Latest release

Chapter 11 Gross Domestic Product - Income approach (GDP(I))

Australian System of National Accounts: Concepts, Sources and Methods
Reference period
2020-21 financial year

Components of GDP (I)

11.1    GDP can be measured by the sum of income flows. The sum of factor incomes plus taxes less subsidies on production and imports gives GDP at purchaser's prices measured by the income approach (GDP(I)). That is

GDP(I)=Compensation of employees
 +Gross operating surplus
 +Gross mixed income
 +Taxes on production and imports
 -Subsidies on production and imports

11.2    Gross value added at basic prices, less taxes on production and imports plus subsidies on production and imports (conventionally combined as taxes less subsidies on production and imports) represents the amount available as factor incomes. Factor incomes consist of compensation of employees (the income of the labour factor of production), operating surplus (the income of the entrepreneurship factor of production), or mixed income (a combination of compensation of employees and operating surplus accruing to the owners of unincorporated enterprises).

11.3    It is important to determine whether a person is an employee or self-employed so that the correct treatment of their income is applied as well as the sub-sectoring of the household sector. In order to be classified as employed (i.e. either as an employee or self-employed), the person must engage in activity which falls within the production boundary. An employer-employee relationship exists when there is a written or oral agreement, entered into voluntarily by the parties, whereby the person works for the enterprise in return for remuneration in cash or in kind. Self-employed persons work for themselves, are joint owners of unincorporated enterprises, or members of a producers' co-operative. The remuneration of the self-employed is treated as mixed income.

11.4    Employees are defined as all persons engaged in the activities of incorporated business units, in the production of general government services and the services of non-profit organisations, members of the defence forces (including reserves and cadets) based in Australia as well as those stationed overseas, and all persons engaged in the activities of unincorporated enterprises except the proprietors and unpaid members of the family. Trainee teachers are deemed to be outside the labour force, and so payments to them are excluded from wages and salaries and included instead as social assistance benefits.

11.5    In the case of a contractor it is necessary to determine the working relationship between the parties. This is not always straightforward, and several issues need to be taken into account, such as how the remuneration/payment for work is determined, and the existence/non-existence of a contract.

Compensation of employees 

Concept

11.6    2008 SNA defines compensation of employees as follows:

... the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period.⁴⁵

11.7    Compensation of employees comprises wages and salaries (in cash and in kind) and employers' social contributions. It does not include any unpaid work undertaken voluntarily or any taxes payable by the employer on the wage and salary bill such as payroll tax.

11.8    Wages and salaries paid in cash are gross payments before deductions. Deductions include income taxes and social contributions payable by the employee even if withheld by the employer for administrative convenience, such as direct payment to a superannuation fund or the Australian Taxation Office (ATO). Penalty payments (e.g. overtime, hazardous work allowances), supplementary allowances such as housing and meal allowances (unless paid as social benefits), holiday pay, payment while on sick leave, bonuses, and commissions, tips and gratuities paid directly to the employee by a third party are included in wages and salaries. Excluded from wages and salaries are reimbursements for expenses incurred (e.g. transportation and accommodation expenses incurred on business travel, and removal expenses) and for equipment or clothing purchased (the reimbursements are treated as intermediate consumption of the employer).

11.9    Wages and salaries paid in kind covers the cost to an employer of goods and services which are provided to the employee, or to another member of the employee's household, free of charge or at a substantial discount, and which are clearly of benefit to the employee as a consumer. Examples include meals, housing, uniforms that can be worn away from work, vehicles available for personal use, goods and services produced by the employer enterprise, recreational facilities, transportation, car parking, child care, low interest loans and stock options. Some of these benefits may appear more like intermediate consumption, but are included in compensation of employees because, even though they are paid to attract employees, they are benefits that employees would often have to provide themselves.

11.10    Fringe benefits taxes which are payable on income in kind provided to employees are included as part of wages and salaries and also included in income taxes payable by households.

11.11    Payments to members of the defence forces consist of salaries and allowances, attendance pay and the value of food, clothing, and travel supplied to permanent members, reserves and cadets. War gratuities which are regarded as social assistance benefits, are not included in wages and salaries.

11.12    The 2008 SNA recommends that severance, termination and redundancy payments by employers; sick leave payments; and payments for other forms of leave other than annual leave and long service leave should be classified as employers' social contributions. However, it acknowledges it may be difficult to separate such payments from wages and salaries and therefore they may have to be grouped with wages and salaries. This is the case in Australia, as data providers are unable to consistently differentiate between these various types of severance and leave payments, and other wage and salary payments. Therefore, these payments are included in the ASNA estimates of wages and salaries.

11.13    Wages and salaries also include changes in provisions for future employee entitlements such as provisions for annual and long service leave.

11.14    Employers’ social contributions are amounts paid by employers (or imputed as payments by employers) to provide social benefits for employees. Social benefits include retirement benefits such as superannuation. Employer social contributions are usually paid directly by the employer into investment funds (called 'social insurance schemes' in 2008 SNA) operated by a separate financial institution, but can be paid into a fund set up within the employer enterprise. However, in some cases, employers pay the benefits directly from general revenue – where this occurs the employers are said to operate an unfunded social insurance scheme. In such cases, the employers’ social contribution implicitly required to fund future benefit payments from unfunded superannuation schemes is imputed and contributes to compensation of employees. This is the amount with the employer would be required to pay into a separate superannuation fund if the scheme were operated as a fully funded scheme.

11.15   Although employer contributions to funded social insurance schemes are usually paid by employers to the scheme operators, in the national accounts all employers’ social contributions (including imputed contributions) are treated as having been paid to employees, who are then treated as having made the payments to the schemes. This treatment is considered more realistic from an economic viewpoint in that the contributions are seen as part of the compensation and income of the employees, who are then seen as using the contributions to acquire access to social insurance schemes (to which they may also contribute directly). The treatment also means that employers’ social contributions add to GDP(I).

11.16    There is a minor definitional difference between compensation of employees as a component of GDP (recorded in the gross domestic product account and the national income account) and as an item in the household income account. In the gross domestic product account and the national income account, compensation of employees includes amounts paid by resident producers to non-residents. This income is shown in the external income account as labour income to overseas. To obtain compensation of employees as recorded in the household income account it is necessary to deduct labour income to overseas from the value shown in the gross domestic product account and the national income account and to add labour income from overseas. Labour income from overseas is also shown in the external income account, and comprises labour income paid to residents working for non-resident employers (either in Australia or overseas).

Endnotes

  1. SNA, 2008, para.7.5.

Sources and methods - Annual

Benchmark years

11.17    Wages and salaries and employers' social contributions are initially derived at the sector level based primarily on the following data sources:

  • General government – based on the Survey of Employment and Earnings (for wages and salaries) and the Survey of Major Labour Costs (for employers’ social contributions).
  • Non-financial corporations, households and quasi-corporations – based on the Economic Activity Survey.
  • Finance and insurance corporations – based on data from the Australian Prudential Regulatory Authority (APRA); the Survey of Financial Information; and the Quarterly Business Indicators Survey (QBIS).

11.18    These sectoral estimates are then combined to form the total wages and salaries and employers' social contributions, respectively.

11.19    The tables below outline the data sources and methods used in the estimation of the components of compensation of employees in current prices only. Volume estimates are not calculated for compensation of employees.

Table 11.1 Annual compensation of employees - Wages and salaries
ItemComment
Non-financial corporations, Households and NPISH’s
 

The primary data source is the Economic Activity Survey. Data is aggregated to the Supply-Use Industry Classification (SUIC) level. The SUIC aggregation is mostly at the subdivision level of ANZSIC, with some instances at the group or division level.

Estimates for total annual Payments in Kind (PIK) for Australia are derived using the ATO publication, Taxation Statistics for the taxable value of fringe benefits and employee share schemes, as well as the Survey of Major Labour Costs (SMLC) for salary sacrificed benefits not subject to taxation.

The Survey of Employment and Earnings (SEE) and the Economic Activity Survey (EAS) are used to split the PIK estimates between the general government and non-general government sector (all other sectors), and disaggregate the private sector estimates to industry level.

Estimates of wages and salaries in cash and PIK are summed to form the wages and salaries estimates by industry.

Financial corporations
 

For the Finance and Insurance Services industry (ANZSIC Division K), an estimate of financial corporation wages and salaries in cash is obtained from the Survey of Financial Information (SFI); Survey of Employment and Earnings; Economic Activity Survey; and Quarterly Business Indicators Survey; where it is available for each component of this industry. For years where SMLC data are not available, the annual estimate is based on data from APRA, QBIS, SEE and SFI. An estimate for financial corporations PIK is added, as described for non-financial corporations.

For the Auxiliary Finance and Insurance Services industry, an estimate of financial corporation wages and salaries is obtained from the Economic Activity Survey and Survey of Employment and Earnings.

General government
 

A base estimate of general government wages and salaries is obtained from the Survey of Employment and Earnings. To this an estimate for overseas general government staff wages and salaries is added, based on data received from the Department of Foreign Affairs and Trade (DFAT).

The estimate is then disaggregated to industry level using weights derived from general government output by industry. An estimate for wages and salaries of defence personnel is obtained from the Department of Defence and, until 1 July 2015 also, the Defence Materiel Organisation (DMO). This estimate is used to replace the value calculated for the Defence industry from the Survey of Employment and Earnings as military personnel are outside the scope of this survey.

Estimates for total annual PIK for Australia are derived using the ATO publication, Taxation Statistics for the taxable value of fringe benefits and employee share schemes, and SMLC data related to salary sacrificed benefits not subject to taxation.

The Survey of Employment and Earnings and Economic Activity Survey are used to split the PIK estimates between the general government sector and the non-general government sector (all other sectors). The estimates for general government wages and salaries and PIK are summed by ANZSIC division, and then further disaggregated to SUIC level, based on weights derived from general government output.

Table 11.2 Annual compensation of employees - Employer social contributions
ItemComment
Non-financial corporations, Households and NPISHs
 Estimates of superannuation contributions and workers’ compensation payments by non-financial corporations, households and NPISH enterprises are obtained from the Economic Activity Survey. The two collected data items are summed together to form employer social contributions (ESC) by industry, which is further aggregated to the SUIC level. The SUIC aggregation is mostly at the subdivision level of ANZSIC, with some instances at the group or division level.
Financial corporations
 An estimate of financial corporations’ ESC is obtained by combining the ESC reported through APRA, the Survey of Financial Information, the Quarterly Business Indicators Survey and the Economic Activity Survey. Where data is unavailable on a certain component of the industry, it is modelled as an appropriate percentage of the applicable wages and salaries estimate.
General government
 

Estimates of superannuation contributions are based on data obtained from Government Finance Statistics and are disaggregated to the ANZSIC division level based on the most recent Survey of Major Labour Costs. Estimates for worker's compensation payments are based on data in the most recent SMLC and, in years where the survey is not conducted, are moved forward based on wages and salaries from the Survey of Employment and Earnings. These two components are summed together to form ESC by ANZSIC Division.

This aggregate is then disaggregated to the industry level using weights of general government output, except for ANZSIC Division O (Public Administration and Safety). An adjustment is made for the Defence Industry to ensure correct coverage and alignment to the annual reports of the Department of Defence, Defence Materiel Organisation, and the administered military compensation schemes contained in the annual report of the Department of Veterans Affairs.

Latest year

11.20    Annual estimates for the latest financial year for wages and salaries and employers' social contributions for Australia and by State (State estimates are covered in more detail in the State Accounts chapter), are derived by extrapolating the latest supply and use benchmark (year t-1) using the annualised quarterly movement for that financial year.

11.21    The industry estimates for wages and salaries in the latest year are derived by extrapolating the latest supply and use industry benchmarks (year t-1) using movements in hourly rates from the Wage Price Index in conjunction with QBIS and SEE data. ANZSIC Division O Public Administration and Safety includes defence personnel and staff in Australian embassies and consulates situated overseas.

11.22    The industry estimates of employers' social contributions for the latest year are derived by extrapolating the latest supply and use industry benchmarks (year t-1) using movements in the Average Weekly Earnings (AWE), QBIS and SEE data. The ANZSIC Division O base estimate is derived using movements from the Government Finance Statistics (GFS) general government superannuation and workers’ compensation value.

Sources and methods - Quarterly

11.23    Quarterly estimates of compensation of employees are built up from the State and Territory level by various subcomponents of wages and salaries and employers’ social contributions.

11.24    The following tables outline the data sources and method used in the quarterly estimation of the components of compensation of employees in current prices only. Volume estimates are not calculated for compensation of employees.

Table 11.3 Quarterly compensation of employees - Wages and salaries
ItemComment
General approach
  

Quarterly estimates of wages and salaries (including payments in kind) for annually benchmarked years are obtained for the private and public sectors for each State and Territory by distributing the total annual estimates according to the previously calculated quarterly distribution of:

  • private (farm plus non-farm) wages and salaries; and
  • public (civilian plus defence plus payments to staff of Australian embassies and consulates overseas) wages and salaries.

For the latest year, the quarterly estimates of wages and salaries are calculated by extrapolating the latest quarterly estimates that have been benchmarked to an overall annual level by the following subcomponents.

 Private non-agricultural employees and civilian employees of the public sector paid in cash and kind
  For private non-farm, QBIS data are used to move forward the latest estimate of wages and salaries. For the civilian component of public sector, GFS data are used to move forward the latest estimate of wages and salaries.
 Agricultural employees
  The ABARES publication, Agricultural Commodities provides details of farm costs and returns, from which labour data are used to move forward the latest estimate of wages and salaries.
 Payments to members of the defence forces
  Government Finance Statistics, which are based on estimates received from the Department of Finance, are used to move forward the latest estimate of wages and salaries.
Table 11.4 Quarterly compensation of employees - Employer social contributions
ItemComment
General approach
  The quarterly estimates of employers' social contributions are calculated by extrapolating the latest quarterly estimates that have been benchmarked to an overall annual level by the following subcomponents.
 Private employers’ contributions to superannuation
  QBIS data are used to move forward the latest annual benchmark estimate of private employers’ contributions to superannuation.
 Public employers’ contributions to superannuation
  Government Finance Statistics are used to move forward the latest annual benchmark estimate of public employers’ contributions to superannuation.
 Private workers’ compensation premiums paid
  QBIS data are used to move forward the latest annual benchmark estimate of private workers’ compensation premiums paid.
 Public workers’ compensation premiums paid
  GFS data are used to move forward the latest annual benchmark estimate of public workers’ compensation premiums paid.

Operating surplus and mixed income

Concept

11.25    Operating surplus is the income from production of corporate enterprises, while mixed income is the income from production of unincorporated enterprises. Both operating surplus and mixed income are measured prior to deducting any explicit or implicit interest charges, rent or other property incomes payable on the financial assets, land or other natural resources required to carry on production.

11.26    The term 'mixed income' is used because the surplus arising from the productive activities of unincorporated enterprises can comprise returns to the capital of the proprietors (representing operating surplus), and an element akin to wages and salaries accruing to the proprietors or other members of the household as payment for their labour input to the enterprise (even though they may not receive explicit payment for their work).

11.27    Operating surplus and mixed income can be measured on a gross or net basis. Gross operating surplus (GOS) and gross mixed income are defined as gross value added minus compensation of employees, minus taxes payable plus subsidies receivable on production and imports. GOS represents the gross income derived by corporations, both financial and non-financial, dwellings owned by persons and general government. In the case of general government, gross operating surplus represents only consumption of fixed capital. Gross mixed income (GMI) represents the gross income derived by unincorporated enterprises.

11.28    Net operating surplus is equal to gross operating surplus less consumption of fixed capital, and net mixed income is equal to gross mixed income less consumption of fixed capital.

11.29    Estimates of GOS and GMI are compiled by institutional sector, namely:

  • GOS – private non-financial corporations;
  • GOS – public non-financial corporations;
  • GMI – unincorporated enterprises;
  • GOS – dwellings owned by persons;
  • GOS – general government; and
  • GOS – financial corporations.

Sources and methods - Annual

Benchmark years

11.30    Annual benchmark estimates for GOS and GMI are derived in total for all institutional sectors. It involves two stages where the first is to derive GOS/GMI in total for all industries. This is undertaken within the supply and use tables.

11.31    The second stage is to split total GOS/GMI into the remaining institutional sectors which requires GMI to be separately identified. The steps required to do this are as follows:

  1. Remove estimated GOS for public non-financial corporations, financial corporations and general government sectors, and dwellings owned by persons from total GOS/GMI.
  2. Derive non-farm private non-financial corporations GOS plus non-farm GMI in total.
  3. Disaggregate total farm GOS/GMI into components for farm GOS and farm GMI.
  4. Disaggregate total non-farm GOS/GMI into components for non-farm GOS and non-farm GMI.
  5. Add non-farm private non-financial corporations GOS (from step d) to farm GOS (from step c), and non-farm GMI (from step d) to farm GMI (from step c).

11.32    The tables below outline the data sources and methods used in the estimation of annual GOS and GMI in total (as per stage 1) and then the institutional sector split as per stage 2 following the steps outlined above. GOS and GMI are estimated in current prices only. Volume estimates are not calculated for GOS and GMI.

Table 11.5 Annual gross operating surplus and gross mixed income - Stage 1: Total for all industries except Finance (ANZSIC Subdivision 62), Insurance and Superannuation Funds (ANZSIC Subdivision 63), Auxiliary Finance and Insurance Services (ANZSIC Subdivision 64), Health Care and Social Assistance (ANZSIC Division Q) and General Government sector
ItemComment
Total Gross operating surplus/Gross Mixed Income (GOS/GMI)

 

Annual benchmarks for GOS and GMI of private non-financial corporations, unincorporated enterprises and private financial corporations providing auxiliary finance and insurance services (ANZSIC subdivision 64) are derived from the Economic Activity Survey, using the following calculation:

GOS/GMI = Output
       less Intermediate consumption
       less Compensation of employees
       less Other taxes on production
       plus Other subsidies on production.

Note also the GOS for NPISH units is depreciation as reported in the Economic Activity Survey. This is a proxy for consumption of fixed capital, which is conceptually the GOS for the NPISH sector. The Perpetual Inventory Method which provides estimates of COFC does not distinguish between household and NPISH sectors.

NPISH GOS is calculated as gross output less the costs incurred in producing that output (but before deducting consumption of fixed capital), leaving consumption of fixed capital (COFC) as the residual.

Table 11.6 Annual gross operating surplus - Stage 1: Finance (ANZSIC Subdivision 62)
Item Comment
Financial corporations and quasi-corporations – Concept
  GOS of financial corporations is the excess of gross output over the costs incurred in producing that output for all financial corporations in Australia. Explicit charges for services account for only a small proportion of the income of financial corporations, unlike non-financial corporations, whose gross output can generally be equated with the proceeds of the sales of goods and services.
Finance services
  

Banks and similar financial intermediaries largely finance their activities by the excess of interest received over interest paid. If GOS were calculated in the same way as for other institutional sectors, it would be negative because only explicit service charges and operating expenses would be taken into account. In the national accounts, interest received is not considered to be part of income from production, and likewise interest paid is not part of expenses incurred in deriving income from production. The approach adopted in 2008 SNA and the ASNA is to include the indirect charges as imputed service charges in addition to any actual charges which are made by these financial corporations, and to include it in the calculation of GOS. The imputed service charge is entitled financial intermediation services indirectly measured (FISIM).

Financial intermediaries such as investment funds earn net income from their dividends and reinvested earnings. In the national accounts, dividends and reinvested earnings are not considered to be part of income from production, but part of property income recorded in the income accounts. The investment funds distribute all the net income to the investors of the funds. The ASNA imputes an output for these funds equal to the cost of running the fund (total administrative and investment expenses) less any income derived directly, with an assumption that the GOS for these funds equals zero.

Balance sheet, income and expenditure and interest rate information are used to compile GOS for the following financial intermediaries – the Reserve Bank of Australia; banks; other depository corporations (credit unions, building societies, cash management trusts, registered financial corporations); central borrowing authorities; securitisers and financial intermediaries not elsewhere classified (e.g. public unit trusts excluding property trusts; public development authorities; investment companies; common funds; co-operative housing societies; public housing schemes; and other financial corporations).

 Data sources
  

The following outlines the data sources used to estimate the various components of output:

Balance sheets:

Income and expenditure:

  • ABS publications: Balance of Payments and International Investment Position, Australia; Statistics of Financial Institutions (this publication has ceased but the data in this publication still underpin estimates);
  • ABS collections: Economic Activity Survey; Quarterly Survey of Financial Information, Government Finance Statistics;
  • RBA: Annual Report; Financial Stability Report (6 monthly); Statement of Monetary Policy (quarterly);
  • Suite of APRA forms:  quarterly Statement of Financial Performance – banks and quarterly Statement of Financial Performance – Registered Financial Corporations (RFCs);
  • APRA publications:  quarterly statistics for banks, building societies and credit unions performance; and
  • ad hoc reports: annual reports for small subsectors such as listed investment companies, bank annual reports and private consultant banking reports.

Interest rates:

  • RBA’s Statistical Bulletin.
 GOS derivation
  

GOS is calculated as:

FISIM imputation
     plus imputed output of financial intermediaries not elsewhere classified
     plus imputed output of RBA
     plus explicit charges of financial institutions
     plus gross non-land rent and other service income (excludes property income)
     plus non-life insurance premiums (payable by financial corporations)
     less expenses (excluding consumption of fixed capital)
     less FISIM (payable by financial corporations)
     less non-life insurance service charge (payable by financial corporations).

The following adjustment is also included to obtain GOS:

  • own-account computer software and R&D.

Note that profits and losses on foreign exchange dealings are excluded from GOS because they constitute holding gains and losses in the national accounts.

The difference between buying and selling rates and mid-point exchange rates is treated as a service charge.

 FISIM imputation
  

To compile the FISIM imputation estimate for all financial intermediaries (except the Reserve Bank of Australia and financial intermediaries n.e.c.), total interest receivable and payable estimates by financial instruments (i.e. deposits, bills of exchange, one-name paper, bonds and loans) and counterparty sector and subsector flows are compiled for the following six sectors and subsectors:

  • rest of the world;
  • Reserve Bank of Australia;
  • banks;
  • other depository corporations;
  • central borrowing authorities; and
  • securitisers.

Three datasets are required to compile the interest flows, namely:

  • total interest payable and receivable;
  • interest rates for relevant financial instruments of various sectors and subsectors; and
  • financial assets and liabilities for the six sectors and subsectors.

The next step is to calculate FISIM for loans and deposits (banks and other depository corporations) and for loans (securitisers and central borrowing authorities).

  • For banks and other depository corporations, FISIM is derived as follows:
[(counterparty loan rate – reference rate) * counterparty stock of loans] + [(reference rate – counterparty deposit rate) * counterparty stock of deposits]

where the reference rate is mid-point between the average interest rate on loans and the average interest rate on deposits.

  • For securitisers and central borrowing authorities, FISIM is derived as follows:
[(counterparty loan rate – reference rate) * counterparty stock of loans]

where the reference rate is weighted average bond yield.

The above calculations are undertaken in separate loan and deposit FISIM tables for each of the four FISIM generating institutions. Each table captures the counterparty sector and subsector loan and deposit balances, their respective interest flows and interest margins and the subsequent FISIM estimates.

 Imputed output of the Reserve Bank of Australia (RBA)
  

The ASNA has divided the activity of the RBA into two types:

  • monetary policy and other non-market services, where a cost-based output measure is imputed; and
  • financial market operations of the RBA, where output in the form of explicit charges is earned on activities such as its daily repurchase (lending) program. This part of the RBA would generate a GOS as its gross output would exceed costs.
 Imputed output of financial intermediaries not elsewhere classified
  In ASNA, the estimate for an imputed output for units in this subsector is equal to the cost of running the business (total administrative and investment expenses) less any income derived directly, that is, the GOS for these funds equals zero. The majority of units in this subsector are investment funds, where the distributed surplus of the funds is measured as dividends and re-invested earnings and so is recorded as property income in the income accounts. The rest of the units are public sector units and are measured at cost.
 Explicit charges
  Explicit charges refer to direct charges levied e.g. loan establishment fees, loan account service fees and cheque account fees. Finance lease receipts are not classified as direct charges, in accordance with the treatment of finance leases in the ASNA.
 Gross non-land rent and other service income
  Rental income is predominantly from commercial buildings and infrastructure. Other service income includes income made on trading in securities, excluding holding gains and losses on these activities.
 Expenses
  

Expenses include wages and salaries, purchases of goods and services, and other taxes (less other subsidies) on production.

Also included as expenses are the imputed services for both FISIM and non-life insurance attributable to corporations in the financial corporations sector, which need to be deducted as a component of intermediate consumption.

As business accounts of these financial corporations would have already included non-life insurance premiums as expenses rather than according to the 2008 SNA concept of the insurance service charge, it is necessary to add back the premium payments.

An adjustment is also required to ensure that all expenditure on research and development and expenditure on software of a capital nature are capitalised rather than being deducted as current expenses.

Table 11.7 Annual gross operating surplus - Stage 1: Insurance and Superannuation Funds (ANZSIC Subdivision 63)
Item Comment
Insurance corporations and superannuation funds – Concept
  GOS of financial corporations is the excess of gross output over the costs incurred in producing that output for all financial corporations in Australia. However, unlike non-financial corporations, whose gross output can generally be equated with the proceeds of the sales of goods and services, explicit charges for services account for only a small proportion of the income of financial corporations.
Insurance and pension fund services

 

 

Non-life insurance corporations do not identify an explicit service charge as part of their premiums. However, their premiums can be regarded as being composed of two components: an implicit service charge, and a transfer payment to cover the risk of providing insurance cover.

The non-life insurance service charge is defined as premiums earned plus premium supplements less expected claims.

Premiums earned include direct premiums earned plus inward reinsurance premiums less outward insurance premiums and statutory charges paid. The item represents the amount of premium income earned during the financial year and includes movements in the unearned premium provision.

Premium supplements represent income earned on the technical reserves of non-life insurance corporations, which consist of unearned premiums (most premiums are paid for a full year in advance), and claims incurred but not yet paid (which arise because of delays in claims being lodged and assessed, and in finalising the payment of claims).

Premium supplements do not include any income from the investment of the insurance corporations' own funds. As the technical reserves are considered to be assets of the insurance policyholders, the investment income receivable by insurance enterprises must be shown in the accounts as being paid by the insurance enterprises to the policyholders. However, in practice this income is retained by the insurance enterprises. Therefore, it is treated as being paid back to the insurance enterprises in the form of premium supplements that are additional to actual premiums payable under the terms of the insurance policies.

In the case of workers' compensation, it is the worker who is regarded as the policyholder for the purposes of attributing the imputed property income earned on the insurance companies' technical reserves, not the employer. Although the employer is legally the policyholder for workers' compensation, for national accounts purposes the employer is deemed to be acting on behalf of the employee in paying workers' compensation premiums. Consequently, workers' compensation premiums are included as part of employers' social contributions, which is a component of compensation of employees.

Expected claims are generally defined as a centred five-year moving average of claims incurred. A moving average is used to avoid irregular movements in the non-life insurance service charge which would otherwise arise because of volatility in the annual data for claims incurred.

For superannuation funds the insurance service charge is equal to the cost of running the fund; included are administrative and investment expenses.

For life insurance and friendly societies, the insurance service charge is equal to the cost of running the business plus a profit margin. The profit margin is calculated by estimating a proxy return on equity.

 Data sources
  

Balance sheet and income and expenditure data are used to compile the GOS for superannuation funds (superannuation), life insurance corporations (including friendly societies) and non-life (general) insurance corporations.

Balance sheets:

Income and expenditure:

  • ABS collections:  Quarterly Survey of Financial Information;
  • ABS publications:  Balance of Payments and International Investment Position, Australia;
  • APRA forms: quarterly Statement of Financial Performance – superannuation funds;
  • APRA publications: quarterly superannuation, life insurance and general insurance performance statistics; annual superannuation and friendly society bulletins; half-yearly general insurance bulletin and selected statistics on general insurance;
  • ATO: self-managed superannuation funds taxation data and website releases; and
  • ad hoc private consultant reports: superannuation actuarial reports and real estate statistics.
 GOS derivation
  

GOS is calculated as:

Insurance service charge (ISC)
     plus explicit charges
     plus gross non-land rent (excludes property income)
     plus non-life insurance business income plus subsidies
     plus non-life insurance premiums (payable by financial corporations)
     less expenses (excluding COFC)
     less FISIM (payable by financial corporations)
     less non-life insurance service charge (payable by financial corporations).

The following adjustment is also included to obtain GOS:

  • own account computer software and R&D.
 Insurance service charge

 

 

Non-life insurance corporations – the ISC is estimated as premiums earned plus investment income on the technical reserves less expected claims:

  • premiums earned include direct premiums earned plus inward reinsurance premiums less outward insurance premiums and statutory charges paid;
  • premium supplements represent income earned on the technical reserves of non-life insurance corporations, which consist of unearned premiums (most premiums are paid for a full year in advance), and claims incurred but not yet paid (which arise because of delays in claims being lodged and assessed, and in finalising the payment of claims);
  • premium supplements do not include any income from the investment of the insurance corporations' own funds. The proportion of policyholder s funds to total assets of non-life insurance corporations is applied to total investment income to derive premium supplements.

Life insurance corporations – the ISC is the sum of administrative costs incurred (including investment and labour costs) plus a profit margin. The profit margin is calculated by estimating a proxy return on equity.

Superannuation funds – the ISC is the sum of administrative costs incurred (including investment and labour costs).

 Explicit charges
  Explicit charges include fees from stock lending activities.
 Gross non-land rent (excludes property income)
  Rental income is predominantly from commercial buildings and infrastructure. Other service income includes income made on trading in securities, excluding holding gains and losses on these activities.
 Expenses
  

Expenses include wages and salaries, purchases of goods and services, and taxes on production and imports.

Also included as expenses are the imputed services for both FISIM and non-life insurance attributable to corporations in the financial corporations sector.

However, as business accounts of these financial corporations would have already included non-life insurance premiums as expenses and not the 2008 SNA concept of the insurance service charge, it is necessary to add back the premium payments.

An adjustment is also required to ensure that all expenditure on research and development and expenditure on software of a capital nature are capitalised rather than being deducted as a current expense.

Table 11.8 Annual gross operating surplus - Stage 1: Auxiliary Finance and Insurance Services (ANZSIC Subdivision 64)
ItemComment
Auxiliary finance and insurance services

 

Annual benchmarks for GOS of Auxiliary finance and insurance services are derived from the Economic Activity Survey, using the following calculation:

   Output 
   less intermediate consumption 
   less compensation of employees 
   less other taxes on production
   plus other subsidies on production.

Table 11.9 Annual gross operating surplus - Stage 1: Health Care and Social Assistance, Division Q
ItemComment
Health care and social assistance
 Annual benchmarks for GOS of the Health industry are derived from the sum of the four quarters.
Table 11.10 Annual gross operating surplus - Stage 1: General government
ItemComment
General Government
 

General government GOS is equivalent to the value of consumption of fixed capital on general government assets. By convention, the value of general government gross output is measured as the cost of producing that output, including consumption of fixed capital.

GOS is estimated as equal to consumption of fixed capital and is therefore calculated as the residual of gross output less the costs incurred in producing that output.

Consumption of fixed capital at current prices for general government is derived using the Perpetual Inventory Method (PIM).

Table 11.11 Annual gross operating surplus - Stage 2a: Public non-financial corporations and quasi-corporations
ItemComment
Public non-financial corporations and quasi-corporations
 

The estimates of public non-financial corporations GOS are based on data from Government Finance Statistics, which are compiled using annual financial statements obtained from all Commonwealth and State Treasuries along with annual reports of corporations and quasi-corporations.

The following adjustments are made:

  • deduct FISIM;
  • deduct insurance service charge (ISC); and
  • add the capitalised component of expenditure on R&D.
Table 11.12 Annual gross operating surplus - Stage 2a: Financial corporations and quasi-corporations
ItemComment
Financial corporations
 Sum of the GOS for Finance (ANZSIC Subdivision 62), Insurance and Superannuation Funds (ANZSIC Subdivision 63) and Auxiliary Finance and Insurance Services (ANZSIC Subdivision 64) as described in the tables above.
Table 11.13 Annual gross operating surplus - Stage 2a: Dwellings owned by persons
Item Comment
Dwellings owned by persons

 

 

GOS for Ownership of Dwellings is derived as:

    Output at basic prices
    less intermediate consumption
    less other taxes on production
    plus other subsidies on production.

An estimate of GOS for dwellings owned by sectors other than households is deducted to obtain GOS for dwellings owned by persons.

The sources for estimating GOS relating to ownership of dwellings by other sectors are:

  • public non-financial corporations sector - derived from Government Finance Statistics;
  • general government - equal to consumption of fixed capital of dwellings for general government sector; and
  • private non-financial corporations – prior to 1999-2000, derived using benchmark data from past Surveys of Interest, Rent, Royalties and Dividends. From 1999-2000, total ownership of dwelling GOS is used to extrapolate forward the value of private non-financial corporations dwelling GOS.
 Output at basic prices

 

 

The output estimate is equivalent to the estimate of household final consumption expenditure on imputed rentals for housing plus the actual rental on housing. No further adjustments are made.

The data sources and methods used to compile annual estimates of imputed rentals on housing and actual rental on housing are described in Chapter 10 (see Table 10.5 Annual household final consumption-Housing, water, electricity, gas and other fuels).

 Intermediate consumption

 

 

Intermediate use related to GOS for dwellings owned by persons include:

  • repairs and maintenance;
  • building insurance;
  • FISIM on dwelling loans;
  • real estate agent commissions charged for the management of rental properties, loan application fees and other direct charges by financial corporations; and
  • miscellaneous expenses.
 Repairs and maintenance

 

 

Repairs and maintenance are benchmarked from the periodic Household Expenditure Survey. The benchmarks are extrapolated using a combined indicator based on the estimated number of dwellings (the same estimate as used to estimate total dwelling rent) and movements in appropriate component price indexes from the CPI.

In this context repairs and maintenance cover the actual repairs to the dwelling and preventative maintenance such as painting internal and external surfaces. However, purchases of goods and services associated with cleaning a dwelling are included in household final consumption expenditure.

 Building insurance
  Estimates for building insurance service charge (premiums plus premium supplements less expected claims) are derived from annual data published by the Australian Prudential Regulatory Authority.
 FISIM on dwelling loans
  FISIM comprises the imputed service charge component of interest payable on loans used to finance the purchase of dwellings by persons.
 Real estate management fees
  Estimates for real estate agents' management fees are derived using data from the Census of Population and Housing to estimate the proportion of rented dwellings managed by real estate agents, extrapolated by the number of rented dwellings for non-Census years. This proportion is applied to actual rent and multiplied by the average commission rate for each state.
 Loan application fees
  Estimates for loan application fees and other direct financial charges associated with dwellings are obtained from APRA.
 Miscellaneous expenses
  Estimates for miscellaneous expenses are derived as a percentage of actual rents and imputed rents.
 Other taxes on production
  

Other taxes on production include:

  • municipal rates; and
  • land tax on residential land.
 Municipal rates
  General municipal rates are benchmarked from the periodic Household Expenditure Survey. The benchmarks are extrapolated using an indicator based on the Metropolitan and Municipal Improvement Rates series from the ABS publication, Government Finance Statistics, Annual.
 Land tax
  Estimates for land tax on residential land are based on data from Government Finance Statistics and State Treasuries.
Table 11.14 Annual gross operating surplus and gross mixed income - Stage 2b: Farm GOS and farm GMI
Item Comment
Total farm Gross operating surplus (GOS)/Gross Mixed Income (GMI)

 

 

Total farm GOS/GMI is derived as:

     Gross value added for Agriculture (ANZSIC Subdivision 01)
     less compensation of employees for the agriculture industry
     less production valuation adjustment
     less other taxes on production for the agriculture industry
     plus other subsidies on production for the agriculture industry.

 Gross value added for agriculture industry
  

For the benchmark years, gross value added is directly sourced from the benchmark estimate. The gross value of agricultural production for the benchmark is estimated from data collected in the Economic Activity Survey, together with additional data from various marketing organisations, wholesalers, brokers and auctioneers.

The general approach used is:

  • Derive the market value of farm production by collecting quantity data from farm establishments and marketing organisations then
  • Multiply the quantities by prices supplied by marketing boards, marketing reports, wholesalers, brokers and auctioneers.

For wheat, the current period crop is initially valued at the price expected to be realised on eventual sale.

For the latest year’s output and intermediate use (and therefore gross value added) for agriculture is estimated using data published in the ABS publication, Value of Agricultural Commodities Produced, Australia, and is supplemented by annual data from the ABARES publication, Agricultural Commodities.

Compensation of employees is estimated using supply and use benchmarks for wages and salaries and employer social contributions.

 Production valuation adjustment (PVA)

 

 See Table 10.54 Quarterly changes in inventories - Inventory Valuation Adjustment (IVA). The PVA is compiled up to June quarter 2010 for wheat inventories and March quarter 2011 for wool inventories prior to the cessation of marketing boards.
 Compensation of employees
  Is directly sourced from the benchmark estimate of agriculture compensation of employees.
 Other taxes on production
  Are directly sourced from the benchmark estimate of agriculture other taxes on production.
 Other subsidies on production
  Are directly sourced from the benchmark estimate of agriculture other subsidies on production.
Split of total farm GOS/GMI into farm GOS and farm GMI

 

 

 

A ratio of unincorporated enterprises to incorporated enterprises for the agriculture industry is derived using data from the Australian Industry Statistics (AIS). This ratio is reviewed from time to time to ensure it remains relevant to current industry conditions.

This ratio is applied to the total farm GOS/GMI estimate to derive the farm GOS and farm GMI estimates.

The following calculation is then made:

     Total private non-financial corporations GOS and GMI
     less total farm GOS and farm GMI
     equals total non-farm private non-financial corporations GOS and non-farm GMI.

Table 11.15 Annual gross operating surplus and gross mixed income - Stage 2c: Non-farm private non-financial corporations and quasi-corporations GOS and Non-farm GMI
Item Comment
Non-farm private non-financial corporations and quasi-corporations GOS from Australian Taxation office (ATO) data

 

 

Annual estimates for non-farm private non-financial corporations and quasi-corporations are derived from Australian Taxation Office (ATO) statistics supplemented by information from the ABS and other sources.

Estimates for the most recent two years are based on preliminary tax data and various other indicators as there is a time lag in obtaining complete income tax data. At the time of the release of the annual national accounts, the third last year is based on complete tax data, the second last year is based on preliminary tax data and the last year is based on the same sources as those used to prepare the quarterly estimates.

Net business income for private non-financial corporations (excluding agriculture) is derived from the ATO data as follows:

     Total income
     less total expenses
     plus bad debts
     less dividends received
     equals net business income.

To align the net business income as closely as possible with 2008 SNA guidelines for GOS, the following adjustments are made:

     Non-farm private non-financial GOS equals:
     Net business income
     plus depreciation
     plus net interest, land rent and rent on natural resource assets paid
     plus a finance lease adjustment
     plus adjustment for understatement of net business income
     plus an adjustment for mineral and petroleum exploration expenditure
     plus intellectual property products (i.e. capitalised computer software, artistic originals, and R&D) adjustment
     plus non-life insurance premiums adjustment
     less non-life insurance service charges
     less FISIM
     less Inventory valuation adjustment (IVA).

 Depreciation
  This adjustment is required because in the net business income data, depreciation has already been deducted as an expense but for national accounting purposes the decline in the value of assets (consumption of fixed capital) is not deducted when deriving GOS.
 Net interest, land rent and rent on natural resource assets

 

 

Estimates for net interest, land rent and rent on natural resource assets are prepared using a matrix of flows for each of the three components. The matrices represent a fully balanced system of flows between each sector including the unincorporated sector. They are constructed using data from Government Finance Statistics; ABS collections from financial corporations; Reserve Bank of Australia; Australian Prudential Regulatory Authority; the ABS Balance of Payments; and Australian Taxation Office.

This adjustment is applied as net business income has already included net interest, land rent and rent on natural resource assets in its calculation but GOS needs to be valued prior to taking these items into account.

 Finance lease adjustment
  The finance lease adjustment is required because businesses can choose to write off the whole of the lease payments as a deduction for taxation purposes in the period of payment whereas, for national accounting purposes, lease payments are divided into notional interest and principal components and only the service charge component of the interest payable is deducted in deriving GOS. Estimates of the adjustment have been derived from tax data and ABS statistics on financial corporations' income derived from finance leasing.
 Understatement of net business income
  Understatement of net business income can arise as a result of businesses understating business receipts or overstating expenses (or both) in their income tax returns, or by not filing a tax return at all. To the extent that such understatement remains undetected by the Australian Taxation Office, without adjustment the basic source data for estimates of GOS will be negatively biased. Consequently, an adjustment is made to the net business income data obtained from tax data for the purpose of compiling estimates of GOS. There is limited direct evidence about the extent of understatement, for example, by ongoing audits of a random sample of businesses by the Australian Taxation Office. Therefore, the adjustment applied relies on an assessment of diverse information including anecdotal evidence.
 Intellectual property products
  Expenditure on software which is to be used in the production process for more than one year is treated as part of gross fixed capital formation rather than as intermediate consumption, so an adjustment is made to the intermediate consumption estimate to reflect the correct treatment. A similar adjustment is also applied for expenditure on research and development and for artistic originals which are capitalised.
 Non-life insurance premiums
  An adjustment is made to add back in the total amount of non-life insurance premiums as a business can expense the whole of their payments for insurance but for national accounting purposes they are not considered as part of intermediate consumption when calculating GOS.
 Insurance service charge
  A further adjustment is also made to account for the value of the imputed insurance services consumed by incorporated businesses.
 FISIM
  An adjustment is required to appropriately record the value of imputed financial services consumed by incorporated businesses.
 Inventory valuation adjustment
  Described in Chapter 10 (see Table 10.57 Quarterly changes in inventories-Inventory Valuation Adjustment (IVA).
Non-farm GMI from Australian Taxation Office data

 

 

Annual non-farm GMI for unincorporated enterprises is derived from the Australian Taxation Office statistics supplemented by information from ABS and other sources.

Estimates for the most recent two years are based on preliminary tax data and various other indicators as there is a time lag in obtaining complete income tax data. At the time of the release of the annual national accounts, the third last year is based on complete tax data, the second last year is based on preliminary tax data and the last year is based on the same sources as those used to prepare the quarterly estimates.

Net business income for non-farm GMI is derived from the ATO data as follows:

     Total income
     less total expenses
     equals net business income.

The following adjustments are made in order to align the net business income as closely as possible with 2008 SNA guidelines for GMI:

     Non-agricultural GMI equals;
     Net business income
     plus depreciation
     plus net interest, land rent and rent on natural resource assets paid
     plus a finance lease adjustment
     plus owner-builders' gross mixed income
     plus net non-dwelling rent received
     plus adjustment for understatement of net business income
     plus adjustment for home production of goods
     plus intellectual property products (i.e. capitalised computer software, artistic originals and R&D) adjustment
     plus a bad debt adjustment
     plus non-life insurance premiums adjustment
     less non-life insurance service charges
     less FISIM
     less Inventory valuation adjustment (IVA).

 Depreciation
  This adjustment is required because in the net business income data, depreciation has already been deducted as an expense but for national accounting purposes the decline in the value of assets (consumption of fixed capital) is not deducted when deriving GMI.
 Net interest, land rent and rent on natural resource assets

 

 

Estimates for net interest, land rent and rent on natural resource assets are prepared using a matrix of flows for each of the three components. The matrices represent a fully balanced system of flows between each sector including the unincorporated sector. They are constructed using data from Government Finance Statistics; ABS collections from financial corporations; Reserve Bank of Australia; Australian Prudential Regulatory Authority; the ABS Balance of Payments; and Australian Taxation Office.

This adjustment is applied as the net business income has already included net interest, land rent and rent on natural resource assets in its calculation but GMI needs to be valued prior to taking these items into account.

 Finance lease adjustment
  The finance lease adjustment is required because businesses can choose to write off the whole of the lease payments as a deduction for taxation purposes in the period of payment whereas, for national accounting purposes, lease payments are divided into notional interest and principal components and only the service charge component of the interest payable is deducted in deriving GMI. Estimates of the adjustment have been derived from tax data and ABS statistics on financial corporations' income derived from finance leasing.
 Owner builders’ GMI
  Owner-builders' GMI is derived as a proportion of owner-builders' value of work done, as recorded in the quarterly Building Activity Survey.
 Net non-dwelling rent received
  Net non-dwelling rent received is based on taxation data adjusted to exclude rent received on tenanted dwellings. This adjustment is made in order to capture all units that receive income from rents or dividends.
 Understatement of net business income
  Understatement of net business income can arise as a result of businesses understating business receipts or overstating expenses (or both) in their income tax returns, or by not filing a tax return at all. To the extent that such understatement remains undetected by the Australian Taxation Office, without adjustment the basic source data for estimates of GMI will be negatively biased. Consequently, an adjustment is made to the net business income data obtained from tax data for the purpose of compiling estimates of GMI. There is limited direct evidence about the extent of understatement (e.g. by ongoing audits of a random sample of businesses by the Australian Taxation Office). Therefore, the adjustment applied relies on an assessment of diverse information including anecdotal evidence.
 ‘Backyard’ production
  An allowance is included for the imputed income derived by households who produce some of their own goods.
 Intellectual property products
  Expenditure on software which is to be used in the production process for more than one year is treated as part of gross fixed capital formation rather than as intermediate consumption so an adjustment is made to the intermediate consumption estimate to reflect the correct treatment. A similar adjustment is also applied for expenditure on research and development and for artistic originals which are capitalised.
 Non-life insurance premiums
  An adjustment is made to add back in the total amount of non-life insurance premiums as a business can expense the whole of their payments for insurance but for national accounting purposes they are not considered as part of the intermediate consumption when calculating GMI.
 Insurance service charge
  A further adjustment is also made to account for the value of the imputed insurance services consumed by unincorporated businesses.
 FISIM
  A similar adjustment is also required to appropriately record the value of imputed financial services consumed by unincorporated businesses.
 Inventory valuation adjustment
  Described in Chapter 10 (see Table 10.57 Quarterly changes in inventories-Inventory Valuation Adjustment (IVA)).
Split non-farm private non-financial corporations (and quasi-corporations) GOS and non-farm GMI

 

 

Australian Taxation Office data are used to derive the ratios of non-farm private non-financial corporations (and quasi-corporations) GOS and non-farm GMI to total non-farm GOS and GMI.

These ratios are applied to total non-farm private non-financial corporations GOS and non-farm GMI to obtain estimates for both components.

Table 11.16 Annual gross operating surplus and gross mixed income - Stage 2d: Private non-financial corporations and quasi-corporations GOS and GMI
ItemComment
Private non-financial corporations and quasi-corporations GOS
 The sum of farm private non-financial corporations GOS and non-farm private non-financial corporations GOS.
GMI
 The sum of farm GMI and non-farm GMI.

Latest year

11.33    The sources and methods used to estimate GOS for Dwellings owned by persons are the same as for the benchmark years.

11.34    The tables below outline the data sources and methods used in the estimation of GOS and GMI for the latest financial year by institutional sector in current prices only. Volume estimates are not calculated for GOS and GMI. 

Table 11.17 Annual gross operating surplus - Latest year, except Dwellings owned by persons
ItemComment
Private non-financial corporations
 Derived by extrapolating the benchmarked annual gross operating surplus for the year t-1, using the movements in annualised quarterly estimates, of company gross operating profit (CGOP), between year t-1 and t, from the Quarterly Business Indicators Survey. CGOP measures the profit earned from the production of goods and services, excluding the effects of financing activities and income tax.
Public non-financial corporations
 Derived by extrapolating the latest benchmark year t-1 using an annual indicator obtained from quarterly data from Government Finance Statistics.
Financial corporations

 

For the latest year, GOS for financial corporations is compiled using data sources and methodology as described for the annual benchmarks section for (i) financial services and (ii) insurance and pensions funds services. Separate growth rates are derived for the latest year (t) and the unbenchmarked (prior to supply and use balancing) year t-1 GOS estimates for (i) financial services and (ii) insurance and superannuation funds services. The growth rates are applied to the benchmarks for the year t-1 to derive GOS estimates for the latest year for (i) financial services and (ii) insurance and pension superannuation services.

For auxiliary finance and insurance services GOS, an annual output indicator representing the funds management industry (a significant contributor to the GOS of auxiliary services) is derived. The pension fund investment expense from the GOS calculation of superannuation funds is used as the indicator. The superannuation funds predominately use the funds management industry to invest their members’ funds, and the investment expense would represent the fees charged by the funds management industry.

The growth rate for the latest year from the indicator series is applied to the benchmarks for the year t-1 to derive GOS estimates for the latest year for auxiliary finance and insurance services.

The latest year GOS estimates for (i) financial services, (ii) insurance and superannuation funds services and (iii) auxiliary finance and insurance services are summed to produce the total GOS for financial corporations.

General Government

 

General government GOS is equivalent to the value of consumption of fixed capital on general government assets because, by convention, the value of general government gross output is measured as the cost of producing that output, including consumption of fixed capital.

GOS is calculated as gross output less the costs incurred in producing that output (but before deducting consumption of fixed capital), leaving consumption of fixed capital as the residual.

For the latest year annual estimates of consumption of fixed capital at current prices for general government (general government GOS) are derived using a Perpetual Inventory Method.

Table 11.18 Annual gross mixed income - Latest year
ItemComment
Farm
 

Total farm gross operating surplus and gross mixed income for the latest year is derived using a production approach and is measured as gross value of agricultural production less the costs incurred (but before deducting net interest and land rent paid and consumption of fixed capital). The gross value of agricultural production includes an allowance for backyard production of fruit and vegetables and the value of meat produced from livestock raised for household use.

Gross value of production for agriculture is estimated using data in the ABS publication, Value of Agricultural Commodities Produced, Australia, and is supplemented by annual data from the ABARES publication, Agricultural Commodities.

Intermediate inputs use the same data sources as the gross value of production.

Compensation of employees is estimated using S-U benchmarks for wages and salaries and employer social contributions and extrapolating benchmark estimates for the latest year using data from the ABARES publication, Agricultural Commodities (Farm Costs and Returns – Labour).

An estimate of farm GOS for private non-financial corporations and quasi-corporations has to be removed from total farm GOS and GMI to obtain an estimate of gross mixed income of farm unincorporated enterprises. The estimate of farm GOS for private non-financial corporations is derived by applying ratios of unincorporated and incorporated farm enterprises to the total farm GOS and GMI. This ratio was derived from business income data from Australian Taxation Office several years ago.

Non-farm

 

Non-farm GMI is derived by extrapolating the benchmarked annual gross mixed income for the year t-1, using the movements in annualised quarterly estimates of unincorporated gross operating profit (UGOP), between year t-1 and t, from the quarterly Business Indicators, Australia. UGOP measures the profit earned from the production of goods and services, excluding the effects of financing activities and income tax. UGOP is used for most industries with the exception of:

  • Construction – uses the annualised quarterly movement in the value of work done from the Building Activity Survey,
  • Health and Community services – uses the annualised quarterly movement in the household final consumption expenditure on medical and dental services.
Total Gross Mixed Income (GMI)
 The summation of farm GMI and non-farm GMI.

Sources and methods - Quarterly

11.35    The tables below outline the data sources and methods used in the estimation of quarterly GOS and GMI by institutional sector in current prices only. Note NPISHs are not distinguished as a separate sector as they are included the household sector. Consequently, GOS of NPISHs is implicitly included. Volume estimates are not calculated for GOS and GMI.

Table 11.19 Quarterly gross operating surplus - Non-financial corporations and quasi-corporations
ItemComment
Private non-financial corporations and quasi-corporations

 

The annual benchmarks are allocated to quarters using gross operating profits data from the Quarterly Business Indicators Survey.

For incomplete years the quarterly estimates of private non-financial corporations GOS are calculated by extrapolating the latest quarterly estimates that have been benchmarked to an overall annual level. The movements in the gross operating profits data from the Quarterly Business Indicators Survey are used as the indicator.

Public non-financial corporations and quasi-corporations
 Estimates of public non-financial corporations GOS from quarterly Government Finance Statistics are used as an indicator to extrapolate the latest annual estimate.
Table 11.20 Quarterly gross mixed income - Unincorporated enterprises
ItemComment
Gross mixed income
 Non-farm GMI
 

 

Annual non-farm GMI estimates are allocated to the quarters and extrapolated for quarters in year t-1 (and quarters in the incomplete year) based on a combination of QBIS data for unincorporated enterprises, average weekly earnings and labour force self-employed data as indicators.

This provides an estimate for the majority of the unincorporated non-farm businesses but due to the limitations of the QBIS data when surveying unincorporated enterprises, additional sources are required:

  • Construction – uses the movement in the value of work done from the Building Activity Survey,
  • Health and Community services – uses the movement in the household final consumption expenditure on medical and dental services.
 Farm GMI
 

 

A range of indicators are used to allocate annual estimates of farm GMI to quarters. Estimates for the current years’ quarters are derived as a quarterly allocation of forecast annual totals. The allocations are based on estimated patterns of production and costs and are progressively updated as data become available. As mentioned previously, the annual estimates (including forecasts) largely depend on the Australian Bureau of Agricultural Resources and Sciences data, which are regularly revised to reflect weather and market conditions.

Annual estimates of the gross value of production for:

  • wheat and barley – allocated to quarters on the basis of historical receivals data supplied by the respective marketing boards;
  • other grains and crops – largely allocated according to proportions derived on the basis of the applicable harvesting season;
  • livestock slaughterings – allocated to quarters using estimates of the quantity of meat produced, obtained from the quarterly publication, Livestock Products, Australia; and
  • wool production – is split into two categories:

Annual estimates of farm production costs are allocated to quarters on the basis of the pattern of usage appropriate for each particular input. Some inputs are particularly seasonal, such as seed, fodder, fertilisers, fuel usage and the wages of seasonal workers.

Other inputs, such as marketing costs, are allocated according to the estimated gross value of production in each quarter or on the basis of linear trend.

Table 11.21 Quarterly gross operating surplus - Dwellings owned by persons
Item Comment
Dwellings owned by persons

 

 

GOS for ownership of dwellings on a quarterly basis is derived as:

     Output at basic prices
     less intermediate consumption
     less other taxes on production
     plus other subsidies on production.

An estimate of GOS for dwellings owned by sectors other than households is deducted to obtain GOS for dwellings owned by persons. 

 Output

 

 

The output estimate is equivalent to the estimate of household final consumption expenditure on imputed rentals for housing plus the actual rental on housing. No further adjustments are made.

The data sources and methods used to compile quarterly estimates of imputed rentals on housing and actual rental on housing are described in Chapter 10 (see Table 10.18 Quarterly household final consumption expenditure - Housing, water, electricity, gas and other fuels).

 Intermediate consumption

 

 

Intermediate use related to dwellings owned by persons GOS includes:

  • repairs and maintenance;
  • building insurance;
  • FISIM;
  • real estate agent commissions charged for the management of rental properties;
  • loan application fees;
  • other direct charges by financial corporations; and
  • miscellaneous expenses.
 FISIM
  The imputed financial service charge relating to dwellings owned by persons is included. The concept of (FISIM) and the methods used to estimate it are described in the financial corporations GOS section (see Table 11.23).
 Municipal rates
  Annual estimates for municipal rates are allocated equally across the quarters.
 All other intermediate consumption components
  All other intermediate use categories are calculated using a linear trend of the respective annual estimate.
Table 11.22 Quarterly gross operating surplus - General government
ItemComment
General Government

 

GOS of general government is equivalent to the value of consumption of fixed capital on general government assets because, by convention, the value of general government gross output is measured as the cost of producing that output, including consumption of fixed capital.

GOS is calculated as gross output less the costs incurred in producing that output (but before deducting consumption of fixed capital), leaving consumption of fixed capital as the residual.

On a quarterly basis estimates of consumption of fixed capital at current prices for general government (general government GOS) are derived by extrapolation using a linear trend model.

Table 11.23 Quarterly gross operating surplus - Financial corporations and quasi-corporations
Item Comment
Financial corporations and quasi-corporations
  

The quarterly estimates for GOS of financial corporations are derived by producing output indicators series within the subcategories:

  • financial services;
  • insurance and superannuation funds services; and
  • auxiliary finance and insurance services.
 Financial services
  For financial services, the output indicator is quarterly bank total FISIM. The estimates are compiled using bank balance sheets (Australian National Accounts: Finance and Wealth and the detailed breakdown for bank loans and deposits (from APRA’s monthly Statement of Financial Position); income and expenditure (from the suite of APRA forms: the quarterly bank Statement of Financial Performance); and indicator interest rates (from the RBA’s Statistical Bulletin). The methodology is the same as described for the annual benchmarks for FISIM.
 Insurance and superannuation funds services

 

 

The output indicator is made up of the following:

  • Life Insurance – the quarterly source data indicator is the operating expenses for total life insurance businesses sourced from the Quarterly Life Insurance Performance Statistics published by APRA. The quarterly insurance service charge indicator for Life Insurance is calculated using the quarterly movement of the indicator source data against the previous quarter’s insurance service charge indicator for Life Insurance.
  • Superannuation funds – there are two quarterly source data indicators used for Superannuation funds. Total investment expenses and total operating expenses of superannuation funds are sourced from the Quarterly Superannuation Performance Statistics report published by the Australian Prudential Regulatory Authority. The quarterly insurance service charge indicator for superannuation funds is calculated using the quarterly movement of the indicator source data against the previous quarter’s insurance service charge indicator for Superannuation funds.
  • Non-life insurance – the insurance service charge indicator for non-life insurance is estimated via a linear trend interpolation of the annual estimates.

A weighted (based on the annual insurance service charge estimates) sum of the three components is derived to produce a quarterly indicator of the insurance service charge.

 Auxiliary finance and insurance services
  The quarterly output indicator is the same as the annual output indicator (i.e. pension fund investment expenses). Total investment expenses of superannuation funds are sourced from the Quarterly Superannuation Performance Statistics published by the Australian Prudential Regulatory Authority. The quarterly financial auxiliary output indicator is calculated using the quarterly movement of the indicator source data against the previous quarter’s financial auxiliary output indicator.
 Total financial corporations and quasi-corporations GOS
  A weighted (based on the annual GOS estimates for the subcategories) sum of the three output indicators is derived to produce the quarterly total financial corporation GOS indicator series. The quarterly indicator is used to produce the quarterly total financial corporations GOS series by applying a benchmarking process to the annual series of total financial corporations GOS.

Taxes less subsidies on production and imports 

Concept

11.36    Taxes payable on production and imports are part of primary income receivable by the general government sector (and, where applicable, non-resident governments) and are payable by other sectors and non-residents. All other current taxes are included in secondary income.

11.37    Taxes on production and imports are disaggregated into two components:

  1. Taxes on products, which include:
    • taxes that are payable on goods and services when they are produced, delivered, sold, transferred or otherwise disposed of by their producers; and
    • taxes and duties on imports payable when goods enter the economic territory or when services are delivered to residents by non-residents.
  2. Other taxes on production, which include
    • taxes related to the payroll or workforce numbers excluding compulsory social security contributions paid by employers and any taxes paid by the employees themselves out of their wages or salaries; recurrent taxes on land, buildings or other structures; some business and professional licences where no service is provided by the Government in return; taxes on the use of fixed assets or other activities; taxes on pollution; and taxes on international financial transactions.

11.38    These two components are required to define the relationships between three important income aggregates: total factor income; gross value added at basic prices; and gross domestic product at market prices. Total factor income plus other taxes less subsidies on production equals gross value added at basic prices, while gross value added at basic prices plus taxes less subsidies on products equals gross domestic product at market prices. For individual units and sectors, taxes on products are not recorded with income when output is valued at basic prices. However, the taxes are recorded with income for the economy as a whole to derive GDP at purchasers' prices.

11.39    GST (from 1 July 2000), wholesale sales taxes (prior to 1 July 2000), customs duties, excise taxes and taxes on financial and capital transactions are examples of taxes on products. On the other hand, local government rates, land taxes, payroll taxes, motor vehicle registration charges paid by businesses and taxes on pollution are examples of other taxes on production.

11.40    One of the functions of government is to issue a licence or other certificate for which a fee is payable in order for some activity to be undertaken or for the ownership or use of certain goods to be allowed. If the issue of such licences involves little or no work by the government, and the licence is being granted automatically on payment of the amount due, then it is likely the licence is simply a mechanism to raise revenue and therefore a tax. If the government exercises some proper regulatory function, payments are treated as purchases of services rather than payment of taxes, unless the payments are clearly out of all proportion to the costs of providing the services. Examples of regulatory functions are checking the competence, or qualifications, or the person concerned; checking the efficient and safe functioning of equipment; or carrying out some other form of control that it would otherwise not be obliged to do.

11.41    Subsidies are unrequited payments that government units (including, if applicable, non-resident government units) make to resident producers or importers on the basis of the levels of their production activities or the quantities or values of the goods or services which they produce, sell or import. Examples include export incentive grants, dairy industry stabilisation payments, the phosphate fertiliser bounty, and the Tasmanian freight equalisation scheme. Subsidies are paid to influence producers' level of output, the prices at which outputs are sold or the remuneration of the producers. Subsidies can be thought of as negative taxes because their impact on producers' incomes is the opposite of taxes on production.

11.42    Subsidies are not payable to households. Current transfers in cash that governments make directly to households and where households have the discretion on how to the use the transfer are treated as social assistance benefits in cash (e.g. old age pensions). Expenditures by government on goods and services produced by market producers that are provided directly to households, individually as consumers, without any further processing, constitute final consumption expenditure by general government and also social benefits in kind. Subsidies also do not include grants that governments make to enterprises to finance their capital formation, or to compensate them for damage to their capital assets, such grants being treated as capital transfers.

11.43    Consistent with taxes, subsidies on production are disaggregated into two components:

  1. Subsidies on products
  2. Other subsidies on production.

11.44    Subsidies on products are usually payable when the goods or services are produced, sold or imported, although they may also be payable in other circumstances, such as when goods are transferred, leased, delivered or used for own consumption or own capital formation. Subsidies on products may be a specific amount of money per unit of a good or service or they may be calculated ad valorem as a specified percentage of the price per unit. Other subsidies on production consist of subsidies other than those on products, including subsidies on the payroll or workforce, and may relate to the total salary bill or the employment of particular types of persons, such as handicapped persons and the long-term unemployed. Examples of Other subsidies on production include the JobKeeper and Boosting cash flow for employers’ policies.

Sources and methods - Annual

Benchmark years

11.45    The table below outlines the data sources and methods used in the estimation of annual taxes and subsidies on production and imports in current prices.

Table 11.24 Annual taxes less subsidies on production and imports - By type of tax
ItemComment
Taxes less subsidies on production and imports
  

Data from Government Finance Statistics from the ABS publication, Government Finance Statistics, Annual is the main source used to compile taxes and subsidies for all levels of government.

Government Finance Statistics – classified by tax type and purpose – are used to compile taxes and subsidies. Each tax type and purpose category are defined as relating to either taxes and subsidies on products or other taxes and subsidies on production.

 Taxes and subsidies on products
  Taxes and subsidies on products are allocated to specific products using a number of methods. These include household final consumption expenditure proportions in the case of the Goods and Services Tax (GST) and supply proportions for other taxes on products. Subsidies are allocated according to the product which best fits the specific purpose category.
 Other taxes and subsidies on production and imports
  Other taxes and subsidies on production are also allocated to specific industries. Land taxes and rates are allocated using proportions from EAS data, while payroll taxes are allocated on the basis of compensation of employees’ proportions. JobKeeper and Boosting cash flow for employers’ policies are allocated using administrative data from the ATO. Other taxes and subsidies on production are allocated to industry based on historical input and output proportions.

Latest year

11.46    Annual estimates of the latest financial year for production taxes and subsidies are derived by summing the four quarterly estimates using data from Government Finance Statistics.

11.47    Other taxes and subsidies on production are allocated to specific industries based on proportions calculated from various indicator series. These include:

  • Payroll taxes are allocated to specific industries based on payroll tax by industry data from the ABS publication, Labour Costs, Australia.
  • Land taxes and municipal and metropolitan improvement rates are allocated to the Ownership of Dwellings industry based on the proportion of the value of residential land to the total value of land. The remaining Land taxes and Municipal and metropolitan improvement rates are allocated equally amongst the other industries.
  • Motor vehicle taxes (not including those paid by households) are allocated to specific industries based on the proportion of the capital stock of motor vehicles.
  • Carbon tax, Taxes on renewable energy certificates, Carbon subsidies and Subsidies on renewable energy certificates are allocated to specific industries based on their emissions of greenhouse gases and relevant acquisitions of electricity respectively.
  • From 1 July 2017, the Major Bank Levy is allocated to Finance (ANZSIC subdivision 62).
  • From 1 April 2020, COVID-19 related other subsidies on production, such as the JobKeeper and Boosting cash flow for employers’ policies, are allocated to industries using ATO administrative data.

Sources and methods - Quarterly

11.48    The table below outlines the data sources and methods used in the estimation of quarterly taxes and subsidies on production and imports in current prices.

Table 11.25 Quarterly taxes less subsidies on production and imports
Item Comment
Taxes less subsidies on production and imports

 

 

Information about Commonwealth and State general government production taxes and subsidies is received from Government Finance Statistics, which are obtained from administrative sources such as the Commonwealth Department of Finance quarterly ledger, and State government quarterly statements of receipts and expenditure. Quarterly data for local government rates are collected from a sample of local government authorities.

For those production taxes and subsidies where an adjustment to a payable basis is made, the accrual figure is estimated by allocating cash receipts and payments (or estimated cash receipts and payments) to quarters according to the proportion of production or activity occurring in each quarter. For example, the quarterly Goods and Services Tax (GST) is extrapolated using expenditure on goods and services that attract GST. Household final consumption expenditure, gross fixed capital formation, lawyer and real estate fees and intermediate consumption by financial corporations are used for this allocation.

 Other taxes less subsidies on production and imports

 

 

Total other taxes and subsidies on production are sourced from quarterly GFS data. Other taxes and subsidies on production are also allocated to specific industries quarterly where the same proportions used to establish the latest year estimates by industry are applied.

The data are split into industries for known other taxes and subsidies on production using various sources, including GFS, ATO, Survey of Major Labour Costs, motor vehicle capital stock data and the proportion of residential land to the total value of land. 

Known other taxes on production are those taxes for which quarterly estimates are available. These include payroll tax, taxes on capital and financial transactions, motor vehicle tax, land tax and municipal rates, carbon tax and the surrender of Renewable Energy Certificates from energy generators and use of ATO data.

Known other subsidies on production are those subsidies for which quarterly estimates are available. These include Renewable Energy Certificates, carbon credits, and the COVID-19 specific subsidies including JobKeeper, Boosting cash flow for employers, Supporting apprentices and trainees, Aged care preparedness, and the Early childhood education and care relief packages.

Industry estimates are obtained by extrapolating off the latest Supply-Use benchmarks using the indicator series described above.

See paragraph 11.47 for further details.

Gross value added

11.49    The compilation of annual current price GVA estimates are described in Chapter 9 Gross Domestic Production - Production approach.

11.50    Quarterly current price estimates of gross values added (GVA) by industry are compiled from the income approach. GVA can be distributed as either factor income or as flows to government. This relationship is represented as follows:

Current Price GVA=Compensation of employees (COE)
 +Gross operating surplus (GOS) and Gross mixed income (GMI)
 +Other taxes on production
 -Other subsidies on production

11.51    Quarterly estimates of compensation of employees, gross operating surplus and gross mixed income, other taxes on production and other subsidies on production by industry are described below.

11.52    The table below outlines the data source and methods used in the quarterly compilation of each component of current price GVA. Estimates are produced from 1 July 2002.

Table 11.26 Quarterly current price gross value added by industry
ItemComment
Compensation of employees
 

 

The public and private sector contribution to wages and salaries for each industry is determined using information from the Survey of Employment and Earnings, Public Sector, Australia which provides the public sector split of wages and salaries by industry.

For industries with no public sector contribution, QBIS wages per industry is used to extrapolate off the latest Supply-use benchmark.

For industries with public sector contribution a combination of indicator series is used to produce the quarterly estimates. This includes wages and salaries by industry from QBIS to account for private wages and GFS for public wages. These indicators are used to extrapolate the latest annual estimate based on their respective private and public sector COE indicator.

Estimates from ABARES are used as the indicator for the Agriculture, Forestry and Fishing industry.

 Gross operating surplus and mixed income
  GOS/GMI for each industry is constructed by adding together the GOS/GMI for the following institutional sectors:
 Private non-financial corporations
 

 

Private non-financial corporations GOS by industry estimates are calculated by extrapolating the latest quarterly estimates off annual benchmarks. QBIS CGOP by industry is the source for all industries excluding Agriculture, Forestry and Fishing, Public Administration and Safety, Education and Training and Health Care and Social Assistance.

Estimates from ABARES are used as the indicator for the Agriculture, Forestry and Fishing industry.

Quarterly estimates for Public Administration and Safety; Education and Training; and Health Care and Social Assistance are derived using linear trend interpolation method.

 Public non-financial corporations
  Public non-financial corporations GOS by industry estimates are obtained by extrapolating the GFS annual estimate of public gross operating surplus using the quarterly GFS indicator series for public gross operating surplus.
 Financial corporations
  See Table 11.23 (Quarterly gross operating surplus-Financial corporations and quasi-corporations) for details of the quarterly compilation of GOS for the Finance and Insurance industry.
 General Government
 

 

General Government GOS is equivalent to the value of consumption of fixed capital on general government assets. On an annual basis, general government consumption of fixed capital by industry estimates are produced using the Perpetual Inventory Model (PIM). A linear trend interpolation is applied to these annual estimates to obtain the quarterly estimates.

For more information on the quarterly compilation of General Government GOS, see Table 11.22 Quarterly gross operating surplus-General government.

 Gross operating surplus – dwellings own by persons
  See Table 11.21 (Quarterly gross operating surplus-Dwellings owned by persons) for details of quarterly compilation
 Gross mixed income
 

 

 

Quarterly estimates of GMI are obtained by extrapolating the latest quarterly estimates off the latest annual benchmark estimate of GMI. For most industries, the industry UGOP estimate is used as the indicator, however, certain industries use other data sources. These include:

  • Value of construction work done from Building Activity Survey as the Construction industry indicator.
  • Households final consumption expenditure on medical and dental services as the Health Care and Social Assistance industry indicator.
  • Information sourced from ABARES to form the indicator for the Agriculture, Forestry and Fishing industry.
 Other taxes and subsidies on production
  See Table 11.25 Quarterly taxes less subsidies on production and imports for details of the quarterly compilation and industry distribution of other taxes and subsidies on production.