Australian Defence Industry Account Feasibility Study Outcomes

This paper contains the outcomes of a feasibility study into the development of an Australian Defence Industry Account (ADIA).

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Released
8/12/2021

Introduction

The Australian Bureau of Statistics (ABS) is collaborating with the Department of Defence (Defence) to develop the Australian Defence Industry Account (ADIA). During the first half of 2021, the ABS used publicly available Defence contract information as reported on AusTender to determine the feasibility of developing an ADIA. The conceptual framework and compilation method were developed, and work is now underway to build a robust ADIA with expenditure data obtained directly from Defence. This will be an ongoing account based on more detailed and timely data direct from Defence. The first release will be in the second half of 2022.

The account will measure the direct economic contribution of Defence expenditure to the Australian economy in terms of Gross Value Added (GVA) and employment. The account will also provide information on the structure and characteristics of the businesses providing the goods and services to Defence.

While estimates of Defence expenditure are implicitly included within the National Accounts of Australia, the value of this expenditure is spread out across the industries supplying goods and services to Defence. This is because the industry classifications used within National Accounts group similar productive activities together. For example, the economic contribution associated with the production of uniforms for Defence would be captured within the manufacturing industry. In contrast the ADIA groups activity by purpose; in this case mapping the supply of uniforms to Defence expenditure. The underlying data needs are consistent in both approaches resulting in a framework that is aligned with the ABS National Accounts and wider economic indicators.

For any questions, feedback, or comments please contact the ABS:
Email: client.services@abs.gov.au

Data Sources

The main data sources for the feasibility study are outlined below.

AusTender

AusTender is the Australian Government's procurement information system which provides centralised publication of Business Opportunities, Annual Procurement Plans, and Contracts awarded. AusTender does not provide actual expenditure amounts or dates. It provides a point in time estimate of the value of the contract at the date it was awarded, and the expected duration of that contract.

For the feasibility study, all business units with an ABN and Australian-based industrial capabilities that are supplying goods and services to Defence were identified via AusTender contracts.

National Accounts Supply Use Tables

Supply-use tables are an integral and essential element of the Australian System of National Accounts. They provide detailed information about the supply and use of products in the Australian economy, and the structure of and interrelationships between Australian industries.

They are used to ensure GDP is balanced for all three approaches (production, expenditure, and income), and provide the annual benchmarks (levels) from which the quarterly GDP estimates are compiled.

Australian System of National Accounts

The Australian System of National Accounts provide detailed national accounts estimates which are provided for gross domestic product (GDP) and its components, the national income account, the national capital account, the national financial account and the national balance sheet. Income, capital and financial accounts and a balance sheet are provided for each sector of the economy.

Labour Account Australia

The Australian Labour Account provides quarterly and annual time series for four quadrants: Jobs, People, Hours and Payments.

Concepts

Basic Price

The basic price (BP) is the amount receivable by the producer from the purchaser for a unit of a good or service, minus any tax payable (including deductible value added taxes) plus any subsidy receivable, as a result of production or sale of the unit.

Purchaser's Price

The purchaser's price (PP) is the amount paid by the purchaser in order to take delivery of goods or services.

Gross Value Added (GVA)

GVA is the value of output less the value of intermediate consumption and is a measure of the contribution to GDP made by an individual producer, industry, or sector.

In the context of compiling the Defence account, GVA is the value of output at BP minus the value of intermediate consumption at PP. The use of BP for the valuation of output removes distortions caused by variations in commodity taxes and subsidies across individual industries.

Employed Persons

Employed persons refers to the number of individuals employed by an industry. For industry level estimates, employed persons are counted once per industry and may be represented in more than one industry. 

ANZSIC

The Australian and New Zealand Standard Industrial Classification (ANZSIC) is an industrial classification used in Australia and New Zealand to organise data about business units. It provides a standard framework under which business units carrying out similar productive activities can be grouped together, each resultant industry is referred to as a division.

The ANZSIC is a hierarchical classification with four levels: Division (the broadest level), Subdivision, Group, and Class (the finest level). The main purpose of the Divisional level is to provide a limited number of categories which provide a broad overall picture of the economy. 

Methodology

The AusTender data included all obtainable Defence contracts from businesses with ABNs. Imports were excluded. The following method was used to derive GVA and employed persons associated with Defence expenditure:

  • Contract values were provided at PP however this includes taxes less subsidies on products and margins. These were removed to assess the economic contributions of each industry. Ratios from the Supply Use Tables were utilised to derive BPs for each contract. Margins were allocated to the representative industries. For example, transport margins associated with moving a product from the supplier to Defence were allocated to the transport industry.
  • Inputs into production ratios, derived from the Supply Use Tables, were used to calculate the primary inputs into production. This includes the components that allowed the derivation of GVA. 
  • The GVA of each contract was aggregated to the relevant ANZSIC to indicate the economic contribution of Defence expenditure from each industry. 
  • Ratios of Defence related GVA to total GVA by industry division were then compiled and applied to the averaged employed persons by financial year from the ABS Labour Account.

Notes

  • High value contracts based on imports were excluded.
  • The account measured direct impacts only i.e. where there is a direct contract between the business unit and Defence.
  • Wholesale trade was excluded, as products were unlikely to be produced by the supplying unit. Margins for these units were included.

Estimates of GVA and Employment

The following shows estimated GVA from Defence expenditure in the financial years 2015-16 through to 2019-20.

The estimated GVA from Defence expenditure increased from $6.4 billion in 2015-16 to $9.7 billion in 2019-20. The greatest percentage change was from 2015-16 to 2016-17 at 20%, this growth slowed to a small increase of 3% in the following financial year (2017-18). A stable annual growth of 10 – 11% was realised over the last two years of the time series.  

The following shows estimated employment from Defence expenditure in the financial years 2015-16 through to 2019-20.

The estimated employment from Defence expenditure increased from 57,000 in 2015-16 to 80,000 in 2019-20. The largest increase (16%) in employed persons can be observed in the 2016-17 financial year. Similar to the estimated GVA, the smallest increase was seen in the following financial year (2017-18) at 3%. The average yearly increase in Defence-related employment is 9%.

Data Caveats

  • The AusTender contract values were assumed as actual expenditure, with the expenditure spread equally over the life of the contract.
  • The inputs into production ratios for each AusTender Defence contract were assumed to be consistent with their corresponding industry.
  • The classification of AusTender contracts to corresponding ANZSIC divisions and National Account product classification is ongoing.
  • This method assumed that Defence purchases have a consistent relationship between BP and PP with equivalent products in the wider economy. Exceptions to this assumption were generally insignificant in value. A comprehensive verification will be completed for future releases.
  • The account assumes that companies with ABNs produce their goods and services domestically. Limited exclusions have been applied at a contract level. The Wholesale Trade industry division was excluded entirely. This assumption will be addressed in future releases.

Next Steps

This paper outlines the results of the feasibility study on creating an account designed to measure the direct economic contribution of Defence expenditure to the Australian economy. The study derived estimates of GVA and employed persons associated with Defence expenditure.

The next step, in partnership with Defence, is to build the ongoing ADIA using actual expenditure data obtained from the Department of Defence. The build work will include: 

  • Developing a process that maps products from Defence expenditure data to the ABS Supply Use Product Classifications, to allow for consistent, repeatable, and robust statistics to be compiled.
  • Investigating inputs into the production of defence-related products and services to confront against ratios derived from the National Accounts.
  • Ensuring expenditure is adequately captured in the correct financial year for multi-year contracts.
  • Quality assurance validated with ABS data holdings.

The work will also enable the data to be utilised at a finer level of granularity, including:

  • State level information. 
  • More detailed industry information. 
  • Contributions by size of supplying business and linkages between businesses. 
  • A break-down of primary input components e.g. Compensation of Employees (CoE), Gross Operating Surplus (GOS) taxes and subsidies.

The completed ADIA is scheduled for release in the second half of 2022. Additional research articles will be published progressively as the underlying data sets mature.