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1370.0 - Measuring Australia's Progress, 2002  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 19/06/2002   
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Contents >> The supplementary commentaries >> National wealth: Looking more closely

The headline indicator - real national net worth per capita - contains important information about Australia's capacity to generate future income and support future consumption. An assessment of national progress is enhanced by understanding the patterns and influences that underlie the components of our national assets and liabilities.



ASSETS USED IN PRODUCTION - PRODUCED CAPITAL

Machinery, buildings and some other assets are inputs to the production of goods and services, and are an important repository of a nation's wealth. Australia's stock of these assets has been growing for many years. Real net capital stock per capita grew on average by 1.4% a year between June 1991 and June 2001. In June 2001, such fixed assets accounted for around 51% of the total value of Australia's assets (down from 59% a decade earlier).(SEE FOOTNOTE 1)

The increase in capital stock has in turn led to an increase in the amount of capital services per unit of labour input (a process known as 'capital deepening'). During the past decade, Australia's capital-labour ratio rose by almost 35% (or 3% a year). This has contributed to an increase in labour productivity.

The growth of a nation's net capital stock depends on the relative pace of two offsetting influences - investments (or 'capital formation') which increase the stock, and retirements and depreciation which reduce it. Investments significantly outstripped retirements and depreciation during the 1990s, as was the case for most of the twentieth century.

Underlying the aggregate growth pattern there may be diverse trends, such as more or less rapid capital deepening in individual industries or shifts in the composition of economic activity toward industries that are more or less capital intensive. Technological changes - for example, the recent rapidly increasing importance of computer and communications hardware and software - have been a major driver of such trends.

Between 1991 and 2001, the types of capital showing the most rapid growth were dwellings (up 2.1% a year), machinery and equipment (up 1.4% a year) and software (up 16.2% a year). The commentary Capital formation discusses the investment trends that underlie these growth patterns.

Between 1991 and 2001, the industries showing the most rapid growth in capital stock were Communication services (up 4.8% a year in real per capita terms) and Cultural and recreational services (up 5.8% a year).

Real net capital stock(a) per capita
Graph - Real net capital stock(a) per capita


Real net capital stock(a) per capita

30 June
30 June
Average annual
1991
2001
growth rate
Asset class
$
$
%

Dwellings
25,136
30,805
2.1
Other buildings
and structures
35,466
37,532
0.6
Machinery and
equipment
14,234
16,367
1.4
Software
284
1,275
16.2
Other assets
1,578
1,727
0.9
All assets
76 698
87 705
1.4

(a) Chain volume measure; reference year 1999-2000.
Source: Australian System of National Accounts.(SEE FOOTNOTE 1)


Real net capital stock(a) per capita, by industry - June 1991 and June 2001

30 June
30 June
Average annual
1991
2001
growth rate
Industry
$
$
%

Agriculture, forestry
and fishing
3,174
2,553
-2.2
Mining
4,633
5,803
2.3
Manufacturing
4,598
5,023
0.9
Electricity, gas and
water supply
5,846
5,747
-0.2
Construction
1,364
1,310
-0.4
Wholesale trade
1,847
1,779
-0.4
Retail trade
1,714
2,140
2.2
Accommodation,
cafes and
restaurants
1,538
1,996
2.6
Transport and
storage
7,821
7,883
0.1
Communication
services
2,102
3,372
4.8
Finance and
insurance
3,221
3,364
0.4
Property and
business services
3,573
4,550
2.4
Government
administration and
defence
3,179
3,039
-0.5
Education
3,417
3,628
0.6
Health and
community
services
2,319
2,829
2.0
Cultural and
recreational
565
994
5.8
services
Personal and other
services
687
915
2.9
Ownership of
dwellings
25,139
30,805
2.1
All industries
76,698
87,705
1.4

(a) Chain volume measure; reference year 1999-2000.
Source: Australian System of National Accounts.(SEE FOOTNOTE 1)

Economically demonstrated resources(a) per capita
Graph - Economically demonstrated resources(a) per capita


MEASURING AUSTRALIA'S CAPITAL STOCK

Broadly, economic statisticians have adopted two approaches to measuring a nation's stock of capital - direct measurement and the perpetual inventory method (PIM). Direct measurement involves surveying the owners of capital to ascertain the values of their machines, buildings and so on.

Australian estimates are based on the PIM, which involves compiling a 'rolling inventory' of the capital stock based on historical data about investment flows. In a given year, investments in capital assets are added to the stock, and retirements of assets are deducted from the stock.

Several different measures of capital stock can be derived using the PIM.
  • 'Net capital stock' is the most appropriate measure when one is analysing the nation's wealth. It has been adjusted downwards using estimates of depreciation as well as retirements.
  • 'Productive capital stock' is the most appropriate measure when analysing production and productivity.


SOME NATURAL ASSETS - MINERAL AND ENERGY RESOURCES

Australia has many types of natural assets. Air, water, soil, and biodiversity resources are discussed in other commentaries. Subsoil assets, discussed below, are of major economic significance.

In recent years, there has been persistent growth in Australia's known mineral resources. The net present value of economically demonstrated resources (EDR) per capita grew on average by around 10.6% a year between June 1991 and June 2001. For comparison, between June 1992 and June 2001 (the longest period for which estimates are available) the real per capita value of Australia's subsoil assets grew by a little over 2.6% a year.

The growth of a nation's stock of subsoil assets broadly depends on the relative pace of two offsetting influences - discoveries which increase the stock, and extractions which reduce it. The former significantly outstripped the latter during the 1990s, as was the case for most of the twentieth century. But because the value of subsoil assets is defined in terms of EDR (see box), other influences come into play. There might, for example, be a marked rise in the world price for a mineral or a technological innovation that makes it economic to extract a known deposit that was hitherto uneconomic.

At the end of the decade, Australia had the world's largest demonstrated resources of lead, certain mineral sands (alluvial ilmenite, rutile and zircon), tantalum, uranium, silver and zinc. And Australia ranked among the top six countries for many other minerals such as black and brown coal, bauxite, copper, cobalt, diamonds, gold, iron ore, manganese ore and nickel.

Among the minerals showing strongest annual growth in the net present value of EDR per capita between 1991 and 2001 were iron ore (up 47%), magnesite (up 22%) and black coal (up 21%).


Economically demonstrated resources(a) per capita, by mineral - June 1991 and June 2001

30 June
30 June
Average annual
1991
2001
growth rate
Mineral
$
$
%

Bauxite
116
263
8.5
Black coal
313
2,092
20.9
Copper
90
443
17.3
Iron ore
15
715
46.7
Magnesite
22
166
22.3
Mineral sands
111
211
6.6
Nickel
260
554
7.8
Petroleum -
crude oil
746
1,181
4.7
Petroleum -
natural gas
812
1,731
7.9
Petroleum -
condensate
139
729
18.1
LPG naturally
99
295
11.5
occurring
Uranium
146
191
2.7
Zinc
172
156
-1.0
Other minerals
221
190
-1.5
All minerals
3,262
8,917
10.6

(a) Minerals and energy, net present value of economically demonstrated resources.
Source: Australian System of National Accounts.(SEE FOOTNOTE 1)


MEASURING AUSTRALIA'S MINERAL AND ENERGY RESOURCES

Estimating a nation's subsoil assets (such as coal, iron ore and so on) is a complex task. The size and value of such assets can be affected by technological change (which impinges on both exploration and extraction activities), by changes in prices (which can affect whether extraction is economically worthwhile) and by other influences.

The ABS uses the Bureau of Resource Sciences' term 'economically demonstrated resources' (EDR) to embody these concepts. EDR refers to subsoil assets "with a very high degree of geological assurance and for which extraction is expected to be profitable over the life of the mine".

Estimating the value of EDR requires a complex calculation of the present value of the income stream likely to flow from the asset. That income stream in turn depends on information about such factors as the value of annual output, production costs, and the expected life of the mine.

Changes in EDR must be interpreted with care. For some resources, mining companies search for and 'prove' (confirm the physical extent and value of) just enough mineral deposit to support a certain number of years of future extraction.


EXTERNAL LIABILITIES - FOREIGN DEBT

In recent years, Australia's debt to the rest of the world has increased. Real net foreign debt grew on average by 6.3% a year between June 1991 and June 2001.(SEE FOOTNOTE 2)

Some of Australia's foreign debt has financed the acquisition of capital goods and other assets that can be used to generate future income and support future consumption; some debt has financed current consumption.

The growth in a country's foreign debt can reflect several related influences. The value of its imports and other current payments to foreigners may outstrip the value of its exports and other current receipts from foreigners - the nation experiences a deficit on its current account. An alternative view is that the saving of a country's residents may be outstripped by its needs for investment - i.e. the country experiences a shortfall in saving. Current account deficits and saving shortfalls are conceptually the same phenomenon; they may be financed by, say, selling equity in enterprises to residents of other countries, or by borrowing from residents of other countries, or by running down financial assets held abroad.

Foreign holdings of Australian equity and debt were both rising through much of the twentieth century. Australia must pay income (dividends or interest) on both forms of liability to foreign residents. However, if by incurring those liabilities Australia has been able to acquire capital or other assets that will enhance its productive capacity and income-generating potential, then the increased liabilities may not on balance have a deleterious impact on progress.

The public sector and private sector components of foreign debt showed markedly different trends during the past decade.

The real net foreign debt of the public sector rose from $38.5b in June 1991 to a peak of $74.1b in June 1995. Thereafter, it fell and reached $10.5b in June 2001.

The real net foreign debt of the private sector, after having been fairly steady at around $120-130b in the first half of the 1990s, rose throughout the second half of the decade to reach $290.3b in June 2001.

Real net foreign debt(a) - June 1991 to June 2001
Graph - Real net foreign debt(a) . June 1991 to June 2001


Real net foreign debt(a), by sector - June 1991 and June 2001

30 June
30 June
Average
1991
2001
annual
growth rate
Sector
$b
$b
%

General
government
18.2
13.1
-3.3
Other public
sector
20.3
-2.6
..
Private financial
corporations
59.0
224.8
14.3
Private
non-financial
corporations
65.6
65.5
. .
Australia
163
300.8
6.3

(a) To convert net foreign debt to real terms, the current-price figure has been divided by the chain price index for domestic final demand. Reference year for the deflator is 1999-2000.
Source: Balance of Payments and International Investment Position.(SEE FOOTNOTE 2)


MEASURING AUSTRALIA'S FOREIGN DEBT

Australia's foreign debt is the net outcome of:
  • Australian borrowing from overseas ($490b in current-price terms at 30 June 2001); and
  • foreign borrowing from Australia ($173b in current-price terms at 30 June 2001).

Debt liabilities can be held by the public sector (for example, Commonwealth, State and local government, the Reserve Bank and other public sector corporations) and the private sector (for example, private financial and non-financial corporations).


AUSTRALIA'S CAPACITY TO SERVICE ITS FOREIGN DEBT

Australia must pay interest on its foreign debt. The debt service ratio is a commonly used measure of a country's capacity to pay the costs associated with debt. It is calculated by dividing export earnings (goods and services credits) into the interest payments (income payable on net foreign debt). During the past decade, Australia's debt service ratio has improved from 19.4% in 1990-91 to 9.5% in 2000-01.


FOOTNOTES

1 Unless otherwise indicated, all data in this commentary are derived from Australian Bureau of Statistics 2001, Australian System of National Accounts 2000-01, Cat. no. 5204.0, ABS, Canberra.

2 All data in this segment of the commentary are derived from Australian Bureau of Statistics 2001, Balance of Payments and International Investment Position, Australia, Cat. no. 5302.0, ABS, Canberra.

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