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Analytical measures of income, consumption, saving and wealth

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

20.42    Saving, investment, borrowing and lending, change in net worth, and net worth for the nation and the institutional sectors are all linked by a series of accounting identities in the SNA. The ASNA presents these estimates in a way that highlights the links between the traditional income flows and the change in net worth as reflected in the balance sheet. The calculation and presentation of these estimates provide additional insights into changes in income, saving, and wealth in Australia.

20.43    The concept of disposable income used in the ASNA is directly linked to production. Disposable income can be generated either directly, by participating in production, or indirectly, through the redistributive process (taxation, transfers such as social assistance benefits, and income flows with the rest of the world, for example). Holding gains and losses are excluded from income in the national accounts, as they result from price change, not from production. For some purposes it may be preferable to use a broader definition of income. The broader definition of income which has gained importance in economics is that of J. R. Hicks, expressed in the 2008 SNA:

    income is often defined as the maximum amount that a household, or other unit, can consume without reducing its real net worth.¹⁰⁶

20.44    This wider definition brings the balance sheet into the measurement of income and saving, to take account of changes in the volume and value of capital during the accounting period. These include the depletion and discovery of natural resources, unforeseen losses due to natural disasters, and asset revaluations due to price changes.

20.45    However, there is an important debate in the international national accounts community over the validity of treating real holding gains in the same manner as gross disposable income. The impact of real holding gains on economic activity may not be equivalent to income received in cash or in kind. If a real holding gain accrues due to an increase in the price of a particular asset, many agents may wish to realise this gain. If they attempt to cash out at the same time, the price of the asset may fall and the size of the realised gain may be smaller than the imputed real holding gain. In addition, the realisation of a holding gain may lead to the payment of tax, which would reduce the amount of funds available to the asset holder. Thus, the measures introduced here should not be seen as replacing or correcting the traditional income and saving measures in the national accounts; rather they are provided to give users an alternative view of the available information.

20.46    The following analytical measures for income, saving, and wealth are presented at a national and household sector level in the ASNA.

Gross disposable income (GDI) plus other changes in real net wealth

20.47    This item is compiled using data from the income, capital, financial, other changes in assets, and revaluation accounts:

    \(\small {GDI \ plus \ changes \ in \ real \ net \ wealth=Gross \ disposable \ income\\ + Real \ holding \ gains \ and \ losses \\ + Net \ capital \ transfers \\ + Other \ changes \ in \ volume}\)

where

    \(\small {Real \ holding \ gains \ and \ losses=Real \ holding \ gains \ and \ losses \ on\ non-financial \ produced \ assets \\ + Real \ holding \ gains \ and \ losses \ on \ non-financial \ produced \ asset \ (land)\\+ Real \ holding \ gains \ and \ losses \ on \ non-financial \ produced \ assets\ (other) \\ + Real \ holding \ gains \ and \ losses \ on \ financial \ assets \\ - Real \ holding \ gains \ and \ losses \ on \ liabilities }\)

Net saving plus other changes in real net wealth

20.48    This item can be derived using flow data as follows:

    \(\small {Net \ saving \ plus \ changes \ in \ real \ net \ wealth = GDI \ plus \ changes \ in \ real \ net\ wealth\\ - Final \ consumption \ expenditure\\ - Consumption \ of \ fixed \ capital}\)

20.49    This item can be equivalently derived from a balance sheet perspective as follows:

    \(\small {Net \ saving \ plus \ changes \ in \ real \ net \ wealth= Closing \ net \ worth\\ - Opening \ net \ worth \\ - Neutral \ holding \ gains \\ - Net \ errors \ and \ omissions \\ + Statistical \ discrepancy \\ - Other \ differences}\)

20.50    Other differences arise due to a different treatment of stock and flow concepts between the balance sheet and capital account estimates. Net capital formation in the balance sheet includes plantation standing timber inventories. These are included in the change in net worth in the balance sheet but are excluded from the capital account.

Alternate measure of household final consumption expenditure

20.51    The analytical measures table for the household sector contains memorandum items for final consumption expenditure on consumer durables, and the value of the services provided by the current stock of durables. Unlike other final goods and services, which are used up in the same accounting period in which they are purchased, consumer durables (such as cars, refrigerators and computers) provide a flow of services to their owners over several accounting periods. For some purposes, it may be useful to consider the flow of services provided by consumer durables during the accounting period as final consumption expenditure, rather than purchases of consumer durables.

20.52    For more information on the treatment of consumer durables and the services that flow from them, refer to chapter 17.

Farm and non-farm GDP

20.53    The farm economy is one of the more volatile components of the Australian economy. One of the key reasons is that the farm economy is more exposed to fluctuations in weather conditions compared with other industries. Derivation of non-farm GDP removes farm-related volatility from output growth.

20.54    The farm economy is defined in the ASNA as ANZSIC Division A, Subdivision 01 Agriculture. It follows that non-farm production arises from all other industries.

20.55    Measures calculated include:

  • farm and non-farm GDP – current prices
  • farm and non-farm GDP – chain volumes
  • farm and non-farm GDP – implicit price deflators.

Farm and non-farm GDP - current prices

20.56    Farm GDP in current prices is defined as:

    \(\small {Farm \ GDP \ = gross \ value \ of \ farm \ output\\- intermediate \ input \ costs \\ + taxes \ on \ products \ allocated \ to \ farm \\- subsidies \ on \ products \ allocated \ to farm}\)

20.57    For details on the calculation of gross value of farm output and intermediate input costs in current prices, see tables 9.1 and 9.34.

20.58    Using the value added approach, GDP by industry cannot be calculated as it is not possible to allocate taxes and subsidies on products to individual industries. To derive farm GDP, however, an allocation of taxes less subsidies on products is made by assuming all products primary to the Agriculture industry, which attract taxes and subsidies, are allocated to the farm economy.

20.59    Both annual and quarterly non-farm GDP are calculated by subtracting farm GDP in current prices from total GDP in current prices.

Farm and non-farm GDP - chain volumes

20.60    As described in chapter 9, volume estimates of farm gross value added are calculated by aggregating components which have predominantly been quantity revalued in the prices of the previous year. To calculate farm GDP in chain volume measures, this estimate of gross value added is added to taxes less subsidies on products for the Agriculture industry, which has been similarly revalued, and the series is chained.

20.61    Non-farm GDP in chain volume terms is calculated by chaining the difference between total GDP and farm GDP.

20.62    It is important to recognise that the derivation of farm GDP (and non-farm GDP) depends on an industry allocation of net taxes on products which is not conceptually valid according to the 2008 SNA. Users should be aware of this when using these aggregates for analytical purposes.

Farm and non-farm GDP - implicit price deflators

20.63    Both annual and quarterly IPDs for farm and non-farm GDP are calculated by dividing the current price estimate by the corresponding chain volume measure.

Endnotes

  1. SNA, 2008, para 8.25.