Easy Guide to the National Accounts

• DEPARTMENT OF THE PARLIAMENTARY LIBRARY

Parliamentary

Research

Service

Easy Guide to the National Accounts

Background Paper No. 10 1996-97

.,... J. ..r /~(. ~._-J-.~r~:~~;fft::u..-:.: I l> ~ _. ____.,;m- DIs- i'.lifiJ"~1_, •

ISSN 1037-2938

Except to the extent of the uses permined under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means inducting information slOrage and retrieval systems, without the prior written consent of the Depanment of the Parliamentary Library, other than by Senators and Members of the Australian Parliament in the course of their official duties.

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken 10 ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attrihuted to the Parliamentary Research Service (PRS), Readers are reminded that the paper is not an official parliamentary or Australian government document. PRS stafT are available to discuss the paper's contents with Senators and Members and their slaffbut not with members of the public.

Published by the Department of the Parliamentary library. 1997 Parliamentary Research Service

Easy Guide to the National Accounts

Michael Warby Statistics Group 24 February 1997

Background Paper No. 10 1996-97 Acknowledgments

In the preparation ofthe original version ofthis paper, published on 27 November 1991, Ross Harvey and the national accounts area of the Australian Bureau of Statistics provided many valuable comments in a sterling attempt to protect me ITom error. Stephen Joske and Keith Hughes also provided many helpful comments. Ross Harvey was again helpful in preparation ofthis revised version, as were Greg Baker, Stephen Barber and Tony Kryger, while Rob Dippelsman provided very helpful comments.

Inquiries

Further copies ofthis publication may be purchased from the

Publications Distribution Officer Telephone: (06) 277 2711

A full lis! ofcurrent Parliamentary Research Service publications is available on the ISR database. On the Internet the Parliamentary Research Service can be found at http://library.aph.gov.aulprs/

A list of PRS publications may be obtained from the

PRS Publications Office Telephone: (06) 277 2760 Abbreviations

ABS Australian Bureau of Statistics

GOP Gross domestic product

GOP(A) Gross domestic product-the average

GOP(E) Gross domestic product---expenditure approach

GDP(I) Gross domestic product-income approach

GOP(P) Gross domestic product-production approach

GNP Gross national product

GOS Gross operating surplus

IPO Implicit price deflator Contents

Introduction 1 1 What are the National Accounts? 2 I.l Background 2 1.2 Some Tenns 2 1.3 Measuring Economic Activity 4 1.4 The National Accounts in Brief 5 1.5 Sectoral Accounts 6 1.6 Adjusting for Inflation 6 1.7 Tenns ofTrade 7 1.8 Original, Seasonally Adjusted and Trend 8 1.9 Historical Tables 8 1.10 ABS National Account Publications 8 2 The Conceptual Framework 9 2.1 A System ofNational Accounts 9 2.2 Production in the National Accounts 9 2.3 Exclusions 9 2.4 Imputations and Non-Market Valuations 10 2.5 Gross Domestic Product 10 2.6 Keynesian Aggregates II 3 Domestic Production Account 12 3.1 Contents 12 3.2 Receipts Side ofthe Domestic Production Account 12 3.3 Payments Side ofthe Domestic Production Account 15 3.4 Examples---<:conomic growth and its components 16 4 National Income and Outlay Account 18 4.1 Contents 18 4.2 Income Side ofthe National Income and Outlay Account 18 4.3 Disbursement Side ofthe National Income and Outlay Account 20 4.4 Examples-Saving 20 5 National Capital Account 22 5.1 Contents 22 5.2 Receipts Side ofthe National Capital Account 22 5.3 Payments Side of the National Capital Account 23 5.4 Examples-Investment and Saving 25 6 Overseas Transactions Account 26 6.1 Contents 26 6.2 Payments Side of the Overseas Transactions Account 26 6.3 Receipts Side ofthe Overseas Transactions Account 27 6.4 Examples-Openness of the Economy 28 Appendix-Selected ABS National Accounts Publications 31 Easy Guide to the National Accounts

Introduction

• 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 oftransactions 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 ofproduction. 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. Easy Guide to fhe .Vational Accounts

1 What are 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 ofeconomic 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 ofeconomic production in Australia. A large range ofstatistical 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 ofall goods and services produced or imported in Australia is defined as the national turnover 01goods and services. The main national accounting identities which describe the various components ofnational 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 ofthe 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. >

, Easy Guide to the National Accounts

Relationship of Main Identities

Exports of Imports of Imports of Imports of Imports of Imports of Imports of goods and goods and goods and goods and goods and goods and services goods and services services services services services services

Net income Net income Net income paid overseas paid overseas paid overseas

Net transfers Net transfers 10 overseas 10 overseas

Net lending National to overseas Gross turnover Gross Domestic National domestic National of goods domestic faclor disposable product at income ..d product incomes income services factor cost

:-r;.~ Gross Gross national national .:;' expenditure expenditure '.~ ;~]:. Indirect taxes less , subsidies ... ,':

Indirect Consump- Consump. Consump. taxes less lion of tion of rion of subsidies r",od r",od fixod capital capital capital

capital-a tenn 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 ofproduction (as distinct from those goods used up in the course ofproduction in a given time period, which are known as intermediate goods). This fonn 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 fonn of expenditure on capital) rather than using it for personal consumption. Both meanings are used in this Guide.

3 Easy Guide to the National Accounts

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 (GaS), 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 GaS 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. $\000 - $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! which is the sum of net saving and the consumption of fixed capital.) stock-amount existing at a particular time (e.g. value ofassets 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, ifwheat is bought at $600 a tonne and turned into $\000 worth ofbread, the value added (ignoring other ingredients) is $\000 - $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 frrst 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 GOP(P). The production measure of GOP is used for industry accounts and is important in the production ofconstant price measures (see 1.6).

The second is to add up all income received from the production ofgoods and services (wages and salaries, taxes on goods and services minus production subsidies, and profits}--this produces GOP(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

4 Easy Guide to the National Accounts

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 ofeconomic 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 ofmeasured GDP(l).

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)s and is not included in the accounts (see 2.4). Another difficulty with use ofthe dollar as the unit ofmeasurement is that the value ofthe dollar is not constant from 'y- year to year (see 1.6):'" ";;,', -,;'.::

..F 1.4 T~e National Ac;i:ounts 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.

Briefsummaries ofthe four accounts are given below:

5 Easy Guide to the National Accounts

expenses in earning income (since interest is neither expenditure on, nor income from, goods or services exchanged within the time period ofthe 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 ofpurchased goods and services used plus an allowance for the consumption offixed 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 0/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 GOP (partly because ofdifficulties 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 GOP from Gross National Product (GNP)3 which covers all income to residents ofa country regardless ofwhere the income is accrued. Hence:

GNP = GOP + residents' income/rom overseas property orproductive activity income paid to overseas residents

That is:

GNP = GOP - net income paidoverseas.

As Australia has been a net importer of capital, GOP 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 ofcapital, GNP is larger than GOP.

GOP 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 ofthe cost of goods and services used up in the process of production but before deducting allowances for the consumption of fixed capital.

10 Easy Guide to the National Accounts

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 (C), government consumption (G), investment (I), gross saving (S), exports (X) and imports (M). An example ofbasic economic analysis using these aggregates is the following analysis ofthe 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 GOP is: GOP=C+G+I+(X-M) (I)

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) GOP can also be

j' expressed as: ~1 GOP =C+G+S +N (2) < ,;"1' Rearranging (2) we get: ;. 'r C+G=GOP-N -S

Substituting int()(l): GOP = (GOP -N - S) + I + (X- M)

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: GOP - GOP + S - I = X - M - N

Obviously GOP - GOP equals 0, so we get: S-I=X-M-N

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.

11 Easy Guide to the National Accounts

3 Domestic Production Account

3.1 Contents

The domestic production account is a summary of all the economic transactions which take place in Australia (see Table I). This account records the level of gross domestic product. Items in the account are arranged from the viewpoint ofthe producer. Thus the fIrSt halfofthe table is the receipts side ofthe 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 ofGDP.

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) GrossfIXed capital expenditure

Expenditure 01) capital goods (goods and s~rvices used in further production-buildings, machinery, equipment etc.) without any deduction for consumption of fixed capital during the productionprocess. Priva(e Dwellings Private capital expenditure on dwellings. Non-dwelling construction Private capital expenditure on non-dwelling construction.

12 Easy Guide to the National Accounts

Table 1. Domestic Production Account ($ million)

Year

1992-93 1993-94 1994-95 1995-96

Final consumption expenditure - Priv~te 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 ofgoods and services 76,396 82,361 86,502 97,822 less Imports ofgoods 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(l) 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 atfactor 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 ~nd Product (Cat. No. 5206.0)

13 Eas.v Guide to the National Accounts

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 ofgoods held in storage, including work in progress. Private non-jarm Change in value ofgoods held by non-farming private enterprises. Farm Change in value ofgoods stored by farmers. Public marketing authorities Change in value ofgoods stored by public marketing bodies. Other public authorities Change in value ofgoods 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 ofgoods and services Income received by Australian residents for all goods and services produced in Australia but sold to non-residents.

(Less) Imports ofgoods 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.

14 Easy Guide to the National Accounts

(Plus) Statistical discrepancy The item inserted to make sure the measured expenditure side of the domestic production account balances with the measured income side ofthe account.

(Equals) Gross domestic product (income approach) See below.

3.3 Payments Side of the Domestic Production Account

Wages, salaries andsupplements The total value ofincome 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 ofprofits because it is the excess of gross output over costs incurred in producing that output. It is gross operating surplus as deductions for consumption offixed capital have not been made. Private trading enterprises The amount by which sales exceed purchases for private finns. This is broken down into the operating surpluses for: Corporate Incorporated private bodies Unincorporated "Unincorporated private bodies Dwellings owned bypersons 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 ofgovernment 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 ofproducing that output, including the consumption offixed capital. Since gross operating surplus is the excess of output over the cost ofproducing that output not including the consumption of fixed capital, that leaves general government's consumption of fixed capital as its Gas. The net operating surplus (GaS minus consumption offixed capital) ofgeneral government is therefore zero. Financial enterprises The difference between revenues, including the imputed bank service charge, over production costs incurred by financial enterprises.

15 Eaj:r Guide 10 the National Accoullts

(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--eharges 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 atfactor 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 ofindirect taxes over subsidies paid for production.

(Equals) Gross domestic product (income approach) The total income accruing from the production ofgoods and services in Australia.

3.4 Examples-economic growth and its components

Apart from showing ifthe Australian economy as measured by GOP is growing or shrinking, and at what rate, the domestic production account is also useful for showing the components ofgrowth and providing the values ofthe specific aggregates covered. To return to the simple equation covered in Section 2:

GOP = C + G+ I + X-M

Where: C is privatefinal consumption expenditure G is governmentfinal consumption expenditure I is gross fixed capital expenditure plus increase in stocks X is exports ofgoods and services M is imports ofgoods 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 = 583.8 billion

16 Easy Guide to the National Accounts

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 ofgoods and services = $97.8 billion

Imports ofgoods and services = $99.5 billion

In 1995-96, substituting for C, G, I, X and M:

GDP = $303.8 + $83.8 + ($98. I + $3.3) + $97.8 - $99.5

= $487.3 billion

= GDP(E)

The ABS measured GDP(I) in 1995-96 at $486.2 billion. The difference is the statistical discrepancy of-$ I. I billion ($487.3 billion - $ I. I 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: oS -I = X-M-N + sd

~l~

17 Em:r Guide to the National Accounts

4 National Income and Outlay Account

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 ofthe table is the income side ofthe 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 ofnet saving and the consumption offixed 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 offixed capital.

(Equals) Domesticfactor incomes The total income from the factors ofproduction-labour, land, capital and enterprise.

(Less) Net income paid overseas The sum ofinterest, dividends and labour income paid overseas minus interest, dividends and labour income received from overseas.

(Plus) Indirect taxes The total value oftaxes on the sale ofgoods and services.

(Less) Subsidies The total value of grants made by general government to enterprises for the production of goods and services.

18 Easy Guide to the National Accounts

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 sUIl'lus 96,473 103,344 108,461 116,988

Domesticjactor 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 --

National disposable income 330,010 351,816 373,373 402,001

Final consumption expenditure - 254,277 266,479 284,003 303,836 Private 74,693 77,444 80,220 83,772 Government Saving 1,040 7,893 9,150 14,393

Disposal of income 330,010 351,816 373,373 402,001

Source: Table 24 ofABS, 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.

19 Easy Guide to the National Accounts

4.3 Disbursement Side of the National Income and Outlay Account

(Plus) Saving Total net saving by households, governments and finns, i.e. the excess of income over outlays.

(Equals) Disposal ofincome 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 ofGOP.

Since all income must be either consumed or saved (or transferred overseas) we know that GOP can be expressed in tenns ofthe following equation:

GOP = (C + G) + S + N

Moving S over to the left hand side we get:

S = GOP- (C +G)-N Where: C is private}inal consumption expenditure G is government}inal 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

20 Easy Guide to the National Accounts

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 ofGDP.

.:,-, :,,., ."",.

21 Easy Guide to the National Accounts

5 National Capital Account

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 offlXed 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 fmancial enterprise sector save) and extraordinary insurance claims paid (insurance claims sufficiently in excess ofnormal 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 ofgross accumulation A measure ofgross national saving.

22 Easy Guide to the National Accounts

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 grossfixed capital expenditure 81,933 87,192 96,882 98.123 lncreas"e(in stocks - -167 3,366 Private.non-fann:,'. 826 2,738 Fann,'it, -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 ofABS, National1ncome 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

23 Easy Guide to the National Accounts

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 I'rivate 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 ofgoods held in storage, including work in progress. Private non-farm Change in value ofgoods stored by non-farming private enterprises. Farm Change in value ofgoods stored by farmers. Public marketing authorities Change in value ofgoods stored by public marketing bodies. Otherpublic authorities Change in value ofgoods stored by all other government bodies.

(Plus) Statistical discrepancy Included here since, by convention, the statistical discrepancy is defmed 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 ofpayments concepts (see Section 6).

24 Easy Guide to the National Accounts

(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 (Cal. 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 offixed 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 ofcapital to and from Australia.

25 Easy Guide fO 111" .\'aliollal ACCOUJIIS

6 Overseas Transactions Account

6.1 Contents

This account records transactions by Australians with overseas economic agents-finns. households. governments (see Table 4). It is derived from the detailed balance of payments current account produced by the ABS (see ABS. Balance ofPayments. 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 halfofthe account shows the source ofthose receipts.

6.2 Payments Side of the Overseas Transactions Account

Imports ofgoods 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 .-\ustralian government.

26 Easy Guide to the National Accounts

Table 4. Overseas Transactions Account ($ million)

Year

1992-93 1993-94 1994-95 1995-96

Imports ofgoods 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,l31 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 ofcurrent receipts 83,368 89,002 93,387 107,018

Exports ofgoods 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 ofABS, National Income Expenditure and Product (Cat. No. 5206.0)

(Plus) Net Lending to Overseas Net pr6tision 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 ofreinvested earnings.)

(Equals) Use ofcurrent receipts The total ofhow Australia's current receipts from overseas have been used.

6.3 Receipts Side of the Overseas Transactions Account

Exports ofgoods and services Income received by Australian residents for all goods and services produced in Australia but sold overseas.

27 Easy Guide to the National Accounts

(Plus) Property incomefrom 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 ofroyalties from overseas.

(Plus) Labour income from overseas Overseas earnings ofAustralian labour providers.

(Plus) Extraordinary insurance claimsfrom overseas Insurance claims on overseas insurance companies sufficiently in excess of normal claims to be considered separately.

(Plus) Unrequited transfersfrom 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 Ta.r:es Payments of income tax to the Commonwealth by overseas residents (usually as withholding tax). (Equals) Current receiptsfrom overseas The total ofAustralia'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 ofpayments.

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 GOP (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 597.8 billion or 20.1 per cent ofGOP. Alternatively, the ABS estimated national disposable income for 1995-96 as 5402.0 billion. During the same year, the ABS

28 Easy Guide to the National Accounts

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 grossfixed capital expenditure plus increase in stocks X is exports ofgoods andservices M is imports ofgoods andservices N is net income paidor transferred overseas sd is the statistical discrepancy

Transferring the statistical discrepancy to the left hand side ofthe 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. Ifthe demand for investment funds in Australia exceeds the supply ofdomestic saving, then funds must be obtained from abroad, i.e. Australia will draw upon foreign saving. Ifsuch 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.

29 Easy Guide to the National Accounts

Endnotes

Also known as finance ofgross accumulation-see 5.2. 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 ofthe ANA until 1998. 3 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. 4 Kryger, T. Easy Guide to the Balance ofPayments, Parliamentary Library Background Paper No. 5, Oct 1996.

30 Easy Guide to the National Accounts

Appendix-5elected ASS National Accounts Publications

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 andMethods-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 Accounts--Quarterly 5234.0 Australian National Accounts: Multi/actor Productivity--Annual 5235.0 A Guide to the Australian National Accounts-Irregular 5242.0 Australian National Accounts: State Accounts--Quarterly 5250.0 Australian Business Expectations--Quarterly