5204.0.55.007 - Information Paper: Upcoming changes to the Australian System of National Accounts, 2010-11  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 14/10/2011  First Issue
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A conceptual change in output valuation is being introduced to aggregate productivity measures for the 2010-11 issue of the ASNA.

The key output aggregate for productivity measures, 'GDP market sector' will be replaced by 'Gross value added market sector'. The difference between the two measures is that the former measure, 'GDP market sector' includes 'taxes less subsidies on products'. Changing the productivity output measure to 'Gross value added market sector' is a conceptual change in the valuation of output, from purchasers' prices to basic prices.

The previous approach of extending the concept of GDP to the market sector required an allocation of 'taxes less subsidies on products' to this industry subset. However, this allocation is not economically meaningful as it includes a significant share of GST incident on households. The conceptual change means that the concept of GDP will now refer exclusively to aggregate economy measures, where an allocation of 'taxes less subsidies on products' allows the valuation of the production based approach to GDP at purchasers' prices to align conceptually with the income and expenditure measures of GDP.

The change applies to all aggregate productivity measures over the entire time span. It impacts on the following key aggregates:

  • 'GDP Market sector' will be replaced by 'Gross value added market sector' (table 1 and 13)
  • 'GDP per hour worked market sector' will be replaced by 'Gross value added per hour worked market sector' (table 1)

Labour productivity, capital productivity and multifactor productivity, on both an hours worked basis and quality adjusted hours worked basis (table 13) are also impacted by this change.

The valuation of aggregate output measures and industry gross value added measures are aligned by this change. Basic price is the preferred valuation from a producer or seller's perspective, as it represents the amount retained and is the price most relevant to their decision making. Purchasers' prices, on the other hand, is the preferred valuation from a buyer's perspective. Basic price valuation of output complies with the international standard as described in the System of National Accounts 2008 handbook:
    "The preferred method of valuation of output is at basic prices, although producers’ prices may be used when valuation at basic prices is not feasible. The distinction is related to the treatment of taxes & subsidies on products. Basic prices are prices before taxes on products are added and subsidies on products are subtracted." (para 2.63)

Productivity measures were first introduced by the ABS in 1989 as aggregate measures for a grouping of 12 industries labelled as the market sector. The underlying framework for these measures was based upon the original Solow classical growth accounting framework (Solow, 1957)(footnote 1) . Output measures in this framework are valued at market or purchasers’ prices. The field has developed considerably following major contributions by Dale Jorgenson, Zvi Griliches and Erwin Diewert. In particular, the growth accounting framework was fully articulated for industry level measures. These developments have formed the basis for internationally recommended practices with the release of the 2001 OECD Manual - Measuring Productivity. Importantly, the manual is consistent with the SNA in its recommendation for the valuation of output at basic prices:
    "From the perspective of productivity measurement, the choice of valuation should reflect the price that is most relevant for the producer’s decision making; regarding both inputs and outputs. Therefore, it is suggested that output measures are best valued at basic prices..." (OECD 2001, p. 77)

In 2007, the ABS introduced Experimental Estimates of Industry Multifactor Productivity (cat. no. 5260.0.55.002): industry-level measures in this data cube are consistent with the OECD handbook and therefore unaffected by the conceptual change. However, aggregations of industries in the next data cube release on 7 December 2011 will reflect the change in the valuation of outputs.

1 Solow, R., Technical Change and the Aggregate Production Function, The Review of Economics and Statistics, Vol. 39, No. 3., pp 312-320 <back