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FEATURE ARTICLE - NEW ANALYTICAL MEASURES OF INCOME SAVING AND WEALTH
GDP in current prices grew 5.4%. For the income components, there was growth in compensation of employees of 6.6%, growth in the gross operating surplus (GOS) of non-financial corporations of 6.5%, growth in the GOS of financial corporations (up 14.6%) and a fall in gross mixed income of 5.6%. This last result is closely connected with the impact of the drought. Agricultural income, a major component of total gross mixed income, fell 60.7% in 2002-03. Offsetting growth in the income of small businesses in the construction, retail trade and health industries reduced the overall impact on gross mixed income.
Growth in GDP over the past four years has been revised following the incorporation of new annual supply and use table benchmarks. In comparison to the annual growth rates published in June quarter 2003, growth in 1999-00 has been revised from 4.0% to 3.8%, growth in 2000-01 has been revised from 1.8% to 2.0%, growth in 2001-02 has been revised from 3.8% to 3.9% and growth in 2002-03 has been revised from 2.7% to 2.8%. A discussion of the revisions is presented on page 11.
In 2002-03, the index of market sector multifactor productivity (MFP) increased by 0.5%, reflecting a 2.7% increase in gross value added against an increase of 2.3% in total labour and capital inputs. Hours worked increased by 0.9% in 2002-03, resulting in labour productivity growth of 1.8% in 2002-03 compared to much stronger growth of 4.3% the year before. Capital services continued to grow in 2002-03, recording a strong growth rate of 4.0%. The increase in capital services exceeded the increase in gross value added resulting in a fall of -1.2% in capital productivity in 2002-03. The capital-labour ratio increased by 3.1% in 2002-03, reflecting stronger growth in capital relative to labour.
Over the most recent MFP growth cycle (1993-94 to 1998-99) MFP grew annually, on average, by 1.8%-somewhat higher than the average from 1964-65 to 1998-99 of 1.1%. The average annual MFP growth rate of 1.8% reflects an average rate of growth of 3.2% in labour productivity and -0.1% in capital productivity.
In this issue the ABS has introduced an annual quality-adjusted hours worked series into the productivity measures. The series commences in 1982-83. (See page 11 for more information). MFP based on quality-adjusted hours worked for 2002-03 increased by 0.4% from 2001-02, a smaller increase compared with MFP based on unadjusted hours worked. Accounting for quality differences among workers gave rise to a stronger growth in hours worked of 1.1% compared to 0.9% recorded for the unadjusted hours worked. Therefore, total quality-adjusted labour and capital input grew by 2.4% compared with 2.3% shown by total unadjusted labour and capital input.
The quality adjusted hours worked series and the MFP estimates based on it are experimental.
GDP per capita
For some analytical purposes it is important to allow for the impact of population growth on movements in GDP. Reflecting growth in the population, annual growth in GDP per capita has been about 1.0 to 1.8 percentage points lower than that for GDP since 1972-73, and was negative in 1974-75, 1977-78, 1982-83,1990-91 and 1991-92. In 2002-03 GDP per capita increased by 1.5%.
Real net national disposable income
A broader measure of changes in national economic well-being is real net national disposable income (RNNDI). It adjusts the chain volume measure of GDP for the terms of trade effect, real net incomes from overseas and consumption of fixed capital. The graph below provides a comparison of annual movements in GDP in chain volume terms and real net national disposable income. In recent years, RNNDI has grown slightly more strongly than GDP; however, in 2002-03 RNNDI growth (2.7%) was slightly weaker than GDP (2.8%) reflecting a rise in real net incomes payable to the rest of the world.
Wages share of total factor income at current prices
The highest recorded value of the wages share of total factor income is 61.5% in 1974-75. The wages share has recovered somewhat from its low value of 52.8% in 1988-89, but at 54.4% it currently remains below the levels achieved during the 1970s and most of the 1980s. The wages share has remained relatively stable during the 1990s, at levels similar to those during the 1960s.
Profits share of total factor income at current prices
In 2002-03 the profits (GOS for financial and non-financial corporations) share of total factor income of 25.0% was the highest share recorded since 1959-60. The profit shares recorded since the early 1990s are at a distinctly higher level than those at any time since 1959-60. This profit share measure should not be interpreted as a direct measure of 'profitability' for which it is necessary to relate profits to the level of capital assets employed.
Sectoral net saving at current prices
Household net saving as a percentage of GDP generally increased between 1959-60 and 1974-75, but has fallen subsequently from a high of 11.1% in 1974-75 to -1.4% (-$11.0 billion) in 2002-03. 2002-03 is the first year that household saving has been negative. The negative result has been driven by both a slow down in the rate of growth of disposable income and the continued strength of household final consumption expenditure. The movement in disposable income has been affected by the very weak income results for the farm sector arising from the drought. The impact occurs because the household sector defined in the national accounts includes unincorporated businesses and therefore includes most farm businesses. Consequently, most farm income (included as a significant component of 'gross mixed income') is also part of total household income. An analysis of the declining trend in household saving might also consider changes in the values of household sector assets. The feature article in this issue starting on page 13 considers some of the relevant issues.
Net saving for non-financial corporations has fluctuated over the period from 1959-60 to 2002-03. In 2002-03 it represented 1.2% of GDP ($8.9 billion). General government net saving was negative from 1975-76 to 1996-97 (except for 1988-89 and 1989-90). In 2002-03 it was 1.8% of GDP ($13.3 billion). Net saving of financial corporations was negative from 1981-82 to 1986-87, the only period for which this sector has recorded negative net saving. In 2002-03, net saving of financial corporations was 1.6% of GDP ($11.9 billion).
Overall, national net saving was positive in 2002-03 at $23.2 billion or 3.1% of GDP.
Investment at current prices
As a proportion of GDP, investment (total gross fixed capital formation) by non-financial corporations generally fell during the 1970s and then rose to a peak of 13.1% in 1981-82. It has subsequently been above 10% except for the years 1991-92 to 1993-94. In 2002-03 investment by non-financial corporations was 11.2% of GDP. Household investment as a proportion of GDP declined steadily between 1959-60 and 1973-74 but has since remained steady at around 9% of GDP. In 2002-03 the ratio to GDP was 10.3%. General government investment as a proportion of GDP peaked at 4.8% in 1975-76 and it has generally fallen since then. It was 2.3% of GDP in 2002-03. The highest ever level of financial corporations investment, expressed as a proportion of GDP, was recorded in both 1988-89 and 1989-90 (1.9%). It has generally fallen since and was 0.9% of GDP in 2002-03.
Sectoral net lending at current prices
If a sector's gross saving and net capital transfers received exceed its level of investment in any period, that sector will have positive net lending to other sectors. Conversely, if a sector's investment expenditure exceeds its gross saving and net capital transfers received, then that sector will need to borrow from other sectors, i.e. its net lending will be negative.
The household sector was a lender to the other sectors in the economy for all years up to 1993-94. Since then it has been a net borrower from other sectors except for 1995-96, 1996-97 and 2000-01. As a proportion of GDP, borrowing by households was 5.1% in 2002-03. Borrowing by non-financial corporations has fluctuated significantly over the period from 1959-60 to 2002-03 and represented 2.4% of GDP in 2002-03. General government was a net borrower for all years from 1974-75 to 1996-97. After recording a record level of borrowing as a proportion of GDP in 1992-93 (6.4%), general government borrowing declined and from 1997-98 to 1999-00 this sector was a net lender to other sectors. In 2000-01 and 2001-02 general government was a net borrower before returning to being a net lender in 2002-03, representing 0.8% of GDP. After being a net borrower throughout the 1980's, the financial corporations sector returned to being a net lender in 1990-91 and has remained so in all years since except for 1998-99. In 2002-03 financial corporations net lending represented 1.5% of GDP.
In aggregate, the four domestic sectors have been a net borrower in all years from 1959-60 except for 1972-73. The ratio of net borrowing from overseas to GDP in 2002-03 was 5.3%, the highest ratio since 1994-95 when it was 5.9%.
The growing importance of international trade to the Australian economy is illustrated by the following graph which shows the ratios of exports and imports of goods and services to GDP for the financial years 1959-60 to 2002-03. In 2002-03 the imports ratio was 22.2% and the exports ratio, which has fallen for the past two years, was 19.7%.
National Balance Sheet
Net worth is defined as the difference between total assets and total liabilities (including shares). Australia's net worth at the end of June 2003 was estimated to be $3262.0 billion, an increase of $270.4 billion (9.0%) since 30 June 2002. Of the increase, $23.1 billion was due to transactions (both capital and financial), and $247.2 billion was due to revaluations and other flows (including discoveries of subsoil assets). The average annual rise in net worth over the period 30 June 1989 to 30 June 2003 was 5.1%. The graph below shows that the net worth series has exhibited the strongest growth in the years since 1996-97 during which annual rates of at least 6.0% were achieved.
Total produced assets at 30 June 2003 were estimated at $2082.0 billion, an increase of 4.8% from the level at the end of June 2002. The estimated value of produced assets rose at an average annual rate of 4.7% between 30 June 1989 and 30 June 2003 and consistently accounted for over 60% of net worth. At 30 June 2003, dwellings, other buildings and structures, and machinery and equipment represented 93% of total produced assets.
The value of non-produced assets at 30 June 2003 was estimated at $1,621.5 billion, a rise of 15.6% from the level at the end of June 2002. The average annual rise between 30 June 1989 and 30 June 2003 was 7.3%. Over this period, the share of land fell from around 90% to just over 83% of total non-produced assets. The value of sub-soil assets accounts for nearly all of the remainder.
The difference between Australia's assets and liabilities with the rest of the world represents the net international investment position. Australia's net liabilities stood at $441.5 billion at 30 June 2003, a rise of 11.3% on the position at the end of June 2002. The contribution of net liabilities to net worth increased steadily from 9.7% at 30 June 1989 to a peak of 14.4% at 30 June 1996. At 30 June 2003 the contribution to net worth stood at 13.5%.
Australia's real net worth increased by 1.2% over the year ended 30 June 2003 compared with the average annual growth over the period 30 June 1992 to 30 June 2003 of 1.7%. In the latest year the real value of non-financial assets grew by 2.1%, offset by a fall in the real value of financial assets (down by 0.7%) and an increase of 3.7% in the real value of liabilities.
Quality adjusted hours worked in productivity measurement
In this issue an improved measure of labour inputs-quality adjusted hours worked-has been introduced, both as an individual series and as part of the MFP calculations. Previously, labour input was based solely on the number of hours worked. However, this measure takes no account of changes in the aggregate quality of labour due to changes in educational attainment and experience in the work force. Thus, changes in aggregate labour quality were ascribed to changes in multifactor productivity. The new quality-adjusted series commences from 1982-83 onwards. For a description of work on the quality adjusted hours worked series, see the feature article, 'Further developments in the analysis of productivity growth in Australia' in the September quarter 2001 issue of Australian National Accounts: National Income, Expenditure and Product (cat.no.5206.0).
To enable comparisons between the two approaches to labour input measurement, the productivity indexes, input measures, contributions to output growth, and the productivity growth cycle analysis have been calculated on both an hours worked basis and a quality-adjusted hours worked basis. Also, the growth accounting analysis has been extended to include the contribution of labour composition, which, when added to the contribution of hours worked gives the total contribution of quality-adjusted hours worked to output growth.
The effect of adjusting labour input measures for changes in the quality of labour has been to increase the contribution of labour inputs and decrease labour and multifactor productivity growth rates. Over the last twenty years, unadjusted hours worked increased on average by 1.3% a year, whereas quality-adjusted hours worked increased on average by 1.5% a year. Positive contributions from changes in labour composition were particularly significant over the periods 1987-88 to 1991-92 and 1995-96 to 1996-97. As a result of changes to labour composition, average annual multifactor productivity growth calculated using the quality adjusted hours worked series is slightly lower than average annual MFP growth calculated using the unadjusted series; 0.9% compared to 1.0% over the period 1982-83 to 2002-03.
The quality adjusted hours worked series and the MFP estimates based on it are experimental.
Revisions to GDP
Revisions have been made to a range of national accounts estimates. They have resulted from the availability of more up to date source data and the incorporation of new supply and use benchmarks for 1999-00, 2000-01 and 2001-02. The balancing of the supply and use tables ensures that the three measures of GDP are consistent but inevitably some components are revised as a result of the balancing process. Compared to the estimates released in the June quarter 2003 quarterly national accounts, the level of GDP in current prices was revised down in 1999-00 by $2.6 billion and upwards in 2000-01 ($1.8 billion), 2001-02 ($2.8 billion) and 2002-03 ($1.6 billion). This impacted on growth rates to a small extent. In chain volume terms GDP was revised downwards in 1999-00 by 0.2% and upwards in the following three years by 0.2%, 0.1% and 0.1% respectively.
A number of components of GDP were revised consistent with these aggregate movements.
On the income side of GDP the gross operating surplus of private non-financial corporations and gross mixed income of unincorporated enterprises were the most significantly revised estimates reflecting both the incorporation of new source data from the Australian Taxation Office and the effect of supply and use table balancing. A large revision to taxes less subsidies on production and imports was made in 2001-02 because of the incorporation of updated taxation receipts information and revised estimates of subsidies.
On the production side of GDP the largest current price revisions were in the Agriculture, forestry and fishing industry where a review of methods indicated a degree of understatement in the supply and use table benchmarks. In volume terms there were no large contributors to the overall revisions.
On the expenditure side of GDP there were notable revisions to government final consumption expenditure following the adoption of the latest government finance statistics data. One aggregate that was impacted by the balancing process was gross fixed capital formation on machinery and equipment. Upward revisions to the current price estimates were made in 2000-01 and 2001-02 as a result of confronting the supply and demand of the products in scope of this aggregate. Upward revisions were also made to the chain volume estimates of capital formation on machinery and equipment although the extent of the revision was noticeably smaller in 2000-01. This reflects a reassessment of the contributions of particular asset types which each showed different price movements in that year in particular the weight attributed to imported products. The analysis of price movements in 2000-01 is somewhat complex as it was the year in which the new tax system was introduced.
Aside from revisions made to GDP and its components a range of series through the income accounts, capital accounts, financial accounts and balance sheets have been revised due to the availability of updated source data. Of particular note is the revision to interest receivable by financial corporations which is matched by revisions to interest payable by households and non-financial corporations. A review of methods indicated that the initial estimate of interest receivable by banks for 2001-02 had been substantially understated. The revised series is now more in line with available information on market interest rates and patterns of lending activity. Also of note is that financial accounts data have now been incorporated back to 30 June 1989 thus allowing the estimation of net worth for all sectors from that point onwards. Previously data only back to 30 June 1992 had been available.
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