8.1. In economic statistics, income refers to the earnings from the use of the factors of production (labour, land and financial capital). In Australia’s balance of payments, therefore, income credits refer to the return from providing non-residents with the use of Australian labour or Australian financial capital, while income debits refer to the return to non-residents made for use by residents of foreign labour and foreign financial capital. Income should be recorded in the period in which the economic benefits arising from the use of the factors of production are enjoyed by the user. Income can be valued using the returns to the providers of the factors of production. Specifically, labour factor income is valued using the compensation accruing to employees in the period, and financial capital income is valued using the investment income that accrues to the providers of the capital during the period.
8.2. Compensation of employees comprises wages, salaries and other benefits earned by individuals in economies other than those in which they are residents, as well as wages and salaries, etc. paid by extraterritorial bodies such as foreign embassies to resident individuals. Investment income comprises income derived from the ownership of foreign financial assets. Other forms of earnings, such as those from renting mobile equipment or from the use of an intangible, non-financial asset such as a copyright or patent, are treated as fees for a service and included under operational leasing services and royalties and licence fees, respectively. In the balance of payments standards it is specified that there can be no cross-border ownership of immovable assets (land and buildings), so a notional domestic enterprise is established to account for land and buildings owned by an overseas investor. The return on that investment is then treated as direct investment income.
8.3. Table 8.1 illustrates the relative importance of the main standard components for income in 1996-97. It shows that:
- compensation of employees is fairly small and reasonably balanced;
- overall, Australia has a large investment income deficit for each category of investment income (direct, portfolio and other investment income);
- direct investment income is large on both sides of the account, and in each case income on equity is the main contributor;
- portfolio investment income is also significant on both sides of the account, and in each case income on debt securities is the major contributor; portfolio investment income debits are slightly higher than direct investment income debits; and
- other investment income is relatively minor.
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8.1 INCOME CREDITS AND DEBITS, 1996-97
| |
| | | Credits | Debits | |
| | | $m | $m | |
|
| |
| INCOME
| 8,319 | -27,753 | |
| Compensation of employees
| 678 | -539 | |
| Investment income
| 7,641 | -27,214 | |
| Direct investment abroad/in Australia | 4,718 | -12,008 | |
| | Income on equity | 4,901 | -11,011 | |
| | Income on debt
| -183 | -997 | |
| Portfolio investment assets/liabilities | 2,052 | -13,756 | |
| | Income on equity | 536 | -2,088 | |
| | Income on debt
| 1,516 | -11,668 | |
| Other investment assets/liabilities | 871 | -1,450 | |
|
Source: Tables 22 and 23 from Balance of Payments and International Investment Position, Australia, March quarter 1998 (Cat. no. 5302.0).
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8.4. Table 8.2 shows the classification of income published in the quarterly balance of payments and international investment publication, Cat. no. 5302.0.
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