Nature and purpose of national accounts
1.1 National accounts provide a systematic statistical framework for summarising and analysing economic events, and wealth of an economy and its components. Historically, the principal economic events recorded in national accounts have been production, consumption, and accumulation of wealth. National accounts have also recorded the income generated by production, the distribution of income among the factors of production and the use of the income, either by consumption or acquisition of assets. The modern accounts additionally record the value of the economy's stock of assets and liabilities, and record the events, unrelated to production and consumption, that bring about changes in the value of the wealth stock. Such events can include revaluations, write-offs, growth and depletion of natural assets, catastrophes, and transfers of natural assets to economic activity.
1.2 The national accounting framework has always consisted of a set of accounts that are balanced using the principles of double entry accounting. However, the accounts are now fully integrated in that there is a balance between the value of assets and liabilities at the beginning of an accounting period, the transactions and other economic events that occur during the accounting period, and the closing values of assets and liabilities. Accounts for the economy as a whole are supported by accounts for the various sectors of the economy, such as those relating to the government, households and corporate entities. The framework also embraces other, more detailed, accounts such as financial accounts and input-output tables, and provides for additional analyses through social accounting matrices and satellite accounts designed to reflect specific aspects of economic activity such as tourism, health and the environment. By applying suitable price and volume measures, the national accounts can be presented in real as well as current values, and time series of national accounts information can be adjusted to remove seasonal distortions and to disclose trends.
1.3 National accounting information can serve many different purposes. In general terms, the main purpose of national accounts is to provide information that is useful in economic analysis and formulation of macroeconomic policy. The economic performance and behaviour of an economy as a whole can be monitored using information recorded in the national accounts. National accounts data can be used to identify causal relationships between macroeconomic variables and can be incorporated in economic models that are used to test hypotheses and make forecasts about future economic conditions. Using national accounts data, analysts can gauge the impact of government policies on sectors of the economy, and the impact of external factors such as changes in the international economy. Economic targets can be formulated in terms of major national accounting variables, which can also be used as benchmarks for other economic performance measures, such as tax revenue as a proportion of gross domestic product or the contribution of government to national saving. Provided that the national accounts are compiled according to international standards, they can be used to compare the performance of the economies of different nations.
1.4 However, the full range of information available from a comprehensive national accounting system can serve purposes well beyond immediate concerns of macroeconomic analysts. For example, national accounts information can be used to analyse income and wealth distribution, financial and other markets, resource allocation, the incidence of taxes and welfare payments, environmental issues, productivity, industry performance, and so on. In fact, the range of analytical purposes that can be served by a complete system of national accounts has no well-defined limits, and the body of national accounts data can be seen as a multi-purpose data base that can be used with a high degree of flexibility.
1.5 The system of national accounts also provides a conceptual framework for other statistical systems. Surveys and other statistical systems that employ the concepts in the national accounting framework will produce information that is consistent with the national accounts and with other statistics that are based on the national accounts framework.
Brief history of national accounts
1.6 The idea of estimating national income can be traced back to the seventeenth century. Interest in raising revenue and in assessing England's war potential led to attempts by Sir William Petty in 1665 and Gregory King in 1688 to estimate the national income as either the sum of factor incomes or the sum of expenditures. A little later, Boisguillebert and Vauban used a similar approach in estimating France's national income.
1.7 The eighteenth century French economists called the Physiocrats took a step backwards when they restricted the concept of national income by arguing that only agriculture and the extractive industries were productive. But Quesnay, one of the Physiocrats, set out the interrelationships between the various activities in the economy in his tableau economique, published in 1758, which was the forerunner of the twentieth century work on input-output statistics.
1.8 Adam Smith, in his Wealth of Nations, rejected the Physiocrats' view of the pre-eminent position of agriculture, by recognising manufacturing as another productive activity. However, Smith and the early classical school of economists that he founded did not recognise the rendering of services as productive activity. Karl Marx was also of this view and the notion persisted in the material product system of national accounts that was used, until recently, by the centrally planned economies (1).
(1) There is an international standard for material product balances: United Nations Statistical Office, Basic Principles of the System of Balances of the National Economy, Studies in Methods, Series F, No. 17, UN, New York, 1971.
1.9 Some English economists, in particular Ricardo and Marshall, further refined the concept of production; and in the 1920s the welfare economists led by Pigou undertook the first effective measurement of national income.
1.10 The Great Depression of the 1930s, and the attempts by Keynes and others to explain what was happening to the world economy, led economists away from their preoccupation with national income as a single measure of economic welfare. Instead, they attempted to use the new Keynesian General Theory to develop a statistical model of the workings of the economy that could be used by government to develop prescriptions for a high and stable level of economic activity. By the end of the 1930s, the elements of a national accounting system were in place in several countries. The models of Ragnar Frisch and Jan Tinbergen stand out in this period as path-breaking achievements.
1.11 The economic modelling task was given further impetus in the 1940s; first, by the need to efficiently run war-time economies; second, by the publication in 1941 of Wassily Leontief's classic input-output study The Structure of the American Economy; third, by the post-war acceptance by governments of full responsibility for national and international economic management; and last, by the League of Nations publication of an important report about social accounting. By the end of the decade, integrated statistical reporting systems and formal national accounting structures were in place in Australia, the United States, the United Kingdom, Canada, the Scandinavian countries, the Netherlands and France.
1.12 The need of international organisations for comparable data about the economies of member countries was one important factor that prompted development of international standards for national accounting in the late 1940s and early 1950s. The Organisation for European Economic Co-operation sponsored the work of Richard Stone's National Accounts Research Unit at Cambridge University, from which emerged the now-familiar summary accounts of the nation (2). Then the United Nations Statistical Office convened its first expert group on the subject. It was also headed by Stone and, in 1953, produced the publication A System of National Accounts (SNA) (3), which described the first version of the system that has become the accepted world-wide standard for producing national accounts.
(2) Office of European Economic Co-operation, National Accounts Studies, Paris, 1951-53; and Office of European Economic Co-operation, A Standardised System of National Accounts, Paris, 1952.
(3) United Nations, A System of National Accounts and Supporting Tables, Studies in Methods, Series F, No. 2, UN, New York, 1953.
1.13 There were several other important developments in national accounting in the 1950s. M.A. Copeland and his colleagues in the United States Federal Reserve System prepared the first flow-of-funds tables, which analysed transactions in financial markets. A few countries increased the frequency of national accounts information by producing quarterly estimates of national income and expenditure (so that their governments could better monitor the business cycle) and also produced information classified by industry and institutional sector (to identify growth industries, poorly performing institutional sectors etc.).
1.14 National accounting's modern era could be said to have started in 1968. In that year, the United Nations Statistical Office published a fully revised version of the SNA, which drew together all the various threads of economic accounting: estimates of national income and expenditure (including estimates at constant prices); input-output production analysis; flow-of-funds financial analysis; and balance sheets of national wealth (4). In 1977 the United Nations Statistical Office published detailed international guidelines on the compilation of balance sheet and reconciliation accounts within an SNA framework (5).
(4) Statistical Office of the United Nations, A System of National Accounts, Studies in Methods, Series F, No. 2 Rev. 3, UN, New York, 1968.
(5) United Nations Statistical Office, Provisional International Guidelines on the National and Sectoral Balance-sheet and Reconciliation Accounts of the System of National Accounts, Statistical Papers, Series M, No. 60, UN, New York, 1977.
1.15 Since 1968, changes in the structure and nature of economies, the increasing sophistication and growth of financial markets and instruments, emphasis on the interaction of the economy with the environment and other considerations pointed to a need to update the SNA. The task of updating and revising the SNA was coordinated from the mid 1980s by the Inter-secretariat Working Group on National Accounts, working with the assistance of international organisations and experts from national statistical offices around the world. The Working Group consisted of the Commission of the European Communities (Eurostat), the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations and the World Bank. The resulting System of National Accounts 1993 (referred to as SNA93) was released under the auspices of those five organisations (6).
(6) Commission for the European Communities, International Monetary Fund, Organisation for Economic Co-operation and Development, United Nations and World Bank, System of National Accounts 1993, Brussels/Luxembourg, New York, Paris, Washington D.C., 1993.
1.16 SNA93 aims to clarify and simplify the 1968 System, while updating the System to reflect new circumstances. SNA93 fully integrates national income, expenditure and product accounts, input-output tables, financial flow accounts and national balance sheets to enable the examination of production relationships and their interaction with countries' net worth and financial positions. SNA93 also introduces the concept of satellite accounts to extend the analytical capacity of national accounts in areas such as tourism, health and the environment.
1.17 SNA93 is one of a planned quartet of 'harmonised' international statistical standards that also include the standards set out in the IMF publications Balance of Payments Manual 1993 (fifth edition) (BPM5), Manual of Monetary and Financial Statistics (MMFS) (soon to be released), and A Manual of Government Finance Statistics (second edition) (GFS) (still under development). In this context, 'harmonisation' means that the standards employ common concepts and definitions so that valid comparisons can be made of statistics produced from each of the four systems. However, because each system serves different purposes, complete alignment of the standards is neither feasible nor necessary. Each system therefore has a proportion of unique concepts and definitions. Because Australia's policy is to apply each of the standards to the highest feasible degree, a high level of harmonisation will be found between the ASNA and Australia's balance of payments, government finance, and monetary and finance statistics. The relationships between the ASNA and the other statistics are discussed in Chapter 2.
National accounts in Australia
1.18 Australia pioneered work on national wealth in 1890 when Coghlan (the New South Wales Government Statistician) prepared rudimentary balance sheets for New South Wales. However, it was not until almost sixty years later, at the Conference on Research in Income and Wealth in 1948, that national balance sheets again received serious international attention.
1.19 The first official estimates of national income for Australia (based on estimates prepared by Clark and Crawford) were published in 1938 in The Australian Balance of Payments, 1928-29 to 1937-38, although unofficial estimates by several economists had been published in the 1920s and 1930s (7). In 1945, the first official set of national accounts was prepared by the then Commonwealth Bureau of Census and Statistics (CBCS) and published in the Commonwealth Budget Paper Estimates of National Income and Public Authority Income and Expenditure.
(7) Clark, Colin & Crawford J.G., The National Income of Australia, Angus and Robertson, Sydney, 1938; Commonwealth Bureau of Census and Statistics, The Australian Balance of Payments, 1928-29 to 1937-38, AGPS, Canberra, 1938; the earlier unofficial estimates are discussed in N.G. Butlin, Australian Domestic Product, Investment and Foreign Borrowing, 1861 to 1938-39, Cambridge, 1962, Ch. 2.
1.20 The 1960s and early 1970s were times of significant development for Australian national accounting. The first official quarterly estimates of national income and expenditure were published in December 1960 (8). In 1963 the CBCS published the first Australian National Accounts: National Income and Expenditure (ANA) bulletin, which included the first annual constant price estimates for Australia (9). Experimental input-output estimates were published in 1964 (10). The CBCS began to seasonally adjust its quarterly estimates of national income and expenditure in 1967. Estimates of gross product by industry at constant prices were published for the first time in 1969 (11). In 1971, the CBCS first published seasonally adjusted, constant price quarterly estimates of national income and expenditure, which later proved to be among the most used of all national accounting estimates. The CBCS published estimates of national income and expenditure based on the revised SNA (1968 version) in 1973, and also published the first official input-output statistics (12) in the same year.
(8) Commonwealth Bureau of Census and Statistics, Quarterly Estimates of National Income and Expenditure, CBCS, Canberra, 1960.
(9) Commonwealth Bureau of Census and Statistics, Australian National Accounts: National Income and Expenditure, 1948-49 to 1961-62, CBCS, Canberra, 1963.
(10) Commonwealth Bureau of Census and Statistics, Australian Input-Output Tables, 1958-59, CBCS, Canberra, 1964.
(11) Commonwealth Bureau of Census and Statistics, Estimates of Gross Product by Industry at Current and Constant Prices, 1959-60 to 1965-66, CBCS, Canberra, 1969.
(12) Commonwealth Bureau of Census and Statistics, Australian National Accounts: Input-Output Tables, 1962-63, CBCS, Canberra, 1973.
1.21 In the 1980s, the former CBCS, now called the Australian Bureau of Statistics (ABS), again made significant progress in national accounting. The first full edition of Australian National Accounts: Concepts, Sources and Methods was published in 1981 at about the same time as the first experimental estimates of capital stock (13). The ABS conducted a study into the accuracy and reliability of the quarterly estimates of national income and expenditure and published the results in 1982 (14). Experimental State accounts (15) were published in 1984, followed by the first official estimates in 1987 (16). They are now published annually in Australian National Accounts: State Accounts (Cat. no. 5220.0). A subset of major State statistics is published in Australian National Accounts: Quartery State Details (Cat. no. 5206.0.40.001). In 1985, the ABS published an assessment of the effects of rebasing constant price estimates from a 1979-80 base to a 1984-85 base (17). In 1986, the second set of experimental estimates of capital stock was published (18) followed in 1987 by the first official estimates of capital stock (19). The first quarterly estimates of constant price gross product by industry were released in 1988 (20). These estimates have now been incorporated into the quarterly Australian National Accounts: National Income, Expenditure and Product (Cat. no. 5206.0).
(13) Bailey, Cherylee, Studies in National Accounting: Current-cost and Constant-cost Depreciation and Net Capital Stock, ABS, Canberra 1981.
(14) Johnson A.G. , The Accuracy and Reliability of the Quarterly Australian National Accounts, ABS, Canberra, 1982.
(15) Burrell S. , Daniel J. , Johnson A. and Walters R. , State Accounts, Australia: Issues and Experimental Estimates, ABS, Canberra, 1984.
(16) Australian Bureau of Statistics, Australian National Accounts: State Accounts, 1985-86, ABS, Canberra, 1987.
(17) Dippelsman R.J. , The Effects of Rebasing the Constant Price Estimates of the Australian National Accounts, ABS, Canberra, 1985.
(18) Walters R. and Dippelsman R. , Estimates of Depreciation and Capital Stock, Australia, ABS, Canberra 1986.
(19) Australian Bureau of Statistics, Australian National Accounts: Estimates of Capital Stock, 1985-86, ABS, Canberra, 1987.
(20) Australian Bureau of Statistics, Australian National Accounts: Gross Product, Employment and Hours Worked, June Quarter 1988, ABS, Canberra, 1988.
1.22 Further significant developments in national accounting and associated statistics occurred during the 1990s. An updated edition of Australian National Accounts: Concepts, Sources and Methods was published in 1990 (subsequently available on CD-ROM), the same year as the first estimates of multifactor productivity were published (21). In 1990, the ABS also published developmental flow of funds accounts, showing the changes in financial assets and liabilities arising from the financing of productive activity in the economy (22). Flow of funds estimates are now published on a quarterly basis, along with estimates of stocks of financial assets and liabilities at the end of each quarter. An Information Paper describing the impact of rebasing constant price estimates from a 1984-85 base to a 1989-90 base was published in 1993 (23). Experimental estimates of national balance sheets for Australia were first released in 1995 (24), followed by the publication of regular annual national and sector balance sheet estimates in 1997.
(21) Australian Bureau of Statistics, Occasional Paper: Estimates of Multifactor Productivity, Australia, ABS, Canberra, 1990.
(22) Australian Bureau of Statistics, Information Paper: Australian National Accounts: Flow of Funds Developmental Estimates, ABS, Canberra, 1990.
(23) Australian Bureau of Statistics, Information Paper: Australian National Accounts: Introduction of Constant Price Estimates at Average 1989-90 Prices, ABS, Canberra, 1993.
(24) Australian Bureau of Statistics, Occasional Paper: National Balance Sheets for Australia: Issues and Experimental Estimates, 1989 to 1992, ABS, Canberra, 1995.
1.23 SNA93 was formally introduced into the national accounts in the September quarter 1998 issue of Australian National Accounts: National Income, Expenditure and Product (Cat. no. 5206.0), which was released in December 1998. Prior information on the nature and impact of implementation of the revised standards and methods was provided in a series of discussion and information papers as follows:
- Discussion Paper: Introduction of Revised International Statistical Standards in ABS Macro-economic statistics (Cat. no. 5245.0), December, 1994.
- Information Paper: Implementation of Revised International Standards in the Australian National Accounts (Cat. no. 5251.0), September, 1997.
Preliminary data on an SNA93 basis were made available in re-releases of the following publications:
- Information Paper: Introduction of Chain Volume Measures in the Australian National Accounts (Cat. no. 5248.0), March, 1998.
- Australian National Accounts: National Income, Expenditure and Product (Cat. no. 5206.0), June quarter, 1998 re-released in November 1998 in Information Paper: Upgraded Australian National Accounts (Cat. no. 5253.0).
The first annual national accounts publication on an SNA93 basis was Australian System of National Accounts, 1997-98 (Cat. no. 5204.0), which was released in April 1999. This publication provided comprehensive national and sectoral accounts, including balance sheets, as well as estimates of capital stock and multifactor productivity.
1.24 The standards set out in SNA93 are designed to be applied with a degree of flexibility, and Australia's implementation of the standards reflects local conditions and requirements. Furthermore, decisions have been made in isolated instances to depart from the standards because of strong user preference for an alternative view. Such departures are noted at appropriate points in this manual. The departures are relatively minor and, consequently, they do not affect the comparability of national accounts information reported by the ABS to international organisations such as the UN and the OECD to a significant extent.
Purpose of this manual
- Australian National Accounts: Financial Accounts (Cat. no. 5232.0), June quarter, 1998 re-released in December 1998 in Information Paper: Upgraded Australian National Accounts: Financial Accounts (Cat. no. 5254.0).
1.25 The main purpose of this manual is provide users of the ASNA with an in-depth understanding of the national accounts statistics as an aid to more effective use and interpretation of the statistics. A detailed understanding of the underlying statistical standards and concepts, and of the methods used to compile the statistics, should enable users to make better judgements about the economic significance, quality and accuracy of the statistics. To achieve this aim, the manual provides an updated account of the concepts, sources and methods used to compile the Australian national accounts statistics. The concepts underlying the ASNA, based on SNA93, are discussed in Chapters 3 to 10 of the manual. These chapters provide an overview of the conceptual framework, and a detailed discussion concerning each of the main elements of the framework, including institutional units and sectors, statistical units and industries, accounting rules, the accounting framework, supply and use tables, and price and volume measures. Chapters 11 to 28 outline the sources of information from which the national accounts statistics are compiled and the methods employed to derive the final statistics from the source data. A discussion of issues relating to the quality of Australia's national accounts is provided in Chapter 29. A number of Appendices are also included to provide additional information on particular aspects of the national accounting, such as the classifications underlying the accounts, differences between the ASNA and SNA93, seasonally adjusted and trend estimates, and the introduction of the goods and services tax.
1.26 A wide spectrum of audiences requires information about national accounts concepts, sources and methods. These range from users with broad, general needs for information about the main aggregates to those with highly specialised needs relating to particular data items. The main categories of users, and their likely needs, are set out below:
- students at upper high school level or undergraduate level at university - the need is for a broad understanding of the conceptual framework, how the numbers are put together, and the main outputs (publication tables, written and graphic analysis, and explanatory notes) to gain an appreciation of the current performance of the Australian economy;
- financial journalists - the need is for a broad understanding of the conceptual framework, how the numbers are put together, and the main outputs, to support media comment on the current performance of the Australian economy. These users may need to delve deeper on particular aspects;
- teachers/teaching academics - a broad understanding of the conceptual framework, how the numbers are put together, and the main outputs, to support teaching about Australia’s economy. These users may also need to delve deeper on particular aspects;
- financial sector economists, economists working for interest groups, national and international investors, public sector economists in other countries, and international credit rating agencies - a reasonably detailed understanding of the conceptual framework, the sources and how the numbers are put together, to support their interpretation of the statistics and advice to their organisations and clients;
- international agencies such as the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the World Bank and the United Nations Statistics Division - generally these agencies require a reasonably detailed understanding of all aspects of the statistics, and their uses encompass monitoring the extent of country adherence to international standards and practices, the compilation of country groupings and world economic statistics, and modelling work to support the preparation of country reports;
- academic researchers - a reasonably detailed understanding of the conceptual framework, the sources, and how the numbers are put together, with more detail on particular accounts/items to support research and modelling;
- national accounts compilers in other countries - a reasonably detailed understanding of Australian sources and methods, with more detail on particular accounts/items, to compare with their own practices; and
1.27 For students and others who need only a broad understanding of the national accounts statistics, the ABS publication Measuring Australia’s Economy (Cat. no. 1360.0) provides a brief overview of the concepts, structure and classifications of these and the other major economic statistics published by the ABS. The present concepts, sources and methods document should prove a useful extension, but for the most part it may be too detailed for this audience. These users should read Chapters 3 to 10, but may avoid the more detailed material. Some years ago the ABS published A Guide to Australian National Accounts (Cat. no. 5235.0), aimed at the more general user. That document is still relevant and helpful, but needs to be updated because there have been changes to some of the key concepts, classifications and presentations of the statistics. The ABS plans to update that publication at a later date.
1.28 The present document is aimed mainly at the user of national accounts statistics who is interested in the more detailed aspects. However, it is not a complete description of the ABS national accounts methodology. That task would require a much larger publication. Also, given the constantly changing economic environment and the need for frequent evaluation of and changes at the margin to data sources and methods, this publication would quickly become out of date. Rather, this publication aims to provide a substantial guide to what the ABS does to compile national accounts statistics. Even so, the publication will become out of date over time, and users should keep abreast of changes to data sources and methods which are announced from time to time in the quarterly and annual national accounts publications (Cat. nos 5206.0 and 5204.0). It is intended to update the present publication periodically.
- the Commonwealth Treasury, the Reserve Bank of Australia, the Productivity Commission and other public sector economists - a reasonably detailed understanding of Australian sources and methods to support their interpretation of the numbers and forecasting of national accounting aggregates.