Feature Article - A new strategy for annual benchmarking of the Australian National Accounts
This article was published in Australian National Accounts: National Income, Expenditure and Product (Cat. No. 5206.0), Mar Qtr 2002
In 2001 the ABS experienced difficulties preparing the June quarter national accounts on time. The June quarter release is intended to be perfectly consistent with the subsequent annual national and state accounts publications and incorporates the latest annual benchmarks from the supply and use tables, but users will be aware that a number of inconsistencies occurred between the June quarter release and the subsequent annual and September quarter releases. This was largely due to the difficulties which were encountered in finalising the June quarter estimates. A new strategy has been developed to overcome these difficulties.
The approach used for the June quarter 2001 release (as well as the June quarter releases for earlier years) required completing most of the compilation of annual estimates up to the latest financial year within less than two months of the end of the latest year, including implementation of the annual benchmarks from the supply and use tables. In addition, the June quarter accounts themselves were compiled and earlier quarters recompiled as necessary. The new strategy spreads the workload over a longer period of time. The major change is to separate the compilation of the annual supply and use tables and their introduction (along with other annual data) into the national accounts from the compilation of the quarterly accounts, so that ABS staff can focus on each separately. It will allow annual State and Territory estimates to be analysed in conjunction with the rest of the accounts rather than being constrained by them. The new strategy also allows for more time between the end of the latest financial year a
nd the compilation of estimates for it.
The new strategy will not reduce the timeliness of publications-indeed it will improve that of the June quarter release-but it will have other consequences:
- the introduction of a new base year for the chain volume estimates and their re-referencing to it will continue to occur with the June quarter release, resulting in revisions to levels but only changes to growth rates for the latest year;
- revised annual benchmarks for years prior to the latest financial year will be introduced in the annual publications, rather than the June quarter release and the annual publications will continue to be released in November;
- in the September quarter release quarterly data in the gross domestic product account will be benchmarked to the revised annual estimates, but this release will pick up any revisions to quarterly data over the latest financial year; and so
COMPILATION OF THE NATIONAL ACCOUNTS IN RECENT YEARS
For the past three years the June quarter release has been the focal point of national accounts compilation. For these releases the ABS has aimed to:
- the annual publications will no longer be perfectly consistent with any quarterly publication.
- complete the compilation of the current and constant price supply and use tables (for at least three years);
- implement historical revisions as required;
- benchmark quarterly data to the latest supply and use tables and other annual data;
- complete the estimation of capital stock and associated statistics;
- compile all sector income and capital accounts (annual and quarterly);
- introduce a new base year for the chain volume estimates and re-reference the chain volume measures to it;
- undertake a seasonal re-analysis of all series; and
Because of the amount of additional work involved for the June quarter releases, they have typically come out a week later than for other quarters.
From a user perspective the 'June quarter' approach is very neat and timely, but experience over the last three years has shown it requires too much to be done in a relatively short period of time, particularly when major revisions have to be made. This is partly due to the significant increase in the complexity associated with estimating and implementing the results from the supply and use tables and the compilation of chain volume measures, and partly due to the late availability of key data. These pressures were particularly evident leading up to the June quarter 2001 release in which a major historical revision was made.
THE NEW STRATEGY
Given the difficulties that have been experienced the following strategy has been developed after discussion within the ABS and with key users of national accounts data. It attempts to break up the tasks currently completed for the June quarter and spread them over a longer period of time. The new strategy involves
- compile estimates for the latest quarter and apply revisions to recent quarters.
- For the June quarter release in early September (Australian National Accounts: National Income, Expenditure and Product (Cat. no. 5206.0))
- introduce a new base year for the chain volume estimates; and
- re-reference to it, and allow limited long-term revisions that do not affect GDP
- For the annual releases in early November (Australian System of National Accounts (Cat. no. 5204.0) and Australian National Accounts: State Accounts (Cat. no. 5220.0))
- complete compilation of the current and constant price supply and use tables (for at least three years);
- introduce historical revisions as required;
- benchmark to the latest supply and use tables and other annual data;
- complete compilation of capital stock and related statistics;
- compile all sector income and capital accounts (annual and quarterly); and
For the September quarter release in early December (Australian National Accounts: National Income, Expenditure and Product (Cat. no. 5206.0))
- compile annual State estimates and reconcile with the national estimates
- benchmark quarterly data to annual benchmarks;
- undertake seasonal re-analysis of all series; and
This reallocation of tasks gives a much more staged approach. The work should be easier to manage and should increase the capacity to produce high quality national accounts estimates. The two key gains from the revised timing are that it clearly separates annual work from quarterly work, thus allowing focus on the quarterly data at appropriate times, and it moves the requirement to complete the latest financial year's data from 7-8 weeks after the reference year to around 16 weeks.
There are also a number of advantages in separating the introduction of the latest base year and re-referencing the chain volume estimates from the other tasks, and continuing to do the former in respect of the June quarter release. First, the quality of volume estimates degrades the farther they are from the base year, and so if the introduction of the new base year was delayed a quarter there would be a small deterioration in quality. Second, it is easier to do an analysis of revisions due to the introduction of the new annual benchmarks without the confounding effect of re-referenced data. Third, the effects of re-referencing and re-benchmarking will be more transparent to users. Fourth, it is the existing practice for all the other ABS's chain volume estimates. Fifth, it allows a more even work flow.
Because of the separation between re-basing and re-referencing the chain volume estimates on the one hand and re-benchmarking on the other, it will be necessary to implement a preliminary balance of GDP for the new reference year in the June quarter release-prior to the completion of the first preliminary supply and use table. The preliminary balancing of GDP may cause revisions to the growth rate of GDP for that year but it is unlikely to be more than 0.1 percentage points over that year. All other annual growth rates prior to the new reference year will be unchanged. There will be some small revisions to movements in the chain volume estimates after the reference year due to the introduction of a new base year.
IMPLICATIONS FOR USERS OF THE NEW STRATEGY
There are a number of implications for users.
- complete estimates for the latest quarter and apply revisions to recent quarters.
- Anticipated positive implications for data quality. The ability to focus separately on annual and quarterly data should lead to an increased capacity to analyse and confront data. This is particularly the case for annual data emerging from the supply and use system but is also true for the quarterly data produced for the June quarter release. The new timing also allows for State data to be considered concurrently with annual Australia level benchmarks with feedback to the Australian level data should any unusual data points be identified. This shoud improve the quality of the annual State estimates.
- June quarter releases will no longer be delayed. That is, the June quarter release will follow the same timing as other quarterly releases being in the first week of the third month following the reference quarter.
- The introduction of benchmark information for years prior to the latest financial year will be delayed by one quarter. Compilation of the annual supply and use tables will not be completed in time for the June quarter accounts, and so their introduction will be postponed until the annual accounts and the September quarter accounts.
- There will still be revisions in the June quarter accounts, but they will be of a restricted nature.
- In general revisions due to source data changes will not be made prior to the beginning of the previous financial year for the March, June and December quarter releases. The general practice will be to introduce revisions for earlier years into the annual national accounts (released in November) and the September quarter accounts (released in December).
- An important exception to this policy will be allowed in the June quarter release in respect of data from Balance of Payments and International Investment Position, Australia (Cat. no. 5302.0). Revisions for earlier years in both the quarterly national accounts (5206.0) and 5302.0 will be allowed for all data other than those which figure in the gross domestic product account. Those data which appear in the gross domestic product account (i.e. exports and imports of goods and services) will not be revised prior to the latest financial year in the June quarter releases of 5206.0 and 5302.0. Such revisions will be first introduced in a subsequent issue of International Trade in Goods and Services (Cat. no. 5368.0) and the annual national accounts.
- Revisions will occur in the June quarter release due to the introduction of the latest base year and the associated re-referencing of the chain volume estimates, which will show changes in level but only minor revisions to growth rates at the end of the series.
- All other historical revisions will occur in the annual and September quarter release. With the above exceptions, all planned revisions to original data in years prior to the latest financial year will occur in the annual national accounts and the September quarter release. They will result from re-benchmarking to revised annual supply and use tables and the compilation of a supply and use table for the new reference year. All series will be also seasonally re-analysed.
- There will be reduced consistency between published annual and quarterly data. Under the new approach three distinct sets of data will be released:
- in the June quarter release, re-referenced chain volume estimates will be published along with limited long-term revisions that do not affect GDP;
- in the annual publications, the new annual benchmarks will be introduced; and
Compiling the national accounts is not straightforward and its complexity has increased in recent years following the introduction of SNA93 and the associated annual supply and use benchmarks and chain volume measures. The current approach of implementing almost all required annual work in time for the June quarter release represents a significant imbalance in work load. It has been necessary to consider an alternative approach.
The new strategy allows for a separation of tasks currently completed for the June quarter release to allow appropriate focus on the annual and quarterly estimates. The new strategy allows for a more controlled and efficient process in compiling the national accounts and provides capacity for improvements in their quality.
For additional information on the new strategy please contact Carl Obst on 02 6252 6713 or Patricia Mahony on 02 6252 6711.
- in the September quarter release, quarterly data consistent with the annual data will be published, except for any revisions required to the latest financial year.
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