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# Overview of the state accounts methodology

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

21.11    The state accounts are a geographic disaggregation into states and territories of national accounts data. State estimates are compiled by allocating the national economic flows and other transactions to the state in which they occur. These estimates are then aggregated to produce the state accounts. The state accounts are consistent with the 2008 SNA, given the relationship to national accounts. It is worth noting that there are currently no international standards regarding the compilation of regional accounts.

21.12    The state accounts are compiled for the production accounts, as well as the household income account.

## Top-down approach – indicator allocation to states

21.13    The state accounts generally use a top-down approach, which allocates national estimates to the state level using state indicators. This approach ensures the state estimates are consistent and additive to national aggregates. It is represented below using the formula:

$$\text{State estimate} = \frac{\Large\text{State indicator}}{\Large\text{Australian indicator}} \times \text{Australian benchmark}$$

21.14    State indicators are derived from a range of ABS and other data sources. State indicators are designed to allocate economic activity in line with the predominant economic interest of the institutional XE   units involved. For productive activity, state allocation is matched to the state location of the factors of production (i.e. labour and capital). Transactions XE "Transactions"  involving the household sector, such as household consumption and income flows, are allocated based upon state of residence of household units involved.

21.15    Some indicators match exactly or closely to national benchmarks for which they are used to allocate to states. This occurs for a small number of data sources such as Government Finance Statistics (GFS), which are built up from state components.

21.16    There are some cases where a national total is disaggregated into two variables of interest, such as 'state' and 'industry'. In such cases, the national total and the state disaggregation are fixed, but an independent derivation of industry (split using the top-down approach) may yield a different set of state totals. In these cases, a residual allocation algorithm is applied to ensure the industry disaggregation is consistent with the state dissection; the state by industry disaggregation; and the national total for that aggregate.

21.17    By contrast, the bottom-up approach is used where national estimates in the national accounts are created as the sum of states or more detailed location information. In those cases, state allocation is built into national estimates, which eliminates the need for indicator allocation of national estimates. Ideally, all state-based estimates in both the national and state accounts would be produced using the bottom-up approach; however, difficulties around allocating productive activity and institutions limit the bottom-up approach to a small number of cases.