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INTRODUCTION

This section presents the general methodology used to estimate GSP(P) and the results for each state. A brief description of the methodology used for the Australian estimates which are published in Australian System of National Accounts (ASNA) (cat. no. 5204.0) is also provided. The state methodology is then presented, followed by a comparison of the three GSP measures across all states and a more detailed examination of each state's estimates.

Methods for Australia volume estimates

The annual Australia level volume estimates of GVA for each industry (except for the latest year) are derived in the annual supply and use tables using double deflation, i.e. by subtracting volume estimates of intermediate input from volume estimates of output. Due to data constraints this approach cannot be applied for the latest year (or on a quarterly basis) except for the Agriculture subdivision.

The quarterly and latest year annual volume estimates of industry GVA for Australia are derived by using different indicators for each industry to interpolate and extrapolate the supply use benchmark estimates. Most of the indicators are output indicators. These are based on either sales data deflated by a suitable price index to obtain sales volumes, or on physical quantities produced. The method involves extrapolating reference year estimates of current price GVA using movements in a volume indicator of output. One exception to the use of output or input indicators is the Agriculture sub-division within the Agriculture, forestry and fishing industry where a double deflation approach is used.

For more information about the Australia level methodology, please refer to Australian System of National Accounts: Concepts, Sources and Methods (cat. no. 5216.0), Chapters 12 and 24.

Methods for State volume estimates

The same methods currently used to derive Australian level annual volume estimates of industry GVA have been used, where possible, in developing the GSP(P) approach. There are two reasons for this choice. First, the cost of developing and maintaining the data set required for double deflation based estimates by state is prohibitive. Second, it is considered that, even if state output and input data by industry were available, these data would almost certainly be of lower quality than the corresponding national data. Hence deriving GVA as their difference would be likely to produce unsatisfactory results due to the compounding of errors in the double deflation approach.

Assumptions have been made, or alternate indicators have been used, on occasions where data availability has limited the application of the national quarterly method.

The following diagram provides a brief overview of the general methodology for the GSP(P) estimates.

In order to align with the total national industry factor income estimates published in table 57 of the Australian System of National Accounts, the General Government Gross operating surplus by state in tables 24 to 31 in the Australian National Accounts, State Accounts has been re-allocated to all industries using public employment data by industry by state from the ABS Employee Earnings and Hours, Australia (cat. no. 6306.0).

The GSP(P) method uses an output indicator approach for most industries to compile state by industry GVA estimates. This involves extrapolating reference year estimates of current price GVA using movements in a volume indicator of output. A double deflation methodology is used for the Agriculture sub-division within the Agriculture, forestry and fishing industry.

There are two basic approaches for producing volume indicators, price deflation and quantity revaluation. Price deflation is the more commonly used approach.

Price deflation involves dividing a price index into a current price value of sales or turnover to obtain an output volume indicator. For example, the current price sales for Property and business services is deflated using the corresponding price index from the Producer Price Index (PPI) to produce a volume output indicator for that industry.

Quantity revaluation is used when there are individual commodities that are reasonably homogeneous in content and are not subject to quality change. A quantity (e.g. tonnes of coal, ounces of gold, etc.) is required for each time period. For an individual commodity, the estimates of quantity in each period provide the output volume indicator. The output indicators for the commodities produced within an industry are then weighted together using estimates of the value of each commodity produced to derive an overall volume output indicator for the industry. The value of commodities used as weights is either a value of sales or is obtained by multiplying the quantities by a relevant price.

Some industries only use price deflation while others use a combination of price deflation and quantity revaluation to produce an industry level estimate.

These two methods provide the output volume indicator which is then used (with corresponding price information) to produce a chain volume measure for each industry.

Once each state's current price and volume GVA estimates have been derived for each industry and Ownership of dwellings they are then benchmarked to the Australian total for each industry. This is to ensure that the sum of the states for each industry equals the Australian total as published in Australian System of National Accounts. Each state's benchmarked industry GVA estimates (current prices and chain volume measures) are then summed to produce GVA at basic prices for each state.

In order to derive GSP(P) for each state, Taxes less subsidies on products needs to be added to each state's GVA at basic prices.

GSP measures

Currently the ABS compiles two different measures of GSP, GSP(I) which uses the income approach and GSP(E) which uses the expenditure approach. Both measures are currently published in Australian National Accounts: State Accounts.

GSP(I) is calculated for each state by adding compensation of employees, gross operating surplus, gross mixed income, taxes less subsidies on production and imports, and the Australian statistical discrepancy.

GSP(E) is calculated for each state by adding all final expenditures (general government and household final consumption expenditures and, private and public gross fixed capital formation), exports less imports of goods and services and a balancing item. The balancing item includes changes in inventories, total net interstate trade and the statistical discrepancy. The statistical discrepancy includes the difference between the GSP(E) estimate and the GSP(I) estimate.

The ABS currently produces volume measures by deflating current price GSP(I) using deflators compiled using the available data within the GSP(E) framework. It is not possible to deflate the components of income to produce volume measures because the components do not have readily identifiable price and quantity elements.

To compile the aggregate GSP(E) deflator, current price and volume estimates are compiled for each state for State Final Demand, International trade in goods and services, Interstate trade and Changes in inventories (the latter two components are constructed via an economic model and by dissecting national aggregates respectively). The quotient derived by dividing the aggregate volume measures into the current price values produces an implicit price deflator which is used to deflate the current price estimate of GSP(I) to produce the current official volume estimates of GSP(I/E).

For more information about this methodology, please refer to Australian System of National Accounts: Concepts, Source and Methods, Chapter 28.

It is important to note the aggregate current and volume measures used in deriving this deflator are not considered to be complete measures. They merely serve to produce the best deflators for the income based measure of GSP given the available data and resources.

All of the published data presented in this paper are consistent with the 2005-06 editions of Australian System of National Accounts and Australian National Accounts: State Accounts.

Comparisons of GSP(P) with GSP(I/E) for each state as well as with GSP(A), the simple average of GSP(P) and GSP(I/E), are presented in this paper. These comparisons are presented by chain volume measure estimates at the state level.

The development of the volume estimates of GSP(P) will also have an impact on the presentation of the current prices estimate of GSP. The volume measure of GSP(P) will be reflated using the GSP(E) deflator to produce a current price GSP(P). This will then be used with the existing current price GSP to calculate a simple average of GSP in current prices. This is will result in a statistical discrepancy for the individual measures of current price GSP.

New headline measure of GSP

The replacement of GSP(I/E) with GSP(A) as the headline measure will result in changes to the level and growth rates of GSP for all states.

As illustrated by the table below, the difference between GSP(A) and GSP(I/E) growth rates are generally small for all states except in 2005-06 for the Northern Territory where the difference is 2.0 percentage points.

GSP(A) and GSP(I/E), Chain volume measures
	GSP(A)			GSP(I/E)
	Annual growth 2005-06	Average annual compound growth rates (1995-96 to 2005-06)		Annual growth 2005-06	Average annual compound growth rates (1995-96 to 2005-06)
	%	%		%	%
New South Wales	1.5	3.3		1.4	2.9
Victoria	2.4	3.2		2.7	3.6
Queensland	5.1	4.8		4.9	5.0
South Australia	1.8	3.1		2.2	2.7
Western Australia	4.7	4.0		4.9	4.3
Tasmania	2.7	2.8		3.1	2.1
Northern Territory	5.5	4.0		7.5	3.3
Australian Capital Territory	3.9	3.0		3.4	2.8
Australia	2.8	3.7		2.8	3.6

• Data and results on the three different measures of GSP in volume terms, both levels and growth rates. Data are presented from 2000-01 to 2005-06. Graphs of volume growth rates for the three GSP measures are shown for the full span of the time series, from 1990-91 to 2005-06.
• Graphs of the difference between GSP(A) and GSP(I/E) growth rates are presented for the full time series, 1990-91 to 2005-06.
• GVA industry contributions to growth in chain volume terms. Data are presented from 2000-01 to 2005-06.