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FEATURE ARTICLE: MODELLING FOR SCOPE EXCLUSIONS IN PRIVATE NEW CAPITAL EXPENDITURE
The Capex survey also excludes certain asset types that can be classified as capital expenditure. Capital expenditure on intangible assets such as intellectual property, patents, licences, goodwill and capitalised computer software, including software licence fees, installation costs and software developed in house, are excluded.
Data for these excluded industries and asset types are published by the ABS, for example, as part of quarterly Australian National Accounts: National Income, Expenditure and Product (ABS Cat. No. 5206.0) and the annual Economic Activity Survey, as published in Australian Industry (ABS Cat. No. 8155.0). This data can be used to model what data in Capex may look like if the scope of the survey was expanded, firstly by the inclusion of additional industries, and then by the inclusion of expenditure on additional asset types.
OTHER ABS SOURCES OF CAPITAL EXPENDITURE
Capex is one of a suite of economic surveys. A broader measure of capital expenditure is published annually in Australian Industry, which includes total expenditure by private businesses on acquiring 'building and structures', 'plant, machinery and equipment' and 'other intangible assets'. Australian Industry publishes estimates of capital investment on land and intangible assets including capitalised exploration expenditure, patents, licences and goodwill. It also includes both new and second-hand purchases of capital by all industry divisions except for Division K: Financial and Insurance Services.
The quarterly Australian National Accounts: National Income, Expenditure and Product (ABS Cat. No. 5206.0) presents private business investment through the expenditure measure of Private Gross Fixed Capital Formation. The assets included are non-dwelling construction, machinery and equipment, intellectual property products and cultivated biological resources. 'Non-produced' capital items, including goodwill and licence fees are excluded. The Australian National Accounts measure makes no exclusions of industries but separates the Private and Public sectors.
Australian Industry and Capex are key components of National Accounts Gross Fixed Capital Formation data, but levels and movement estimates differ as a result of a number of factors including scope and the use of Supply-Use benchmarks that underpin National Accounts data.
COMPARING CAPEX DATA WITH AUSTRALIAN INDUSTRY
There are a number of reasons why the data from Capex and Australian Industry are not directly comparable, even when the differences in industries and asset types are removed. Firstly, Capex only collects expenditure on new assets (or imported assets) as the aim of the survey is to capture investment that adds to the production capacity of the economy. Australian Industry on the other hand includes purchases of second-hand capital items as transfers between industries are an important output of this collection.
Secondly, the primary objectives of the surveys are different. Capex is primarily concerned with presenting a timely quarterly indicator of changes in levels of private business investment, whereas the Economic Activity Survey, which has the benefit of being collected after a business' annual financial accounts have been finalised, is primarily focused on presenting more detailed annual levels of private business activity.
INCLUDING EDUCATION AND TRAINING, AND HEALTH CARE AND SOCIAL ASSISTANCE
Due to the level of detail collected, data from the Economic Activity Survey can be adjusted to create a comparable dataset to Capex by excluding the purchase of second-hand assets and removing asset types such as land from the Economic Activity Survey data. It is then possible to create a model of annualised Capex data including an expanded industry and asset scope. The model is only designed to give an indication of the scale of excluded industries and asset types and is not designed to indicate quarterly changes in investment levels. Data is only available annually, up to the 2014-15 financial year.
The first model estimates how the inclusion of Division P (Education and Training) and Division Q (Health Care and Social Assistance) may impact levels of capital expenditure within the current asset scope of the Capex survey. The modelling shows that the inclusion of these industries in Capex would raise total capital expenditure levels by an average of around $5.7bn a year, or around 4% of total capital expenditure on Buildings and Structures, and Plant, Machinery and Equipment.
In 2014-15, Division P and Q would have raised the level from $150.7bn to $157.4bn. Health Care and Social Assistance contributes more to the increased level, making up around 60% of the additional capital expenditure, with 40% of the remaining additional spend coming from Education and Training. At the Other Selected Industries(footnote 1) level, the inclusion of Divisions P and Q raise levels by an average of 9%, from a low of 6% in 2012-13 to a high of 15% in 2010-11.
Analysis of this data by asset shows that the inclusion of a modelled figure for Divisions P and Q increases levels for Other Selected Industries by 16% in Buildings and Structures and around 5% in Plant, Machinery and Equipment. The data was calculated and applied annually and has a high of 29% for Building and Structures in 2010-11 and a low of 10% in 2012-13. The Plant, Machinery and Equipment number is far more stable, between 4% in 2012-13 and 7% in 2014-15.
The inclusion of Divisions P and Q has little impact in terms of year-on-year movement at a total industry level, with movements dominated by Mining investment. At an Other Selected Industries level though, it does have an impact, although much of this is due to a one-off significant increase in Education and Training capital expenditure on Building and Structures during 2010-11. This is in line with the "Building the Education Revolution"(footnote 2) program.
For Plant, Machinery and Equipment, the inclusion of Divisions P and Q trends closely with the current series in 5625.0, adding an average of $2bn a year to current levels.
INCLUDING OTHER INTANGIBLE ASSETS FOR ALL DIVISIONS
In a similar way, we can also model capital expenditure data to include other intangible assets, defined here as capital purchases of intellectual property, patents, licences, goodwill and capitalised computer software, including software licence fees, installation costs and software developed in-house. Capitalised exploration expenditure is also included.
Purchases of land are included in the Economic Activity Survey but all land purchases have been excluded from the model to align with the Capex scope of new assets.
The inclusion of a modelled estimate for other intangible assets would, on average, increase Capex levels by a further $20.3bn a year from 2008-09 to 2014-15 at a total asset level. This is from a low of $13.8bn in 2008-09 to a high of $23.2bn in 2013-14. It would raise Capex levels in Mining by an average of $7.0bn, Manufacturing by $1.4bn and Other Selected Industries by $11.8bn over the same period.
The below graph shows Total Capex including a modelled component for other intangibles assets (excluding land) and including Health and Education by asset type. On average, other intangible assets makes up around 12% of total modelled capital purchases, with a low of 10% in 2008-09 and a high of 15% in 2009-10.
When looking at Other Selected Industries only, the average spend on other intangible assets increases to 15%, with a high of 17% in 2013-14 and a low of 13% in 2009-10.
1 Other Selected Industries refers to all in-scope industries collected except Mining and Manufacturing. <back
2 Building the Education Revolution. Nation Building: Economic Stimulus Plan. Department of Employment, Education and Workplace Relations. <back
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