a percentage of gross domestic product (GDP) to show its significance relative to the whole economy and to allow for more appropriate comparisons to be made over time.

Since 1959-60 Australia has had only one surplus on its current account and that was in 1972-73. A common concern has been the rise in the current account deficit from between 2 and 3 per cent of GDP in the 1960s and 1970s to between 4 and 6 per cent of GDP in the 1980s and 1990s.

Balance on Current Account % of GDP

MESI Tables 6.1 and 6.2

Monthly Economic and Social Indicators Table 6.1 shows monthly data on the value of exports and imports.

Table 6.2 shows quarterly data on the size of the balance on current account in both original and seasonally adjusted terms.

Further information can be obtained by contacting a member of the Statistics Group, Information and Research Services, Department of the Parliamentary Library.

This feature was prepared by Tony Kryger.