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State accounts: A snapshot of Western Australia's economy in 2004-05

INTRODUCTION

The state accounts compiled for Western Australia provide a systematic statistical framework for measuring the performance of the economy and its components over time. This article reports on the growth of the Western Australian economy in 2004-05, using the measures of Gross State Product, Gross State Product per capita and Real Gross State Income, and compares its performance with other states and territories. It also analyses the components of the economy that have driven growth in 2004-05 such as household consumption, business investment, government spending and net exports, as well as identifying the industries that have contributed most to economic growth, using the measure of Total Factor Income.

GROWTH IN THE WESTERN AUSTRALIAN ECONOMY

GROSS STATE PRODUCT

The broadest measure of economic activity contained within the accounts is Gross State Product (GSP). Estimates of GSP in current prices are produced by summing factor incomes (i.e. compensation of employees and gross operating surplus and gross mixed income) plus taxes, less subsidies on production and imports. Chain volume estimates of GSP are derived by revaluing current price, income-based estimates of GSP, using deflators which are calculated from the expenditure components.

The Western Australian economy increased its total volume of production for the fourth consecutive year in 2004-05. The chain volume measure of GSP grew by 2.7% ($2,488 million), following an increase of 8.1% in the previous year. Despite the large deceleration, Western Australia's GSP growth of 2.7% was greater than the national increase of 2.3% and raised the state's volume estimate of GSP to its highest level on record ($94,827 million). The moderate growth in Western Australia's GSP was, however, greater than the growth in New South Wales (1.1%), Victoria (2.3%), and South Australia (2.6%), but less than the remaining states and territories. Queensland and Tasmania recorded the highest rates of GSP growth in 2004-05 of 4.0%.

GROSS STATE PRODUCT, Chain volume measures(a)(b)
	Levels			Per capita
	2003-04	2004-05	Change	2003-04	2004-05	Change
	$m	$m	%	$	$	%
New South Wales	290 746	293 978	1.1	43 377	43 556	0.4
Victoria	212 243	217 047	2.3	42 975	43 447	1.1
Queensland	144 701	150 559	4.0	37 626	38 349	1.9
South Australia	56 737	58 186	2.6	37 088	37 845	2.0
Western Australia	92 339	94 827	2.7	47 003	47 539	1.1
Tasmania	14 794	15 389	4.0	30 810	31 801	3.2
Northern Territory	9 381	9 718	3.6	47 160	48 333	2.5
Australian Capital Territory	17 309	17 829	3.0	53 501	54 924	2.7
Australia (GDP)	838 251	857 765	2.3	41 946	42 437	1.2
(a) Users are cautioned that these volume estimates of GSP are derived indirectly by calculating a price deflator from the expenditure components of GSP, which is then applied to the current price income estimate of GSP. For more information refer to paragraphs 30 to 34 of the Explanatory Notes in the source publication.
(b) Reference year for chain volume measures is 2003-04.
Source: Australian National Accounts: State Accounts, 2004-05, cat. no. 5220.0.

GROSS STATE PRODUCT PER CAPITA

In 2004-05, Western Australia recorded one of the lowest rates of growth in GSP per capita in Australia. The state's chain volume measure of GSP per capita rose by 1.1%, equal to the growth in Victoria, but lower than the rest of the states and territories except for New South Wales (0.4%). Western Australia's growth in GSP per capita was, however, only marginally below the national increase of 1.2%. The highest growth in GSP per capita in 2004-05 was recorded in Tasmania (3.2%).

In dollar terms, each Western Australian's share of GSP in chain volume terms grew by $536 to $47,539 in 2004-05. This increased share of GSP in Western Australia was above the national average of $42,437 and ahead of all the other states, including New South Wales ($43,556) and Victoria ($43,447). However, it was below the shares recorded for the Australian Capital Territory ($54,924) and Northern Territory ($48,333).

REAL GROSS STATE INCOME

Western Australia's chain volume estimate of GSP measures the volume of goods and services produced in the economy. However, when the state's exports prices are rising more rapidly than its imports prices, as they did in 2004-05, the volume estimate of GSP will not accurately reflect the improvement in real purchasing power of the income generated within the state. For this reason Real Gross State Income (RGSI) has been developed to measure the real income generated in the state during times of fluctuating prices, by adjusting the volume estimate of GSP for changes in the 'terms of trade' (the ratio of exports to imports prices).

Growth in real gross state income

REAL GROSS STATE INCOME, Chain volume measures(a)
	Levels			Per capita
	2003-04	2004-05	Change	2003-04	2004-05	Change
	$m	$m	%	$	$	%
New South Wales	290 746	299 003	2.8	43 377	44 300	2.1
Victoria	212 243	218 392	2.9	42 975	43 716	1.7
Queensland	144 701	154 751	6.9	37 626	39 417	4.8
South Australia	56 737	58 598	3.3	37 088	38 114	2.8
Western Australia	92 339	98 289	6.4	47 003	49 275	4.8
Tasmania	14 794	15 623	5.6	30 810	32 284	4.8
Northern Territory	9 381	9 994	6.5	47 160	49 705	5.4
Australian Capital Territory	17 309	17 825	3.0	53 501	54 910	2.6
Australia (RGDI)	838 251	871 899	4.0	41 946	43 136	2.8
(a) Reference year for chain volume measures is 2003-04.
Source: Australian National Accounts: State Accounts, 2004-05, cat. no. 5220.0.

BROAD EXPENDITURE COMPONENTS OF GROSS STATE PRODUCT

Growth in the Western Australian economy was recorded across all broad expenditure components of GSP (chain volume terms) in 2004-05, with the exception of net exports (down $980 million or 4.5%). The main drivers of growth were household consumption (up $2,787 million or 6.1%) and government spending (up $1,296 million or 7.8%), while dwelling and business investment also made significant contributions to growth in the economy.

BROAD EXPENDITURE COMPONENTS OF GSP, Chain volume measures(a)
	2003-04	2004-05	Change
	$m	$m	$m	%
Household consumption(b)	45 485	48 272	2 787	6.1
Business investment(c)	15 764	16 190	426	2.7
Dwelling investment(d)	7 138	7 597	459	6.4
Government spending(e)	16 523	17 819	1 296	7.8
Net exports(f)	21 962	20 982	-980	-4.5
Balancing item(g)	-14 533	-16 033	-1 500	10.3
Gross State Product	92 339	94 827	2 488	2.7
(a) Reference year for chain volume measures is 2003-04.
(b) Household final consumption expenditure.
(c) Private gross fixed capital formation of machinery and equipment, non-dwelling construction, livestock and intangible fixed assets.
(d) Includes Ownership transfer costs.
(e) General government final consumption expenditure plus Total public gross fixed capital formation.
(f) Exports of goods and services less Imports of goods and services.
(g) Implicitly comprises changes in inventories, total net interstate trade and statistical discrepancy.
Source: Australian National Accounts: State Accounts, 2004-05, cat. no. 5220.0.

HOUSEHOLD CONSUMPTION

Household consumption made the largest contribution to GSP growth in Western Australia in 2004-05, rising by 6.1% ($2,787 million), greater than the increase nationally (4.3%) and higher than all states and territories. Western Australian households mainly increased their expenditure on: Miscellaneous goods and services (up $487 million or 7.6%) such as items of personal care, personal effects and insurance; Recreation and culture (up $468 million or 8.8%); Furnishings and other household equipment (up $393 million or 13.1%); and Rent and other dwelling services (up $351 million or 4.6%).

BUSINESS INVESTMENT

The contribution of business investment to growth in the Western Australian economy dropped markedly in 2004-05. Business investment rose by 2.7% ($426 million) over the year, significantly less than the 21.0% ($2,738 million) increase in 2003-04, and much lower than the rise nationally (11.1% in 2004-05). The fall in Western Australia's investment growth reflects the completion of a number of large resource-related projects in 2004-05, including the fourth LNG train of the North West Shelf. Despite the deceleration, investment activity in Western Australia has been maintained at relatively high levels due to the continued expenditure on new and existing mining projects - represented by the growth in investment on new engineering construction (up $260 million or 7.0%) and new machinery and equipment (up $249 million or 2.9%) in 2004-05.

GOVERNMENT SPENDING

Government spending was the second largest contributor to economic growth in Western Australia in 2004-05, rising by 7.8% ($1,296 million). This result was notably higher than the 4.4% growth in government spending at the nation level in 2004-05. In Western Australia, fixed capital investment by the government sector rose by 24.2% ($767 million) mainly due to the increased investment by state and local public corporations. Government final consumption expenditure also showed significant gains in 2004-05, increasing by 4.0% ($529 million).

DWELLING INVESTMENT

Investment in Western Australia's housing sector rebounded strongly in 2004-05. Dwelling investment (including ownership transfer costs) rose by 6.4% ($459 million) in 2004-05, following a decline of 2.3% in 2003-04. The growth in dwelling investment in Western Australia went against the declining trend nationally (down 4.9% in 2004-05). The relative strength of the state's dwelling investment was supported by the strong rise in Perth's established house prices in 2004-05 (up 16.3%), compared to the more moderate growth in established house prices nationally (up 2.0% in 2004-05).

NET EXPORTS

Net exports, or the surplus of exports over imports, was the only broad expenditure component to detract from GSP growth in Western Australia in 2004-05, falling by 4.5% ($980 million). The decline in net exports was the result of much stronger growth in imports than exports. Imports of goods and services rose by 15.1% ($2,244 million) in 2004-05 compared to 3.4% ($1,264 million) in the exports of goods and services. Adding to the fall in net exports was a 1.3% ($36 million) decline in services exported from the state. The main factors contributing to the growth in imports in 2004-05 were strong domestic demand, higher terms of trade and $A, low interest rates encouraging investment in capital goods produced overseas, and tariff reductions on some imported items.

INDUSTRY COMPOSITION OF TOTAL FACTOR INCOME

Total Factor Income (TFI) in current price terms is that part of the cost of producing GSP which consists of gross payments to the factors of production (labour and capital). It represents the value added by these factors in the process of production and is equivalent to GSP less taxes, plus subsidies on production and imports. In 2004-05, TFI grew by 10.0% ($8,348 million) in Western Australia, with all of the state's industries and principal components contributing to growth, with the exception of Agriculture, forestry and fishing.

The Mining industry accounted for most (53.4%) of Western Australia's TFI growth in 2004-05, rising by 29.4% ($4,462 million), reflecting the surge in overseas demand for the state's mineral and energy resources and the associated rise in global commodity prices. The non-rural commodity price index for Western Australia rose by 27.3% in $US terms (20.6% in $A terms) in 2004-05 (which includes alumina, diamonds, gold, iron ore, nickel, petrol, LNG and mineral sands).

Other notable contributors came from Property and business services (up $750 million or 8.1%) and Construction (up $660 million or 11.4%). These industries benefited from the continued strength in housing market activity in the state and the ongoing expansion of the state's resources sector. Coming off a very strong year in 2003-04, Agriculture, forestry and fishing was the only industry to record a decline in TFI in 2004-05, decreasing by 8.9% ($406 million). The result was influenced by falling global agricultural commodity prices during the year, as indicated by the decline of 4.0% in $US terms (9.3% in $A terms) in the rural commodity price index for Western Australia in 2004-05 (including barley, lupins, wheat, wool, beef and live sheep).

TOTAL FACTOR INCOME BY INDUSTRY AND PRINCIPAL COMPONENTS(a), Current prices
	2003-04	2004-05	Change
	$m	$m	$m	%
Mining	15 190	19 652	4 462	29.4
Property and business services	9 259	10 009	750	8.1
Construction	5 773	6 433	660	11.4
Manufacturing	8 161	8 575	414	5.1
Ownership of dwellings	5 512	5 921	409	7.4
Retail trade	4 846	5 176	330	6.8
Transport and storage	3 893	4 204	311	8.0
Electricity, gas and water supply	2 541	2 814	273	10.7
Health and community services	5 013	5 193	180	3.6
Government administration and defence	1 843	2 008	165	9.0
Accommodation, cafes and restaurants	1 302	1 455	153	11.8
Communication services	2 188	2 333	145	6.6
Personal and other services	1 460	1 594	134	9.2
Wholesale trade	3 511	3 619	108	3.1
General government	1 336	1 426	90	6.7
Education	2 788	2 860	72	2.6
Finance and insurance	3 506	3 559	53	1.5
Cultural and recreational services	838	883	45	5.4
Agriculture, forestry and fishing	4 569	4 163	-406	-8.9
All industries	83 529	91 877	8 348	10.0
(a) Ranked according to contribution to All industries TFI growth in 2004-05.
Source: Australian National Accounts: State Accounts, 2004-05, cat. no. 5220.0.