# GSP(I/E) Measure

21.145    The GSP(I/E) is a derived income and expenditure measure used to overcome the inability to derive all components of the GSP(E) measure. This approach relies on the assumption that GSP(E) is equal to GSP(I).

21.146    The compilation of the GSP(I/E) measure involves a number of steps:

1. Derive current price GSP(I);
2. Assume GSP(I) equals GSP(E), and obtain current price GSP(I/E);
3. Aggregate known components of GSP(E) (i.e. state final demand and international trade), for current price and volume estimates;
4. Calculate adjustments to known components of GSP(I/E) for current price and volume estimates. These are largely modelled estimates which are added to ensure price deflators more accurately reflect state economies;
5. Calculate volume and current price aggregates for adjusted known components of GSP(E). This involves adding adjustment calculated as part of step 4  to aggregate known components of GSP(E) in Step 3;
6. Produce an implicit price deflator (IPD) using adjusted known components of GSP(E) created as part of Step 5;
7. Apply the IPD (from Step 6) to the current price GSP(I/E) to derive GSP(I/E) in volume terms; and
8. Create balancing item as a residual of GSP(I/E) and known components of GSP(E) for current price and volume components.

## GSP(I/E) Current price

21.147    Current price GSP(I/E) is produced by assuming GSP(I) is equal to GSP(E) (which cannot currently be measured entirely using available data sources).  This relies on the national accounts where for balanced supply-use years GDP(I) is equal to GDP(E). GSP(I) is then used to allocate GDP to states to produce current price GSP(I/E).

21.148    GSP(I/E) is benchmarked to the average of current price GDP(I) and GDP(E) for the current year and pre-supply-use years, wherein GDP(I) is not equal to GDP(E); that is:

1. create Australia-level GDP(I/E):

$$\large GDP(I⁄E)= \frac{GDP(E)+GDP(I)}{2}$$

1. benchmark the state income measure to the above GDP(I/E) measure:

$$\large GSP(I⁄E)= \frac{GSP(I)}{GDP(I)} ×GDP(I⁄E)$$

# Known components of GSP(E)

21.149    Current price and volume known components of GSP(E) are aggregated as the sum of state final demand, net international merchandise trade in goods and net trade in services.

 = state final demand + net international trade in merchandise goods (exports – imports) + net international trade in services (exports – imports)

21.150    Four adjustments are made to known components of GSP(E) to produce adjusted known components of GSP(E):

• Net HFCE interstate;
• net BOP basis reconciliation to international merchandise goods trade (exports – imports);
• modelled net interstate trade in goods; and
• modelled interstate re-exports/imports.

21.151    Adjusted known components of GSP(E) is calculated as:

 known components of GSP(E) –  net HFCE interstate + net BOP basis reconciliation to international merchandise goods  trade + modelled net interstate trade in goods + modelled interstate re-exports/imports

21.152    Sources and methods for calculating these components are described below. None of these items are published directly due to quality and confidentiality concerns with the data. Despite these concerns, removing these adjustments would adversely affect the quality of the GSP(I/E) price deflator. Calculation of the GSP(I/E) deflator is the main reason why these adjustments to known components of GSP(E) are applied.

## Net interstate expenditure adjustment

21.153    A net interstate expenditure adjustment is made to HFCE to ensure that HFCE is representative of state resident household consumption. This adjustment is offset as part adjustments to known GSP(E) item as net interstate expenditure is representative of interstate trade, and hence should be reflected in the GSP(I/E) price deflator.

21.154    This treatment is similar to that in the national accounts, where consumption by international visitors is not included as part of HFCE. The value of this is then added to GSP as part of exports of services.

## Balance of payments adjustments to international merchandise goods trade

21.155    Known components of GSP(E) include trade in goods on a merchandise trade basis rather than the more conceptually correct balance of payments basis. However, reconciliation to a BOP  basis is made for each state.   This reconciliation is made to known components of GSP(E) to ensure the balance of payments reconciliation is represented in the GSP(I/E) deflator.

## Modelled net interstate trade in goods

21.156    Interstate trade in goods relate to interstate imports and exports of domestically produced goods. The value of interstate imports and exports of goods are sourced for Queensland from the ABS publication, Interstate Trade, Queensland (cat. no. 8502.3). For the remaining states, indicators of interstate exports and imports are derived using activity indicators to extrapolate historic estimates produced by the Monash University Centre of Policy Studies in 1987. This assumes that state relativities have not changed in this time.

### Modelled interstate re-exports/imports

21.157    Interstate re-exports/imports occur when the state of final destination of international trade is different to the state in which goods cross the customs barrier. Similarly to interstate trade in goods, this estimate is produced by extrapolating historic estimates produced by the Monash University Centre of Policy Studies in 1987 using volume indicators of international trade.

## Volume GSP(I/E)

21.158    A volume measure of GSP(I/E) is created by deflating current price GSP(I/E) with the GSP(I/E) deflator.

$$\large Volume \space GSP(I⁄E)= \frac{current \space price \space GSP(I/E)}{GSP(I/E)Deflator}$$

## GSP(I/E) Deflator

21.159    A price deflator for GSP(I/E) is created using current price and volume estimates of adjusted known components GSP(E).

21.160    The GSP(I/E) implicit price deflator is calculated as:

$$\large GSP(I⁄E) IPD= \frac{current \space price \space Adjusted \space known \space components \space GSP(E)}{chain \space volume \space Adjusted \space known \space components \space GSP(E)}$$

## The balancing item

21.161    The balancing item in state accounts has a slightly different meaning than the corresponding items in the national accounts. Balancing items in the ASNA are key macroeconomic indicators (see paragraph 3.32), whereas the same item is the difference between known components of GSP(E) and GSP(I/E) in the state accounts. It implicitly comprises total net interstate trade in goods and services; changes in inventories; and other miscellaneous components.

21.162    Other miscellaneous components of the balancing item are generally items that are not covered in GSP(E) known components, due to measurement or other issues. An example is BOP basis reconciliation values to merchandise trade which are included as part of the balancing item. There are other measurement issues at state level which cannot be identified.

21.163    The balancing item is calculated as follows for both current price and volume components:

$$\large Balancing\space item = GSP(I/E) – known \space components \space of \space GSP(E)$$

21.164    The balancing item is broken up further into identified and unidentified components. The identified components are estimated but are not published due to confidentiality or quality concerns.

## Identified component

21.165    The identified component of the balancing item includes some items for which estimates are produced but are not of sufficient reliability to publish. The following are calculated as part of the adjustment to known components of GSP(E):

• net HFCE interstate;
• net BOP basis reconciliation to international merchandise goods trade;
• modelled net interstate goods trade; and
• modelled interstate re-exports/imports.

21.166    Additionally estimated are:

• changes in inventories; and
• balancing item discrepancy.

## Changes in inventories

21.167     Changes in inventories are split using the top-down approach at an industry level to states based on state GVA for these industries. State splits of changes in inventories are only produced for analytical purposes and are not published.

## Balancing item discrepancy

21.168    The balancing item discrepancy is the allocation of the national statistical discrepancy across the states. This ensures consistency between the sum of the states and Australia. It is allocated to states based upon state shares of GSP(I) for both current price and volume estimates.

## Unidentified component

21.169    The unidentified component of the balancing item is calculated residually as follows:

 Unidentified component = Total balancing item –  Identified components

21.170    The unidentified component conceptually represents interstate trade in services, but it also embodies any remaining discrepancies that occur across state measures of expenditure and income due to underlying measurement issues.