Chapter 11 Gross Domestic Product - Income approach (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

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.