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1301.0 - Year Book Australia, 2007  
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Contents >> National Accounts >> Defining and measuring GDP

DEFINING AND MEASURING GDP

Australia's national accounts statistics are compiled in accordance with international standards contained in the System of National Accounts 1993. Australia's application of these standards is described in Australian System of National Accounts: Concepts, Sources and Methods (5216.0).

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 Australian 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 wellbeing of Australians. (The article Life satisfaction and measures of progress, in the Health chapter, discusses aspects of the relationship between people's level of satisfaction with their lives and national wellbeing.)

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, environmental 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 see Australian System of National Accounts: Concepts, Sources and Methods (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.

The volume measure (for a discussion of volume measures, see Volume or 'real' GDP) of GDP increased by 2.3% in 2004-05, following an increase of 4.0% in 2003-04. For some analytical purposes, it is important to allow for the impact of population growth on movements in GDP. Annual growth in GDP per person 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 29.1). In 2004-05, GDP per person increased by 1.2%.

29.1 GDP AND GDP PER PERSON 29.1 GDP AND GDP PER PERSON


Compared with many developed economies, Australia has experienced relatively strong growth over the past ten years. With an average annual growth rate of 3.2% for GDP volumes from 1996 to 2005, it is higher than the 'G7' countries (table 29.2).


29.2 GDP VOLUMES, International comparison - 1996 to 2005
Average annual growth rate
%

Australia
3.2
'G7' countries
Canada
3.2
France
2.1
Germany
1.3
Italy
1.2
Japan
1.0
United Kingdom
2.5
United States of America
2.9
Total 'G7'
2.2
New Zealand
2.9

Source: Organisation for Economic Co-operation and Development, Quarterly National Accounts, Vol. 2006/1.


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