• 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 © Copyright Commonwealth of Australia 1997 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.