CHAPTER 4 INDICATIVE IMPACTS ON INTERNATIONAL ACCOUNTS

Warning: The estimates in this publication are indicative. They are presented to give an indication of the magnitude of the impacts of proposed change to Australia's macro-economic accounts. All estimates are subject to refinement and revision in the quarterly balance of payments to be published on 8 December 2009.

BALANCE OF PAYMENTS

From the August 2009 issue of International Trade in Goods and Services (5368.0) and the September quarter 2009 issue of Balance of Payments and International Investment Position (5302.0), data will be compiled on the basis of the Balance of Payments and International Investment Position Manual sixth edition (BPM6). In addition, the results of a number of data quality investigations will be implemented. These changes will be backcast through the historical series to create a time series which is as continuous as possible.

New series to be introduced with BPM6 include pension funds service charge, reinvested earnings on investment fund shares and other volume changes due to migrants' change in residency. A range of series will be revised including transport freight services, all insurance service charges, financial services, financial intermediation services indirectly measured (FISIM) and personal transfers.


THE BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION

Table 1 summarises the impact on key aggregates for 2007-08 of implementing BPM6. The reasons for the most significant changes are described in the following sections.

1 Summary of changes to Balance of Payments and International Investment Position, current prices(a)
BPM6 Label		BPM5 basis ($m)	BPM6 basis ($m)	Difference	% change
CURRENT ACCOUNT		-72 504	-72 987	-483	-1
Goods and Services		-23 561	-24 579	-1 018	-4
Net Goods		-22 346	-21 894	452	-
Goods credits		182 818	182 952	134	-
Goods debits		-205 164	-204 846	318	-
Net Services		-1 215	-2 685	-1 470	-
Services credits		51 035	50 645	-390	-1
Services debits		-52 250	-53 330	-1 080	-2
Net Primary income		-48 601	-48 254	347	-
Primary income credits		42 022	43 035	1 013	2
Primary income debits		-90 623	-91 289	-666	-1
Net Secondary income		-342	-154	188	-
Secondary income credits		5 264	6 058	794	15
Secondary income debits		-5 606	-6 212	-606	-11
CAPITAL ACCOUNT		2 167	-232	-2 399	n.a.
FINANCIAL ACCOUNT		68 148	72 206	4 058	6
Financial account assets		92 260	85 003	-7 257	-8
Financial account liabilities		160 408	157 209	-3 199	-2
INTERNATIONAL INVESTMENT POSITION
	Total foreign assets	1 048 612	1 069 706	21 094	2
	Total foreign liabilities	1 724 482	1 729 944	5 462	-
- nil or rounded to zero (including null cells)
(a) Balance of Payments signage presented in this table according to BPM6 presentation

THE CURRENT ACCOUNT

The Current Account presentation under BPM6 will be similar to the presentation currently published, except that income and current transfers will be replaced by primary income and secondary income, respectively.

The introduction of BPM6 will increase the current account deficit, in current prices, for 2007-08 by about $0.5 billion net with:

• the deficit on goods decreasing about $0.5 billion;
• the deficit on services increasing about $1.5 billion;
• the deficit on primary income decreasing about $0.4 million; and
• the deficit on secondary income decreasing about $0.2 billion

The gross impacts will be larger than the above net impacts although some of the changes, such as some components moving between goods and services, will have a minimal net impact.

The impacts on the current account balances are summarised below for 1994-95 to 2007-08 in table 2 and figure 1.

2 Changes to Current Account Deficit, current prices
	1994-95	1995-96	1996-97	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
CAD (BPM5)	-28 233	-21 401	-17 089	-22 183	-32 603	-30 985	-16 867	-18 553	-38 186	-45 590	-56 325	-52 627	-58 529	-72 504
Net change to Goods	178	218	215	170	96	252	188	379	351	157	129	-185	462	452
Net change to Services	-476	-448	-591	-804	-1 039	-882	-514	-795	-725	-700	-794	-649	-936	-1 470
Net changes to Primary income	287	222	117	-83	-332	-96	43	102	520	139	-84	-119	294	347
Net changes to Secondary income	587	589	583	463	1 198	141	460	489	603	352	259	-404	-302	188
CAD (BPM6)	-27 657	-20 820	-16 765	-22 437	-32 680	-31 570	-16 690	-18 378	-37 437	-45 642	-56 815	-53 984	-59 011	-72 987

THE GOODS ACCOUNT

Revisions to goods credits (exports) as a result of BPM6 and the data quality investigations mainly impact the non-rural goods category. The overall impact is not significant, although the size of the impact varies from year to year. Between 1994-95 and 2007-08 the size of the revisions ranges between -$390 million and +$163 million.

The revisions will result from:

• goods subject to merchanting will be recorded under goods credits (merchanting had been recorded as a service) and incorporating a different definition of net merchanting.
• repairs on goods no longer will be recorded as goods (included in services and named maintenance and repair services n.i.e.).
• goods for processing no longer will be recorded as goods (the processing component is included in services and named manufacturing services on physical inputs owned by others).
• goods procured in ports by carriers will be reviewed and reclassified from the other goods category to the non-rural goods category under general merchandise.
• relatively small revisions as a result of data quality investigations.

3 Net changes to goods credits (exports), current prices
	1994-95	1995-96	1996-97	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Goods exports (BPM5)	67 101	76 146	80 934	88 538	85 783	97 625	120 231	120 940	115 803	109 473	127 867	154 425	169 514	182 818
Net change to Rural goods	1	5	-2	-4	-	30	-	30	22	-20	-	-	15	14
Net change to Non-rural goods	555	631	574	580	465	711	991	824	855	785	1 180	1 375	1 667	1 837
Net change to Other goods	-466	-473	-449	-531	-612	-681	-1 021	-727	-785	-820	-1 235	-1 765	-1 672	-1 717
Goods exports (BPM6)	67 191	76 309	81 057	88 583	85 636	97 685	120 201	121 067	115 895	109 418	127 812	154 035	169 524	182 952
- nil or rounded to zero (including null cells)

All goods debits (imports) series will be revised with the introduction of BPM6 and the data quality investigations. The overall impact will not be significant, although the size of the impact will vary from year to year. Between 1994-95 and 2007-08 the size of the revisions ranges between -$55 million and -$452 million.

The revisions will result from:

• repairs on goods no longer will be recorded as goods (included in services and named maintenance and repair services n.i.e.).
• goods for processing no longer will be recorded as goods (the processing component is included in services and named manufacturing services on physical inputs owned by others).
• goods procured in ports by carriers will be reviewed and reclassified from the other goods category to the intermediate and other merchandise goods category under general merchandise.
• goods will be valued on a Customs Value basis from 1989 onwards rather than on a Free on Board basis. Previously the Customs Value basis had only been used from 2006 onwards.

4 Net changes to goods debits (imports), current prices
	1994-95	1995-96	1996-97	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Goods imports (BPM5)	75 317	77 729	79 438	92 084	98 430	110 810	120 524	121 943	134 273	133 018	150 873	169 716	184 024	205 164
Net change to Consumption goods	22	37	26	303	207	42	49	52	59	48	64	58	-	-
Net change to Capital goods	31	11	-95	-54	-111	-154	-68	-7	-102	-39	38	80	9	-52
Net change to Intermediate and other merchandise goods	899	948	1 355	1 557	103	371	1 128	871	1 035	904	1 194	1 523	1 651	1 890
Net change to Other goods	-1 040	-1 051	-1 378	-1 931	-442	-451	-1 327	-1 168	-1 251	-1 125	-1 480	-1 866	-2 112	-2 156
Goods imports (BPM6)	75 229	77 674	79 346	91 959	98 187	110 618	120 306	121 691	134 014	132 806	150 689	169 511	183 572	204 846
- nil or rounded to zero (including null cells)

THE SERVICES ACCOUNT

Introducing revised standards and results of the data quality investigations will have a greater impact on services than on goods in both absolute and percentage terms. The size of the impact varies from year to year. BPM6 introduces a new series, pension funds service charge, and a number of series will be revised including transport freight services, insurance service charge and financial services including financial intermediation services indirectly measured (FISIM).

The revisions will result from:

• the exclusion of merchanting services (credits only).
• the inclusion of maintenance and repair services n.i.e..
• the inclusion of manufacturing services on physical inputs owned by others.
• introduction of new or revised models for estimating:
  • pension funds service charge,
  • insurance service charge,
  • transport freight services (debits),
  • financial services including FISIM.

In addition, more detailed services classifications will be introduced to align with the Manual on Statistics of International Trade in Services and the Extended Balance of Payments Services classification.

Between 1994-95 and 2007-08, the impact on services credits will range between -$435 million and +$162 million (table 5). The major changes will be due to the removal of merchanting services and the introduction of new models for: insurance service charge; pension funds service charge; and financial services including FISIM.

Between 1994-95 and 2007-08, the impact on services debits will range between +$265 million and +$1,080 million (table 6). The major changes will be due to the introduction of: new models for transport freight services; insurance service charge; pension funds service charge; and financial services including FISIM; and the inclusion of maintenance and repair services n.i.e..

In most years services debits will increase more than services credits.

5 Net changes to services credits (exports), current prices
	1994-95	1995-96	1996-97	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Services exports (BPM5)	21 002	23 329	25 157	26 594	28 312	30 810	35 932	35 162	35 987	37 746	39 695	41 849	46 181	51 035
Net change to Manufacturing services	22	16	17	23	40	20	20	9	22	20	63	107	121	77
Net change to Maintenance and repairs	18	19	27	44	63	54	60	54	60	75	67	74	90	103
Net change to Transport	93	101	98	-163	-92	15	22	14	-10	-65	-61	-22	-71	-118
Net change to Insurance and pension services	47	56	59	83	95	104	-39	-203	-215	-266	-293	-374	-391	-376
Net change to Financial services	130	241	233	4	-194	-253	-81	-6	42	-47	-47	160	127	37
Net change to Other changes	-242	-271	-344	-46	-186	-296	-206	-242	-165	-152	-135	-153	-101	-113
Services exports (BPM6)	21 070	23 491	25 247	26 539	28 038	30 454	35 708	34 788	35 721	37 311	39 289	41 641	45 956	50 645

6 Net changes to services debits (imports), current prices
	1994-95	1995-96	1996-97	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Services imports (BPM5)	22 579	23 678	24 570	27 162	29 089	30 579	33 801	33 135	33 463	35 696	39 315	41 078	44 428	52 250
Net change to Manufacturing services	4	9	8	15	24	29	22	11	14	15	9	5	3	7
Net change to Maintenance and repairs	32	35	63	76	112	95	168	242	251	219	171	115	131	97
Net change to Transport	424	406	494	655	656	605	239	284	328	360	306	330	372	417
Net change to Insurance and pension services	117	140	123	157	134	53	-9	-82	-183	-375	-287	-197	-121	71
Net change to Financial Services	93	95	63	-52	-78	-144	-41	101	173	223	322	362	443	593
Net change to Other changes	-126	-75	-70	-102	-83	-112	-89	-135	-124	-177	-133	-174	-117	-105
Services imports (BPM6)	23 123	24 288	25 251	27 911	29 854	31 105	34 091	33 556	33 922	35 961	39 703	41 519	45 139	53 330

INCOME ACCOUNT

Income and current transfers will be replaced by primary income and secondary income, respectively.


PRIMARY INCOME

The changes to primary income will derive primarily from the inclusion of reinvested earnings on investment funds, detailed in chapter 9, together with new or revised models for insurance, pension funds and FISIM as detailed in chapters 10 to 12. Table 7 shows that net primary income will increase by about $350 million (-0.7%) in 2007-08.

7 Primary income, current prices
	1994-95	1995-96	1996-97	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08
Primary income	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Net primary income (BPM5)	-18 117	-19 533	-19 151	-18 091	-18 430	-18 249	-18 737	-19 667	-22 195	-23 840	-33 330	-37 458	-45 433	-48 601
Net changes to Reinvested Earnings	305	180	54	-124	-436	-198	-141	15	411	-10	-150	-232	146	205
Net changes to FISIM	-56	5	22	-7	19	23	113	42	21	53	-31	-85	-95	-76
Net changes to pension income	33	34	32	41	78	65	55	28	69	80	96	175	204	177
Net changes to insurance income	-4	-8	-4	-8	-11	-8	-9	-8	-12	-20	-37	-25	-22	-4
Net changes to CoE	9	11	13	15	18	22	25	25	31	36	38	48	61	45
Net primary income (BPM6)	-17 830	-19 311	-19 034	-18 174	-18 762	-18 345	-18 694	-19 565	-21 675	-23 701	-33 414	-37 577	-45 139	-48 254

SECONDARY INCOME

The term secondary income will be introduced with BPM6 with further dissection by type of transfers to be recorded as supplementary items. Changes to secondary income will be the result of:

• the workers' remittances item will be replaced with personal transfers, which is broader in scope, and workers' remittances becoming a supplementary item. Workers' remittances debits will be the only component of personal transfers currently measured and a new methodology will be introduced. An Information Paper : Estimation of Workers' Remittances based on Balance of Payments Manual & International Investment Position sixth Edition (cat.no. 5302.0.55.003) describing the new methodology was released on 14 August 2009;
• the other transfers item will be named other current transfers. This item has two components:
  • non-life insurance transfers component which will be named non-life insurance premiums and claims and include the results of a revised methodology (see chapter 11)
  • other revisions which will be introduced to the other component of other transfers including changes to social contributions and social benefits from the introduction of pensions into the international accounts (see chapter 10).

Net secondary income under BPM5 standards was -$342 million, under BPM6 this will increase to -$154 million (table 8).

8 Changes to secondary income, current prices
	1994-95	1995-96	1996-97	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Net secondary income (BPM5)	-323	64	-21	22	-749	218	32	90	-45	-255	-369	-649	-339	-342
Net change to Net secondary income	587	589	583	463	1 198	141	460	489	603	352	259	-404	-302	188
Net secondary income (BPM6)	264	653	562	485	449	359	492	579	558	97	-110	-1 053	-641	-154
Secondary income credits(BPM5)	3 024	3 292	3 540	3 993	4 498	4 625	4 453	4 381	4 297	4 191	4 268	4 602	5 155	5 264
Net change to Secondary income credits	782	810	2 164	1 923	1 598	1 437	1 240	795	910	701	685	619	671	794
Secondary income credits(BPM6)	3 806	4 102	5 704	5 916	6 096	6 062	5 693	5 176	5 207	4 892	4 953	5 221	5 826	6 058
Secondary income debits (BPM5)	3 347	3 228	3 561	3 971	5 247	4 407	4 421	4 291	4 342	4 446	4 637	5 251	5 494	5 606
Net change to Secondary income debits	195	221	1 581	1 460	400	1 296	780	306	307	349	426	1 023	973	606
Secondary income debits (BPM6)	3 542	3 449	5 142	5 431	5 647	5 703	5 201	4 597	4 649	4 795	5 063	6 274	6 467	6 212

FINANCIAL ACCOUNT

Table 9 summarises changes to the financial account as a result of:

• a new model for insurance technical reserves. Changes in insurance technical reserves due to changes in the prepayments of insurance premiums and changes in claims incurred but not yet paid will be captured as transactions in the financial account.;
• pension fund assets attributable to non-residents are explicitly modelled and changes due to contributions and the payment of benefits will be included in the financial account;
• reinvested earnings on investment funds will be explicitly modelled and included in transactions in the Financial account as an offset to the corresponding income in the primary income account; and
• a new model for the treatment of changes due to migration. When migrants become resident of a new country they are assumed to leave assets in their former country of residence. This establishes an international investment position. Assets that are progressively transferred to the new country of residence will be captured as transactions in the financial account. This will replace the migrants transfers item in the capital account.

Further details of these changes are provided in chapters 10,11 and 13. In addition, the financial account will be revised due to BPM6 presentation being on a gross basis (directional principle) and re-balancing of the accounts.

9 Transactions in the Financial Account
Transactions	1994-95	1995-96	1996-97	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Total Foreign Assets (BPM5)	-4 123	19 024	19 929	16 692	19 139	24 478	50 943	50 038	29 374	43 936	-39 664	100 625	136 404	92 260
Reinvested earnings	470	424	304	287	98	299	372	610	840	673	580	580	1 005	980
Insurance Assets	45	14	104	178	-17	8	65	48	82	83	-96	44	-79	-137
Pensions Assets	287	324	359	535	640	628	351	300	451	602	725	1 263	1 131	528
Changes to assets due to migration	-1 454	-1 753	-1 810	-1 763	-1 943	-2 320	-2 859	-2 990	-3 184	-4 293	-5 297	-6 341	-7 852	-8 628
Total Foreign Assets (BPM6)	-4 775	18 033	18 886	15 929	17 917	23 093	48 872	48 006	27 563	41 001	-43 752	96 171	130 609	85 003
Total Foreign Liabilities (BPM5)	24 298	36 839	37 482	41 334	49 252	55 535	67 223	69 188	66 845	88 624	16 131	152 590	193 470	160 408
Reinvested earnings	165	244	250	411	534	497	513	595	429	683	730	812	860	775
Insurance Liabilities	60	193	141	149	50	-54	75	197	60	-77	-155	-490	-350	1
Pensions Liabilities	81	76	96	138	238	244	-29	-119	9	149	199	623	475	-296
Changes to liabilities due to migration	-499	-580	-629	-674	-772	-948	-1 172	-1 312	-1 461	-2 196	-2 506	-2 687	-3 250	-3 679
Total Foreign Liabilities (BPM6)	24 105	36 772	37 340	41 358	49 302	55 274	66 610	68 549	65 882	87 183	14 399	150 848	191 205	157 209
Financial Account (BPM5)	28 421	17 815	17 553	24 642	30 113	31 057	16 280	19 150	37 471	44 688	55 795	51 965	57 066	68 148
Financial Account (BPM6)	28 880	18 739	18 454	25 429	31 385	32 181	17 738	20 543	38 319	46 182	58 151	54 677	60 596	72 206

Both pension assets and changes in assets due to migration are highly correlated to migration estimates. Australia usually has higher numbers of permanent immigrants than residents departing permanently. This is particularly the case in 1997-98 and between 2004-05 and 2007-08 reflected in the increase in transactions for pension assets held and changes in assets due to migration over this period.

INTERNATIONAL INVESTMENT POSITION

The changes as a result of BPM6 will decrease Australia's net international investment liability by about $13.8 billion (2%) at 30 June 2008. The changes were driven by the following:

• insurance technical reserves will now be explicitly modelled and included in the international investment position;
• pension fund assets attributable to non-residents will be explicitly modelled and included in the international investment position; and
• a new model for the treatment of changes due to migration. When migrants become resident of a new country they are assumed to leave assets in their former country of residence which will establishe an international investment position.

Further details are provided in chapters 10,11 and 13.

10 International Investment Position
	1994-95	1995-96	1996-97	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08
Assets	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Total Foreign Assets (BPM5)	184 783	193 387	229 768	299 528	325 163	426 176	488 144	518 514	529 797	638 398	643 626	830 906	1 016 566	1 048 612
Insurance Assets	383	456	510	567	587	566	595	665	714	900	1 049	1 135	1 240	1 403
Pension Assets	1 590	1 919	2 200	3 186	3 482	3 548	3 701	4 089	5 105	6 829	9 146	12 664	14 491	12 276
Changes to assets due to migration	639	743	711	701	828	995	1 243	1 165	1 346	1 964	2 222	2 747	3 403	3 483
Total Foreign Assets (BPM6)	187 395	196 505	233 189	303 982	330 060	431 285	493 683	524 433	536 962	648 091	656 043	847 452	1 035 700	1 065 774
Total Foreign Liabilities (BPM5)	440 293	468 698	519 924	596 466	646 818	754 946	853 701	883 695	945 701	1 091 724	1 150 064	1 372 779	1 644 695	1 724 482
Insurance Liabilities	1 001	1 194	1 335	1 484	1 534	1 480	1 555	1 752	1 812	1 735	1 580	1 090	740	741
Pension Liabilities	187	219	267	312	357	440	470	489	514	611	696	852	1 119	1 076
Changes to liabilities due to migration	211	246	256	279	329	413	506	537	616	1 053	969	1 145	1 403	1 517
Total Foreign Liabilities (BPM6)	441 692	470 357	521 782	598 541	649 038	757 279	856 232	886 473	948 643	1 095 123	1 153 309	1 375 866	1 647 957	1 727 816
Net International Investment Position (BPM5)	255 510	275 311	290 156	296 938	321 655	328 770	365 557	365 181	415 904	453 326	506 438	541 873	628 129	675 870
Net International Investment Position (BPM6)	254 297	273 852	288 593	294 559	318 978	325 994	362 549	362 040	411 681	447 032	497 266	528 414	612 257	662 041

As is the case with the financial account, pension assets and changes in assets due to migration are highly correlated to migration estimates. Australia usually has higher numbers of permanent immigrants than residents departing permanently. This is particularly the case between 2004-05 and 2007-08 reflecting the increase in pension assets held and changes in assets due to migration over this period.