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5204.0 - Australian System of National Accounts, 2005-06  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 01/11/2006   
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UNDERSTANDING HOW TO USE NATIONAL ACCOUNTS


National accounts are designed to provide a systematic summary of national economic activity and have been developed to assist in the practical application of economic theory. The Australian system of national accounts includes national income, expenditure, product accounts, financial accounts, the national balance sheet, input-output tables and satellite accounts. At their summary level, the national accounts reflect key economic flows - production, the distribution of incomes across sectors, consumption, saving and investment. At their more detailed level, they are designed to present a statistical picture of the structure of the economy and the detailed processes that make up domestic production and its distribution.

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 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 well-being 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 well-being 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.

There are three ways of measuring GDP.

Income approach - Measures income generated by the economy: compensation of employees (wages and salaries, and employers' social contributions); gross operating surplus (profits); gross mixed income (income from unincorporated businesses); and taxes less subsidies.

Expenditure approach - Measures 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.

Production approach - Calculates the sum of the value of goods and services produced by each 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. In the production approach, taxes less subsides on products are separately identified and are not included in the output of industries at basic prices. For more information on the distinction between taxes and subsides on products and taxes and subsides on production please refer to Australian System of National Accounts: Concepts, Sources and Methods (cat. no. 5216.0).

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 2003-04. 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.

For more information please refer to Updated National Accounts Annual Benchmarks (Feature Article) or Australian National Accounts: Concepts, Sources and Methods, (cat. no. 5216.0).

Additional information can be found in Frequently Asked Question's.


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