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1301.0 - Year Book Australia, 2004  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 27/02/2004   
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Contents >> National accounts >> Defining and measuring GDP

The main output from the national accounts is a measure of the overall value of economic production in Australia in a given period, but without any double counting of the goods and services being produced. Many goods and services are bought by businesses for use in their own productive activities (e.g. steel is bought by car manufacturers). If the value of all goods and services produced were simply added together there would be serious duplication because some goods and services would be added in several times at various stages of production. The overall measure of production, excluding double counting, is called 'gross domestic product', which is commonly referred to as GDP. It is formally defined as:

    The total market value of goods and services produced in Australia after deducting the cost of goods and services used up (intermediate consumption) in the process of production, but before deducting allowances for the consumption of fixed capital (depreciation).
    The performance of the economy is represented in the national accounts by such measures as growth in GDP. While movements in the chain volume measure of GDP (from which the direct effects of price changes have been removed) are an important indicator of economic growth, there is no single measure which can describe all aspects of the wellbeing of a country's citizens.

    There are significant aspects of the quality of life which cannot be reflected in a system of economic accounts, just as there are significant aspects of an individual's wellbeing which are not measured in the conventional concept (or any other concept) of that individual's income.

    Notwithstanding their limitations, especially in relation to uses for which they were never designed, the national accounts provide important information for a range of purposes. The system of national accounts also provides a framework or structure which can be, and has been, adapted and extended to facilitate the examination of many economic and social policy issues. An example of such extensions is in the article Impact of the drought on Australian production in 2002-03 later in National Accounts.

    There are three ways of measuring GDP:

    Income approach - which measures GDP by summing the incomes accruing from production: compensation of employees (wages and salaries, and employers' social contributions); gross operating surplus (profits); gross mixed income (income from unincorporated businesses, including a return to the owners of these businesses for their labour); and taxes less subsidies on production and imports.

    Expenditure approach - which involves summing all final expenditures on goods and services (i.e. those goods and services which are not processed any further), adding on the contributions of changes in inventories and the value of exports, and deducting the value of imports. Final expenditures consist of final consumption expenditure and gross fixed capital formation. Exports are included in GDP because they are part of Australian production even though they are sold to overseas purchasers. Imports are deducted because, although they are included in final expenditures (e.g. when someone buys an imported video recorder its value is included as part of household final consumption expenditure), they are not part of Australian production.

    Production approach - which calculates GDP by taking the value of goods and services produced by an industry (its output at basic prices, which implicitly includes taxes less subsidies on production) and deducting the cost of goods and services used up by the industry in the productive process (intermediate consumption), which leaves the value added by the industry. GDP is then obtained by summing value added across all industries, and adding taxes less subsidies on products.

    While each approach should, conceptually, deliver the same estimate of GDP, if the three measures are compiled independently using different data sources then different estimates of GDP result. However, the Australian national income, expenditure and product estimates have been integrated within annual balanced supply and use tables which are available for 1994-95 to 2000-01. Integration with balanced supply and use tables ensures that the same estimate of GDP is obtained from the three approaches, and thus annual estimates using the income, expenditure and production approaches are identical for the years for which supply and use tables are available.

    Prior to 1994-95, and for the latest financial year, the estimates using each approach are based on independent sources, and there are differences between the income, expenditure and production estimates. Nevertheless, for these periods, a single estimate of GDP has been compiled. Table 29.1 shows time series of chain volume measures for GDP, and GDP per capita, from 1975-76 to 2001-02. (For a discussion of chain volume measures, see Chain volume or 'real' GDP later in National Accounts.)

    29.1 GDP, Chain volume measures(a)
    GDP
    GDP per capita
    $m
    $

    1975-76
    302,022
    21,626
    1976-77
    312,074
    22,116
    1977-78
    314,916
    22,053
    1978-79
    331,068
    22,933
    1979-80
    339,539
    23,253
    1980-81
    349,847
    23,623
    1981-82
    362,299
    24,065
    1982-83
    352,747
    23,068
    1983-84
    371,568
    23,995
    1984-85
    389,404
    24,831
    1985-86
    405,471
    25,500
    1986-87
    415,818
    25,764
    1987-88
    438,117
    26,716
    1988-89
    455,744
    27,314
    1989-90
    472,748
    27,910
    1990-91
    472,293
    27,496
    1991-92
    473,557
    27,224
    1992-93
    490,898
    27,912
    1993-94
    509,999
    28,706
    1994-95
    531,578
    29,596
    1995-96
    554,001
    30,448
    1996-97
    574,989
    31,215
    1997-98
    600,590
    32,247
    1998-99
    632,488
    33,579
    1999-00
    657,771
    34,536
    2000-01
    669,307
    34,730
    2001-02
    695,663
    35,693

    (a) Reference year is 2000-01.
    Source: Australian System of National Accounts (5204.0).

    The chain volume measure of GDP increased by 3.9% in 2001-02, following an increase of 1.8% in 2000-01. For some analytical purposes, it is important to allow for the impact of population growth on movements in GDP. Annual growth in GDP per capita has been about one to two percentage points lower than that for GDP since the mid-1970s and was negative in 1977-78, 1982-83, 1990-91 and 1991-92 (graph 29.2). In 2001-02, GDP per capita increased by 2.8%.

    Graph - 29.2 GDP and GDP per capita


    Compared to many developed economies, Australia has experienced relatively strong growth over the past 10 years. With an average annual growth rate of 4.0% for 'real' GDP from 1992 to 2001, it is higher than any of the 'G7' countries but unable to match the 5.6% average annual growth rate for the Republic of (South) Korea (table 29.3).

    29.3 GDP AT CONSTANT PRICES, International comparison - 1992 to 2001(a)
    Average annual growth rate
    %

    Australia
    4.0
    'G7' countries
    Canada
    3.6
    France
    2.1
    Germany
    1.4
    Italy
    1.8
    Japan
    1.2
    United Kingdom
    3.0
    United States of America
    3.3
    Korea, Republic of (South)
    5.6
    New Zealand
    3.5

    (a) Average annual growth.
    Source: OECD, Quarterly National Accounts, Vol. 2003/2.


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