1.3    National Accounts provide a systematic statistical framework for summarising and analysing economic events, the wealth of an economy, and its components. Historically, the principal economic events recorded in the National Accounts have been production, consumption, and accumulation of wealth. National Accounts have also recorded the income generated by production, the distribution of income among the factors of production and the use of the income, either for consumption or acquisition of assets. The modern accounts additionally record the value of the economy's stock of assets and liabilities, and record the events, unrelated to production and consumption, that bring about changes in the value of the wealth stock. Such events can include revaluations, write-offs, growth and depletion of natural assets, catastrophes, and transfers of natural assets to economic activity.

1.4    The national accounting framework has always consisted of a set of accounts that are balanced using the principles of double entry accounting. However, the accounts are now fully integrated in that there is a balance between the value of assets and liabilities at the beginning of an accounting period, the transactions and other economic events that occur during the accounting period, and the closing values of assets and liabilities. Accounts for the economy as a whole are supported by accounts for the various sectors of the economy, such as those relating to the government, households and corporate entities. The framework also embraces other, more detailed, accounts such as financial accounts and I-O tables, and provides for additional analyses through social accounting matrices and satellite accounts designed to reflect specific aspects of economic activity such as tourism, health and the environment. By applying suitable price measures, the National Accounts can be presented in volume terms as well as in current prices. The time series of the National Accounts can also be adjusted to remove seasonal distortions and to disclose trends.

1.5    National accounting information can serve many different purposes. In general terms, the main purpose of the National Accounts is to provide information that is useful in economic analysis and formulation of macroeconomic policy. The economic performance and behaviour of an economy as a whole can be monitored using information recorded in the National Accounts. National Accounts data can be used to identify causal relationships between macroeconomic variables and can be incorporated in economic models that are used to test hypotheses and make forecasts about future economic conditions. Using National Accounts data, analysts can gauge the impact of government policies on sectors of the economy, and the impact of external factors such as changes in the international economy. Economic targets can be formulated in terms of major national accounting variables, which can also be used as benchmarks for other economic performance measures, such as tax revenue as a proportion of gross domestic product or the contribution of government to national saving. Provided that the National Accounts are compiled according to international standards, they can be used to compare the performance of the economies of different nations.

1.6    However, the full range of information available from a comprehensive national accounting system can serve purposes well beyond immediate concerns of macroeconomic analysts. For example, National Accounts information can be used to analyse income and wealth distribution, financial and other markets, resource allocation, the incidence of taxes and welfare payments, environmental issues, productivity, industry performance, and so on. In fact, the range of analytical purposes that can be served by a complete system of National Accounts has no well-defined limits, and the body of National Accounts data can be seen as a multi-purpose data base that can be used with a high degree of flexibility.

1.7    Surveys and other statistical systems that employ the concepts in the national accounting framework will produce information that is consistent with the National Accounts and with other statistics that are based on the National Accounts framework.

1.8    The idea of estimating national income can be traced back to the seventeenth century. Interest in raising revenue and in assessing England's war potential led to attempts by Sir William Petty in 1665 and Gregory King in 1688 to estimate the national income as either the sum of factor incomes or the sum of expenditures. A little later, Boisguillebert and Vauban used a similar approach in estimating France's national income.

1.9    The eighteenth century French economists called the Physiocrats took a step backwards when they restricted the concept of national income by arguing that only agriculture and the extractive industries were productive. However, Quesnay, one of the Physiocrats, set out the interrelationships between the various activities in the economy in his tableau economique, published in 1758, which was the forerunner of the twentieth century work on I-O statistics.

1.10    In his book, the An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith rejected the Physiocrats' view of the pre-eminent position of agriculture, by recognising manufacturing as another productive activity. However, Smith and the early classical school of economists that he founded did not recognise the rendering of services as productive activity. Karl Marx was also of this view, and the notion persisted in the material product system of National Accounts that was used, until recently, by the centrally planned economies.¹

1.11    Some English economists, in particular Ricardo and Marshall, further refined the concept of production and in the 1920s the welfare economists led by Pigou undertook the first effective measurement of national income.

1.12    The Great Depression of the 1930s, and the attempts by Keynes and others to explain what was happening to the world economy, led economists away from their preoccupation with national income as a single measure of economic welfare. Instead, they attempted to use the new Keynesian General Theory to develop a statistical model of the workings of the economy that could be used by government to develop prescriptions for a high and stable level of economic activity. By the end of the 1930s, the elements of a national accounting system were in place in several countries. The models of Ragnar Frisch and Jan Tinbergen stand out in this period as path-breaking achievements.

1.13    The economic modelling task was given further impetus in the 1940s; first, by the need to efficiently run war-time economies; second, by the publication in 1941 of Wassily Leontief's classic I-O study The Structure of the American Economy; third, by the post-war acceptance by governments of full responsibility for national and international economic management; and last, by the League of Nations publication of an important report about social accounting. By the end of the decade, integrated statistical reporting systems and formal national accounting structures were in place in Australia, the United States, the United Kingdom, Canada, the Scandinavian countries, the Netherlands and France.

1.14    The need of international organisations for comparable data about the economies of member countries was one important factor that prompted development of international standards for national accounting in the late 1940s and early 1950s. The Organisation for European Economic Co-operation sponsored the work of Richard Stone's National Accounts Research Unit at Cambridge University, from which emerged the now-familiar summary accounts of the nation.² Then the United Nations Statistical Office convened its first expert group on the subject. It was also headed by Stone and, in 1953, produced the publication, A System of National Accounts and Supporting Tables (SNA)³, which described the first version of the system that has become the accepted world-wide standard for producing National Accounts.

1.15    There were several other important developments in national accounting in the 1950s. M.A. Copeland and his colleagues in the United States Federal Reserve System prepared the first flow-of-funds tables, which analysed transactions in financial markets. A few countries increased the frequency of National Accounts information by producing quarterly estimates of national income and expenditure (so that their governments could better monitor the business cycle) and also produced information classified by industry and institutional sector (to identify growth industries, poorly performing institutional sectors etc.).

1.16    National accounting's modern era could be said to have started in 1968. In that year, the United Nations Statistical Office published a fully revised version of the SNA, which drew together all the various threads of economic accounting: estimates of national income and expenditure (including estimates at constant prices); I-O production analysis; flow-of-funds financial analysis; and balance sheets of national wealth.⁴ In 1977 the United Nations Statistical Office published detailed international guidelines on the compilation of balance sheet and reconciliation accounts within the SNA framework.⁵

1.17    Since 1968, changes in the structure and nature of economies, the increasing sophistication and growth of financial markets and instruments, emphasis on the interaction of the economy with the environment and other considerations pointed to a need to update the SNA. The task of updating and revising the SNA was coordinated from the mid-1980s by the Inter-secretariat Working Group on National Accounts, working with the assistance of international organisations and experts from national statistical offices around the world. The Working Group consisted of the Commission of the European Communities (Eurostat), the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank. The resulting 1993 SNA was released under the auspices of those five organisations.⁶

1.18    The 1993 SNA aimed to clarify and simplify the 1968 System, while updating the System to reflect new circumstances. The 1993 SNA fully integrated national income, expenditure and product accounts, I-O tables, financial flow accounts and national balance sheets to enable the examination of production relationships and their interaction with countries' net worth and financial positions. 1993 SNA also introduced the concept of satellite accounts to extend the analytical capacity of National Accounts in areas such as tourism, health and the environment. It was one of a quartet of 'harmonised' international statistical standards that included the standards set out in the IMF publications, Balance of Payments Manual 1993 (fifth edition) (BPM5), Manual of Monetary and Financial Statistics (MMFS), and A Manual of Government Finance Statistics (second edition) (GFS). In this context, 'harmonisation' means that the standards employ common concepts and definitions so that valid comparisons can be made of statistics produced from each of the four systems. Complete alignment of the standards was neither feasible nor necessary, because each system serves different purposes. Each system therefore had a proportion of unique concepts and definitions.

1.19    The 2008 SNA was commissioned by the United Nations Statistical Commission to bring the national accounting framework as outlined in the 1993 SNA into line with the needs of data users. It was considered that the economic environment in many countries has evolved significantly since the early 1990s and, in addition, methodological research had resulted in improved methods of measuring some of the more difficult components of the accounts. The 2008 SNA does not recommend fundamental or comprehensive changes. Further consistency with related manuals, such as those on the balance of payments (which was updated simultaneously with the 2008 SNA), on government finance statistics and on monetary and financial statistics, was an important consideration. Therefore, there is more harmonisation between the 2008 SNA and related manuals. The key changes fell into five main groups: assets; the financial sector; globalisation and related issues; the general government (GG) and public sectors; and the informal sector. Australia's policy is to apply each of the standards to the highest feasible degree, a high level of harmonisation will be found between the Australian National Accounts and Australia's balance of payments, government finance, and monetary and finance statistics.

1.20    Australia pioneered work on national wealth in 1890 when Coghlan (the New South Wales Government Statistician) prepared rudimentary balance sheets for New South Wales. However, it was not until almost sixty years later, at the Conference on Research in Income and Wealth in 1948, that national balance sheets again received serious international attention.

1.21    The first official estimates of national income for Australia (based on estimates prepared by Clark and Crawford) were published in 1938 in The Australian Balance of Payments, 1928-29 to 1937-38, although unofficial estimates by several economists had been published in the 1920s and 1930s.⁷ In 1945, the first official set of National Accounts was prepared by the then Commonwealth Bureau of Census and Statistics (CBCS) and published in the Commonwealth Budget Paper Estimates of National Income and Public Authority Income and Expenditure.

1.22    The 1960s and early 1970s were times of significant development for Australian national accounting. The first official quarterly estimates of national income and expenditure were published in December 1960.⁸ In 1963 the CBCS published the first Australian National Accounts: National Income and Expenditure (ANA) bulletin, which included the first annual constant price estimates for Australia.⁹ Experimental I-O estimates were published in 1964.¹⁰ The CBCS began to seasonally adjust its quarterly estimates of national income and expenditure in 1967. Estimates of gross product by industry at constant prices were published for the first time in 1969.¹¹ In 1971, the CBCS first published seasonally adjusted, constant price quarterly estimates of national income and expenditure, which later proved to be among the most used of all national accounting estimates. The CBCS published estimates of national income and expenditure based on the revised SNA (1968 version) in 1973, and also published the first official I-O statistics in the same year.¹²

1.23    In the 1980s, the former CBCS, now called the Australian Bureau of Statistics (ABS), again made significant progress in national accounting. The first full edition of Australian National Accounts: Concepts, Sources and Methods was published in 1981 at about the same time as the first experimental estimates of capital stock.¹³ The ABS conducted a study into the accuracy and reliability of the quarterly estimates of national income and expenditure and published the results in 1982.¹⁴ Experimental State accounts¹⁵ were published in 1984, followed by the first official estimates in 1987.¹⁶ They are now published annually in Australian National Accounts: State Accounts. In 1985, the ABS published an assessment of the effects of rebasing constant price estimates from a 1979-80 base to a 1984-85 base.¹⁷ In 1986, the second set of experimental estimates of capital stock was published¹⁸ followed in 1987 by the first official estimates of capital stock.¹⁹ The first quarterly estimates of constant price gross product by industry were released in 1988.²⁰ These estimates were subsequently incorporated into the quarterly publication, Australian National Accounts: National Income, Expenditure and Product.

1.24    Further significant developments in national accounting and associated statistics occurred during the 1990s. In 1990, the first estimates of multifactor productivity were published.²¹ In 1990, the ABS also published developmental flow of funds accounts, showing the changes in financial assets and liabilities arising from the financing of productive activity in the economy.²² Flow of funds estimates are now published on a quarterly basis, along with estimates of stocks of financial assets and liabilities at the end of each quarter. An Information Paper describing the impact of rebasing constant price estimates from a 1984-85 base to a 1989-90 base was published in 1993.²³ Experimental estimates of national balance sheets for Australia were first released in 1995, followed by the publication of regular annual national and sector balance sheet estimates in 1997.²⁴ Australian National Accounts: Supply Use Tables commencing 1994-95 were first introduced (but not published) into the annual National Accounts in 1998, in conjunction with the implementation of 1993 SNA, as an integral part of the annual compilation of Gross Domestic Product (GDP). They ensure GDP is balanced for all three approaches (production, expenditure and income) and provide the annual benchmarks from which the quarterly estimates are compiled.

1.25    The 1993 SNA was formally introduced into the National Accounts in the September quarter 1998 issue of Australian National Accounts: National Income, Expenditure and Product, which was released in December 1998. Prior information on the nature and impact of implementation of the revised standards and methods was provided in a series of discussion and information papers as follows:

• Discussion paper: Introduction of Revised International Statistical Standards in ABS, December, 1994.
• Information Paper: Implementation of Revised International Standards in the Australian National Accounts, September, 1997.
• Information Paper: Australian National Accounts, Introduction of Chain Volume Measures and Price Indexes, March, 1998.

1.26    Preliminary data on a 1993 SNA basis were made available in re-releases of the following publications:

• Australian National Accounts: National Income, Expenditure and Product, June quarter, 1998 re-released in November 1998 in Information Paper: Upgraded Australian National Accounts.
• Australian National Accounts: Finance and Wealth, June quarter, 1998 re-released in December 1998 in Information Paper: Upgraded Australian National Accounts.

1.27    The first annual national accounts publication on a 1993 SNA basis was Australian System of National Accounts, 1997-98, released in April 1999. This publication provided comprehensive national and sectoral accounts, including balance sheets, as well as estimates of capital stock and multifactor productivity. A significantly updated edition of Australian National Accounts: Concepts, Sources and Methods was published in 2000. It outlined the implementation of the 1993 SNA in the national accounts statistics of Australia.

1.28    There were major changes to the Australian tax system from 1 July 2000 with the introduction of The New Tax System (TNTS). A major feature of the new arrangements was the introduction of a goods and services tax (GST), which affected the prices of a broad range of goods and services in the economy. The GST replaced wholesale sales taxes (WST) and a number of other taxes on production and imports, although not all of these taxes were abolished from 1 July 2000. The introduction of the GST was accompanied by reductions in personal income tax rates and increases in social security payments. There were also changes to company tax arrangements. The information paper, ABS Statistics and The New Tax System, and the feature article in the March quarter 2000 issue of Australian National Accounts: National Income, Expenditure and Product, provide more detail on the impact of this change. The TNTS was introduced into the National Accounts in the September quarter 2000 issue of Australian National Accounts: National Income, Expenditure and Product and 2000-01 issue of the Australian System of National Accounts.

1.29    The first Australian National Accounts: Tourism Satellite Account, 1997-98 was published in 2000 on a pre-GST basis and post-GST from 2002 annually. There have been other satellite accounts published occasionally, namely the Australian National Accounts: Non-Profit Institutions Satellite Account in 2002 and 2009, and the Australian National Accounts: Information and Communication Technology Satellite Account in 2006.

1.30    A significant development in state accounts occurred in 2007 with the estimation of Gross State Product using the production approach (GSP(P)). Consequently, the headline measure of GSP was the average of the existing GSP estimated using the income/expenditure approach and GSP(P). The first estimates were released in Australian National Accounts State Accounts in 2006-07. The information paper, Gross State Product using the Production Approach GSP(P) outlined the methods and sources for estimating GSP(P).

1.31    In February 2012, the System of Environmental and Economic Accounting (SEEA) was elevated as an international statistical standard. Additional parts to the SEEA, namely applications and ecosystems, are still in development. This development process occurred over many years and the ABS was, and will continue to be, at the forefront of the international efforts. Crucially, the SEEA is fully integrated with SNA concepts and therefore provides harmonised information across the environment and economic domains. Where necessary, environmental accounting can extend the asset and production boundaries of the SNA framework to better encapsulate the environment and its resources. The ABS releases a range of annual accounts including Water Account, Australia and Energy Account, Australia and Waste Account, Australia, Experimental Estimates. Land accounts for selected States and regions of Australia are also available, and progress has been made developing environmental expenditure accounts (see discussion paper).

1.32    The 2008 SNA was formally introduced into the National Accounts in the September quarter 2009 issue of Australian National Accounts: National Income, Expenditure and Product and the annual release of Australian System of National Accounts, 2008-09, which were released in December 2009. Prior information on the nature and impact of implementation of the revised standards and methods was provided in the following information papers:

• Information Paper: Introduction of Revised International Standards in ABS Economic Statistics in 2009, September, 2007
• Information Paper: Implementation of New International Standards in ABS National and International Accounts, October, 2009

1.33    The standards set out in the 2008 SNA (as well as 1993 SNA) are designed to be applied with a degree of flexibility, and Australia's implementation of the standards reflect local conditions and requirements. Furthermore, decisions are made in isolated instances to depart from the standards because of strong user preference for an alternative view and such departures are noted at appropriate points throughout this manual. The departures are relatively minor and, consequently, they do not affect the comparability of National Accounts information reported by the ABS to international organisations such as the UN and the OECD to a significant extent. A list of the main departures from 2008 SNA is provided in Appendix 2.

1.34    The main purpose of this manual is to provide users with an in-depth understanding of the National Accounts statistics as an aid to more effective use and interpretation of the statistics. A detailed understanding of the underlying statistical standards and concepts, and of the methods used to compile the statistics, should enable users to make better judgements about the economic significance, quality and accuracy of the statistics. To achieve this aim, this manual provides an updated account of the concepts, sources and methods used to compile the Australian National Accounts statistics. A number of appendices are also included to provide additional information on particular aspects of national accounting, such as the classifications underlying the accounts.

1.35    Wide spectrums of audiences require information about National Accounts concepts, sources and methods. These range from users with broad, general needs for information about the main aggregates to those with highly specialised needs relating to particular data items. The main categories of users, and their likely needs, are set out below:

• students at upper high school level or undergraduate level at university – the need is for a broad understanding of the conceptual framework, how the numbers are put together, and the main outputs (publication tables, written and graphic analysis, and explanatory notes) to gain an appreciation of the current performance of the Australian economy;
• financial journalists – the need is for a broad understanding of the conceptual framework, how the numbers are put together, and the main outputs, to support media comment on the current performance of the Australian economy. These users may need to delve deeper into particular aspects;
• teachers/teaching academics – a broad understanding of the conceptual framework, how the numbers are put together, and the main outputs, to support teaching about Australia’s economy. These users may also need to delve deeper into particular aspects;
• financial sector economists, economists working for interest groups, national and international investors, public sector economists in other countries, and international credit rating agencies – a reasonably detailed understanding of the conceptual framework, the sources and how the numbers are put together, to support their interpretation of the statistics and advice to their organisations and clients;
• international agencies such as the IMF, the OECD, the World Bank and the United Nations Statistics Division – generally these agencies require a reasonably detailed understanding of all aspects of the statistics. Their uses encompass monitoring the extent of country adherence to international standards and practices, the compilation of country groupings and world economic statistics, and modelling work to support the preparation of country reports;
• academic researchers – a reasonably detailed understanding of the conceptual framework, the sources, and how the numbers are put together, with more detail on particular accounts/items to support research and modelling;
• National Accounts compilers in other countries – a reasonably detailed understanding of Australian sources and methods, with more detail on particular accounts/items, to compare with their own practices; and
• the Commonwealth Treasury, the Reserve Bank of Australia (RBA), the Productivity Commission and other public sector economists – a reasonably detailed understanding of Australian sources and methods to support their interpretation of the numbers and forecasting of national accounting aggregates.

1.36    For students and others who need only a broad understanding of the National Accounts statistics, the ABS publication, Measuring Australia’s Economy provides a brief overview of the concepts, structure and classifications of these and the other major economic statistics published by the ABS. The present concepts, sources and methods document should prove a useful extension, but for the most part it may be too detailed for this audience.

1.37    The present document is aimed mainly at the user of National Accounts statistics who is interested in the more detailed aspects. However, it is not a complete description of the ABS National Accounts methodology. That task would require a much larger publication. This publication aims to provide a substantial guide to what the ABS does to compile National Accounts.

1.38    The ASNA forms a body of statistics that incorporates a wide range of information about the Australian economy and its components. In addition to the long-standing statistics of national income, expenditure and product, the accounts include the financial accounts, I-O tables, balance sheet statistics (including capital stock statistics), multifactor productivity statistics, state accounts, and satellite accounts. The ultimate scope of the ASNA encompasses the full range of statistics that the 2008 SNA recommends for a complete national accounting system. However, like most other countries, Australia does not yet compile the full range of information recommended in the 2008 SNA. The areas where the ABS is yet to implement the 2008 SNA recommendations are identified at relevant points throughout this manual and are summarised in Appendix 2, Differences between ASNA and 2008 SNA.

1.39    The current scope of the ASNA is best described by the list of statistical bulletins that comprise the ASNA data. These are as follows:

• Australian System of National Accounts (ASNA) – annual;
• Australian National Accounts: National Income, Expenditure and Product (NIEP) – quarterly;
• Australian National Accounts: Input-Output Tables – annual;
• Australian National Accounts: Supply Use Tables – annual;
• Australian National Accounts: State Accounts – annual;
• Australian National Accounts: Finance and Wealth – quarterly;
• Estimates of Industry Multifactor Productivity – annual;
• Estimates of Industry Level KLEMS Multifactor Productivity – annual;
• Australian National Accounts: Tourism Satellite Accounts – annual;
• Australian National Accounts: Non-Profit Institutions Satellite Accounts – irregular; and
• Australian National Accounts: Information and Communication Technology Satellite Accounts – irregular.

1.40    The data on capital stock and balance sheet that were previously available in a separate annual publications are now included in the ASNA.

1.41    In general terms, the information published in the ASNA and NIEP covers the economic transactions related to the economic functions of production, consumption and accumulation of wealth. The functions are recorded in a central set of accounts comprising a gross domestic product account, a national income account, a national capital account, a financial account and a balance sheet. Important economic variables such as gross domestic product, disposable income, final consumption expenditure, gross saving, net lending or borrowing and net worth are recorded in these accounts. Changes to the balance sheet values of financial assets and liabilities arising from events other than transactions (for example, write-offs and revaluations) are recorded in the ASNA. Supporting accounts in these publications provide further breakdowns (for example, by institutional sector and industry) of the variables recorded in the central accounts.

1.42    The information published in the Input-Output Tables and State Accounts can be described as further disaggregations of information included in the ASNA. For example, in the central Supply Use table, the economy's total supply of products is shown according to the industries that produced the products, and the use of products by each industry is recorded, as are the factor incomes generated by each industry. The information published in the State Accounts provides a summary record for each Australian State and Territory of the production account published in the ASNA.  

1.43    Finance and Wealth includes disaggregations of information published in the ASNA and NIEP, but also includes disaggregations of balance sheet information for financial assets and liabilities. The financial accounts include flow of funds statistics, which provide sectoral capital accounts with the corresponding sectoral financial account. The financial accounts provide a breakdown (financial instrument cross-classified by counterparty sector) of transactions recorded in the financial account (counterparty sectors are the sectors with which the subject sector has undertaken the subject transactions). The financial accounts also record the value of financial assets and liabilities at the end of each quarter, broken down by instruments cross-classified by counterparty sector.

1.44    The satellite accounts for Tourism,  Non-Profit Institutions and Information and Communication Technology present specific details on a particular topic (both in monetary and physical terms) in an account which is separate from, but linked to, the information published in the ASNA. Satellite accounts allow an expansion of the National Accounts for selected areas of interest while maintaining the concepts and structures of the core National Accounts. Implicitly data presented in satellite accounts are included in the National Accounts, but they can go further and include data that is not in the National Accounts at all.

1.45    In summary, the ASNA provides a record of Australia's economic wealth and the changes to that wealth brought about by economic activity. The Australian National Accounts statistics are also disaggregated to provide information about economic assets and activities for sectors, industries, and products, and about different types of assets, liabilities, transactions and other economic events. In terms of economic information, the scope of the statistics is therefore very wide, and the only economic activities omitted from that scope are those that fall outside the defined boundaries of production, consumption, accumulation and economic assets. Nevertheless, the ASNA does not necessarily provide all of the macroeconomic measures that analysts require, and statistical offices, including the ABS, are working to improve and extend the body of macroeconomic statistics.

1.46    The sources and methods used to compile National Accounts are typically many and varied, and the Australian situation is no exception. From the perspective of users of the ASNA, an understanding of the sources of information used and the methods applied to compile the National Accounts is useful because such matters can influence the quality, accuracy and reliability of the statistics. A detailed account of the sources and methods underlying the data compiled for key variables in the central transaction accounts and for specific sets of data, such as appear in the financial accounts and the balance sheets, are outlined in other sections. The next few paragraphs provide a broad description of the processes and infrastructure that underlie compilation of the ASNA.

1.47    Because of the wide range of information included in the ASNA, capture of the data by means of a single survey, or even a few surveys, would not be feasible. Since many parts of the accounts record transactions in which two parties are involved, there are at least two possible sources of information about such transactions, and compilers can economise by targeting the least costly sources of information without compromising the quality of the data significantly. Quality of the data source is of paramount importance. Furthermore, surveys are not the only sources of information, and advantage must be taken of administrative and other records that contain relevant information obtainable at less cost than surveys.

1.48    However, before using information from surveys or administrative records, National Accounts compilers must be sure that the information is consistent with national accounting standards and that there are no gaps or overlaps between the various sources. A high proportion of information used in compiling the Australian National Accounts comes from surveys that use the ABS register of businesses and other organisations (referred to as the 'business register') to provide the target population. The business register is a list of economic units that are defined according to national accounting standards. The units are also defined so as not to overlap, and every effort is made to include all economically significant units so that there are no gaps in the coverage of the relevant fields of economic activity. Although most of the ABS surveys that provide data for the ASNA are used primarily to compile other economic statistics, the survey questions are generally designed to comply with national accounting concepts so that the survey results are consistent with National Accounts statistics. Where administrative data are used, the National Accounts compiler has less control over the application of standards and the possible existence of gaps and overlaps. Some potential sources of this type may be rejected because they cannot be reconciled with survey results or deviate too much from National Accounts standards.

1.49    Once reliable and consistent sources of data have been established, the major task of the National Accounts compilers is to bring together the data in the national accounting framework. In some cases, there may be two sets of data relating to the same variables, in which case discrepancies must be investigated and a choice made as to which data are more reliable. Furthermore, the ASNA includes balances that are equal in concept but are derived from different data sources. For example, net lending or borrowing in the capital account is equal in concept to net change in financial position in the financial account but is derived entirely from non-financial transactions, whereas net change in financial position is derived entirely from financial transactions. Such balances provide a measure of the consistency of the two sets of data and can be used to monitor the accuracy and quality of the statistics. When differences are unavoidable or unresolved, rather than force a balance, compilers may record the differences in the accounts as 'statistical discrepancies' or 'net errors and omissions'.

1.50    Business and administrative records do not always provide information that reflects economic reality. For example, interest charges generally include a service charge as well as a return on capital invested. In such cases, the 2008 SNA prescribes imputation of the required information. In other cases, transaction flows have to be rerouted, as with employers' contributions to superannuation funds on behalf of their employees, which are paid to superannuation funds but are recorded in the ASNA as payable directly to employees as a component of employee remuneration. Therefore, National Accounts compilers must put in place systems to derive such imputed information. Thus, data obtained from surveys or administrative records may be adjusted or rearranged to meet the 2008 SNA requirements.

1.51    Two significant processes are applied by compilers to derive additional data of considerable interest: time series analysis and production of chain volume measures. Time series analysis includes seasonal adjustment and estimation of trend values. Seasonal adjustment involves estimation of seasonal factors in the data and adjustment of the data to remove the seasonal effect. Trend values are estimated by removing irregular movements from seasonally adjusted data. Chain volume estimation involves removing the effects of price changes from source data, which are recorded at current prices.

1.52    Once all adjustments and derivations have been made, compilers should have a complete dataset that can be checked for consistency with data for previous periods and data from other systems. Known as output editing, this form of checking aims to detect errors that may have slipped through at earlier stages of compilation, and which may require inquiry back to the supplier of the source data. Data may be queried because the resulting movement from the previous period (or the same period in the previous year) appears implausible or is inconsistent with the movement of other related variables. After all checks have been completed and errors or inconsistencies explained or removed, the statistics are cleared by a senior statistician for publication.

1.53    Australian National Accounts statistics include major economic indicators that are in strong demand and can influence financial markets. Therefore, care is taken to ensure that no user receives the statistics before the designated release time, with a small number of exceptions. These exceptions relate to designated officers in certain government departments, such as the Treasury and the Department of the Prime Minister and Cabinet, who are required to prepare briefing material on the statistics for their Ministers; they are subject to a strict embargo until the official release of the National Accounts.

1.54    Because Australian National Accounts statistics are often compiled from source data that are preliminary or incomplete, the statistics are often revised when final or more complete information comes to hand. Such revisions to the data are therefore relatively common. Furthermore, seasonally adjusted and trend data are subject to revision because the adjustment factors for seasonal and irregular influences change over time as more data are added to the time series. Similarly, chain volume measures are subject to revision whenever the reference period is changed and when a new base year is introduced.

1.55    The uses of the statistics included in the ASNA mainly arise from the role of the National Accounts as a framework for evaluating economic performance. However, given the wide range of information included in the ASNA, economic performance can be evaluated at a number of different levels, including the economy as a whole, the various sectors and subsectors of the economy, individual States and Territories, individual industries and individual products. Furthermore, information is available for different time frames, including quarterly data for measuring short-term changes in economic conditions and more detailed annual information for measuring longer-term changes. Seasonally adjusted and trend series facilitate analysis of short-term movements in quarterly data, and chain volume measures help to isolate volume movements in the economic indicators.

1.56    The estimates of national income, expenditure and product are well established as a framework for monitoring the current performance of the Australian economy, and are closely followed and analysed by government and private sector economists, the media, financial markets, credit rating agencies and others with an interest in current economic trends. General interest centres on trend and seasonally adjusted chain volume measures of key variables such as gross domestic product as an indicator of growth, measures of income such as compensation of employees (COE) and gross operating surplus (GOS) of corporations, the expenditure items of final consumption expenditure (government and households) and gross fixed capital formation (GFCF), the ratio of net household saving to net household disposable income, and production classified by industry groupings. Such information is used in short-term economic forecasting, in analyses underlying forecasts and economic policy settings in Commonwealth and State/Territory government budgets, in models of economic activity that simulate the effects of economic policy and behaviour, and in international comparisons of Australia's economic performance with the performance of other countries.

1.57    As well as Australia's National Accounts, the ABS produces annual accounts for each of Australia's States and Territories published in the State Accounts. These provide estimates of GSP and state final demand. An important use of the state accounts is to compare each State and Territory in terms of levels of economic activity and rates of economic growth.

1.58    The financial accounts data (published in Finance and Wealth) have more specialised uses, relating to financial markets and the financial sector. They are used by government and private sector economists as short-term indicators of the demand for credit, which reflects overall economic conditions and expectations. The sectoral and instrument breakdowns in the financial accounts enable detailed analysis of stocks and flows related to borrowing and lending. Depending on economic conditions, user interest may focus, for example, on the borrowing and debt of governments, or on the ratio of debt to equity financing of private corporations. The financial accounts provide an alternative view (to that shown in the real accounts) of national and sectoral saving, and indicate the composition of saving in terms of financial instruments. For example, these accounts can show trends in household saving toward superannuation and the extent of accumulation of household debt. Financial market analysts and participants use the financial accounts to assess growth in the markets for various forms of finance (e.g. deposits, loans, shares, debt securities) and sources of finance (e.g. banks, non-bank depository institutions, life offices and pension funds, non-residents) used by borrowers.

1.59    The national balance sheet data on the level and composition of Australia's assets and liabilities indicate the economic resources of, and claims on, the nation and each sector, and support assessments of the external debtor or creditor position of a country. The monetary estimates of natural resources contained in the balance sheet are underpinned by a dataset of physical estimates detailing levels of particular natural resources. Due to the experimental nature of the monetary estimates, it is considered that monetary estimates on natural resources should be considered in conjunction with the physical estimates, especially for mineral and energy resources. The estimates provide information for monitoring the availability and exploitation of these resources and for assisting in the formulation of environmental policies and resource pricing.

1.60    Sectoral balance sheets provide information necessary for analysing a number of topics. Examples include:

• the computation of widely used ratios, such as debt-to-equity, non-financial to financial assets, and debt-to-income; and
• the provision of additional information on the relationship between consumption and saving behaviour.

1.61    Companies can compare the return on their own assets with returns achieved nationwide. Prospective investors may examine the unit values and returns on; for example, the various mineral and energy resources to guide investments in particular industries.

1.62    The ASNA I-O tables provide a much more detailed disaggregation of gross domestic product than is available in the national income, expenditure and production GDP accounts. I-O tables are used to facilitate economic analysis in a number of ways, for example:

• they provide a means of undertaking comparative analysis of industries within an economy as well as across economies;
• they provide the basis for a detailed understanding of the linkages and dependencies that exist within an economy;
• given the set of assumptions implicit in the I-O framework, they provide a means of forecasting the economic effects of a change in demand on economic variables such as value added, prices and employment;
• they constitute a core component of many modern general equilibrium models which may be used for a number of purposes including forecasting; and
• they provide a framework whereby the confrontation of data from various sources can be undertaken, thereby providing a means of improving the accuracy of the National Accounts and economic statistics in general.

1.63    Satellite accounts are used to expand the analytical capacity of the National Accounts for selected areas of social concern in a flexible manner, without overburdening or disrupting the National Accounts. They involve the rearrangement of classifications used in the National Accounts and the possible introduction of complementary elements but do not change the underlying concepts of the National Accounts.

1.64    The National Accounts are used as a framework for other economic statistics. Given the comprehensive nature of the National Accounts coverage of economic activity, most economic statistics relate in some way to elements of the National Accounts. Conversely, National Accounts compilers draw upon a wide range of economic statistics to provide information for inclusion in the National Accounts. For these reasons, national statistical offices usually design economic statistics systems that are based on the concepts employed in the National Accounts. Such a strategy ensures that users of economic statistics can relate the statistics to the National Accounts, and that National Accounts compilers have sources of information that are conceptually compatible with the National Accounts. As noted previously, such an integrated approach to the production of economic statistics is followed in the ABS. It is administered through use of a single business register as the source of survey populations for most ABS economic statistics, and the strict application of national accounting concepts in the design of the business register and the surveys, including the units model, data item definitions and classifications.

2.3    In 2008 SNA, 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 2008 SNA 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 2008 SNA and the ASNA: households, non-profit institutions, government units and corporations (including quasi-corporations).

2.4    Institutional units are grouped into institutional sectors according to their characteristics and institutional role. All households are allocated to the household 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. 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 (NPISH) sector. In the ASNA, the NPISH sector is included in the household sector.

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

2.6    Further detail on institutional units and sectors is outlined in Chapter 4.

2.7    Economic flows reflect the creation, transformation, 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 also 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, such as mineral discoveries, catastrophic losses, depletion, write-offs, and growth of natural assets.

2.8    The 2008 SNA groups elementary transactions and other flows into a relatively small number of types according to their nature. They are:

• Transactions in goods and services (products) describe the origin (domestic output or imports) and use (intermediate consumption, final consumption, capital formation or exports) of goods and services. By definition, goods and services in the SNA are always a result of production, either domestically or abroad, in the current period or in a previous one. The term products is therefore a synonym for goods and services.
• Distributive transactions consist of transactions by which the value added generated by production is distributed to labour, capital and government and transactions involving the redistribution of income and wealth (taxes on income and wealth and other transfers). The SNA draws a distinction between current and capital transfers, with the latter deemed to redistribute saving or wealth rather than income.
• Transactions in financial instruments (or financial transactions) refer to the net acquisition of financial assets or the net incurrence of liabilities for each type of financial instrument. Such changes often occur as counterparts of non-financial transactions. They also occur as transactions involving only financial instruments. Transactions in contingent assets and liabilities are not considered transactions in the SNA.
• Other accumulation entries cover transactions and other economic flows not previously taken into account that change the quantity or value of assets and liabilities. They include acquisitions less disposals of non-produced non-financial assets, other economic flows of non-produced assets, such as discovery or depletion of mineral and energy resources or transfers of other natural resources to economic activities, the effects of non-economic phenomena such as natural disasters and political events (wars for example) and finally, they include holding gains or losses, due to changes in prices, and some minor items.²⁵

2.9    The 2008 SNA (with the ASNA being consistent) states that:

• Assets and liabilities are the components of the balance sheets of the total economy and institutional sectors. In contrast to the accounts that show economic flows, a balance sheet shows the stocks of assets and liabilities held at one point in time by each unit or sector or the economy as a whole. Balance sheets are normally constructed at the start and end of an accounting period, but they can in principle be constructed at any point in time. However, stocks result from the accumulation of prior transactions and other flows, and they are modified by future transactions and other flows. Thus, stocks and flows are closely related.
• The coverage of assets is limited to those assets which are subject to ownership rights and from which economic benefits may be derived by their owners by holding them or using them in an economic activity as defined in the SNA. Consumer durables, human capital and those natural resources that are not capable of bringing economic benefits to their owners are outside the scope of assets in the SNA.
• The classification of assets distinguishes, at the first level, financial and non-financial (produced and non-produced) assets. Most non-financial assets generally serve two purposes. They are primarily objects, usable in economic activity and, at the same time, serve as stores of value. Financial assets are necessarily and primarily stores of value, although they may also fulfil other functions.²⁶

2.10    Goods and services, also called products, are the result of production. They are exchanged and used for various purposes: as inputs in the production of other goods and services, as final consumption or for investment. Institutional units may produce a variety of products and therefore can be too heterogeneous in terms of their productive activity to provide useful information about industries. Hence 2008 SNA specifies the use of narrower units than institutional units for the purpose of providing statistics about production classified by industry.

2.11    The producing unit recommended in 2008 SNA is the kind-of-activity unit, which is a part of an institutional unit that engages in one productive activity. However, 2008 SNA also suggests that an alternative unit can be used, namely the establishment, which covers all productive activity at a single location.

2.12    In the ASNA, the producing unit is the type of activity unit (TAU), which is the largest unit within a business for which relevant accounts are kept, having regard for industry homogeneity. However, ASNA does not recognise an establishment unit as outlined in 2008 SNA.

2.13    In the ASNA, each TAU is classified to an industry that is defined in the ANZSIC06, which is based on the principles and classification structure set out in the United Nations' International Standard Industrial Classification of All Economic Activities (ISIC), Rev.4. ISIC is the industry classification that the 2008 SNA recommends for use in national accounts.

2.14    Further detail on products and producing units is outlined in Chapter 5.

2.15    The national accounts are important for providing a framework for economic statistics. The accounts provide a conceptual framework for ensuring the consistency of the definitions and classifications used in different, but related, fields of statistics. It also acts as an accounting framework to ensure the numerical consistency of data drawn from different sources. Consistency between different statistical systems enhances the analytical usefulness of all the statistics involved. Therefore, the harmonisation of 2008 SNA and related statistical systems is a key feature of the system.

2.16    ASNA is also harmonised with other statistical systems: the balance of payments, government finance statistics, and monetary and financial statistics. Australia's balance of payments was updated and aligns with BPM6, which was updated simultaneously with the 2008 SNA. Australia's government finance statistics, which feed into the national accounts, align with the International Monetary Fund's revised GFSM released in 2014.

2.17    Fundamental to the national accounts is the measurement of economic activity within the economy, i.e. the recording of the transfer of products from one unit to another. 2008 SNA states:

… a distinction is made between legal ownership and economic ownership. The criterion for recording the transfer of products from one unit to another in the SNA is that the economic ownership of the product changes from the first unit to the second. The legal owner is the unit entitled in law to the benefits embodied in the value of the product. A legal owner may, though, contract with another unit for the latter to accept the risks and rewards of using the product in production in return for an agreed amount that has a smaller element of risk in it. Such an example is when a bank legally owns a plane but allows an airline to use it in return for an agreed sum. It is the airline that then must take all the decisions about how often to fly the plane, to where and at what cost to the passengers. The airline is then said to be the economic owner of the plane even though the bank remains the legal owner. In the accounts, it is the airline and not the bank that is shown as purchasing the plane. At the same time, a loan, equal in value to payments due to the bank for the duration of the agreement between them is imputed as being made by the bank to the airline.²⁷

2.18    The 2008 SNA and ASNA accounting rules cover the valuation, time of recording and grouping by aggregation, netting and consolidation of individual stocks and flows.

2.19    All entries in the national accounts should be recorded at the market price current at the time of recording. The appropriate value for exchanges of goods and services is generally the transaction price. 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, this method is not generally recommended.

2.20    2008 SNA 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:

1. flows involving change of ownership are recorded when ownership changes;
2. services are recorded when provided;
3. distributive transactions, which are those associated with the distribution of income to owners of the factors of production, are recorded as amounts payable accumulate;
4. interest is recorded as it accumulates rather than when it falls due for payment;
5. output is recorded as production takes place; and
6. intermediate consumption is recorded when goods and services are used

2.21    For the most part a strict accrual basis of recording is applied in the ASNA, although special procedures are sometimes required to estimate certain flows on an accrual basis.

2.22    In the national accounts, data are recorded in aggregates (i.e. the sums of the values of stocks and flows of a given type such as total output) and balancing items (i.e. the differences between aggregates on each side of an account or between other balancing items such as 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 of transactions between units in the same sector or subsector from aggregates. In the ASNA, consolidation is generally confined to transactions within establishments, to transfers between institutional units within the general government and household sectors, and to transactions in used fixed assets within sectors. In contrast to 2008 SNA, property income flows within institutional sectors and sectoral (or subsectoral) transactions in financial instruments are consolidated in ASNA. Transactions between establishments of the same enterprise are generally not consolidated, however transactions in financial instruments and related income flows are fully consolidated.

2.23    National accounting is based on the principle of double entry as in business accounting. Each transaction must be recorded twice, once as a resource (i.e. income) and once as a use (i.e. expense). The total of transactions recorded as resources and as uses must be equal, thus permitting a check on the consistency of the accounts. Economic flows that are not transactions have their counterpart directly as changes in net worth. The recording of the consequences of an action as it affects all units and all sectors is based on a principle of quadruple entry accounting, because most transactions involve two institutional units. Correctly recording the four flows involved ensures full consistency in the accounts.

2.24    Further detail on accounting rules is available from Chapter 3.

2.25    2008 SNA divides the accounts into two main classes: the integrated economic accounts and the other parts of the accounting structure. The integrated economic accounts use the institutional units and sectors, transactions, and assets and liabilities together with the rest of the world to form the accounts. These are the accounts presented in ASNA, but not in the same format. The other parts of the accounting structure bring in the conceptual elements of production units, products, purposes, employment and population to assist in the production of the integrated economic accounts (e.g. supply-use tables) or to present the data in different ways.

2.26    The integrated economic accounts are grouped into three categories:

1. Current accounts - present production, and the generation, distribution and use of income;
2. Accumulation accounts - present changes in assets and liabilities and changes in net worth (the difference between assets and liabilities for a given institutional unit or group of units); and
3. Balance sheets - present stocks of assets and liabilities and net worth. Opening and closing balance sheets are included with the full sequence of accounts.

2.27    The main accounts in the ASNA are as follows:

• gross domestic product (GDP) accounts - record the value of production (i.e. production of GDP), the income from production (i.e. income from GDP) and the final expenditures on goods and services produced and net international trade in goods and services (i.e. expenditure on GDP);
• income accounts - show primary and secondary income transactions, final consumption expenditures and consumption of fixed capital;
• capital accounts - record the net accumulation of non-financial assets through transactions, and the financing of the accumulation by way of saving and capital transfers;
• financial accounts - show the net acquisition of financial assets and the net incurrence of liabilities; and
• balance sheets - record the stock of financial and non-financial assets, and financial liabilities at a particular point in time.

2.28    The ASNA accounts are based on the system of accounts outlined in 2008 SNA. Each of the accounts is produced for the economy as a whole and the set of accounts together constitute the consolidated summary accounts. The ABS produces annual income and capital accounts by institutional sector based on 2008 SNA. The quarterly sectoral accounts depict national accounts using the same concepts and definitions as the annual sector accounts. These accounts are compiled for each of the following institutional sectors and subsectors: non-financial corporations (private and public), financial corporations, general government (national and state and local), and households (including NPISH).

2.29    The national accounts also include supplementary tables which provide more detailed presentations of the individual sector accounts. Although production accounts could be constructed for the four individual institutional sectors, major interest centres instead around production on an industry basis. This cuts across the institutional sectors used in the income and capital accounts since the production units are classified by industry without regard to institutional sector.

2.30    Another account that is integral to the national accounts is the external account. This account records the transactions and financial positions of the nation with the rest of the world, from the point of view of the rest of the world. In one sense, the external account is simply another sectoral account. Because of the important role of the rest of the world sector, the account is a major focus of attention for economic analysts and international organisations.

2.31    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) and net taxes on products. This is referred to as GDP measured by the production approach (GDP(P)). 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, or as the sum of all final expenditures by residents (final consumption expenditure and GFCF), changes in inventories and exports less imports of goods and services. These are referred to as GDP measured by the income approach (GDP(I)) and GDP measured by the expenditure approach (GDP(E)), respectively. All three approaches are presented in the ASNA publications. In Australia, the combined presentation of the three approaches is referred to as the GDP accounts. These reflect the 2008 SNA production account.

2.32    Although conceptually each measure should result in the same estimate of GDP, different estimates of GDP are obtained when the three measures are compiled independently using different data sources. However, integration of the annual Australian national accounts estimates with annual balanced supply-use tables ensures that the same estimate of GDP is obtained for all three approaches for years in which these tables are available. The supply-use tables have been compiled from 1994-95 up to the year preceding the latest completed financial year, except in the June quarter where it is the latest two years.

2.33    Prior to 1994-95, the estimates using each approach are based on independent sources and there are usually differences between the GDP I, E and P estimates. Nevertheless, for these periods, a single estimate of GDP has been compiled by taking a simple average of the I, E and P estimates.

2.34    As a result of the above methods:

• there are no statistical discrepancies in either current price or chain volume terms for annual estimates from 1994-95 up to the year prior to the latest year (and the latest two years in the June quarter); and
• statistical discrepancies exist in both current price and chain volume terms between estimates obtained from the GDP I, E and P approaches and the single estimate of GDP for years prior to 1994-95, for the latest year (and the latest two years in the June quarter), and for quarterly estimates. These discrepancies are shown in the relevant tables.

2.35    There is no institutional sector dimension to any of the GDP accounts, although the GDP(I) measure could be classified this way. GDP measured by the production approach (i.e. sum of value added) is presented by industry only. The valuation of GDP in ASNA is at purchasers' prices, so net taxes on products are added to total gross value added to obtain GDP(P).

2.36    2008 SNA splits the income account into several accounts, distinguishing between the distribution, redistribution and use of income. The distribution of income is decomposed into three main steps: primary distribution (i.e. primary income), secondary distribution (i.e. secondary income) and redistribution in kind (i.e. social transfers in kind). The balancing items at the various stages are meaningful concepts of income provided all kinds of distributive current transactions are included.

2.37    The ASNA includes all such transactions. Each stage is presented in the income account with the balancing items being gross income and gross disposable income for all sectors, and adjusted disposable income for the general government and household sectors. Australia's presentation of the income account differs from 2008 SNA in that transactions regarding the distribution and redistribution of income are presented in one table.

2.38    The sectoral income accounts are a disaggregation of the national income account, recording for each institutional sector. Their net income arising from production and transfers of other sectors, and their uses of income (disbursements). The difference between income and the use of income is net saving. This balancing item is carried forward to the capital account as saving must be used to acquire financial or non-financial assets, or to reduce liabilities.

2.39    The transactions as presented in the ASNA are:

• Primary income consists of factor incomes (e.g. compensation of employees, gross operating surplus and gross mixed income, and taxes less subsidies on production and imports) and property incomes (e.g. interest, dividends, rent on land and mineral and energy resources, and reinvested earnings of direct investors and investment funds). Gross national income is the balancing item and equals total factor incomes, plus taxes less subsidies on production and imports, plus net primary income receivable from non-residents.
• 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 the balancing item and is equal to the sum of net primary income receivable and net secondary income receivable.
• Social transfers in kind exist only in the general government and household sector. They consist of goods and services provided to households by government (or NPISHs) either free or at prices that are not economically significant. They consist of final consumption expenditure undertaken by government (and NPISHs) on behalf of households, for example, education and health services.

2.40    The capital account is the first account in the sequence of the accumulation accounts, and records the acquisitions less disposals of non-financial assets, as well as capital transfers involving the redistribution of wealth. It shows sources of funds (receipts) for financing gross capital formation, and the use of these funds (disbursements). Sources of funds comprise consumption of fixed capital, net saving transferred from the national income account and net capital transfers receivable from non-residents. On the disbursements side are shown GFCF, changes in inventories and net acquisitions of non-produced non-financial assets. Conceptually, net lending to non-residents is the balancing item of the national capital account. However, if there are statistical discrepancies in the Expenditure on GDP account, then these discrepancies must also be taken into account before deriving the balancing item. When net lending is negative, the economy is a net borrower from non-residents. Where net lending is positive, the economy is a net lender to non-residents.

2.41    2008 SNA has an entry for acquisitions less disposals of valuables. While conceptually such transactions should be recorded in the capital account, they are currently not recorded in the ASNA due to a lack of a suitable data source. It is worth noting that household final consumption expenditure (HFCE) may include some expenditure on valuables by the household sector.

2.42    The sectoral capital accounts are a disaggregation of the national capital account and show the extent to which the sum of savings and capital transfers are used to finance the acquisition of non-financial assets. The balancing item, net lending/borrowing, reflects the net lending/borrowing of a particular sector to all other sectors. Net lending is the excess of capital finance for capital acquisition and measures the amount an institutional sector has available to finance other sectors. Net borrowing is the existence of a borrowing requirement to finance capital acquisitions due to an insufficient retention of financial resources through saving and capital transfers. Capital accounts are also compiled for selected subsectors.

2.43    As sectoral production accounts are not compiled, it is not possible to show any national statistical discrepancies by sector. Accordingly, the sectoral net lending balance implicitly includes each sector's share of the national statistical discrepancy.

2.44    The financial account records the net acquisitions of financial assets and liabilities.

2.45    The financial account explains how net lending/borrowing is affected by changes in the holding of financial assets and liabilities. The sum of these changes, net change in financial position, is conceptually equal in magnitude to the net lending/borrowing item of the capital account. The financial account for each sector shows the financial transactions associated with the net lending transactions recorded in the capital account. These accounts, however, are compiled using different sources, giving rise to differences between the two balancing items, usually due to measurement error. These differences are recorded for each institutional sector in net errors and omissions.

2.46    In the national financial account, transactions in financial assets and liabilities with non-residents are shown. The national financial account is identical to the financial account in the balance of payments. Note that the signs are reversed between the two as the balance of payments is based on the point of view of the resident, whereas the national accounts take the view of the non-resident. Financial accounts are also compiled for each sector and for a wide range of subsectors. In these financial accounts, the transactions relate to financial assets and liabilities with other sectors/subsectors.

2.47    The other changes in the volume of assets account records the effect of exceptional events that cause not only the value, but also the volume of assets and liabilities to change. They may be divided into three main categories:

1. normal appearance and disappearance of assets other than by transactions, such as discovery and depletion of mineral and energy resources, and growth and depletion of native forests; economic recognition of produced assets such as public monuments and valuables; the initiation and cancellation of contracts, leases and licences such as patents, broadcast licences and taxi plates; changes in the value of goodwill and marketing assets; and the appearance or disappearance of financial assets;
2. changes in assets and liabilities due to exceptional, unanticipated events, such as natural disasters (e.g. bushfires, floods and earthquakes), war or severe acts of crime, and uncompensated seizures of assets; and
3. changes in classification and structure: in the event that the activities of an institutional unit change to the extent that the unit is reclassified from one institutional sector to another (for example, from the non-financial corporations sector to the financial corporations sector), the movements of assets and liabilities between the sectors are recorded as part of other flows in this category.

2.48    The balancing item for this account is changes in net worth due to other changes in the volume of assets. In ASNA, 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.

2.49    The revaluation account records holding gains and losses which result from changes in the prices of non-financial assets and financial assets and liabilities. Holding gains and losses accrue to the owners of assets and liabilities purely as a result of holding the assets or liabilities over time, without transforming them in any way. Holding gains and losses include not only gains/losses on capital goods (such as fixed assets, land and other natural resources) and financial assets and liabilities, but also inventories, including work-in-progress.

2.50    The balancing item for this account is changes in net worth due to nominal holding gains and losses. In ASNA, holding gains and losses are recorded in an account that reconciles the values of assets and liabilities recorded in the opening and closing balance sheets.

2.51    Holding gains and losses measured based on current prices are called nominal holding gains and losses. 2008 SNA notes that these nominal gains and losses can be further decomposed into neutral holding gains and losses, reflecting changes in the general price level, and real holding gains and losses, reflecting changes in the relative prices of assets. The ASNA shows this decomposition for the total economy and for the household sector.

2.52    The national balance sheet shows, at certain points, the aggregate value of Australian residents' non-financial assets, their financial claims on non-residents, and their liabilities to non-residents. The balancing item is net worth, representing the difference between assets and liabilities. Net worth is equivalent to the present value of the stock of economic value a unit or sector holds.

2.53    Similar information is shown for each sector in the sectoral balance sheets. For financial assets and liabilities, the amounts shown are the outstanding claims on and liabilities to other sectors on the balance sheet dates. For non-financial assets, the amounts shown represent each sector's share of the Australian value as at the balance sheet dates.

2.54    The opening and closing balance sheets display assets, liabilities and net worth valued at the prices of the date for which the balance sheet is compiled. Conceptually, the entries for assets and liabilities in the closing balance sheet are equal to the entries in the opening balance sheet plus changes in the accumulation accounts; that is, the capital account; the financial account; the other changes in the volume of assets account; and the revaluation account.

2.55    2008 SNA includes entries for valuables and non-produced non-financial assets. Conceptually, these assets should be recorded in the balance sheets. However, valuables and certain non-produced non-financial assets are not recorded in the ASNA due to a lack of suitable data sources. The excluded non-produced non-financial assets are water resources, goodwill and marketing assets and contracts, leases and licences (except for spectrum licenses).

2.56    Supplementing the balance sheets are accounts that show the changes in balance sheet positions during a particular period. In these accounts, changes in balance sheets are decomposed into transactions (which are equivalent to the relevant transactions recorded in the capital and financial accounts), revaluations due to the effect of price changes, and other changes affecting the volume of assets and liabilities.

2.57    The external accounts show the economy's transactions and stock positions with non-residents, from a non-resident perspective.

2.58    In ASNA, external income, capital, financial and balance sheet accounts are provided. The external income account is analogous to the balance of payments current account. As such, its balance is the same as, but opposite in sign to, the balance on the current account as recorded in the balance of payments. The balance on the external capital account (net lending) is the same as, but opposite in sign to, the sum of the current and capital account balances in the balance of payments. The external financial account includes the balance of payments financial account together with net lending of non-residents (the sum of the balance of payments current and capital account balances) and the difference between the two; that is, the balance of payments net errors and omissions item.

2.59    Once all elements have been produced, it is possible to present in detail the integrated accounts. The integrated accounts give a complete picture of the accounts of the total economy including balance sheets in a way that permits the principal economic relations and the main aggregates to be shown. The level of detail can vary depending on the purpose.

2.60    The following table provides a summary of the accounts, balancing items and main aggregates within the 2008 SNA and the comparison with the ASNA. The purpose of the table is to illustrate how the ASNA presentation compares with the 2008 SNA presentation.

2.61    The following figure illustrates the integrated accounts as presented in the ASNA:

2.62    The aggregates, including value added, income, consumption and saving, are composite values which measure one aspect of economic activity. They are summary indicators and key magnitudes for purposes of macroeconomic analysis and comparisons over time. Some aggregates may:

• be obtained directly as totals of particular transactions (e.g. final consumption, GFCF and social contributions); or
• result from aggregating balancing items for the institutional sectors (e.g. value added, disposable income and saving).

2.63    Aggregates are commonly presented as net or gross measures. The distinction between the two is based on whether consumption of fixed capital has been deducted from the measure. A gross measure includes consumption of fixed capital, whereas net measures are obtained by deducting consumption of fixed capital from gross measures. 2008 SNA recommends that net measures should be produced where it is possible to do so as they take into account a reduction in the value of previously created fixed assets when they are used up in the production process. However, the SNA recognises that it is very difficult to measure consumption of fixed capital with any precision and acknowledges that gross measures will be commonly used in practice.

2.64    Aggregates are also presented in current price or volume measures. A key advantage of volume measures is that the price effect is eliminated and a real change from one period to another is obtained. However, some aggregates, such as income, are not able to be measured in volume terms as they cannot be broken down into quantity and price components.

2.70    2008 SNA states that the detailed analysis of production by industries and flows of goods and services by kind of products is an important part of the integrated central framework. A detailed analysis of production activities and product balances is made in the supply-use tables presenting:

• the resources and uses of goods and services for each type of product;
• the production and generation of income accounts for each industry according to kind of economic activity; and
• data on factors of production (labour and fixed capital) used by industries.

2.71    Supply-use tables are a powerful tool to compare and contrast data from various sources and improve the coherence of the economic information system. They permit an analysis of markets and industries and allow productivity to be studied at this level of disaggregation. S-U tables show, for the economy as a whole and for groups of products, the total resources in terms of domestic output and imports, and the uses of goods and services in terms of intermediate consumption, final consumption, gross capital formation and exports. They also provide information on the generation of income from production.

2.72    The S-U tables reconcile how the supply of products (either by domestic production or imports) within the economy in an accounting period is used for intermediate consumption, final consumption, capital formation or exports. Once both sides are equal (i.e. supply = use) for all products, the tables are said to be balanced:  balanced supply-use tables provide the benchmarks for the annual current price and chain volume measures of GDP.

2.73    The ASNA includes symmetric I-O tables which provide a means of undertaking more detailed analysis of the process of production and the use of goods and services (products), and of the income generated by that production than is possible with S-U tables. 'Symmetric' means that the same classifications or units (e.g. the same groups of products) are used in both rows and columns.

2.74    The I-O tables serve two purposes: statistical and analytical. They provide a framework for checking the consistency of statistics on flows of goods and services obtained from different kinds of statistical sources, for example, industrial surveys, household expenditure data, investment surveys, foreign trade statistics, etc. They serve as a coordinating framework for economic statistics, both conceptually for ensuring the consistency of the definitions and classifications used, and as an accounting framework for ensuring the numerical consistency of data drawn from different sources. The I-O framework is also appropriate for calculating much of the economic data contained in the national accounts and detecting weaknesses. This is particularly important for the decomposition of the values of flows of goods and services into prices and volumes for the calculation of an integrated set of price and volume measures. As an analytical tool, I-O data are conveniently integrated into macroeconomic models in order to analyse the link between final demand and industrial output levels.

2.75    The symmetric I-O tables are derived out of the S-U tables. As the latter are data-oriented in nature, adjustments are required in the compilation of the former, particularly with respect to valuation, the treatment of imports, and classifications. The links between the I-O tables and the S-U tables are described in Chapter 22 Input-Output Tables.

2.76    In concept, the accounts show which sectors acquire which financial assets and incur which liabilities. In order to examine the workings of the financial sector, the financial account in ASNA distinguishes various subsectors within financial corporations and eleven categories of financial assets and liabilities.

2.77    Australian National Accounts: Finance and Wealth includes financial instrument market tables for the twelve financial instruments in a from-whom-to-whom framework with nineteen available counterparty sectors and subsectors. Each financial instrument is presented by issuing/accepting/borrowing sector/subsector by counterparty. Transactions and stocks between intra-sector/subsector are also presented for these tables; for example, authorised deposit-taking institutions (ADIs) deposits held by other ADIs. If required, the financial market tables would enable the ASNA to produce the flow-of-funds matrix as described in paragraph 2.150 of the 2008 SNA.

2.78    ASNA records the essential elements of the Australian economy: production, income, consumption (intermediate and final), accumulation of assets and liabilities, and wealth. As such, many different data sources are used to compile the ASNA. In many cases, these data are infrequent, incomplete, lacking in scope or are simply not on a basis that aligns with national accounts standards. The upcoming chapters provide an overview of the sources and methods employed to convert these different data sources into a coherent set of national accounts.

3.32    A balancing item is obtained by subtracting the total value of the entries on one side of an account from the total value of entries the other side. It cannot be measured independently of the other entries. It does not relate to any specific set of transactions, or any set of assets, and so it cannot be expressed in terms of its own price or quantity units.

3.33    Balancing items are not simply devices to ensure that accounts balance. They are often used as key macroeconomic indicators to assess economic performance. They encapsulate a great deal of information and include some of the most important entries in the accounts, for example:

• value added or domestic product;
• operating surplus;
• disposable income;
• saving;
• net lending or net borrowing;
• net change in financial position; and
• current external balance.

3.34    Net worth, which is defined as the value of all the non-financial and financial assets owned by an institutional unit or sector less the value of all its outstanding liabilities, is the balancing item in the balance sheets. Net worth cannot be measured independently of the other entries, nor does it relate to any specific set of transactions.

3.35    As well as net worth appearing as a stock level, changes in net worth due to different sorts of transactions and other flows may also be derived. Just as the changes in the levels of any asset can be traced through changes in transactions and other flows throughout the period, so changes in total net worth can be exhaustively described according to the transactions and other flows that led to changes in the total level of assets and liabilities.

3.36    2008 SNA groups flows and stocks according to the classification of transactions, other flows, and entries related to stocks of assets and liabilities. The classification of transactions and other flows has five headings at the highest level, dealing with transactions in products, transactions showing how income is distributed and redistributed within the SNA, transactions in non-produced assets, financial assets and liabilities, and other accumulation entries.

3.37    In general, flows and stocks are entered either in the accounts of the institutional units that own or owned the goods and assets involved; the accounts of units that deliver or take delivery of services; or the accounts of units that provide labour and capital or use them in production.

3.38    The ASNA's accounting rules cover the quadruple entry accounting principle, valuation, time of recording and grouping by aggregation, netting and consolidation of individual stocks and flows.

3.39    The accounting system underlying the ASNA derives from broad bookkeeping principles. To understand the accounting system for the ASNA, three bookkeeping principles should be outlined:

1. Vertical double-entry bookkeeping, also known simply as double-entry bookkeeping used in business accounting - each transaction leads to at least two entries, traditionally referred to as a credit entry and a debit entry, in the books of the transactor. It ensures the total value of assets equals the total value of liabilities plus net worth of a unit’s balance sheet;
2. Horizontal double-entry bookkeeping - is useful for compiling accounts that reflect the mutual economic relationships between different institutional units in a consistent way. It ensures the consistency of recording for each transaction category by counterparties; and
3. Quadruple-entry bookkeeping - the simultaneous application of both the vertical and horizontal double-entry bookkeeping, which is the accounting system underlying the recording of transactions in the ASNA.

3.40    Quadruple- entry bookkeeping deals in a coherent way with multiple transactors or groups of transactors, each of which satisfies vertical double-entry bookkeeping requirements. A single transaction between two counterparties thus gives rise to four entries. In contrast to business bookkeeping, national accounts deal with interactions among a multitude of units in parallel, and thus require special care from a consistency point of view. As a liability of one unit is mirrored in a financial asset of another unit, for instance, they should be identically valued, allocated in time and classified to avoid inconsistencies in aggregating balance sheets of units by sectors or for the total economy. The same is also true for all transactions and other flows that affect balance sheets of two counterparties.

3.41    The underlying principle of valuation in the system of national accounts is that all entries are recorded, in money terms, at the exchange value current during the accounting period; that is, the value at which flows and stocks are, or could be, exchanged for cash (including transferable deposits). The system does not attempt to determine the utility of the flows and stocks within its scope.

3.42    When goods and services are exchanged for cash or its equivalent, the required values are directly available. In addition, values are directly observable for flows and stocks that concern financial instruments, such as cash holdings or liabilities. The majority of flows and stocks in the national accounts fall into these categories.

3.43    In other cases, where no actual exchange values are available, the preferred method of valuation is by reference to the market value of similar goods, services, or assets. This method is used to estimate the value of the services of owner-occupied dwellings, and of 'backyard' production by households for their own use.

3.44    When no prices for similar products exist, it may be necessary to value goods or services by the amount that it costs to produce them. This is the case for most non-market goods and services produced by general government units and non-profit institutions serving households.

3.45    For some assets, it is necessary to estimate a value by writing down (depreciating) the initial acquisition costs. The value of such assets at a given point in their life is equal to their acquisition cost less the accumulated value of these write-downs. Typically, the current value of fixed assets is estimated by writing down current market prices for the accumulated consumption of fixed capital.

3.46    Where none of the above valuation methods is feasible, flows and stocks can be recorded at the net present value of expected future returns. This method is not generally recommended, as it involves a number of assumptions and the possibility of substantial future revisions to estimates. However, 2008 SNA recognises that it is the most appropriate method of valuation in circumstances where returns from assets are either delayed (as is the case with timber plantations) or spread over a lengthy period (as for mineral and energy resources).

3.47    Flows and stocks concerning foreign currency are converted to their value in national currency at the exchange rate prevailing when the transaction or flow takes place, or in the case of balance sheet items, the date to which the balance sheet applies. The exchange rate used for conversion to national currency is the mid-point between the buying and selling rate, so as to exclude any implicit foreign exchange service charge.

3.48    Valuations contained in business accounts, tax returns and other administrative records, which are widely used sources of data for national accounts purposes, often do not conform to the national accounting valuation standard. This is especially so in the case of depreciation, where rates of depreciation for tax purposes normally deviate from those underlying the national accounting concept of the consumption of fixed capital. In particular, depreciation for tax purposes is based on the historical cost of the assets whereas consumption of fixed capital in the national accounts is based on the current cost of the assets involved.

3.49    In some cases, invoice values may not accord with prices paid in the market for similar items. Where transactions are between affiliated enterprises under common management, the prices adopted for bookkeeping purposes - referred to as transfer prices - may not correspond to prices that would be charged to independent parties. By using artificially high or low prices, transfer pricing could be used as a device for shifting profits among enterprises within a group for taxation (or other) purposes. In principle, such transactions should be identified and re-valued if they are likely to significantly affect the interpretation of the accounts. Instances of transfer pricing are difficult to identify, and subsequently adjust for. In the ASNA, transactions prices are used as there is no current data on transfer pricing.

3.50    To maximise concordance with 2008 SNA accounting rules, surveys of businesses conducted by the ABS request data, where possible on a national accounts basis. Adjustments are made to source data that are not recorded on the required basis.

3.51    The producer and the user of a given product usually perceive its value differently, because of intervening transport costs, trade margins, taxes, and subsidies on products. In order to keep as close as possible to the views of the transactors, 2008 SNA recommends that outputs of products be valued at basic prices, while inputs, or final purchases, should be valued at purchasers' prices.

3.52    The basic price is the amount receivable by the producer from the purchaser for a unit of a good or service, minus any tax payable (including deductible value added taxes such as the GST) plus any subsidy receivable, as a consequence of production or sale of the unit. Subsidies artificially reduce the sale price, so they are included in the basic price to obtain a measure of the true value of the goods or services produced. Taxes on products, if included, would artificially increase the price, and so are deducted. The basic price also excludes any transport charges invoiced separately by the producer. The basic price therefore measures the amount retained by the producer in respect of the good or service that is produced as output.

3.53    The major output of the wholesale and retail trade industries is the value of the service provided in selling goods (i.e. goods purchased and resold are not treated as part of intermediate consumption). The value of the service is equal to the trade margins realised on the goods sold. The measurement of this service at basic prices is analogous to that for goods producing industries: output at basic prices is the value of the trade margins, including the value of any subsidies received by the wholesaler or retailer, and excluding taxes on production of the service.

3.54    The purchaser's price is the amount paid by the purchaser in order to take delivery of goods or services. Purchasers' prices include any taxes payable (less any subsidies receivable) on production and imports, and any transport charges paid separately by the purchaser to take delivery of goods. Value added taxes, such as the GST, are included in purchasers' prices unless they are allowable as deductions from the purchaser's value-added tax liability. Purchasers' prices are also referred to as market prices.

3.55    Imports and exports of goods are valued free-on-board (f.o.b.); that is, at the exporter's customs frontier.

3.56    The ASNA follows the 2008 SNA recommendations with respect to the valuation of products: in the I-O tables and the associated measures of value added by industry, gross output is measured at basic prices and intermediate inputs are measured at purchasers' prices. Expenditure items are recorded at purchasers' prices. Imports and exports of goods are valued f.o.b.. Details of other aspects of the valuation of imports and exports are contained in the ABS publication, Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods.

3.57    For the valuation of the other changes in the volume of assets, it is usual to take the value of the asset before and after the change in volume and then to take the difference that is not explained by any transaction as the value of the other change.

3.58    Holding gains and losses accrue continuously and apply to both non-financial and financial assets and liabilities. In general, they are estimated by deducting from the total change in the value of assets those that can be attributed to transactions and to other changes in volumes. Since most financial assets are matched by liabilities, either within the domestic economy or with the rest of the world, it is important that holding gains in one are matched by holding losses in the other and vice versa.

3.59    Stocks of financial assets and liabilities should be valued as if they were acquired in market transactions on the balance sheet reporting date (or on the closest preceding date if the markets are closed on that date). Valuation according to market-value equivalent is needed for valuing financial assets and liabilities that are not traded in financial markets or are traded only infrequently. For these assets and liabilities, it will be necessary to estimate fair values that, in effect, approximate market prices. The present value of future cash flows can also be used as an approximation to market prices provided an appropriate discount rate can be used.

3.60    Flows in the national accounting system are ideally recorded on an accrual basis. Accrual accounting records flows at the time economic value is created, transformed, exchanged, transferred, or extinguished. Accrual accounting enables the profitability of productive activities to be evaluated without the disturbing influences of leads and lags in cash flows, and net worth to be calculated correctly at any given point. In terms of entries in the national accounts this means that:

• flows which imply a change of ownership are entered when legal ownership changes (this applies to financial assets as well as goods);
• services are recorded when provided;
• distributive transactions, such as compensation of employees, interest, rent on land, and social contributions and benefits are recorded in the period during which the amounts payable are built up. Interest on debt is recorded in the accounting period in which it accrues, regardless of whether or not it is actually paid in that period;
• output is recorded at the time products are created (not when paid for by a purchaser); and
• intermediate consumption is recorded in the period when the materials are used.

3.61    In transactions involving the purchase of goods, accrual accounting usually arises naturally from the nature of the transaction. When goods are exchanged for financial assets (e.g. cash), accounting entries reflecting the change of ownership will be recorded at the same time for both the seller and the purchaser. However, the identification of the time of change of ownership is not always straightforward where exports and imports are concerned. In the absence of sources specifying the date of change of ownership, the time at which goods cross the frontiers of countries concerned (obtained from customs records) is usually taken as a proxy for this date. However, for certain exports and imports timing adjustments are made where supplementary information is available to more accurately reflect the time that ownership changes.

3.62    To accord with accrual accounting principles, transactions in financial assets should also be recorded on a change of ownership basis. Financial transactions are shown in the ASNA in the financial accounts.

3.63    Services are to be recorded when they are provided. While in most cases this is straightforward, there are types of services that require special treatment. The main types falling into this category are insurance, where the payments of premiums are made in advance, and housing, where the services provided by home ownership are continuous. In the ASNA, provisions are made to account for the services of insurance and housing in each accounting period.

3.64    Distributive transactions can be difficult to record on an accrual basis, as the accounting practices of the units involved are not always consistent with national accounting requirements. The most important item (in terms of size) affected in this way in the ASNA is wages and salaries, a component of compensation of employees. In addition, provisions for employee entitlements which qualify as liabilities should also be included, rather than the cash payments of these entitlements. Such liabilities include provisions for long service leave and annual leave, and contributions by employers to unfunded superannuation schemes. Interest on debt is recorded in the period during which the interest accrues. Dividend levels, however, are not unambiguously attributable to a particular earning period, and are therefore recorded when they are declared payable.

3.65    The principle of recording on an accrual basis implies that output is recorded over the period in which the process of production takes place, and the intermediate consumption of goods or services is recorded at the time when the goods or services enter the process of production. Additions to inventories are recorded when products are purchased, produced or otherwise acquired, and deductions from inventories are recorded when products are sold, used up as intermediate consumption or otherwise relinquished.

3.66    In general, the collection methods used in the ASNA result in estimates on an accrual basis, although the extent to which this is possible depends upon the information received from the respondents to ABS economic statistics collections. Consumption of fixed capital is a cost which accrues over the whole period the fixed asset is available for productive purposes. The apportioning to accounting periods depends on the rate of depreciation used to estimate the using up of the asset. To be consistent with other entries in the accounts, consumption of fixed capital must be valued at the prices prevailing during the current accounting period (unlike depreciation for tax purposes, which is based on the historical cost of the assets).

3.67    Other changes in the volume of assets are usually discrete events that accrue at precise moments or within fairly short periods of time (e.g. assets being destroyed in a natural disaster such as a bush fire).

3.68    Changes in prices often have a more continuous character, particularly in respect of assets for which active markets exist. In practice, nominal holding gains or losses will be computed between two points in time:

1. The moment at which:
   • The accounting period begins; or
   • Ownership is acquired from other units (through purchase or a transaction in kind); or
   • An asset is produced; and
2. The moment at which:
   • The accounting period ends; or
   • The ownership of an asset is relinquished (through sale or a transaction in kind); or
   • An asset is consumed in the production process.

3.69    Differences in the time of recording by partner economies may occur due to various factors. One of the intrinsic problems with recording international transactions is the difference in time zones as well as from delays in mail deliveries or settlement clearing processes. In most cases, data at some aggregate level rather than individual records are used in the compilation of international accounts. Several data sources may often only approximate the required basis. It is important to make timing adjustments where there are major divergences from the required basis.

3.70    The vast number of individual transactions, other flows and assets within scope of the national accounts have to be arranged in a manageable number of analytically useful groups. Such groups are formed by crossing two or more classifications. For example, the classification of institutional sectors or industries is crossed with the classification of transactions, other accumulation entries or assets. In addition, incomes need to be distinguished from uses and assets from liabilities.

3.71    Individual units or sectors may have the same kind of transaction both as a receivable and as a payable (e.g. they both pay and receive interest) and the same kind of financial instrument as both an asset and a liability. Where all the items are shown at their full values, the recording is on a gross basis. Where the values of some items are offset against items on the other side of the account, or against items which have an opposite sign, the recording is on a net basis. Gross recording is applied in most cases, except where a degree of netting is inherent in the classifications themselves. Within the ASNA, an example of net recording is the aggregate for changes in inventories. Rather than record all individual additions to and withdrawals from inventories, the resulting overall changes are recorded in order to show the final effect on gross capital formation. Similarly, the financial accounts record increases in assets and liabilities on a net basis (i.e. acquisitions and disposals are offset) to bring out the final consequences of these types of flows at the end of the accounting period.

3.72    Consolidation refers to the elimination of transactions which occur between two transactors belonging to the same institutional sector or subsector. Consolidation within sectors or subsectors can be useful for the kinds of analysis which focus on the interactions between subsectors of the economy and between resident sectors and the rest of the world, where the overall final position is more significant than the details of gross transactions within sectors. Consequently, in the sector income, capital and financial accounts, transfer flows are generally consolidated. Likewise, the national income, capital and financial accounts are prepared on a consolidated basis; however, non-consolidation is the general rule in some parts of the national accounts, such as the I-O tables.

4.47    The institutional sectors of 2008 SNA group together similar kinds of institutional units. Corporations, NPIs, government units and households are intrinsically different from each other in that their economic objectives, functions and behaviour are different. Institutional units are allocated to a sector according to the nature of the economic activities they undertake. The three basic economic activities recorded in 2008 SNA are production of goods and services, consumption to satisfy human wants or needs, and accumulation of various forms of capital.

4.48    2008 SNA groups institutional units with similar functions into the following institutional sectors:

• the non-financial corporations sector;
• the financial corporations sector;
• the general government sector;
• the household sector; and
• the non-profit institutions serving households sector.

4.49    The figure below shows the 2008 SNA allocation of types of institutional units to institutional sectors. The same allocation rules are followed in the ASNA; however, the NPISH sector is consolidated within the household sector in the Australian System of National Accounts.

4.50    The sectors of the total economy and the rest of the world are highlighted. Once non-resident units and households are set aside, only resident legal and social entities remain. Three questions determine the sectoral allocation of all such units. The first is whether the unit is a market or non-market producer. This depends on whether most of the unit’s production is offered at economically significant prices or not.

4.51    The second question determining sectoral allocation applies to non-market units, all of which, including non-market NPIs, are allocated either to general government or to the NPISH sector. The determining factor for sectoral allocation is whether a non-market unit is part of, or controlled by, government.

4.52    The third question determining sectoral allocation applies to market units, all of which, including market NPIs, are allocated to either the non-financial corporations sector or the financial corporations sector.

4.53    The non-financial corporations sector consists of all resident corporations, notional institutional units and quasi-corporations that are principally engaged in the production of market goods and/or non-financial services, and holding companies with mainly non-financial corporations as subsidiaries. It includes:

• resident non-financial corporations irrespective of the residence of their shareholders;
• quasi-corporations (including branches of foreign owned non-financial enterprises that are engaged in significant production in the economic territory on a long-term basis);
• non-profit institutions that are market producers of goods or non-financial services; and
• investment funds investing in predominantly non-financial assets such as infrastructure and property.

4.54    2008 SNA identifies three subsectors within the non-financial corporations subsector:

1. Public non-financial corporations are resident non-financial corporations or quasi-corporations that are government owned or controlled.
2. National private non-financial corporations are resident non-financial corporations or quasi-corporations that are not controlled by government or non-resident institutional units. Market NPIs are included in this subsector.
3. Foreign controlled non-financial corporations are resident non-financial corporations or quasi-corporations that are controlled by non-resident institutional units.

4.55 The latter two subsectors are not distinguished in the ASNA. The disaggregation in ASNA is:

• Public non-financial corporations; and
• Private non-financial corporations.

4.56    Public non-financial corporations are further dissected into national and state and local subsectors.

4.57    Private non-financial corporations are further dissected into non-financial investment funds and other private non-financial corporations. The inclusion of non-financial investment funds in the non-financial corporations sector is a departure from 2008 SNA which includes all non-money market investment funds in the financial corporations sector. Non-financial investment funds invest in non-financial assets, usually real estate.

4.58    The ABS publication, Australian National Accounts: Finance and Wealth provides a further sectoral breakdown of non-financial corporations into public and private, with the public sector dissected into national and state and local subsectors, and private sector dissected into non-financial investment funds and other private non-financial corporations.

4.59    The financial corporations sector consists of all resident corporations, notional institutional units, quasi-corporations, and market NPIs that are principally engaged in financial intermediation or in auxiliary financial activities. Financial corporations are distinguished from non-financial corporations because of their different roles in the economy, and the inherent differences in their respective functions and activity. Financial corporations are mainly engaged in financial market transactions, which involve incurring liabilities and acquiring financial assets; that is, borrowing and lending money, providing superannuation, life, health or other insurance, and financial leasing or investing in financial assets. In this process, the corporations are not acting as agents, but rather place themselves at risk by trading in financial markets on their own account. Financial auxiliaries are also classified to the financial corporations sector. They include stockbrokers, insurance brokers, investment advisers, trustees, custodians and nominees, mortgage originators and other entities that are engaged in providing services closely related to financial intermediation, even though they do not intermediate themselves.

4.60    Subsectors of the financial corporations sector identified in ASNA are:

• Central Bank – the Reserve Bank of Australia (RBA).
• Depository corporations – consist of all resident financial corporations and quasi-corporations, except the central bank, that are principally engaged in financial intermediation and have liabilities in the form of deposits or financial instruments that are close substitutes for deposits such as short-term certificates of deposits. This subsector is dissected into:
  • Authorised deposit-taking institutions; and
  • Other broad money institutions.
• Superannuation funds and insurance corporations – consist of all funds that provide retirement benefits for specific groups of people and all corporations that provide life and other insurance cover, including reinsurance services. This subsector is dissected into:
  • Superannuation funds;
  • Life insurance corporations; and
  • Non-life insurance corporations.
• Financial investment funds – these are collective investment schemes that raise funds by issuing shares or units to the public and the proceeds are invested primarily in financial assets. This subsector is dissected into:
  • Money market funds (MMF) – which invest in transferable debt instruments with a residual maturity of no more than one year, bank deposits and instruments that pursue a rate of return that approaches the interest rates of money market instruments; and
  • Non-money market financial investment funds (NMMF) – which invest in financial assets other than short-term assets.
• Central Borrowing Authorities (CBAs) – are captive financial institutions established by each State and Territory government to primarily provide finance for public corporations and notional institutional units and other units owned or controlled by the government. They raise funds predominantly by issuing securities, arranging the investment of these unit's surplus funds and participating in the financial management activities of the parent government.
• Securitisers – are financial intermediaries that pool various types of assets such as residential mortgages, commercial property loans and credit card debt, and package them as collateral to issue bonds or short-term debt securities, referred to as asset backed securities.
• Other financial corporations – include other financial intermediaries, financial auxiliaries, money lenders and other captive financial institutions described as follows:
  • Other financial intermediaries – includes housing finance schemes established by State and Territory governments; economic development corporations owned by government to fund infrastructure developments;
  • Financial auxiliaries – units engaged in activities closely related to financial intermediation, but which do not themselves perform an intermediation role; that is, the auxiliary does not take ownership of the financial assets and liabilities being transacted. The types of corporations included are insurance brokers, loan brokers, investment advisors, managers of superannuation funds, securities brokers, etc.;
  • Money lenders – units providing financial services where most of their assets and liabilities are not transacted on the open markets; for example, pawnshops that predominantly engage in lending; and
  • Other captive financial institutions – units characterised by having a balance sheet holding financial assets on behalf of other companies. These institutions are usually legal entities such as corporations, trusts or partnerships established for a specific or limited purpose; for example, to hold the assets of a group of subsidiary corporations.

4.61    The general government sector consists of government units and non-market NPIs that are controlled by government. The general government sector includes all government departments, offices and other bodies mainly engaged in the production of goods and services outside the normal market mechanism for consumption by government itself and the general public. The units' costs of production are mainly financed from public revenues and they provide goods and services to the general public, or sections of the general public, free of charge or at nominal charges well below costs of production. The sector includes government enterprises mainly engaged in the production of goods and services for other general government units. Also included are NPIs that are serving businesses or households and are composed largely of private sector members but are controlled by governments.

4.62    Subsectors within the general government sector in ASNA are:

• national; and
• state and local.

4.63    Public universities are treated as non-market NPIs controlled by government and are allocated to the general government sector. They are included in the national subsector together with Commonwealth general government.

4.64    Public universities are defined as non-market NPIs based on their funding arrangements. While most public universities were created by State legislation, the bulk of their funding is received from the Commonwealth government. Public universities are allocated to the government sector on the basis that, while no Australian government is able to control universities in the sense of being able to appoint their managing officers, it is clear that the Commonwealth government is able to exercise a significant degree of control through its funding power.

4.65    The household sector consists of all resident households, defined as small groups of persons who share accommodation, pool some or all of their income and wealth, and collectively consume goods and services, principally housing and food. Although households are primarily consumers of goods and services, they also engage in other forms of economic activity through their operation of unincorporated enterprises. Such unincorporated enterprises are included in the household sector because the owners of ordinary partnerships and sole proprietorships will frequently combine their business and personal transactions, and complete sets of accounts in respect of the business activity will often not be available.

4.66    The 2008 SNA suggests that the household sector may be divided into subsectors on the basis of the type of income that is the largest source of income for each household or, alternatively, on the basis of other criteria of an economic, socioeconomic or geographical nature. 2008 SNA advises that statistical agencies determine the number and nature of subsectors to suit their own purposes, in view of differing needs across countries in relation to the analysis of the household sector. ASNA does not include any further dissection.

4.67    All institutional units of a particular type are grouped together within the same sector with the exception of NPIs. They are classified to various sectors depending on the nature of the NPI. Market NPIs are allocated to either the non-financial corporations sector or the financial corporations sector, depending on which sector they serve. Non-market NPIs that are controlled by government units are allocated to the general government sector. For example, an NPI which is mainly financed by government may be controlled by that government. It would not be considered controlled by government if the NPI remains able to determine its policy or programme to a significant extent.³¹ Other non-market NPIs - those not controlled by government - are allocated to the NPISH sector (note again that the NPISH sector has not been separately identified in the ASNA).

4.68    The NPISH sector includes the following two main kinds of NPISHs that provide goods or services to their members or to other households without charge, or at prices that are not economically significant:

• organisations whose primary role is to serve their members, such as trade unions, professional or learned societies, consumers' associations, political parties, churches or religious societies, and social, cultural, recreational and sports clubs; and
• philanthropic organisations, such as charities, relief and aid organisations financed by voluntary transfers in cash, or in kind, from other institutional units.

4.69    In addition to accounts for the resident sectors, 2008 SNA includes external (rest of the world) accounts, which provide a summary of all transactions of residents with non-residents (e.g. overseas governments, persons and businesses). The rest of the world consists of all non-resident institutional units that enter into transactions with resident units or have other economic links with resident units. It is not a sector for which complete sets of accounts have to be compiled, although it is often convenient to describe the rest of the world as though it were a separate sector.

4.70    As discussed in relation to residence, the rest of the world includes institutional units that may be physically located within the geographical boundary of a country, for example, foreign enclaves such as embassies, consulates or military bases, and international organisations that are not treated as resident institutional units.

4.71    Institutional sector and associated classifications used in ABS statistics are described in the ABS publication, Standard Economic Sector Classifications of Australia (SESCA). The classifications included in SESCA are based on international standards, adapted to suit Australian situations where appropriate. The institutional sector classification, the SISCA, is the main classification used for sectoring in the ASNA. For simplicity of presentation, the SISCA excludes the private/public, level of government and foreign controlled distinctions that are part of the 2008 SNA classification of institutional sectors. These distinctions are contained in other classifications within SESCA. The table above shows the domestic institutional sectors and subsectors included in the ASNA. Accounts for the rest of the world are grouped as 'external accounts' in ASNA. These accounts conform to the 2008 SNA definition of the rest of the world sector.

4.72    With the exception of the combination of the NPISH and household sectors, the ASNA structure corresponds with the structure outlined in 2008 SNA. The subsectors are a combination of 2008 SNA subsectors (adapted to Australian conditions) and other 2008 SNA-compliant classifications from the SESCA, as follows:

• the distinction between the private and public subsectors within the non-financial corporations sector is based on the ABS private/public classification;
• the Commonwealth, state and local, and national subsectors are based on the ABS level of government classification; and
• unlike 2008 SNA, SISCA and the ASNA distinguish authorised deposit-taking institutions from other broad money institutions, CBAs from captive financial institutions, and securitisers from other financial institutions.

4.73    The national subsector is so named because it includes units that are subject to a degree of control from both Commonwealth and state governments, and that cannot be allocated to either a state or Commonwealth subsector. The national subsector therefore includes multi-jurisdictional units in addition to units that are solely under the jurisdiction of the Commonwealth. At present, public universities are the only multi-jurisdictional institutions that are included in the national subsector.

4.74    The composition of the ASNA institutional sectors and subsectors accords with 2008 SNA definitions in most cases. Instances where the ASNA's sectoral composition differs from the 2008 SNA guidelines are described in the following paragraphs.

4.75    2008 SNA includes all non-MMF investment funds within the financial corporations sector. However, in ASNA, only those investment funds investing predominantly in financial assets are treated as financial corporations. Those investing in non-financial assets, such as property, are treated as non-financial corporations. This distinction is based on whether the institution's primary income is obtained from rentals, or dividends and interest.

4.76    One feature of both the non-financial corporations sector and the financial corporations sector is that they are designed to cover businesses which are legally, or clearly act as, entities independent of their owners with regard to their income, consumption and capital financing transactions, and accordingly are required to maintain separate profit and loss and balance sheet accounts. Private enterprises classified to these sectors are mainly companies registered under the Companies Act or other Acts of Parliament. However, 2008 SNA also recommends that all quasi-corporations be treated as corporations and allocated either to the non-financial corporations or the financial corporations sector. In Australia, it is often difficult to distinguish quasi-corporations owned by households where the bulk of quasi-corporations are not presently identifiable from ABS data sources. In the ASNA, unincorporated enterprises identified as quasi-corporations are currently limited to large and easily identified enterprises such as partnerships of companies, unit trusts of companies, credit unions, building societies, branches of overseas corporations, and mutual societies. All sole proprietors, partnerships and trusts of individuals are treated as unincorporated enterprises, and are included in the household sector in the ASNA.

4.77    In the ASNA, the recommendations of 2008 SNA are followed with regard to the sector allocation of NPIs that are market producers, and those that are controlled by government units under certain criteria. Contrary to 2008 SNA recommendations, the SISCA does not include separate subsectors within the corporations and general government sectors for NPIs.

4.78    A lack of data availability on the transactions of NPISHs inhibit the construction of a full range of sector accounts for NPISHs. For more information, see the feature article Deconsolidated Household Income Account in the 2013-14 issue of Australian System of National Accounts.

5.5    The System of National Accounts 2008 discusses three types of units into which enterprises can be partitioned for the purpose of industry statistics:

• Kind-of-activity unit - defined as an enterprise, or a part of an enterprise, which engages in only one kind of (non-ancillary) productive activity, or in which the principal productive activity accounts for the most of the value added.
• Local unit - an enterprise or a part of an enterprise that engages in productive activity at or from one location.
• Establishment - a combination of kind-of-activity and local units. This is defined as an enterprise, or a part of an enterprise, that is situated in a single location and in which only a single productive activity is carried out or in which the principal productive activity accounts for most of the value added. Although establishments can engage in secondary activities, 2008 SNA recommends that, if the secondary activity is significant, it should be treated as part of another establishment. Examples of establishments are individual farms, mines, quarries, factories, shops, construction sites and airports³².

5.6    If an enterprise comprises of only a single establishment, the two units coincide and the production account for the establishment is the same as for the enterprise. However, establishments are conceptually distinct from enterprises, in that an establishment does not engage in transactions on its own account, or incur liabilities, enter contracts and so on. The enterprise which owns the establishment is the unit which engages in these types of activities, and makes the decisions concerning the productive activities of the establishment. It follows therefore that only the production account and generation of income account can be compiled by industry as well as by sector. Consequently, it is feasible to calculate output and intermediate use (and therefore value added), compensation of employees, taxes (and subsidies) on production and imports, and operating surplus/mixed income for an establishment.

5.7    The establishment is designed to facilitate industry analysis, which is concerned with the outputs and inputs to the production processes of enterprises. Information about establishments is used to:

1. value commodities produced and goods and services used in production;
2. measure industry employment, compensation of employees, operating surplus, changes in inventories and gross fixed capital formation; and
3. derive estimates of productivity. The enterprise provides information on the broader functions of an institutional unit engaged in production, enabling production to be classified to institutional sectors.

5.8    The following outlines instances where application of these principles is not straightforward:

• A horizontally integrated enterprise is one in which several different kinds of activities that produce different kinds of goods or services for sale on the market are carried out simultaneously using the same factors of production. Within the SNA, a separate establishment should be identified for each different kind of activity wherever possible.
• A vertically integrated enterprise is one in which different stages of production, which are usually carried out by different enterprises, are carried out in succession by different parts of the same enterprise. The output of one stage becomes an input into the next stage, with only the output from the final stage being actually sold on the market. Despite the practical difficulties involved in partitioning vertically integrated enterprises into establishments, it is recommended in the SNA that, when a vertically integrated enterprise spans two or more sections of the ISIC, at least one establishment must be distinguished within each section.
• Government units, especially central governments, may be particularly large and complex in terms of the kinds of activities in which they engage.
  • If an unincorporated enterprise of government is a market producer and there is sufficient information available to treat it as a quasi-corporation, it should be treated as a publicly controlled unit in the non-financial or financial corporations sectors as appropriate.
  • If an unincorporated enterprise of government is a market producer and there is insufficient information to treat it as a quasi-corporation, or if the unincorporated enterprise is a non-market producer, then it remains within the general government sector but it should be treated as an establishment in its own right and allocated to the appropriate industry.
  • Non-market producers such as public administration, defence, health and education providing final goods or services should be partitioned into establishments using activity classification of the ISIC.
• If the activity of a unit undertaking purely ancillary activities is statistically observable, in that separate accounts for the production it undertakes are readily available, or if it is located in a geographically different location from the establishments it serves, it should be recognised as a separate establishment and classified to its own principal activity. This is a change to the treatment in 1993 SNA where ancillary activities related to an individual establishment were treated as an integral part of the costs of the establishment's principal or secondary activities and no separate unit was created. An enterprise may include central ancillary units that carry out ancillary activities for all establishments of the same enterprise.

5.9    The producing unit in the ASNA's units model is the TAU. The TAU is a producing unit comprising of one or more business entities, sub-entities or branches of a business entity that can report production and employment activities via a minimum set of data items. The activity of the unit should be as homogeneous as possible. If accounts sufficient to approximate value added are available at the ANZSIC subdivision level, a TAU will be formed. Where a business cannot supply adequate data to form a TAU for an individual ANZSIC subdivision, a TAU will be formed which contains activity in two or more ANZSIC subdivisions.

5.10    In its simplest form, the TAU relates to the ABN of the business. In the case of complex and varied business structures, it may be inappropriate for the TAU to be created to refer to the ABN.

5.11    Ideally, all TAUs are constructed so that two-digit ANZSIC homogeneity is observed. This ensures that good quality industry estimates can be calculated by the ABS at that level. Not all businesses are able to supply a complete set of accounts for every ANZSIC Subdivision in which they have activity.

5.12    Only a small number of data items are required to be available on a quarterly basis. The data items are: total capital expenditure; income from the sale of goods and services; wages and salaries; total inventories; total purchases; and selected expenses. When all these data items are not available from business accounts, a TAU can still be formed if careful estimates can be provided.

5.13    Where businesses cannot provide the necessary data for separate activities, and if separate activities are being carried out at a significant level (in relation to the known/estimated activity of those industries), the TAU may be a candidate for unit splitting. If it is decided to split the TAU for statistical purposes, two or more new TAUs are formed as the statistical units and the former TAU becomes the reporting unit. Data will be reported by the former TAU for its multiple activities and the ABS will apportion it to the new split TAUs for statistical outputs. The estimates for the split units will be produced using benchmarks determined at the time of splitting.

5.14    TAUs are not created based on any geographic criteria. However, it is necessary to create special State and Territory units for some TAUs to accommodate state estimates. This unit is referred to as the TAU State. The TAU State is not stored as a specific unit on the ABS Business Register. Rather, information which allows the TAU State unit to be formed is stored.

5.15    A business unit's productive activity is described as ancillary when its sole function is to provide common types of services for intermediate consumption within the same enterprise group. These are typically services likely to be needed in most enterprise groups, whatever their principal activities; for example, transportation, purchasing, sales and marketing, various financial or business services, personnel, computing and communications, security, maintenance and cleaning.

5.16    The 2008 SNA treatment of ancillary units is that an establishment should be created where the activity of the unit is statistically observable. The ABS does not currently apply the recommended 2008 SNA treatment to ancillary TAUs, as the treatment cannot be applied to all units on the ABS Business Register.

5.17    A product is a good or a service.

5.18    One of the main international standards for the classification of products is the Central Product Classification, Version 2 (CPC, Ver. 2.0), which is based on the intrinsic characteristics of the goods or the nature of the services rendered. This results in a classification structure that is different from that used for industries. Its fundamental principle is that the classification combines in one category goods or services that are normally produced in only one industry as defined in ISIC (i.e. industry of origin principle). It covers the production, trade and consumption of all goods and services

5.19    An industry is defined as ‘a group of establishments engaged in the same, or similar, kinds of activity’.

5.20    The International Standard for the Classification of Industries is a four-level hierarchical classification, which includes in the same industry grouping all establishments with the same principal activity. It takes into account not only the goods produced and services rendered, but also the inputs into the production process and the technology used in the production process.

5.21    A one-to-one correspondence does not exist between activities and products and hence between industries and products. Certain activities produce more than one product simultaneously, while the same product may sometimes be produced by using different techniques of production.

5.22    TAUs are classified to industries according to the Australian and New Zealand Standard Industrial Classification, 2006. ANZSIC06 has been developed by the ABS and Stats New Zealand for use in both countries for the compilation and analysis of industry statistics. To ensure international comparability, this classification is aligned as closely as possible with the ISIC Rev 4.

5.23    ANZSIC06 comprises four levels; namely divisions (the broadest level); subdivisions; groups; and classes (the lowest level). TAUs are defined to be homogeneous at the subdivision level.

5.24    Industry statistics in the ASNA are presented on a basis that is consistent with ANZSIC06. Value added is presented on an ANZSIC06 industry basis at the divisional level, and also at the subdivisional level for the following industries:  Agriculture, forestry and fishing; Mining; Manufacturing; Electricity, gas, water supply and waste services; and Transport, postal and warehousing. A number of income components of the ASNA are also presented on an ANZSIC06 industry basis. Industry data in the S-U and I-O tables are classified according to the Supply-Use Industry Classification (SUIC) and Input-Output Industry Group (IOIG) respectively, which are based on ANZSIC06. While some of the S-U and I-O industries correspond to a single ANZSIC06 industry class, most SUIC and IOIG industries constitute a grouping of similar ANZSIC06 industries. These groupings are formed to enable the S-U tables and I-O tables to present a balanced picture of the structure of the economy while maintaining comparability between the latest published tables and earlier ones.

5.25     Product statistics in the ASNA concord with the CPC, Ver. 2.0 to at least the three-digit level. Product data in the S-U tables and I-O tables are classified according to the Supply-Use Product Classification (SUPC) and Input-Output Product Classification (IOPC) respectively. Both classifications are based on the CPC Ver 2.0. While some of the S-U and I-O products correspond to a single SUIC and IOIG respectively, most S-U and I-O industries will consist of a grouping of similar SUPCs and IOPCs.

6.26    The ABS publishes two types of price index in the national accounts:

• chain Laspeyres price indexes; and
• implicit price deflators (IPDs).

6.27    The quarterly chain Laspeyres price indexes are derived in the same way as the quarterly chain Laspeyres volume indexes, but they are only derived in original terms and are not seasonally adjusted.

6.28    The IPDs are derived by dividing current price values by the corresponding chain volume measures (CVMs). These are only derived using seasonally adjusted data. They are thus seasonally adjusted chain Paasche price indexes.

6.41     As described earlier, the ABS benchmarks its quarterly chain volume estimates to their annual counterparts. Prior to benchmarking, quarterly estimates in the prices of the previous year are additive, but after benchmarking and re-referencing they are usually not quite additive. This phenomenon arises because each quarterly chain volume series is independently benchmarked to its annual counterpart and the adjustments made to the quarterly estimates of the components are unlikely to be exactly consistent with the adjustments made to the aggregate. Contributions to growth are also unlikely to be perfectly additive after benchmarking, however they can be expected to be sufficiently close to being additive for practical purposes.

6.42    The above method cannot be applied to data that are not strictly positive because meaningful implicit price deflators cannot be derived for them, and so the contributions to growth of such variables are derived residually by taking advantage of the fact that quarter-to-quarter contributions to growth are additive (or nearly so). For example, the contribution to growth in GDP of changes in inventories is derived as the difference between the contribution of gross capital formation and the contribution of gross fixed capital formation. 

6.43     Chain volume estimates are derived by aggregating volume estimates of components at the elemental level; that is, the lowest level at which volume estimates are derived. The level of detail of each element that is aggregated is dependent on the availability of appropriate and high-quality current price and price index or quantity information. The following describes the two basic approaches taken to derive elemental volume estimates, quantity revaluation and price deflation.

6.44    The first approach uses quantity data to derive constant price estimates (tonnes, litres, etc.). For an individual product, the estimate of quantity in each period is multiplied by the price per unit of volume (or average unit value) in some base year. This method, referred to as quantity revaluation, can only be applied to produce estimates of reasonable quality if the product is defined narrowly enough to ensure that it is homogeneous in content and free from quality change over time (since a change in quality is defined as a change in volumes rather than as a change in price). Quantity revaluation is at times the preferred approach to obtain a volume estimate, if there is no directly observable market price for a good or service.

6.45    The second approach to obtaining volume estimates is referred to as price deflation. A measure of the price component of the current price value is obtained (usually in the form of a price index) and is divided into the current price value in order to re-value it in the prices of the previous year.  This also allows for the price effect to be isolated from the volume effect – as both price and volume are implicit in a current price value.

6.46    Price deflation is the most commonly used method, largely because most macroeconomic statistics are available only as dollar values, and the very detailed quantity data required for quantity revaluation are unavailable. However, there are also advantages in using price deflation in circumstances where it may be possible to employ either approach. Relative price movements are normally more highly correlated between products and between industries than are relative quantity movements. Therefore, an adequate indicator of price movement can generally be obtained with less data than are required to obtain an equally adequate indicator of quantity movement. There are two other main advantages in using price deflation as opposed to quantity revaluation:

• in compiling price indexes, specific attention can be given more readily to excluding changes that are attributable to quality change; hence, ensuring that any quality changes that do occur are automatically reflected as volume changes; and
• if directly relevant price or quantity data are not available to isolate the price and volume effect from a current price value, then the proxy price movements of related products will usually be more accurate indicators than proxy quantity movements.

6.47    In compiling its price indexes, the ABS ensures that as far as practicable they reflect 'pure' price change. When a change in specification of a good or service occurs, any change in price attributable to the change in specification is isolated and excluded where possible. By isolating the ‘pure’ price change in this way, when the price index is applied to a current price value to derive a volume, the volume will reflect both quality and quantity changes. To the extent that this is achieved, the resulting volume estimates reflect improvements (or degradations) in products. For details of how the ABS deals with specification changes in compiling its price indexes, refer to Consumer Price Index: Concepts, Sources and Methods.

6.48    In many cases, the deflator is a fixed-weighted (i.e. the weights used to combine the constituent price indexes are not changed frequently) combination of lower level price indexes. In those cases where both the price and quantity relativities of the constituents of a current price value to be deflated are changing quickly, it is important to construct chain price indexes that are re-weighted frequently. In those cases where price and quantity relativities are not changing rapidly, reweighting is undertaken less frequently. In any case, the ABS aims to deflate at the most disaggregated level practicable.

6.49    Where current price figures are only available at quite an aggregate level, but more detailed prices are available for components, then it is preferable to attempt a disaggregation of the total and deflate the components with the separate price series, rather than deflating at the level of the total using a fixed-weighted deflator. This is to ensure that the detailed level data are built up to their aggregate counterparts, to allow for in-depth and pointed information about products or services to be included in the broader estimates to which they are relevant. A variation on this approach is to use a model to decompose the current price aggregate, deflate the components and then create a Paasche price index from the aggregate current price and volume data. This method is used to deflate quarterly current price estimates of gross fixed capital formation (GFCF) of equipment, which are only available at an aggregate level. A product-flow model is created by using information from the latest annual S-U tables to weight together current quarter manufacturing output and foreign trade data to produce estimates of GFCF of equipment by detailed category. These are deflated using appropriate price indexes and then aggregated and divided into the corresponding current price aggregate to produce a Paasche price index for GFCF of equipment.

6.50    As far as possible the price indexes used for deflation should be on the same valuation basis as the current price data: for example, at basic prices for outputs and purchasers’ prices for final and intermediate expenditures. If a price index with an inappropriate valuation has to be used, then the ABS’s national accounts compilers must ensure that suitable adjustments are made if an event occurs that invalidates the assumption that the price index is a suitable proxy.

6.51    Annual estimates of gross value added by industry are derived in the prices of the previous year by subtracting volume estimates of intermediate consumption from volume estimates of output. This is commonly referred to as double deflation. For quarterly figures, however, in the absence of accurate data for both output and intermediate consumption, double deflation is not generally recommended unless it is applied in quarterly balanced S-U tables. The principal alternative is to extrapolate value added in the base year at a detailed level by indicator series which are deemed to represent the volume movement of value added, such as a volume indicator of output. This is the approach adopted by the ABS for most industries. The exceptions are agriculture and those industries dominated by non-market production. 

6.52    Because of substantial variations in the weather from one year to the next the relationship between agricultural outputs and inputs is erratic, and there is little option but to use double deflation to derive quarterly volume estimates of gross value added for agriculture. 

6.53    In the case of industries dominated by non-market production, such as public administration and defence, volume estimates of gross value added are assumed to grow at the same rate as an indicator of inputs. 

6.54    The compilation of seasonally (and calendar) adjusted quarterly chain-linked volume measures is the result of a sequence of operations, including seasonal and calendar adjustment, partial balancing, chain-linking and benchmarking. It is somewhat more complicated than deriving chain-linked original estimates because some of these steps need to be undertaken on unlinked data (partial balancing) and some need to be undertaken on chain-linked data (benchmarking, and seasonal and calendar factor estimation). The objective is to achieve the following for the seasonally adjusted chain linked data:

• they should be of sufficiently high quality, with no residual seasonality and no over-adjustment (the seasonal component should not contain irregular influences);
• when expressed in the average prices of the previous year they should be additively consistent, preferably with no statistical discrepancies; and
• they should be temporally consistent with the same annual chain volume benchmarks used for the original data.³⁵ 

6.55    The following paragraph describes the steps taken in deriving seasonally adjusted, partially balanced and benchmarked, chain-linked quarterly Australian national accounts data:

1. Seasonally analyse each chain-linked quarterly national account series at the lowest level of aggregation at which seasonal adjustment is undertaken to derive seasonal and calendar adjustment factors.
2. Derive seasonally adjusted estimates in the average prices of the previous year. If the multiplicative model is used, then the factors can be applied directly to original data in the prices of the previous year (see Chapter 7 for detail on the multiplicative model). If any other model is used the seasonally adjusted chain-linked series needs to be unlinked.

3. Aggregate the data to derive seasonally adjusted estimates in the average prices of the previous year for all major aggregates.

4. Partially balance the accounts in a S-U framework.

5. Chain link the estimates.

6. Benchmark the chain-linked, seasonally adjusted volume estimates to the corresponding annual data.

7. Run all the benchmarked series through the seasonal adjustment diagnostics to check for residual seasonality or any other problems. If there are any, go back to step 1 and recalculate the seasonal factors using the balanced and benchmarked original data.

6.56    There are three approaches to deriving estimates of GDP: the income approach (GDP(I)); the expenditure approach (GDP(E)); and the production approach (GDP(P)). It is possible to derive volume measures of GDP using the last two approaches, but it is not possible to derive a volume measure of GDP by summing volume estimates of its income components. The reason is that some of the income components of GDP either do not have price and quantity dimensions in the usual sense (e.g. gross operating surplus) or they do not have unique price and quantity dimensions (e.g. wages, for which the price and quantity characteristics differ according to whether they are viewed from the perspective of an employer or of an employee). However, it is possible to derive a volume measure of GDP(I) by dividing the current price estimate of GDP(I) by the implicit price deflator of GDP(E).

6.57    From 1995-96, annual volume estimates of expenditure and production are compiled in the prices of the previous year in a S-U framework. Volume estimates of the supply of products by each Australian industry and imports are confronted and balanced with volume estimates of products used by Australian industries, final domestic expenditures, changes in inventories and exports. The balance between supply and use for each product category ensures that the volume measure of GDP in the prices of the previous year is the same whether it is derived by summing final expenditures and changes in inventories plus exports less imports or by summing the gross value added of each industry and taxes less subsidies on products. In other words, the expenditure and production volume estimates of GDP are identical. The estimates in the prices of the previous year are divided by comparable current price estimates for the previous year to derive year-to-year Laspeyres volume indexes. These are chained to form annual chain volume estimates.

6.58    From 1994-95, annual current price estimates of income, expenditure and production are compiled in a S-U framework in parallel with the volume estimates, so that the annual current price and volume estimates of GDP using the income, expenditure and production approaches are identical from 1994-95 for all but the latest year.

6.59    For current price and volume estimates prior to 1994-95, and for quarterly estimates for all years, the estimates using each approach are only partially balanced, and there are usually differences between the I, E and P estimates. Nevertheless, for these periods, a single estimate of GDP is compiled. In chain volume terms, GDP is derived by averaging the chain volume estimates obtained from each of the three independent approaches. The current price estimate of GDP is obtained by reflating the average chain volume estimate by the implicit price deflator derived from GDP(E).

6A.1    The following provides a detailed description of the various chain volume measures and the issues associated with using them

6A.8    The following table provides an example of deriving Laspeyres volume indexes by deflation.

6A.12    Frequent linking is beneficial when price and volume relativities progressively change. For example, volume estimates of gross fixed capital formation are much better derived as chain indexes than as fixed-weighted indexes (i.e. constant price estimates) mainly because of the steady decline in the relative prices of computer equipment and the corresponding increase in their relative volumes. While chain Fisher indexes perform best in such circumstances and are a much better indicator than fixed-weighted indexes, chain Laspeyres indexes capture much of the improvement from frequent linking. 

6A.13    Conversely, frequent chaining is least beneficial when price and volume relativities are volatile. All chained series are subject to drift (see box below) when there is price and volume instability, but chain Fisher indexes usually drift less than either chain Laspeyres or chain Paasche indexes.

6A.14    Table A.3 below compares the chain Laspeyres, chain Paasche and chain Fisher indexes of meat sales. It shows that in this example:

• the chain Fisher index and the Fisher index calculated directly from the first year to the fourth year show almost the same growth rate over the four year period; that is, the chain Fisher index shows very little drift; and
• both the chain Laspeyres and chain Paasche indexes come much closer to the two Fisher indexes than their fixed-weighted counterparts.

6A.15    It is important to note that this is just an example. In the real world, the differences between the different indexes are usually much less.

6A.16    For aggregates such as gross value added of mining and agriculture, and maybe exports and imports, where volatility in price and volume relativities are common, the advantages of frequent linking may be doubtful, particularly using the Laspeyres (or Paasche) formula. For reasons of practicality and consistency, the same approach to volume aggregation has to be followed throughout the accounts. So when choosing which formula to use, it is necessary to make an overall assessment of drift, accuracy and practical matters.

6A.17    In considering the benefits of chain volume indexes against fixed-weighted indexes, the 2008 SNA concludes that: 

. . . it is generally recommended that annual indexes be chained. The price and volume components of monthly and quarterly data are usually subject to much greater variation than their annual counterparts due to seasonality and short-term irregularities. Therefore, the advantages of chaining at these higher frequencies are less and chaining should definitely not be applied to seasonal data that are not adjusted for seasonal fluctuations.³⁶

6A.26    There are several advantages in using the Laspeyres formula:

• its adoption is consistent with compiling additive S-U tables in both current prices and in the prices of the previous year;
• quarterly chain volume estimates of both seasonally adjusted and unadjusted data can be derived;
• it is unnecessary to seasonally adjust volume data at the most detailed level, if desired; and
• it is simpler and lower risk to construct chain Laspeyres indexes than Fisher indexes.

6A.27    The advantages of using the Fisher formula are:

• it is more accurate than the Laspeyres formula; and
• it is more robust and less susceptible to drift when price and volume relativities are volatile.

6A.28    In practice, it is generally found that there is little difference between chain Laspeyres and Fisher indexes for most aggregates. The major threat to the efficacy of the use of the Laspeyres formula in the National Accounts has been computer equipment. The prices of computer equipment relative to improvements in quality have been falling rapidly and the volumes of production and expenditure have been rising rapidly for many years. Consequently, the chain Laspeyres and chain Fisher indexes for aggregates for which computer equipment is a significant component are likely to show differences. Until now, these differences have been insufficient to cause concern and have not been considered to outweigh the advantages of using the Laspeyres formula. This is largely due to the fact that a country such as Australia does not produce a large volume of computers domestically, and as such GDP is unaffected. 

6A.29    There is one other reason why the ABS has chosen to derive chain volume estimates using the Laspeyres formula. A requirement of using quarterly base periods is the availability of quarterly current price data (see formula 9). While there are quarterly current price estimates of final expenditures in the ASNA, there are no quarterly current price estimates of gross value added by industry at the moment. Hence, it is currently not possible to derive chain volume estimates with quarterly base periods for the production measure of GDP.

6A.42    Some quarterly national accounts series can take positive, negative or zero values, and so it is not possible to derive chain volume estimates for them. The best-known example is changes in inventories, but any variable which is a net measure is susceptible. While it is not possible to derive true chain volume estimates for variables that can change sign or take zero values, it is possible to derive proxy chain volume estimates. The most commonly used approach is to:

• identify two strictly positive series that when differenced yield the target series;
• derive chain volume estimates of these two series expressed in currency units; and
• difference the two chain volume series.

6A.43    The same approach can be used to derive seasonally adjusted proxy chain volume estimates except that after step 2 the two series are seasonally adjusted before proceeding to step 3. 

6A.44    In the case of changes in inventories, the obvious candidates for the two strictly positive series are the opening and closing inventory levels. The chain volume index of opening inventories is referenced to the opening value in the reference year expressed at the average prices of the reference year. Likewise, the chain volume index of closing inventories is referenced to the closing value of inventories expressed at the average prices of the reference year. This ensures that the value of the proxy chain volume measure of changes in inventories is equal to the current price value in the reference year. 

6A.45    Seasonally adjusted current price estimates of changes in inventories are obtained by inflating the proxy chain volume estimates by a suitable price index centred on the middle of each quarter and with the same reference year as the volume estimates.

7.27    The goods and services account shows that all output from within the production boundary, plus imports (output from abroad), must be accounted for in one of the other two basic activities of the SNA, consumption of goods and services or accumulation of goods and services (or exported, implying either consumption or accumulation abroad).

7.28    The whole sequence of accounts can be viewed as built around the goods and services account by adding transactions relating to the generation, distribution and redistribution of income and saving. When these transactions are aggregated across all sectors and the rest of the world, total resources are equal to total uses. If these were to be ''consolidated'' out of the sequence of accounts, only the goods and services account would be left.

7.29    The preferred method of compiling quarterly national accounts estimates is to use a high-quality data source which provides data for the aggregate being measured according to the conceptual basis required for the national accounts. In such cases both the quarterly and annual estimates may be compiled from the same source, the annual estimates being obtained simply as the sum of the quarterly estimates.

7.30    Annual national accounts estimates are considered to be superior to quarterly estimates. In the case of the income, expenditure and production components of GDP, the annual estimates are balanced in S-U tables, unlike their quarterly counterparts. Therefore, it is desirable to ensure the quarterly estimates are temporally consistent with their annual counterparts. This is achieved by using mathematical procedures to “benchmark” the quarterly estimates to the annual estimates.

7.31    Three commonly used statistical benchmarking procedures are:

1. pro rata adjustment;
2. Denton difference method; and
3. Denton proportional method.

7.41    The Denton difference method minimises the differences of the absolute adjustments of two neighbouring quarters, whilst the Denton proportional method minimises the differences of proportional adjustments of two neighbouring quarters. Therefore, the Denton difference method results in a smooth additive distribution of the differences between the annualised indicator and the benchmark series, and the Denton proportional method results in a smooth multiplicative distribution of these differences. As a result, the Denton difference method tends to produce a smoother series, but the Denton proportional method changes the quarterly growth rates of the of the preliminary estimates least.

7.42    A characteristic of the quarterly national accounts series is that their seasonality and irregularity are generally more multiplicative than additive in nature, and better seasonal adjustments are generally obtained using a multiplicative rather than an additive model.

7.43    The Denton difference method can be applied to data that change sign, whilst the proportional method should only be applied to data that are strictly positive.

7.44    The methods described above are applicable to flow data, but there are other versions suitable for stock data and averages. For further details, refer to Chapter 6 of the IMF's Quarterly National Accounts Manual.³⁹

7.45    The ASNA uses the Denton proportional method for all flow series that are strictly positive. The Denton difference method is used when this is not the case, such as changes in inventories.

7.49    Quarterly time series such as those in national accounts publications are affected by three influences – calendar (mostly seasonal), trend and irregular influences – and the original series can conceptually be split into activity due to each of these components. For example, the activity in a particular December quarter can be conceptually split into:

• systematic calendar and/or seasonal related activity (e.g. Christmas related activity; October long weekend activity, etc.);
• trend activity, that is, the underlying level of the series; and
• irregular activity (e.g. impact of a short-term stimulus package, short-term non-systematic and unpredictable fluctuations).

7.50    When interpreting a quarterly series, it is helpful to assess combinations of the three components, as they each highlight different attributes of the data. In particular, the original, seasonally adjusted and trend series are seen as valuable tools for interpreting time series data. The original series contains all three components and shows 'what actually happened' (according to our survey data). The seasonally adjusted series has the seasonal component removed, leaving the trend and irregular. It shows what happened once the systematic activity that happens the same way every year has been removed, revealing more information about the underlying direction of the series, and/or the impact of irregular influences that may have been overshadowed by seasonal influences in the original series. Finally, the trend series contains only the trend component, and reflects the underlying level or long-term behaviour of the series.

7.51    The seasonal adjustment process splits the original series into estimates of the three components. It first estimates and removes the seasonal and calendar-related influences, creating the seasonally adjusted series. A further statistical process — Henderson smoothing — removes the irregular influence to reveal an estimate of the trend. The estimate of the irregular influences is the difference between the seasonally adjusted and the trend. This section summarises the methods used by the ABS to decompose quarterly national accounts series into their three components and generate the published seasonally adjusted and trend series.

7.52    Seasonal effects usually reflect the influence of the seasons themselves, either directly or through production series related to them (such as costs for generating farm production), or social conventions (such as the incidence of holidays) or administrative practices (such as the timing of tax payments). Other types of calendar variation occur as a result of influences such as the number and composition of days in the calendar period (trading day); accounting or recording practices adopted by businesses; the effect of regular paydays on activity levels; or the incidence of movable holidays (such as Easter).

7.53    Statistical techniques can be used to evaluate the effects of normal seasonal and other calendar influences operating on a series. If detectable seasonal or calendar variation is observed, the estimated effects may then be removed from the series to produce a seasonally adjusted series. Although calendar variation may be present in a series, factors applied in a particular period may vary significantly from year to year due to the variability in the number and composition of days in that particular period. This is especially evident in series affected by, say, the payment of salaries or pensions on a fortnightly basis. Seasonal or calendar variation can also move gradually over time in reaction to changing influences, and this is allowed for in the estimation of the seasonal factors.

7.54    Not all statistical series are significantly affected by seasonal or calendar influences which are regular enough to be described as 'reliable', so seasonal or calendar influences cannot always be removed from them. In such cases, the original series may be regarded as also being the seasonally adjusted series. Some examples in the quarterly national accounts are the rent component of farm costs, and the series related to the consumption of fixed capital.

7.55    The ABS software for seasonal adjustment is the SEASABS (SEASonal analysis, ABS standards) package, a knowledge-based seasonal analysis and adjustment tool. The seasonal adjustment algorithm used by SEASABS is based on the X-11 Variant seasonal adjustment software from the U.S. Census Bureau.⁴⁰

7.56    The X-11 technique uses a filter-based approach to decompose the series to be analysed into estimated trend, seasonal and irregular components. The irregular component reflects the influence of unusual or transitory effects, for example, the effect of a major industrial dispute or of unseasonal weather conditions. It also reflects sampling and non-sampling errors which may be present in the original series, and other short-term fluctuations in the series that are neither systematic nor predictable.

7.57    The X-11 program includes a statistical procedure for automatically identifying and modifying unusually large or small values included in the original series, for the purposes of improving the estimate of the seasonal component only. Occasionally, modification of extreme values is undertaken directly prior to seasonal adjustment, in order to better stabilise the estimation of the seasonal component and minimise the extent to which both the estimated seasonal and trend components are affected by irregular influences.

7.58    Adjustments are also made prior to seasonal analysis to deal with abrupt discontinuities in the seasonal pattern or the trend where sufficient observations and/or supplementary information are available to estimate the magnitude of the effects. These 'break factors' have been employed retrospectively in the analysis of a number of national accounts series, and some series contain more than one such break. It is impossible, in most cases, to recognise and assess changes in seasonality or trend at the time they occur, and, until enough subsequent data are available to indicate otherwise, they may initially remain undetected, or be considered irregular effects.

7.59    Although based on the X-11 software, SEASABS also includes components of the U.S. Census Bureau X-12 ARIMA software package.⁴¹ For the national accounts, regression-ARIMA modelling techniques from X-12 ARIMA are used to compare actual original values to expected original values to detect possible extreme values and sudden discontinuities in the trend, and to assist with the estimation of prior adjustment factors to account for them. Additional information (such as unit record data) may also be used in the estimation of appropriate prior adjustment factors.

7.60    The seasonal adjustment process alone cannot indicate whether an unexpected movement appearing in current end seasonally adjusted figures denotes a variation in trend, or an unusual (irregular) effect, or whether it is due to an abrupt change in seasonality. However, the addition of subsequent data points to the series end and/or supplementary information about the reasons underlying series behaviour can assist in the identification and treatment of seasonal or trend discontinuities as soon as possible after they occur.

7.61    After extreme values and sudden discontinuities in a series have been accounted for, calendar and seasonal effects, where measurable, are estimated by X-11 using mainly filtering techniques, and occasionally regression procedures. The estimated seasonal and calendar influences, together with certain (but not all) prior adjustment factors, form the combined adjustment factors by which the original series is seasonally adjusted. It should be noted that only the estimates of seasonal and/or other types of calendar variation are removed from the original series to form the seasonally adjusted series, which contains the trend and irregular components. Since the irregular influences remain, an unexpectedly large movement in the seasonally adjusted series does not necessarily indicate a change in the underlying trend of the series.

7.62    The SEASABS program allows for the original series to be decomposed into trend, seasonal and irregular components by using a multiplicative, additive, or pseudo-additive model. The choice of which of these models to use depends on whether it is more appropriate to consider the amplitudes of the trend, seasonal and irregular components to be proportional to or largely independent of each other. Specifically, the multiplicative model treats all three components as dependent on each other, the additive model treats them independently, and the pseudo-additive model treats the seasonal and irregular components as independent of each other but dependent upon the level of the trend.

7.63    Although most series in the national accounts are adjusted multiplicatively there are some exceptions. Series which include both positive and negative values cannot be directly adjusted using a multiplicative model. An additive or pseudo-additive model must be used if such series cannot be disaggregated into components having wholly positive (or negative) values. Several series relating to gross farm product (i.e. outputs and inputs) are affected by such extreme seasonal variations that the pseudo-additive model provides the best seasonally adjusted results. Other time series (especially inventories) are best adjusted using the additive model.

7.64    It is possible to seasonally adjust an aggregate series either directly or by seasonally adjusting a number of its components and adding the results. The latter (aggregative) method has been employed for most of the major aggregates in the national accounts. Besides retaining, as far as possible, the essential accounting relationships, the aggregative approach is needed because many of the aggregates include components having different seasonal and trend characteristics, and sometimes require different methods of adjustment. Details of the methods of adjustment used for each of the quarterly national accounts aggregates are available on request.

7.65    The national accounts use a concurrent adjustment methodology, under which the calendar and seasonal effects are re-estimated each quarter using all available data, including that for the most recent period. This allows for the most accurate estimate possible of the seasonal component of the series, as:

• using the data from the most recent periods allows better estimates of the calendar effects at the current end, especially when the calendar effects for a period move over time;
• it automatically takes into account revisions to the original data, resulting in appropriate revisions to the seasonally adjusted and trend data; and
• the adjustment method can be more responsive to changes in the seasonal and trend components, and identify them soon after occurrence; under concurrent adjustment; for example, turning points in the trend series are usually identified within three periods of them occurring.

7.66    The improvements to the estimation of the seasonal component result in improved estimates of the seasonally adjusted and trend series, especially at the current end, and smaller revisions in subsequent periods. Note that this method results in reduced revisions compared to the previously utilised adjustment methodology, forward factor adjustment, under which a year’s worth of seasonal factors was extrapolated at the time of the annual reanalysis, and then revised a year later.

7.67    The use of concurrent methodology minimises the risk of incorrect seasonal forward factors being used in the adjustment process and an inappropriate seasonally adjusted series being published.

7.68    In the March quarter 2020 issue of Australian National Accounts: National Income, Expenditure and Product, the method used to produce seasonally adjusted estimates was temporarily changed from concurrent methodology to the forward factors method for series with significant and prolonged impacts from COVID-19. Series will return to concurrent seasonal adjustment, when economic conditions are assessed to have returned to pre COVID-19 patterns.

7.69    Temporary switch to forward factors will be used in the future where economic shocks significantly disrupt regular seasonal patterns, as occurred with the COVID-19 pandemic.

7.70    The characteristics of National Accounts time series are reviewed annually. During this reanalysis, the method and quality of the seasonal adjustment process are scrutinised for each series, for the purpose of identifying any changes required to improve the adjustment, and, subsequently, the seasonally adjusted and trend estimates. Such improvements could include:

• changes to decomposition models, filters, etc.;
• insertion of new prior adjustments (e.g. corrections for unusually large or small values, or adjustments for abrupt changes in the seasonal pattern or trend level); and/or
• improvements to existing prior adjustments (e.g. updating corrections in response to new supplementary information).

7.71    Significant revisions can occur as a result of the annual reanalysis, with the more recent periods likely to be most affected. However, the impact of such revisions has generally been reduced since the introduction of concurrent seasonal adjustment.

7.72    The following points need to be taken into account when using seasonally adjusted statistics:

• seasonal adjustment is a means of removing the estimated effects of seasonal and other types of calendar variation from statistical series, so that the effects of other influences on the series may be more clearly recognised;
• seasonal adjustment does not remove the effect of irregular influences from the statistics, so an unexpected movement in a seasonally adjusted series should not necessarily be regarded as a change in trend; and
• seasonally adjusted statistics will be revised following revisions to the original data and as additional original data points are included each quarter.

7.73    A statistical technique is used to dampen the irregular element in cases where the removal of only the seasonal element from an original series (resulting in the seasonally-adjusted series) may not be sufficient to allow identification of changes in its trend. This technique is known as smoothing, and the resultant smoothed series is known as trend series.

7.74    Smoothing to derive trend estimates is achieved by applying moving averages to seasonally adjusted series. A number of different types of moving averages may be used; for quarterly series, a seven-term Henderson moving average is applied. The use of Henderson moving averages leads to smoother data series relative to series that have been seasonally adjusted only. This average is symmetric, but asymmetric forms of the average are applied as the end of a time series is approached. The application of asymmetric weights is guided by an end-weight parameter, which is based on the calculation of a noise-to-signal ratio; that is, the average movement in the irregular component divided by the average movement in the trend component, known as the I/C ratio). While enabling trend estimates for recent periods to be produced, asymmetric weights result in revisions to the estimates when subsequent observations are available.

7.75    Revisions to the trend series may arise from:

• the availability of subsequent data;
• revisions to the underlying data;
• identification of and adjustment for extreme values, seasonal breaks and/or trend breaks;
• re-estimation of seasonal factors; and
• changes to the end weight parameter.

7.76    For more information about ABS procedures for deriving trend estimates and an analysis of the advantage of using them over alternative techniques for monitoring trends, see Information Paper: A Guide to Interpreting Time Series – Monitoring Trends, 2003.

For further information on time series analysis in the ABS, please refer to Time Series Analysis Frequently Asked Questions.

8.3    In the central accounts of the national accounts system, a more restricted view of production is taken. The national accounts are primarily constructed to assist governments and other organisations to make market-based macroeconomic policy decisions. This includes the analysis of markets and factors affecting market performance such as inflation and unemployment. In 2008 SNA (and the ASNA), the value of domestic services produced and consumed within households are excluded from production because such services are relatively isolated and independent from markets, and are difficult to value in an economically meaningful way. Examples include cleaning, decoration and maintenance of the dwelling, cleaning, servicing and repair of household durables or other goods, washing, preparing meals, and child and aged care. Although the production of such services is not part of the central framework of the national accounting system, the value of the services can be shown in satellite accounts to the main accounts.

8.4    With the exception of own-account household services, 2008 SNA recommends coverage of the production of all goods and services that legally enter the market, and also that part of production which does not enter the market, but for which a realistic value can be imputed using closely related or analogous market transactions. Because illegal goods and services, such as illicit drugs and illegal gambling, are purchased in the market, their production is included in the 2008 SNA production boundary. However, because of data limitations, illegal production is not covered in the ASNA, although the effects of some of these activities may be included by default; for example, if money obtained from such activities is laundered through legitimate institutions that are covered by the national accounts.

8.5    2008 SNA states that to satisfy the definition of production in an economic sense:

There must be an institutional unit that assumes responsibility for the process of production and owns any resulting goods or knowledge-capturing products or is entitled to be paid, or otherwise compensated, for the change-effecting or margin services provided.⁴²

8.6    Institutional units are the basic units for which flows and stocks are recorded in the national accounts. The 2008 SNA description excludes from economic production natural processes without human involvement or direction, such as the unmanaged growth of fish stocks in international waters. However, the activities of fish farming and fishing for profit are considered economic production. Activities which cannot be purchased from producers are also outside the production boundary, regardless of whether the service may be beneficial to overall economic production. Included in this category are basic human activities such as eating and sleeping.

8.7    Although consumer durable assets such as cars, washing machines, microwave ovens and dishwashers provide a stream of services to their users over many years, in 2008 SNA (and the ASNA) such services are conventionally treated as consumed as soon as the assets are bought by a household. 2008 SNA states:

The use of a durable good, such as a vehicle, by persons or households for their own personal benefit or satisfaction is intrinsically a consumption activity and should not be treated as if it were an extension, or continuation, of production.⁴³

8.8    The disadvantage of this treatment is that, in times of hardship, households may temporarily reduce their purchases of these goods to a low level without significantly reducing their consumption of the services they provide. At such times, the national accounts figure for consumption, being restricted to purchases, may give a misleading impression of the community's ongoing level of consumption. Accounting for the services of consumer durables requires treatment of the durables as capital goods providing a stream of services over a number of years. As with own-account household domestic services, such a concept would not be appropriate for most market-based analyses.

8.9    Units of the general government sector provide goods and services free of charge or at nominal prices that are below their cost of production. Such activity nevertheless meets the definition of production. Because such government-provided goods and services are not purchased by the users, the general government sector is regarded as consuming its own output. The non-market output is valued at its cost of production. Similar considerations apply to many non-profit institutions, which meet their production costs from donations provided by members and benefactors and are able to provide goods and services free or at prices that are not commercially determined. As with general government bodies, the non-market production of non-profit institutions is valued at cost.

8.10    In the ASNA, values are also imputed for production of some other goods and services that are not sold in the marketplace. Imputations are confined to a small number of cases where a reasonably satisfactory basis for the valuation of the implied transactions is available, and where their exclusion could result in significant distortions in the accounts. Imputations are made for the following:

• services provided by owner-occupied dwellings;
• food and other goods produced by households for their own final consumption ('backyard production');
• services provided by financial institutions over and above explicit charges made;
• services provided by owner-builders in the construction of dwellings and major alterations and additions to dwellings; and
• the non-observed economy.

8.11    There is more than one set of prices that can be used to value outputs and inputs depending on how taxes and subsidies on products and transport charges are recorded. ASNA uses basic prices for the valuation of industry outputs, and purchasers' prices for valuation of intermediate inputs and of final demand. This is in line with the recommendations in 2008 SNA.

8.12    It is important to note the distinction between taxes (and subsidies) on products and other taxes (and subsidies) on production when discussing alternate price measures. Taxes on products are payable per unit of the product (i.e. a flat amount dependent on the physical quantity of the product, or a percentage of the value at which the product is sold). Other taxes on production are imposed on the producer regardless of the production of any product (e.g. land taxes).

8.13    The basic price is the amount receivable by the producer from the purchaser for a unit of a good or service, minus any tax payable (including deductible value added taxes) plus any subsidy receivable, as a result of production or sale of the unit. Subsidies artificially reduce the sale price, so they are included in the basic price to obtain a measure of the true value of the goods or services produced. Taxes on products, if included, would artificially increase the price and so are excluded. The basic price also excludes any transport charges invoiced separately by the producer as recommended by 2008 SNA. The basic price therefore measures the amount retained by the producer in respect of the good or service that is produced as output.

8.14    Analysts who use Input-Output tables (I-O tables) have expressed a strong preference for the definition of basic prices in the 1968 version of the SNA, which excludes the transport component whether separately invoiced or not. This treatment has been implemented in the I-O tables. This results in changes to estimates of output and intermediate use by industry for series at basic prices, with no impact on gross value added, GDP or series at purchasers' prices.

8.15    2008 SNA states output can also be measured using producers' prices. These are defined as the amount receivable by the producer, from the purchaser, for a unit of a good or service produced as output, minus any non-deductible GST invoiced to the purchaser and excluding any transport charges separately invoiced by the producer. This measure of output is not included within the ASNA.

8.16    The purchaser's price is the amount paid by the purchaser in order to take delivery of goods or services. Purchasers' prices include any taxes payable (less any subsidies receivable) on production and imports, and any transport charges paid separately by the purchaser to take delivery. Value added taxes such as GST are included in purchasers' prices unless they are allowable as deductions from the purchaser's value-added tax liability. Purchasers' prices are also referred to as market prices.

8.17    In the derivation of industry value added, outputs are valued at basic prices and intermediate consumption is valued at purchasers' prices. By convention, the resulting estimates of industry value added are described as being 'at basic prices'.

8.18    The conceptual underpinning of GDP is that it measures gross value added for all resident institutional units for the whole economy. Gross value added is the difference between output and intermediate consumption for each institutional unit and thereby measures the value created by production. Value added represents the contribution of labour and capital to the production process. This measure of GDP is commonly referred to as GDP measured by the production approach (GDP(P)).

8.19    GDP can also be derived from income and expenditure flows.

• GDP measured by the income approach (GDP(I)): GDP is the source of income for the factors of production (labour and capital). Total factor income is derived by summing factor incomes (i.e. compensation of employees, gross operating surplus, gross mixed income). Adding taxes less subsidies on production and imports to total factor income gives GDP at purchasers' prices.
• GDP measured by the expenditure approach (GDP(E)): GDP can be derived as the sum of all final expenditures on goods and services (i.e. final consumption expenditures and GFCF), changes in inventories of finished goods, work-in-progress and raw materials, and the value of exports of goods and services less the value of imports of goods and services. Imports are deducted because, although included in final expenditures, they are not part of domestic production.

8.20    GDP is a measure of production and not a measure of economic welfare. The level of production is important because it largely determines how much a country can afford to consume, and it also affects the level of employment. The consumption of goods and services, both individually and collectively, is one of the most important factors influencing the welfare of a community, but it is only one of several factors. In addition, aggregate measures such as consumption expenditure and income do not show which sectors of the population are increasing (or decreasing) expenditure, nor the distribution of income within the economy, nor whether the income generated is the result of more or fewer hours worked. Total welfare also depends on non-economic events, such as epidemics, droughts, floods, the state of the environment, individual and community stress levels, levels of crime, and political factors such as freedom and security. As a measure of production, GDP is not intended to embrace non-economic events. The national accounts are primarily intended to provide data at different levels of aggregation to meet the needs of analysts and others interested in the behaviour of the economy and the factors responsible for major market occurrences such as inflation, employment and unemployment. While certain aggregates may indicate changes in some aspects of welfare, changes in GDP do not necessarily correspond to changes in the overall welfare of the community.

8.21    GDP less consumption of fixed capital is called net domestic product (NDP). Consumption of fixed capital is a cost of production recorded in the income and capital accounts. It may be defined in general terms as the cost, in the accounting period, of the decline in the current value of the producer's stock of fixed assets as a result of physical deterioration, foreseen obsolescence or normal accidental damage. It excludes losses associated with damage caused by war or natural disasters. Such losses are classified as capital losses and are recorded under 'Other changes in the volume of assets' as part of accumulation.

8.22    To be consistent with other entries in the accounts, consumption of fixed capital must be valued at the prices prevailing during the current accounting period. Although consumption of fixed capital is analogous to the measure of depreciation used by businesses, business depreciation measures are generally not suitable for national accounting purposes. This is because businesses generally account for depreciation according to the standards of historical cost accounting, where the original purchase cost of an asset is allocated over the estimated life span of the asset. In periods of rising prices, historical cost accounting will understate the real (current) cost of replacing the asset and will result in an overstatement of business income and saving. Therefore, in the ASNA, the book value of depreciation is not used, and estimates are substituted that reflect changes in the market value of assets. Estimates of consumption of fixed capital are derived in conjunction with estimates of capital services and net capital stock.

8.23    In most cases, when a distinction is drawn between ‘gross’ and ‘net’ recording, ‘gross’ means without deducting consumption of fixed capital and ‘net’ means after deducting consumption of fixed capital. In general, the gross figure is easier to estimate and therefore more reliable, however the net figure is usually the one that is conceptually more appropriate and relevant for analytical purposes.

8.24    The following three chapters outline the concepts, sources and methods used to compile annual and quarterly GDP by the production, expenditure and income approaches in the ASNA.

9.49    Most ANZSIC divisional estimates of Australian production at basic prices have an adjustment for the estimated level of understatement of income. The calculated value for each ANZSIC subdivision's understatement of income is added to the division's total output estimate to form the final Australian production at basic prices.

9.50    The percentage adjustment for each ANZSIC subdivision's estimated understatement of income is different. The estimated understatement of income is based on industry analysis conducted by the Australian Taxation Office from their audits of business income and business expenses.

9.51    It is considered that no understatement of income adjustments is required for the following industries:

• Electricity supply
• Gas supply
• Rail transport
• Water, pipeline and other transport
• Air and space transport
• Finance
• Insurance and superannuation funds
• Ownership of dwellings
• Government administration and regulatory services and Defence Off-June year reporting

9.52    Business units may report on a calendar year basis other than for the year ending June, so an adjustment is required to ensure all output data are on a June financial year basis before they are used in S-U compilation. This adjustment is applied by deriving off-June factors for each data item using Business Indicators: Australia (QBIS) for each ANZSIC subdivision. The appropriate off-June factors are then applied to data items reported by individual businesses in the EAS for each ANZSIC subdivision who did not respond on a June financial year basis. Hence the data reported on an off-June financial year basis is adjusted onto a June financial year basis.

9.53    Further information can be found in the ABS publication, Experimental Estimates for Australian Industry Adjusted for Off-June Year Reporting.

9.54    An estimate for own account R&D is included to derive output. More information can be found in the ABS publication, Research and Experimental Development, Businesses, Australia.

9.55    Intermediate consumption (or intermediate use) consists of the value of the goods and services consumed as inputs to the production process. The goods and services may be either transformed (e.g. flour may be transformed into bread) or completely consumed or used up (e.g. electricity and most services) in the process of producing outputs.

9.56    In addition to goods and services used directly in the production process, intermediate consumption includes the value of all goods and services used as inputs into ancillary activities. Ancillary activities are undertaken within an enterprise for the sole purpose of supporting the main and secondary activities. Ancillary activities include purchasing, sales, marketing, accounting, data processing, transportation, storage, and security. The output of an ancillary activity is not intended for use outside the enterprise.

9.57    Intermediate consumption does not include valuables consisting of works of art, precious metals and stones and articles made out of them, that are acquired as stores of value and are not used up in the process of production. However, intermediate consumption does include precious stones and metals used in the production of jewellery and similar items.

9.58    Intermediate consumption excludes the costs incurred by the gradual using up of fixed assets, which is recorded as consumption of fixed capital in the income and capital accounts. Rentals paid on fixed assets that are leased from other institutional units under operating leases are included as part of intermediate consumption, along with fees, commissions, royalties, etc., payable under licensing arrangements.

9.59    As described previously, the ASNA includes output for own intermediate use in limited cases. In these cases, the imputed value of brown coal and electricity produced by those TAUs is also included in their intermediate consumption.

9.60    Operating leases are leases that provide for the renting of machinery or equipment for specified periods of time that are substantially shorter than the total expected service lives of the machinery or equipment. An operating leasing is a form of production in which the owner of the machinery or equipment (the lessor) provides a service to the user (or lessee). The lessor is usually responsible for the maintenance and repair of the equipment as part of the service provided to the lessee. Rentals are treated as payment for the total service provided, and are included in the intermediate consumption of producers. For operating leases, consumption of fixed capital is charged to the lessor.

9.61    Under a financial lease, a change of ownership from the lessor to the lessee is deemed to have taken place, even though the leased goods legally remain the property of the lessor, at least until the lease expires. Financial leasing is an alternative to lending as a method of financing the acquisition of machinery and equipment, in which the lessor effectively makes a loan to the lessee to enable the latter to finance the acquisition of the equipment. Rentals under financial leases are treated as a combination of loan repayments and interest payments and not as part of intermediate consumption. Under a financial lease, consumption of fixed capital is charged to the lessee.

9.62    Certain goods and services used up by producers do not enter directly into the production process but are consumed by employees working on that process. Where goods and services are provided to employees and are used by the employees in their own time and at their own discretion, the goods and services constitute remuneration in kind rather than intermediate consumption. Fringe benefits, such as the private use of company cars, airline lounge memberships, telephones and rent subsidies, fall into this category. This distinction is important, because the inclusion of remuneration in kind in compensation of employees, rather than in intermediate consumption, increases labour income and GDP.

9.63    This boundary is not always clear cut. The following provides an explanation of the treatment of particular expenditures.

9.64    Expenditure on large items of machinery and equipment is recorded as gross fixed capital formation while regular expenditure on small durables, such as hand tools, is normally regarded as intermediate consumption.

9.65    The 2008 SNA recommends that ordinary maintenance and repairs of fixed assets used in production constitute intermediate consumption and that major renovations, reconstructions or enlargements of fixed assets are to be treated as gross fixed capital formation. Ordinary maintenance and repairs are necessary to ensure effective utilisation of assets over their expected service lives. Such maintenance and repairs do not change the asset or its usual level of performance. Major renovations, reconstructions or enlargements increase the performance capacity of existing assets or significantly extend their previously expected service lives. Examples are extending or enlarging existing buildings or structures and refitting or restructuring the interior of a building or ship.

9.66    Research and development is treated as capital formation except in any cases where it is clear that the activity does not entail any economic benefit for its owner, in which case it is treated as intermediate consumption. This is a change in treatment as recommended by 2008 SNA and has been implemented in ASNA.

9.67    Expenditures on mineral and petroleum exploration are not treated as intermediate consumption. Whether successful or not, they are needed to acquire new reserves and so are all treated as gross fixed capital formation.

9.68    Expenditure on major military equipment (such as weapon delivery systems) is treated as gross fixed capital formation in the ASNA. Expenditures on durable military items such as boots, bombs and bullets, torpedoes and spare parts, are recorded as increases in inventories on acquisition and decreases in inventories on use or disposal, and therefore as intermediate consumption as they are used up.

9.69    Each ANZSIC division calculation of intermediate use has a correction for the level of overstatement of expenses. The calculated value for each ANZSIC subdivision overstatement of expenses is removed from the division's final intermediate use estimate.

9.70    The percentage adjustment for each ANZSIC subdivision's estimated overstatement of expenses is different. The estimated overstatement of expenses is based on industry analysis conducted by the Australian Taxation Office from their audits of business income and business expenses.

9.71    It is considered that no overstatement of expenses adjustments is required for the following industries:

• Electricity supply
• Gas supply
• Water supply, sewerage and drainage services
• Rail transport
• Water, pipeline and other transport
• Air and space transport
• Motion picture and sound recording
• Broadcasting (except Internet)
• Finance
• Insurance and superannuation funds
• Ownership of dwellings
• Government administration and regulatory services
• Defence
• Education and training
• Health care and social assistance
• Heritage and creative and performing arts
• Gambling, sports and recreation.

9.72    Business units may report for a non-June financial year, so an adjustment is required to ensure all intermediate consumption data are on a June-year basis before they are used in S-U compilation. This adjustment is applied by matching responses from the annual Economic Activity Survey (EAS) with those from Business Indicators: Australia for businesses reporting on an off-June financial year.

9.73    Further information can be found in the ABS publication, Experimental Estimates for Australian Industry Adjusted for Off-June Year Reporting.

9.74    FISIM is recorded as part of intermediate consumption by financial intermediaries' customers; that is, for all businesses, government and households. The FISIM output is estimated so that it can be allocated by final use (to household final consumption expenditure) and intermediate use directly. FISIM is produced for the following intermediate use categories initially:

• non-financial corporations (private, national, state and local);
• financial corporations (finance, insurance and financial auxiliaries);
• general government (national, state and local);
• unincorporated enterprises; and
• ownership of dwellings.

9.75    Estimates for FISIM produced by non-resident units and consumed by resident units (i.e. an import of goods and services) and FISIM produced by resident units and consumed by non-resident units (i.e. an export of goods and services) are obtained from Balance of Payments (BoP) data. Imports are allocated to intermediate use of private non-financial and financial corporations.

9.76    Intermediate use is allocated to sectors and industries as follows:

• non-financial corporations (private, national, state and local) – FISIM is allocated to industries in proportion to the sum of interest income and interest expenses from the Economic Activity Survey;
• general government – industry allocation is undertaken in proportion to non-market output of general government;
• financial corporations – allocated entirely to the Financial and Insurance Services industry;
• unincorporated enterprises – FISIM is allocated to industries in proportion to the sum of interest income and interest expenses from the Economic Activity Survey; and
• FISIM is allocated to ownership of dwellings actual and imputed rent based on outstanding owner and investor loans estimates from the National Accounts Finance and Wealth account.

9.77    ISC is recorded as part of consumption by non-life insurance corporations' customers; that is, for all businesses, governments and households. The ISC output is estimated so that it can be allocated by final use (to household final consumption expenditure) and intermediate use directly. The ISC is estimated for the following intermediate use categories:

• non-financial corporations (private and public);
• financial corporations (finance, insurance and auxiliaries);
• general government;
• unincorporated enterprises; and
• ownership of dwellings.

9.78    Estimates for ISC produced by non-resident units and consumed by resident units (i.e. an import of goods and services) and ISC produced by resident units and consumed by non-resident units (i.e. an export of goods and services) are obtained from BoP data. Imports are allocated to intermediate use of private non-financial and financial corporations.

9.79    Intermediate use is allocated to sectors and industries as follows:

• general government – industry allocation is undertaken in proportion to non-market output of general government;
• financial corporations – allocated entirely to the Financial and insurance services industry;
• unincorporated enterprises and public / private non-financial corporations – the ISC is allocated in proportion to insurance premiums obtained from the Economic Activity Survey; and
• ownership of dwellings industry – allocated entirely to ownership of dwellings.

9.80    Taxes on products are taxes that are payable per unit of a good or service. They are payable when they are produced, delivered, sold, transferred or otherwise disposed of by their producers (e.g. GST, sales tax and excise tax).

9.81    Subsidies on products are subsidies that are payable per unit of a good or service. A subsidy usually becomes payable when the good or service is produced, sold or imported, but may also be payable in other circumstances such as when a good is transferred, leased, delivered or used for own consumption or own capital formation.

9.82    The current price estimates of gross value added by industry are produced from 1994-95 up to the year previous to the latest year using S-U tables and are in balance with the expenditure estimates.

9.83    The main data source for non-financial corporations and NPISHs in the annual benchmarks is the Economic Activity Survey (EAS), published in Australian Industry. The EAS consists of a core component and a rolling component. The core component produces broad financial data and broad demographic data. The rolling component produces detailed financial data and some combination of product data, detailed demographic and activity data.

9.84    The outputs of the core and rolling components can be directly or indirectly constructed via the following streams of work:

• the survey program – consists of questionnaires to directly collect data via the Economic Activity Survey, and includes irregular annual industry surveys such as the Wholesale Industry Survey (WIS);
• the complementary program – uses data substitution and data modelling/synthetic estimation to fulfil some of the national accounts compilation needs not specifically met by the survey program;
• the case study program – centres around the use of case studies to satisfy I-O data requirements of product level detail; and
• the feasibility and research program – addresses known quality, conceptual and methodological issues. In most cases, it does not directly deliver new products or services, instead helps in the clarification and resolution of issues impacting on the quality of existing outputs or on the design and delivery of new outputs.

9.85    The tables below outline the data sources and methods used in the estimation of annual gross value added at current price estimates and volume measures by industry. They also include an outline of the data sources used to estimate the product level detail required to populate the S-U tables. References to the Economic Activity Survey as a data source encompasses the Annual Industry Statistics program as described above.

9.86    Market output is derived for all non-financial and financial corporations and household units covering all industries. Non-market output is derived for general government and NPISH units. General government activity is not allocated to all industries. NPISH units are concentrated in a small number of industries (i.e. Information media and telecommunications; Professional, scientific and technical services; Administrative and support services; Education and training; Health care and social assistance; Arts and recreation services; and Other services). Little, if any, NPISH activity is present in the other industries; if there is any NPISH activity (as reported in the Economic Activity Survey) in these industries then this small amount of non-market output would be included in gross value added estimates.

9.87    For all industries, except agriculture, finance services and insurance services, annual GDP(P) for the latest year (i.e. the year beyond the S-U period) is derived by aggregating the quarterly data previously derived, using largely the same set of sources and methods as those used to derive quarterly gross value added estimates.

9.88    For the latest year, volume estimates for the Agriculture industry (ANZSIC Subdivision 01) are obtained by double deflation.

9.89    For the latest year, chain volume estimates of FISIM for Finance (ANZSIC Subdivision 62) are produced using data sources and methodology as described for the annual benchmarks and used as an annual indicator series to move forward the benchmark volume estimate for gross value added for Finance.

9.90    For the latest year, current price estimates of total output for Insurance (ANZSIC Subdivision 63) are produced using data sources and methodology as described for the annual benchmarks. The current price annual insurance output is deflated by the all groups consumer price index (CPI) to produce an annual chain volume indicator series for insurance which is then used to move forward the benchmark for gross value added for Insurance.

9.91    Gross value added in chain volume measures are derived by interpolating and extrapolating annual benchmarks using quarterly indicator series. Both the annual benchmarks and the quarterly indicators are calculated as chain volume measures.

9.92    Quarterly chain volume indicators of gross value added in the ASNA are derived using three different methods:

• the output indicator method;
• double deflation; and
• the input indicator method.

9.93    The method selected to obtain chain volume measures for a particular industry depends on the data available in respect of that industry. The most commonly used method is the output indicator method. However, Agriculture uses the double deflation method. The input indicator method involves extrapolation using a measure of labour input such as hours worked and is used to obtain estimates for the Public administration and safety industry.

9.94    The use of output or input indicator methods is based on the implicit assumption that movements in output and intermediate use are consistent with each other. Whilst this is almost certainly not the case in practice, the assumption is made owing to limitations of quarterly source data as well as the time available for compilation and editing. Double deflation is applied to Agriculture as prices and volumes for both agricultural inputs and outputs can be highly volatile. This level of volatility does not exist for other industries and, while it is arguable that quarterly double deflation would improve the estimates of GDP(P) for other selected industries, it is not clear the improvement would be significant.

9.95    The output indicator method is the most commonly used by the ABS. It involves extrapolating reference year estimates of current price gross value-added using movements in a volume indicator of output. It assumes that the ratio of gross output volumes to intermediate input volumes remains constant over time. In a few cases the output indicator is just a single statistic, but in most cases, it is a combination of several statistics. In no cases do these output statistics precisely meet the national accounts definition of output, but in most cases, they approximate the national accounts definition reasonably closely. In some cases, the output statistics are merely highly correlated with the national accounts definition of output, as when turnover data are used as the output indicator for wholesale and retail trade. The principal output of these industries is their margin on the goods they sell (the margin is the difference between the price at which goods are sold and the price at which those goods are bought by the wholesaler or retailer). When a margin volume is estimated using a turnover volume as the indicator, the underlying assumption is that the ratio of the margin to the turnover volume is fixed over time.

9.96    Most industries produce many different commodities, and the ratio of output to value added can differ appreciably between industries and over time. Hence, in constructing a composite output indicator to be used as an indicator of growth in real value added, it is best for the constituent output statistics to be weighted together using current price value added data, and for re-weighting to occur as frequently as possible. The availability of current price value added data varies considerably between industries.

9.97    The volume estimates of gross value added for each industry are derived in the prices of the previous year. Chaining takes place after aggregation.

9.98    Quarterly current price sales data reported by survey respondents are aligned to concepts embedded in the Australian equivalents to International Financial Reporting Standards (AIFRS), net of the Goods and Services Tax (GST), and net of any discounts provided. In addition to income from sales of physical goods, sales estimates include sales of services, including consulting services, income from exports, income from leasing and hiring, income from contracts and commissions, sponsorship income, management fees and charges, income from operating leases, delivery charges, income from royalties pertaining to original artistic works, and billed progress payments from long-term contractual arrangements. They exclude items such as interest income, sales of assets, income from finance leases, payments under hire purchase arrangements, and royalties received in respect of natural resource ownership.

9.99    Inventories are also recorded according to AIFRS, and are closing book values, exclusive of GST, measured before deduction of provisions for losses. These also cover domestic activity only, and are collected according to three categories:

1. Inventories of raw materials – this includes materials and fuels designed to be consumed in productive activities, non-capitalised spare parts designated for use in fixed assets, and containers and packaging materials. Inventories of fuels for sale are excluded (these are classified as inventories of finished goods).
2. Inventories of work-in-progress – this includes partially processed or fabricated goods which will be further processed prior to sale, and general work-in-progress less payments billed. Prepayments are excluded.
3. Inventories of finished goods – this includes goods manufactured or processed which are ready for sale, goods purchased from other businesses which are ready for resale without further processing, and fuels for sale. Hired goods, inventories of land, and rented or leased buildings are excluded.

9.100    For many industries, quarterly industry gross value added is estimated in the latest year by making two assumptions: firstly, that sales growth is a proxy for output growth (in the case of manufacturing, growth in sales plus change in inventories (excluding raw materials) is a proxy for output growth), and that, if we assume movements in output and intermediate consumption are consistent with each other, that output growth is a proxy for growth in gross value added. This is the essence of the output indicator method.

9.101    Ideally, output growth would be better approximated by sales growth plus change in inventories (excluding raw materials) for all industries relying on QBIS data. However, change in inventories is only included for the derivation of estimates for manufacturing. See Table 9.44 for the rationale.

9.102    The tables below outline the data sources and methods used in the extrapolation of quarterly gross value added chain volume estimates by industry from the balanced annual supply-use data, as well as the quarterly distribution of annual supply-use estimates.