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The production boundary

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

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

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

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

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

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

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

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

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

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

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

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

Endnotes

  1. SNA, 2008, para.6.24.

  2. Ibid., para.6.38.