Part G - The treatment of research and development

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Australian System of Government Finance Statistics: Concepts, Sources and Methods
Reference period


In the GFS system, research and development may take the form of expenditures made by a resident unit in producing knowledge for use within the unit, or expenditures made by a unit in acquiring research and development produced by another unit. This includes the cost of any grants provided to other units for performing research and development. In Australian GFS, the Organisation for Economic Co-operation and Development (OECD) Handbook on Deriving Capital Measures of Intellectual Property Products, 2010 is used to provide practical guidance on the asset boundary of research and development and other intellectual property products.


The Frascati Manual: Proposed Standard Practice for Surveys on Research and Experimental Development, 6th Edition (the Frascati Manual), is also used in the Australian GFS to provide guidance on the concept of research and development. This publication separates research and development into three types of activities: basic research, applied research and experimental development. They are defined as follows:

  • Basic research - this is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundation of phenomena and observable facts, without any particular application or use in view.
  • Applied research - this is original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific practical aim or objective.
  • Experimental development - this is systematic work, drawing on existing knowledge gained from research and/or practical experience, which is directed to producing new materials, products or devices, to installing new processes, systems and services or to improving substantially those already produced or installed.


While the Frascati Manual recognises the types of activities relating to research and development as either basic research, applied research or experimental development, paragraph 6.207 of the 2008 SNA (the overarching framework for macroeconomic statistics) does not consider pure basic research of general government and private non-profit institutions to constitute produced assets. This is because the results of pure basic research benefits the general population and is usually freely available, and so provides no future economic benefit to the developer. Therefore, the costs of pure basic research of general government and private non-profit institutions are not capitalised, but expensed under non-employee expenses not elsewhere classified (ETF 1239, COFOG-A, SDC) in the period to which they relate.


Only applied research and experimental development of general government units and private non-profit institutions are considered to constitute non-financial assets. However, pure basic research conducted by corporations is considered to be non-financial assets because in macroeconomic statistics, it is believed that a corporation would not undertake research and development if it did not provide them with future economic benefits. In the Australian national accounts, the cost of pure basic research is excluded from produced assets, except in the case of research and development expenditure by businesses.


The value of research and development is determined in terms of the economic benefits it is expected to provide in the future. This value includes the provision of public services in the case of research and development acquired by government. Paragraph 7.64 of the IMF GFSM 2014 notes that intellectual property products are the result of research, development, investigation, or innovation leading to knowledge that the developers can market or use to their own benefit in production because use of the knowledge is restricted by means of legal or other protection. This knowledge may be embodied in a freestanding product or may be embodied in another product. When the latter is the case, the product embodying the knowledge has an increased price relative to a similar product without this embodied knowledge. The knowledge remains an asset as long as its use can create some form of monopoly profits for its owner. When it is no longer protected or becomes outdated by later developments, it ceases to be an asset or is still an asset but of significantly lower value. Paragraph 7.67 of the IMF GFSM 2014 indicates that if it is not feasible for research and development to be valued at current market prices, then research and development may be valued as the sum of costs (including the cost of unsuccessful research and development). Research and development carried out on contract is valued at the contract price.


The cost of research and development also includes the costs associated with mineral exploration and evaluation. Paragraph 8.39 of the IMF GFSM 2014 states that mineral exploration and evaluation consists of the value of expenditures on exploration for petroleum and natural gas and for non-petroleum deposits and subsequent evaluation of the discoveries made. In addition to the costs of actual test drilling and boring, mineral exploration includes any pre-licence, licence, acquisition, and appraisal costs, the costs of aerial and other surveys, and transportation and other costs incurred to make the exploration possible are included.

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