EXPLANATORY NOTES

INTRODUCTION

1 This publication contains Australian National Accounts quarterly estimates for:

• national, sectoral and subsectoral financial accounts (flows) and balance sheets by financial instruments and counterparties;
• national, sectoral and subsectoral capital accounts;
• financial instrument market tables by sectors and subsectors issuing/accepting/borrowing by counterparties;
• demand for credit and credit outstanding by non-financial domestic sectors and subsectors;
• household balance sheet and associated analytical measures of income, consumption, saving and wealth; and
• household housing loans outstanding by lending institution.

2 The time series for financial flows, capital accounts and household balance sheet starts from September quarter 1988, the related financial balance sheets for the financial flows start in June quarter 1988. The household analytical measures of income, consumption, saving and wealth start from September quarter 1989. All estimates are in current prices, and the capital accounts are presented in original, seasonally adjusted and trend terms.


CONCEPTS, SOURCES AND METHODS

3 Australia's national accounts statistics are compiled in accordance with international standards contained in the System of National Accounts. The standards governing national accounts are agreed internationally and detailed in the "System of National Accounts 2008" (2008 SNA). 2008 SNA is endorsed by the five major international economic organisations: the United Nations, the International Monetary Fund, the OECD, the World Bank and the European Commission. The current complete version of 2008 SNA is available on-line: http://unstats.un.org/unsd/nationalaccount/sna2008.asp

4 Australia's application of the 2008 SNA standards is described in Australian System of National Accounts: Concepts, Sources and Methods (cat. no. 5216.0). This publication outlines the concepts and definitions, describes sources of data and methods used to derive quarterly estimates published in this publication. The chapters related to the estimates in this publications are as follows:

• Chapter 2: Overview of the Conceptual Framework
• Chapter 3: Stocks, Flows and Accounting Rules
• Chapter 4: Institutional Units and Sectors
• Chapter 13: The Income Account
• Chapter 14: The Capital Account
• Chapter 15: The Financial Accounts
• Chapter 16: The Other Changes in Volume of Assets Accounts
• Chapter 17: Balance Sheet
• Chapter 20: Analytical measures.

5 For more detailed information on how the 2008 SNA institutional units and sectors have been adapted to Australian conditions, please see in the Standard Economic Sector Classification of Australia, (SESCA) 2008 (cat. no. 1218.0).


SEASONALLY ADJUSTED AND TREND ESTIMATES

Seasonal Adjustment

6 Data that are affected by seasonal factors are adjusted to remove the effects of these factors. It is important to note that the methods used in seasonal adjustment do not force the sum of the adjusted current price estimates for each quarter of a year to equal the original annual total.

Trend Estimates

7 Given the qualifications regarding the accuracy and reliability of the quarterly national accounts, the ABS considers that trend estimates provide the best guide to the underlying movements, and are more suitable than either the seasonally adjusted or original data for most business decisions and policy advice.

8 A trend estimate is obtained by removing the irregular component from the seasonally adjusted series. For estimates in this publication, it is calculated using a centred 7-term Henderson moving average of the seasonally adjusted series. The procedure is designed to minimise distortions in the trend level, turning point shape and timing of turning points. Estimates for the three most recent quarters cannot be calculated using this centred average method; instead an asymmetric average is used. This can lead to revisions in the trend estimates for the last three quarters when data become available for later quarters, even if none of the original data for earlier quarters has changed.

9 The higher the 'irregular' component in a series, then the greater the likelihood that trend estimates for the latest quarters will be revised as more observations become available. However, it is important to note that this does not make the trend series inferior to the seasonally adjusted or original series. In fact, in such cases the effect of the irregular component on overall movements is likely to be even more in the seasonally adjusted and the original estimates than in the trend series.

10 Trend estimates for aggregates such as GDP are derived directly, rather than as the sum of components. As a result, the sum of the trend estimates of individual components of a particular aggregate will not sum to the overall trend estimate of the aggregate for the latest three quarters. This approach provides higher quality trend estimates for key aggregates, particularly GDP.


REVISIONS

11 Most figures are subject to revision as more complete and accurate information becomes available.


SPECIFIC INFORMATION RELATED TO FINANCIAL FLOWS AND BALANCE SHEETS

12 Financial accounts of various types - which are also called flow of funds statistics - are published by many Organisation for Economic Cooperation and Development (OECD) countries, including the United States of America (from 1945), the United Kingdom (from 1952) and Canada (from 1962). In Australia, the Reserve Bank produced annual flow of funds accounts for the reference years 1953-54 to 1988-89. The final edition of these was published in the Reserve Bank Bulletin, November 1989. The Australian Bureau of Statistics (ABS) published quarterly estimates commencing with experimental estimates of inter-sectoral financial transactions for the March and June quarters 1989. From the June 1998 reference quarter, the financial accounts dataset was produced according to revised international standards, the System of National Accounts, 1993 (1993 SNA). From the September 2009 quarter, Australian National Accounts: Finance and Wealth (cat. no. 5232.0) has been produced according to the 2008 SNA.

13 The Australian Financial Accounts shown here are not directly comparable with the flow of funds estimates which were previously published by the Reserve Bank of Australia (RBA). Therefore, the ABS series should not be used as an extension of the RBA series. The main differences between the two series are as follows:

• The ABS statistics are compiled with assistance from specially conducted statistical surveys whereas the RBA’s series were compiled mainly from administrative sources. These administrative by-product data were different in scope, coverage, timing and classification from the survey data used by ABS.
• The ABS statistics use the same sectors as in other parts of the national accounts whereas the RBA’s sectoring was different. The RBA combined Commonwealth public trading enterprises and Commonwealth general government; and State and local public trading enterprises with State and local general government. The sectors used by the RBA can be constructed by consolidation of the statistics presented in this publication. Also, the RBA’s statistics had a more detailed classification of financial enterprises than that presented here.
• The ABS statistics use a more extensive classification of financial instruments than that used by the RBA. The RBA’s classification can be constructed from the ABS statistics.

14 Deficiencies in the coverage of financial surveys: the ABS does not presently collect balance sheet information from small non-financial corporations, solicitors' and similar trust funds, and financial auxiliaries (such as stock brokers), some of which buy securities on their own account. Although broad information reported by professional fund managers includes funds they invest on behalf of such investors, the fund managers provide asset profiles only for monies they invest on behalf of pension funds. If the coverage deficiency were not corrected it would cause errors in some of the estimates for the household sector. As an interim measure the ABS has made estimates for these unreported assets using the partial information reported by fund managers.

15 The ABS is aware of the following deficiencies in reported data:

• There are some classification and timing problems in the data being reported by some large banks.
• The quality of the data for the other depository corporations sector is only fair.
• The data for the rest of world are of only fair quality because of deficiencies in coverage, classification and valuation.
• Stock lending, repurchase agreements, and short selling in securities markets and inconsistent treatment of these practices by respondents are causing some double counting of asset records for some types of securities.
• The ABS believes that derivative and synthetic financial products are being treated inconsistently.
• The estimates of the stock of issued shares of unlisted private non-financial corporations are very poor.
• For the convenience of survey respondents, the information collected in the ABS survey of private non-financial corporations is consolidated for groups of companies. Hence it is not possible to show, for example, loans between group members as part of the long term loan market. Similarly, as the ABS does not survey households, loans between households are also not shown in these statistics.

16 Problems in estimating financial transactions from balance sheet information: the revaluation data available to the ABS for frequently traded securities are of reasonable quality. These include estimates for listed shares and Commonwealth and State government bonds/bills. The revaluation data available for securities that are less frequently traded, such as unlisted shares, are of only fair quality.

17 Accuracy of the estimates, conclusion: despite the described problems, the ABS considers that these statistics are of an acceptable standard for the purposes they are intended to serve. An indication of the overall quality of the data can be gained by considering the levels information for the household sector, which are judged by the ABS to be the poorest quality data in the publication. All the liabilities data are good quality counterpart data from the asset records of financial institutions. In addition, households' deposit and loan assets are measured directly elsewhere and 'counterpartied' into this sector. Only households' holdings of tradeable securities are derived residually and so reflect errors and omissions in the estimates for the other sectors. Households' holdings of shares are the lowest grade estimate in these statistics. A high proportion of the household data are therefore of high quality despite being considered of poorer quality than the balance of the statistics.


NOTES TO ASSIST INTERPRETATION OF SELECTED TABLES

18 An explanation of how to interpret some statistical tables is given below:

Table 1

19 Table 1 (credit market outstandings) of the financial accounts shows the key liabilities of each of the domestic non-financial sectors. Included are borrowings, debt securities and equities.

20 All 'off-market' funding arrangements are excluded. For example:

• Liabilities of the financial sector are excluded because of the role of the financial institutions in the economy - they borrow in order to lend
• National government financial arrangements with State governments
• National government financial arrangements with public trading enterprises (either national or state)
• State government financial arrangements with public trading enterprises (either national or state)
• Financial arrangements between related corporations in the same subsector.

21 Excluded also are non-conventional instruments, including:

• Deposits and insurance technical reserves, as these are with the financial sector
• Derivatives, as these are normally for hedging purposes, not fund raising
• Sundry accounts payable, as these are generally incurred through normal trading activities
• Unfunded superannuation liabilities, as these are incidental to employment.

Table 2

22 This table, called demand for credit, is the flow equivalent of table 1 and so has the same exclusions. It shows quarterly net raisings of debt and equity on conventional credit markets worldwide by each of the non-financial domestic sectors. The aggregate at the head of the table is a measure of the primary credit flow in Australia, that is, credit which is to be used primarily to finance non-financial outlays such as investment in plant and equipment.

Tables 3, 5, 7, 11, 13, 26, 28, 30, 32, 36

23 The capital accounts shows the funds accumulated during the period by each of the sectors for the purchase of assets (gross saving and capital transfers) together with estimates of expenditure on capital accumulation and the resulting positive or negative balance (total net capital accumulation and net lending (+)/net borrowing (-)). A surplus in this account is called net lending; by convention a deficit (i.e. net borrowing) is shown as negative net lending.

Tables 4, 6, 8-10, 12, 14-25, 27, 29, 31, 33, 37

24 These tables show the level (stock) and flows of financial assets and liabilities of each domestic subsector of the economy at market prices. Since the aim of these tables is to present an analytically useful financial profile of each of the subsectors, they are consolidated to eliminate holdings of financial instruments by the subsector which issued them. For example, the block bonds etc. in the table for central borrowing authorities (table 23) shows the stock of bonds etc. held as assets by this subsector. A central borrowing authority may be expected to hold long-term debt securities issued by other central borrowing authorities but these holdings are eliminated on consolidation (and the outstanding liability of this subsector for this instrument is reduced accordingly). In contrast, in the table called the bonds market (table 43) a different basis of consolidation is used and these intra-sector holdings are shown (and shown to be substantial).

25 In these tables, the primary classification is the financial instrument (e.g. other deposits) and the secondary classification is counterparty sector (e.g. other deposits accepted by: banks).

26 Statistics for the financial assets and liabilities of subsectors of the non-financial public sector are broadly comparable with statistics published in Government Finance Statistics, Australia (cat. no. 5519.0.55.001).

27 The transaction show inter-sectoral transactions in financial assets and liabilities classified by financial instrument. Most instruments are disaggregated to show the subsector of the counterparty. For example, the loans and placements in the table for other depository corporations (table 17) shows the growth (or contraction) in lending by these financial institutions to the other subsectors. In these tables, an entry without an arithmetic sign indicates a net increase in either financial assets or liabilities. An entry with a negative sign indicates a net decrease in financial assets or liabilities.

28 The items (i) net lending (+)/net borrowing (-), (ii) net errors and omissions and (iii) change in financial position provide some analysis of the interrelationships between saving, capital formation and financial transactions in the economy. In concept, a sector's net lending (+)/net borrowing (-) (item from the capital account) should be the same as its net change in financial position (in the financial account). Because this equality is unlikely to be realised in practice (due to the use of different sources of information to derive each aggregate) the item net errors and omissions is included to show the difference between these alternative estimates of the same concept. This difference can be caused by errors and omissions in both the capital account and the financial account.

Table 37: Financial assets and liabilities of the rest of world

29 The items (i) net lending (+)/net borrowing (-), (ii) net errors and omissions and (iii) change in financial position provides an alternative presentation of Australia's quarterly balance of payments statistics, as published in Balance of Payments and International Investment Position, Australia (cat. no. 5302.0). In the financial accounts, these transactions are presented from the point of view of non-residents. Net lending (+)/net borrowing (-) is the balance of payments current account plus capital account (with opposite arithmetic sign), net errors and omissions (with opposite sign) and the net change in financial position is the balance of payments financial account. It may also be found as change in net international investment position reflecting transactions.

30 Australia's net international investment position-level of investment at end of period and transaction during the period as published in Balance of Payments and International Investment Position, Australia (cat. no. 5302.0) can be derived from table 37. It is equal to total financial assets (of non-residents) less total liabilities (of non-residents).

31 When comparing the data in tables 14 and 15 as published in cat. no. 5302.0 and data in table 37 in this publication, it is important to note the following differences.

• In this publication, assets and liabilities are published from the perspective of the party concerned. For example, in relation to non-residents, financial assets and liabilities are shown as belonging to the rest of world sector. In cat. no. 5302.0, such data are published from the opposite perspective, i.e. as Australian assets and liabilities that have non-resident counterparties. This difference affects comparisons of the statistics only in as much that the arithmetic signs attributed to assets and liabilities are opposite in the two publications.
• This publication does not include the split made in (cat. no. 5302.0) between direct and portfolio investment. This affects comparison between data in the publications because direct investment (including equity, borrowing and trade credit) between related companies is published on a net basis in cat. no. 5302.0 and is recorded on a gross basis in table 37.

32 The above points are illustrated in the example below:

• A hypothetical company, ZZZ Corporation, operating in Australia is owned by a UK company, YYY Corporation. ZZZ Corporation has previously borrowed $500 million from its parent, but also lent $100 million to a related company overseas (e.g. another subsidiary of the same parent).
• In cat. no. 5302.0, YYY Corporation's equity in ZZZ Corporation would be included in the table 27, INTERNATIONAL INVESTMENT: DIRECTIONAL PRINCIPLE - QUARTER under Direct investment in Australia - equity. The borrowing would also be included in table 27, under the category Direct investment in Australia - other capital - liabilities to direct investors, as equal to the amount of $400 million ($500 less $100).
• In this publication, the equity would be included in table 37, under financial assets - equity. The borrowing would be displayed under financial assets - loans and placements as equal to $500 million, and the loan would be included in financial liabilities - loans and placements as equal to $100 million.
• This publication includes more detailed sector and instrument splits than provided in cat. no. 5302.0.
• This publication includes the reserve position in the IMF in currency and deposits, whereas, in cat. no. 5302.0, the reserve position is shown as a separate item.

Tables 38-49

33 These tables present - as far as possible - the whole market for each of the financial instruments, that is, the level and transactions of financial assets and liabilities at market prices for each instrument. These tables are less consolidated than sectoral and subsectoral financial flows and balance sheets. Claims between enterprises within the same company group are eliminated; claims between enterprises which are outside the company group but inside the same subsector are not eliminated. For example, claims between a bank and its banking subsidiaries are eliminated on consolidation but not claims between banking groups.

34 These tables shows all transactions and outstanding liabilities of residents of Australia for that financial instrument. Liabilities, for example, bonds, issued in international markets are included with those issued in the domestic market. This total is then dissected into the several sectors which issued this instrument - the primary classification and under each of these lines there is an indented block showing the counterparty sectors which hold these instruments as assets. Tables 42 and 43 relating to the one-name paper and bond markets respectively, also split the total liability between the total issued in Australia and the total issued offshore.


RELATED PRODUCTS AND SERVICES

35 Related ABS publications which may also be of interest include:

• Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0)
• Australian System of National Accounts (cat. no. 5204.0)
• Australian National Accounts: Concepts, Sources and Methods (cat. no. 5216.0)
• Information paper: Product changes to the Financial Accounts: Finance and Wealth (cat. no. 5232.0.55.004)
• Balance of Payments and International Investment Position, Australia (cat. no. 5302.0)
• Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods (cat. no. 5331.0)
• Revisions to international standards in quarterly Balance of Payments and International Investment Position statistics (cat. no. 5302.0.55.002)
• Government Financial Estimates, Australia (cat. no. 5501.0.55.001)
• Government Finance Statistics, Australia (cat. no. 5512.0)
• Managed Funds, Australia (cat. no. 5655.0)
• Standard Economic Sector Classifications of Australia (SESCA) 2008 (cat. no. 1218.0) - latest issue, 2008
• Information paper: Product changes to Financial Accounts following revisions to international standards (cat. no. 5232.0.55.003) - latest issue, 2009.

36 Current publications and other products released by the ABS are freely available from the ABS website <https://www.abs.gov.au>, the website contains a link to the daily Release Advice which details products to be released in the weeks (months) ahead. A national accounts page is available on the website, select: National Statistics - National Accounts on the left hand side of the home page. This page provides direct links to all national accounts related data and publications, recent national accounts changes and forthcoming events, links to relevant websites and a range of other information about the Australian National Accounts.