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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 income: Looking more closely

The headline indicator - real net national disposable income per capita - contains important information about the nation's material living standards. An assessment of Australia's progress is enhanced by understanding the patterns and influences that underpin the national indicator. This commentary examines the ways in which the pace of output growth as measured by GDP (see box) varies across the States and Territories and between industries.

Domestic economic events are not the only influence on material living standards. In particular, changes in the relative prices of Australia's exports and imports (the terms of trade) affect national income.

Growth in per capita income may be accompanied by changes in the equality of income distribution. At present, it is not possible to analyse how net national disposable income is distributed, but one can examine the distribution of household income. This is discussed in the commentary Economic Disadvantage and inequality.


The volume of goods and services produced in Australia (measured by GDP) is a major influence on material living standards. The average annual growth rate in real per capita GDP between 1990-91 and 2000-01 (2.4%) was appreciably above the average recorded since the early 1960s. Moreover, the past nine years or so represent the longest run of growth observed during the past thirty years.(SEE FOOTNOTE 1)


STATE AND TERRITORY OUTPUT

Gross State Product (GSP) is the total value of goods and services produced in a State or Territory, after deducting the cost of goods and services used up in the process of production. The sum of the eight GSPs is equal to Australian GDP.

Although GSP is a major influence on the material living standards of residents in a State or Territory, there are other influences such as Commonwealth government taxes and expenditures, and incomes transferred to or from other States or Territories and the rest of the world.

Real gross domestic product(a) per capita
Graph - Real gross domestic product(a) per capita


Real gross state product(a) per capita, average annual growth rates - 1990-91 to 2000-01

State
%

New South Wales
2.5
Victoria
2.7
Queensland
2.6
South Australia
1.7
Western Australia
2.3
Tasmania
1.3
Northern Territory
1.5
Australian Capital Territory
2.2
Australia
2.4

(a) Chain volume measure; reference year 1999-2000.
Source: Australian National Accounts: State Accounts.(SEE FOOTNOTE 2)

During the past decade, although there have been some shifts in the relative economic positions of some States and Territories, there has been a fairly persistent pattern. GSP per capita was above the national average throughout the period 1990-91 to 2000-01 in New South Wales, Victoria, Western Australia, the Northern Territory and the Australian Capital Territory, and below the national average in the other States.(SEE FOOTNOTE 2)


GROSS DOMESTIC PRODUCT

GDP is the total value of goods and services produced in Australia, after deducting the costs of goods and services used up in the production process. The chain volume measure of GDP is an indicator of real growth in Australian production. GDP is a fairly comprehensive measure of economic activity, but does not take account of some non-market activities such as unpaid household work.

As a measure of national progress, GDP is inferior to the headline indicator (net national disposable income) in several ways. The headline indicator takes account of income flows between overseas and Australia and of changes in the terms of trade. Also, it is adjusted for the depreciation of fixed capital used in the production process.

GDP is discussed here because it is possible to dissect it by geography and by industry, to investigate different trends within Australia. Such dissections cannot be done for the headline indicator. Changes in domestic production are among the major driving forces underlying changes in Australians' incomes. So GDP and the headline indicator exhibit broadly similar trends.


INDUSTRY OUTPUT

Industry gross value added (IGVA) is the total value of goods and services produced by an industry, after deducting the cost of goods and services used up in the process of production.

During the past decade, different industries have exhibited substantially different rates of real output growth. Among the industries showing strongest growth in real IGVA between 1990-91 and 2000-01 were Communication services and Property and business services.


Real industry gross value added(a), average annual growth rates - 1990-91 to 2000-01

Industry
%

Agriculture, forestry and fishing
1.9
Mining
4.3
Manufacturing
2.0
Electricity, gas and water supply
2.1
Construction
1.5
Wholesale trade
4.5
Retail trade
3.6
Accommodation, cafes and restaurants
3.8
Transport and storage
3.6
Communication services
10.2
Finance and insurance
3.5
Property and business services
5.6
Government administration and defence
2.6
Education
2.3
Health and community services
3.2
Cultural and recreation services
3.6
Personal and other services
4.1
Ownership of dwellings
3.8
Gross Domestic Product
3.6

(a) Chain volume measures; reference year 1999-2000. The sum of IGVA across industries differs from GDP to the extent of taxes less subsidies on products.
Source: Australian System of National Accounts.(SEE FOOTNOTE 1)


EFFECT OF CHANGES IN WORLD PRICES - TERMS OF TRADE

In recent years, Australia's terms of trade have shown fairly wide oscillations, but overall between 1990-91 and 2000-01 there was a modest improvement. Changes in our terms of trade have reflected changes in both the prices and the composition of traded goods and services.

Imports give the residents of a country access to goods and services that cannot be produced (or cannot be produced as cheaply) in the domestic economy. Exports are one important way of funding purchases of imports and of maintaining levels of domestic production, income and employment.

The goods and services that make up a country's exports are typically quite different from those that make up its imports - for example, agricultural and mining products accounts for a fairly large proportion of Australia's exports, whereas manufactured goods and some services account for a large proportion of our imports. Thus, changes in the terms of trade can affect the volume of goods and services that must be exported to fund a given volume of imports.

During much of the twentieth century, there has been a general trend toward falling prices of primary commodities (especially agricultural products) relative to other traded goods and services. This reflects both shifts in the composition of worldwide demand and supply, and the effect of improvements in productivity. Around that long-term trend, however, there have been oscillations (each lasting several years) that have reflected short-to-medium run changes in demand and supply conditions.

Between 1990-91 and 1993-94, there was almost a 10% deterioration in Australia's terms of trade, reflecting falling export prices and strongly rising import prices. The terms of trade had improved by 1997-98 (returning to just under their 1990-91 level), then again deteriorated 5% in 1998-99, owing largely to fluctuations in import prices. Rising export prices thereafter brought the terms of trade in 2000-01 back to a little above their level of a decade earlier.(SEE FOOTNOTE 3)


AUSTRALIA'S TERMS OF TRADE

The terms of trade index shows the relationship between Australia's export and import prices. A rise in the terms of trade indicates that Australia could purchase a greater volume of imports with a given volume of exports; a fall indicates that a greater volume of exports is required to purchase a given volume of imports.

Population in work(a)
Graph - Population in work(a)


POPULATION IN WORK

Looking at the proportion of the population that is employed adds to the information provided by the income and output indicators discussed above.

First, this proportion provides a broad indicator of the degree of economic dependency in Australia --- the relative sizes of the total population and of that part of the population engaged in income-generating economic activity. Economic dependency may increase owing to, say, a rise in the number of unemployed or the number of people past retirement age.

Second, because the income of employed people generally exceeds the incomes of those not in employment, this proportion also casts light on trends in the equality of income distribution.

Between 1990-91 and 2000-01, the proportion of the Australian population that was employed rose from 44.6% to 47.3%.(SEE FOOTNOTE 2)

Australia's terms of trade(a)
Graph - Australia's terms of trade(a)



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 Australian Bureau of Statistics, various issues, Labour Force Australia, Cat. no. 6203.0, ABS, Canberra.

3 Australian Bureau of Statistics 2001, Australian National Accounts: State Accounts 2000-01, Cat. no. 5220.0, ABS, Canberra.

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