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8142.0 - Business Operations and Industry Performance, Australia, Preliminary, 2000-01  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 16/05/2002   
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TECHNICAL NOTE 2: NATIONAL ACCOUNTS

RELATIONSHIPS WITH NATIONAL ACCOUNTS ESTIMATES

1 Both the Economic Activity Survey (EAS) and the National Accounts attempt to measure overall economic activity, although the EAS is substantially narrower in scope and coverage. Differences also occur in the industry dissection of the two sets of statistics because they rely on different units frameworks.

2 The prime purpose of the EAS is to derive a set of economic measures based on information available from the standard financial accounts of trading and employing businesses. EAS data are also used in the compilation of National Accounts aggregates, especially those relating to measures of production.

3 The main summary measure of industry production in the National Accounts is gross value added (GVA) which is the value of output at basic prices minus the value of intermediate consumption at purchasers' prices. It has not been possible to exactly duplicate this concept in the output of the annual economic collections, but the major summary item, industry value added (IVA), is conceptually a close approximation.

4 Despite the close conceptual affinity between the definitions of IVA and GVA, there are substantial coverage, conceptual and methodological differences which make precise comparisons between the two series somewhat difficult. The more important of these are summarised below.


DIFFERENCES IN COVERAGE

5 These are the most significant of the differences between the IVA and GVA estimates. EAS does not cover business units classified to the general government sector, non-farm businesses without employees and households contributing to GVA through their ownership of dwellings, or an imputation for the services provided to owner occupiers, which are all included on the derivation of GVA in the National Accounts.


DIFFERENCES IN CONCEPT

6 The application of the standard formula for IVA is known to result in an understatement of the value added for businesses which do not charge directly or do not charge full commercial value for the services they provide to their clients. These include financial intermediaries, insurance and superannuation businesses and not for profit organisations.

7 Banks and some other financial intermediaries provide some services for which they do not charge explicitly. They do this by paying a lower rate of interest on deposits and charging a higher rate to borrowers. In the National Accounts, an estimate is made for financial intermediation services indirectly measured (FISIM), to measure the value of these services. This is added to the output of financial intermediaries. An estimate is also made for the consumption of FISIM by other industries, which is added to the intermediate consumption of those industries in the National Accounts.

8 Similarly, for general insurance business in the National Accounts, estimates of output include an imputed insurance service charge derived as premiums earned less claims due plus interest and other income earned on technical reserves. The National Accounts also makes an adjustment to GVA for other industries to account for their consumption of the insurance service charge.

9 Due to difficulties in collecting data to measure the output of financial intermediaries and insurance enterprises IVA has not been estimated for the Finance and Insurance industry.


DIFFERENCES IN METHODOLOGY

10 For Agriculture, the National Accounts estimates use the value of agricultural commodities produced to measure gross output. This measure of output is valued on an accruals basis as far as possible. In particular, sheep and cattle are included in output and GVA as the animal grows rather than as sold. National Accounts also include an estimate of the value of backyard production by households.

11 Gross product for Agriculture is obtained by deducting an estimate of intermediate inputs used within Agriculture from this estimate of gross output.

12 The IVA estimate for Agriculture is based on the results of the annual Agricultural Finance Survey for which most large businesses report on an accruals basis while small and medium businesses report on a cash basis.

13 There are a number of other specific adjustments made to the National Accounts that are not included in IVA. These are:

  • the inventories valuation adjustment to exclude holding gains/losses;
  • the value added by owner builders in the construction industry of dwellings and alterations and additions to dwellings is included in construction industry output GVA;
  • an allowance for understatement of business income and expenses reported by respondents is included in output and GVA for all industries; and
  • the value of fringe benefits are included as employee compensation, raising the level of GVA compared with IVA.


INPUT - OUTPUT STRATEGY

14 The annual National Accounts estimates of industry GVA and components are compiled using supply-use tables. These are a particular type of input-output table. Importantly, they enable data for the supply of products to be compared with data for the use of (demand for) commodities and for GVA to be compared with incomes. Because they are a balanced system, they enforce the conceptual equivalence between supply and demand for products and value added and incomes.

15 The ABS program of industry surveys, including EAS are key sources of data for much of the supply-use tables. However, some major components of the demand side of the equation - household final consumption expenditure in particular - have to be taken from other sources. When these data are included, inconsistencies in supply and demand of varying order become apparent.

16 Balance between the data are achieved by an iterative process of adjustment. In the process it is likely that EAS data will accept some of the adjustment in order to achieve balance in the whole system.



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