5216.0 - Australian National Accounts: Concepts, Sources and Methods, 2000  
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Contents >> Chapter 3: Overview of the conceptual framework


3.1 The conceptual framework of the ASNA is based on the standards set out in SNA93. At this stage of its development, the ASNA does not include all of the elements of the SNA93 framework, although Australia's implementation of SNA93 is extensive relative to the implementation of most other countries. Also, although the concepts and definitions used in the ASNA generally conform with the standards set out in SNA93, some minor variations have been adopted to allow for particular Australian data supply conditions or user requirements. Such variations are noted at appropriate points in this publication.

3.2 The ASNA records the essential elements of the Australian economy: production, income, consumption (intermediate and final), accumulation of assets and liabilities, and wealth. These elements comprise economic flows and stocks that are grouped and recorded, according to specified accounting rules, in a set of accounts for the economy as a whole and for various sectors and subsectors. The sectors and subsectors comprise groups of institutional units with the same economic role. Statistics are also produced for industries, which comprise groups of producing units with common outputs. At a more detailed level, input-output statistics are produced that record the supply and use of different types of goods and services, or commodities, by the various industries. Many of the statistics in the ASNA are compiled in volume (real) as well as current price (nominal) terms by application of SNA93 recommendations for price and volume measures. Each of the foregoing major elements of the ASNA is described in the following broad overview of the ASNA conceptual framework.

Economic concepts and the national accounts

3.3 Production is the process whereby inputs of labour, materials, accumulated capital assets and knowledge are applied to provide outputs of goods and services. As recommended in the SNA93, the ASNA measure of production does not include the value of unpaid domestic services produced and consumed within households (sometimes called 'unpaid household work'), although the ABS has published separate estimates of unpaid work (which comprises unpaid household work and volunteer and community work) in information and occasional papers relating to the periods 1986-87, 1992 and 1997 (Cat. nos. 5236.0 and 5240.0). The ABS is also exploring the possibility of developing household satellite accounts to provide more information about productive activity within the household. Although the SNA93 recommends coverage of all forms of illegal production, for practical reasons such production is generally not covered in the ASNA. Production includes provision of goods and services free of charge or at nominal prices by governments and non-profit institutions. Production in the ASNA also includes imputed values for services provided by owner-occupied dwellings, backyard production of food and other goods by households for their own consumption, services provided by financial institutions for which no explicit charges are made, and services provided by owner-builders in the construction and alteration of dwellings.

3.4 The measure of production for the economy as a whole is gross domestic product (GDP). GDP is the sum, for a particular period, of the gross value added of all resident producers, where gross value added is equal to output less intermediate consumption (both of which are defined below). GDP less consumption of fixed capital (depreciation) is called net domestic product. GDP can also be derived as the sum of factor incomes (i.e. compensation of employees, gross operating surplus and gross mixed income) and net taxes on production and imports; and as the sum of all final expenditures by residents (final consumption expenditure and gross fixed capital formation), changes in inventories and exports less imports of goods and services.

3.5 Output consists of the value of goods and services produced within a producing unit and available for use outside the unit. Output includes work-in-progress and finished goods produced during the accounting period that have not been sold and are therefore held in inventories. Market output is output that is intended for disposal at economically significant prices. These are prices which have a significant influence on the amounts producers are willing to supply and purchasers wish to buy. Accordingly, market output is valued using market prices, which are generally transaction prices. Non-market output includes output produced for the producer's own final consumption, own-account capital formation and output that is intended for disposal at prices that are not economically significant, such as the output of government units and most non-profit institutions. Non-market output is valued according to costs incurred or by reference to market prices for analogous goods or services.

3.6 Intermediate consumption consists of the value of goods and services consumed in the production process, other than depreciation of fixed assets. (Depreciation is recorded separately as consumption of fixed capital.) Intermediate consumption includes the value of goods transformed in the production process, goods and services consumed entirely in the process, and consumption of ancillary services (e.g. accounting, marketing, transportation, storage) within the institutional unit undertaking the production.

3.7 There are several measures of income in the ASNA. Primary income consists of factor incomes, such as compensation of employees, gross operating surplus and gross mixed income, taxes less subsidies on production and imports, and property incomes, such as interest, dividends, rent on land and subsoil assets, and reinvested earnings of direct investors. Gross national income equals total factor incomes, plus taxes less subsidies on production and imports, plus net primary income receivable from non-residents. Gross national income less consumption of fixed capital is called net national income. Secondary income consists of current transfers. Transfers are resources provided from one institutional unit to another for which nothing of economic value is provided in return. Current transfers include taxes on income and wealth, social contributions (e.g. for workers compensation) and benefits (e.g. unemployment benefits), current grants between governments, and donations to non-profit institutions. Gross disposable income is equal to the balance on the sums of primary and secondary incomes payable and receivable.

3.8 Compensation of employees includes wages and salaries (paid in cash and in kind) and employer social contributions, on behalf of employees, to 'social insurance schemes' to provide benefits, such as retirement benefits, to the employees. Wages and salaries in kind can include meals, housing, uniforms, vehicles available for personal use, transportation, child care, etc.

3.9 The primary income of corporations is gross operating surplus, which is the excess of gross output over the sum of intermediate consumption, compensation of employees, and taxes less subsidies on production and imports. Gross operating surplus is also calculated for general government, where it equals consumption of fixed capital, and for dwellings owned by persons. Gross mixed income is the surplus on production of unincorporated enterprises. It includes a return to the owners' labour and capital inputs - hence the term 'mixed income'.

3.10 Final consumption expenditure is expenditure on goods and services that are used for direct satisfaction of individual or collective needs and wants. It excludes expenditure on valuables and non-produced non-financial assets and is recorded only for the households sector (which, in the ASNA, includes non-profit institutions serving households) and the general government sector. Household final consumption expenditure includes goods and services purchased by households (including non-profit institutions serving households) as well as the value of goods produced by households for their own consumption and the imputed value of the services of owner-occupied dwellings (but not expenditures on the purchase of dwellings). Household final consumption expenditure also includes the acquisition by households of consumer durables (e.g. motor vehicles, televisions, washing machines) even though such goods provide a stream of services to their owners over their lifetimes. Government final consumption expenditure covers all government expenditure on goods and services provided to individuals and the community. It is equal to the value of government non-market output less the value of any sales of that output.

3.11 Saving represents that part of disposable income that is not spent on consumption. It can be measured, for the economy as a whole or for individual sectors and subsectors, on a 'gross' basis (gross disposable income less final consumption expenditure) or on a 'net' basis (gross saving less consumption of fixed capital).

3.12 Accumulation represents net additions to net worth that occur in the accounting period. It comprises the acquisition and disposal of assets and liabilities and changes in the value of assets and liabilities arising from revaluations and other changes in the volume of assets such as write-offs, catastrophic losses, mineral discoveries and growth of natural resources. In the ASNA, acquisitions and disposals of non-financial assets are recorded in the capital account. Acquisitions and disposals of financial assets and liabilities are recorded in the financial account. Revaluations and other changes in the volume of assets are recorded in an account that reconciles the values of assets and liabilities recorded in the opening and closing balance sheets.

3.13 The acquisitions and disposals of non-financial assets shown in the capital account are broken down into gross fixed capital formation, net acquisitions of non-produced non-financial assets and changes in inventories. Gross fixed capital formation is the net result of the acquisition and disposal of fixed assets. (The 'gross' in gross fixed capital formation reflects the fact that the estimates are not adjusted for consumption of fixed capital.) Non-produced non-financial assets include land, subsoil assets and other natural assets. Conceptually, net acquisitions of valuables should also be recorded in the capital account, but as there is no reliable data source in Australia for such transactions this item is not included in the ASNA.

3.14 The net acquisition of non-financial assets is financed by gross saving (or net saving plus consumption of fixed capital) and capital transfers. The balance of the capital account is known as net lending/borrowing. If gross saving plus capital transfers exceeds the net acquisition of non-financial assets then there is a surplus that results in the accumulation of financial assets or a reduction in liabilities. On the other hand, a deficit on the capital account has to be financed by increased liabilities or by a reduction in financial assets.

3.15 The balance sheets record the economic concept of wealth. Balance sheets record the accumulated values of assets and liabilities at a particular point in time, valued using the prices as at that point in time. Net worth is equal to the value of assets less the value of liabilities.

3.16 The economic concepts underlying the national accounts are described in more detail in Chapter 4.

Institutional units and sectors

3.17 In SNA93, the basic unit for which economic activity is recorded is the institutional unit. An institutional unit is an economic entity that is capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and transactions with other entities. In the Australian system, the legal entity unit is closest to the SNA93 concept of the institutional unit. However, in the ASNA, the unit used is the enterprise, which can be a single legal entity or a group of related legal entities that belong to the same institutional subsector. Four main types of institutional units are recognised in SNA93 and the ASNA: households, non-profit institutions, government units and corporations (including quasi corporations).

3.18 Institutional units are grouped into institutional sectors according to their characteristics and institutional role. All households are allocated to the households sector. Corporations and quasi corporations are allocated to the non-financial corporations sector or the financial corporations sector according to whether their predominant function is production of goods and non-financial services or production of financial services, respectively. Government units are all allocated to the general government sector. The allocation of non-profit institutions depends on the nature of their operations. Those mainly engaged in market production are allocated to the relevant corporate sector. Those mainly engaged in non-market production are allocated to the general government sector if they are controlled and mainly financed by government, otherwise they are allocated to the non-profit institutions serving households sector. In the ASNA the non-profit institutions serving households sector is included in the households sector.

3.19 The various domestic sectors and subsectors include only resident institutional units. The concept of residency used is the same as used in balance of payments statistics, and is based on the requirement that, to be an Australian resident unit, an institutional unit must have a centre of economic interest in Australia's economic territory.

3.20 The concepts of institutional units and sectors are explained in more detail in Chapter 5.

Producing units and industries

3.21 For the purpose of providing statistics about production classified by industry, SNA93 specifies the use of narrower units than the institutional units described above, which are often too heterogeneous in terms of their productive activity to provide useful information about industries. The producing unit recommended in SNA93 is the kind-of-activity unit, which is a part of an institutional unit that engages in one productive activity. However, SNA93 also suggests that an alternative unit can be used, namely the establishment, which covers all productive activity at a single location.

3.22 In the ASNA, the most commonly used producing unit is the management unit, which is the largest unit within a business for which relevant accounts are kept, having regard for industry homogeneity. However, some statistics are compiled using the establishment unit. This unit differs from the SNA93 establishment unit as it consists of one or more of an enterprise's locations that engage in the same predominant production activity within an Australian State or Territory. There is a hierarchical relationship between establishments and management units: a management unit consists of one or more establishments within the parent enterprise.

3.23 In the ASNA, each establishment and management unit is classified to an industry that is defined in the Australian and New Zealand Standard Industrial Classification 1993 (ANZSIC), which is based on the principles and classification structure set out in the United Nations' International Standard Industrial Classification of All Economic Activities (ISIC). ISIC is the industry classification that the SNA93 recommends for use in national accounts.

3.24 Producing units and industries are discussed in more detail in Chapter 6.

Flows, stocks and accounting rules

3.25 The national accounts record economic flows and stocks. Economic stocks are assets (both financial and non-financial) and liabilities. Economic flows reflect the creation, exchange, transfer or extinction of economic value and involve changes in the volume, composition or value of assets and liabilities. In the national accounts, economic flows are divided between transactions and other flows. Transactions generally involve interactions by mutual agreement between institutional units, but include certain events that occur within institutional units, such as consumption of fixed capital and some types of production for the unit's own use. Other economic flows are changes in the value or volume of assets and liabilities that arise from events other than transactions. They include revaluations of assets and liabilities, and changes in the volume of assets arising from events such as mineral discoveries, catastrophic losses, depletion, write-offs, and growth of natural assets.

3.26 All entries in the national accounts should be recorded at the market price current at the time of recording. For exchanges of goods and services for cash, the transaction price is generally the appropriate value. Where no transaction price is available, reference is made to the market value of similar goods and services. When no market prices of equivalent goods and services are available, the goods and services are valued at cost. By convention, all non-market goods and services produced by government units and non-profit institutions are valued at cost. Some goods are valued by writing down (depreciating) the initial acquisition costs. Where none of the foregoing methods is feasible, use can be made of the present value of expected future returns. However, the method is not generally recommended, except where returns are delayed (e.g. as for some timber plantation assets and artistic originals).

3.27 SNA93 recommends that all economic flows be recorded in the national accounts on an accrual basis (i.e. when economic value is created, transformed, exchanged, transferred or extinguished). Accrual recording ensures that economic events are recorded consistently and without distortion arising from leads and lags in accompanying cash flows. In general, use of accrual recording means that (i) flows involving change of ownership are recorded when ownership changes; (ii) services are recorded when provided; (iii) distributive transactions, which are those associated with the distribution of income to owners of the factors of production, are recorded as amounts payable accumulate; (iv) interest is recorded as it accumulates rather than when it falls due for payment; (v) output is recorded as production takes place; and (vi) intermediate consumption is recorded when goods and services are used. For the most part a strict accrual basis of recording is applied in the ASNA, although special procedures, which are described in the relevant chapters, are sometimes required to estimate certain flows on an accrual basis. One exception relates to certain types of leave payments (e.g. payments for annual leave), which are recorded as compensation of employees when paid rather than when accrued.

3.28 In the national accounts, data are recorded in aggregates (which are the sums of the values of stocks and flows of a given type - e.g. total output) and balancing items (which are the differences between aggregates on each side of an account or between other balancing items - e.g. saving). A degree of netting is employed in the national accounts in as much as transactions with opposite sign are often combined (e.g. acquisitions and disposals of financial assets are recorded as 'net acquisitions'. Consolidation refers to the elimination from aggregates of transactions between units in the same sector or subsector. In the ASNA, for the most part, consolidation is generally confined to transactions within establishments, to transfers between institutional units within the general government and households sectors, and to transactions in used fixed assets within sectors. Transactions between establishments of the same enterprise are generally not consolidated. However, transactions in financial instruments and related income flows are fully consolidated.

3.29 Chapter 7 has more information on flows, stocks and accounting rules.

System of accounts

3.30 The main accounts in the ASNA are as follows:

      • gross domestic product (GDP) account, which records the value of production (GDP), the income from production and the final expenditures on goods and services produced;
      • income accounts, which show primary and secondary income transactions, final consumption expenditures and consumption of fixed capital. Net saving is the balancing item for these accounts;
      • capital accounts, which record the net accumulation, as the result of transactions, of non-financial assets; and the financing, by way of saving and capital transfers, of the accumulation. Net lending/borrowing is the balancing item for these accounts;
      • financial accounts, which show the net acquisition of financial assets and the net incurrence of liabilities. The balance on these accounts is the net change in financial position, which is conceptually equivalent to the net lending/borrowing balance in the capital account; and
      • balance sheets, which record the stock of assets, both financial and non-financial, and liabilities at a particular point in time. Net worth is the balance from the balance sheets.

The ASNA's accounts are based on the system of accounts outlined in SNA93. However, the ASNA's GDP and income accounts reflect the combination of the SNA93's production account and various income accounts. More details on the system of accounts are provided in Chapter 8.

Input-output framework

3.31 Input-output tables are essentially a disaggregation of the gross domestic product account. In the gross domestic product account only transactions representing final production are shown and intermediate production is netted out. Input-output tables on the other hand bring back into focus inter-industry flows of goods and services, thereby providing a more complete description of the process of economic production. They provide detailed information about the supply and disposition of commodities in the economy and the structure and interrelationships of industries. The conceptual basis for input-output tables is described in Chapter 9.

Volume and price measures

3.32 As well as being presented in current price terms - where current prices are those that are actually associated with particular transactions - expenditure and production aggregates are also presented in chain volume terms. The reason for this is to provide time series of estimates which are free of the direct effects of price change. Chain volume measures show how the quantities underlying the current price estimates change from one period to another.

3.33 The basic principle behind volume estimates is that unit prices are held constant from one period to the next. If, however, unit prices are held constant for too long then the quality of volume estimates deteriorates to the extent that relative prices change. To overcome this problem, the ABS compiles its volume measures using the 'chain' approach. Under this approach, the prices used to derive the volume estimates are updated frequently (i.e. annually). Longer term movement estimates are derived by linking together the annual movement estimates. In order to provide estimates with dollar values, the derived volume movement estimates are referenced to a particular year's current price estimates. More details on how the ABS compiles its chain volume measures can be found in Chapter 10.

3.34 Two types of price indexes are published for the expenditure aggregates in the national accounts. The first type - which is called an implicit price deflator (IPD) - is derived simply by dividing a chain volume estimate into the corresponding current price estimate. However, due to the nature of their construction, short-term (i.e. quarterly) movements in the IPDs are affected by compositional changes as well as price changes.

3.35 The other type of price index published in the national accounts is a chain price index. These indexes are analogous to the chain volume estimates, except that in their derivation it is the volumes that are held constant and not the prices.

3.36 Chapter 10 provides more information on IPDs and chain price indexes.

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