FEATURE ARTICLE: REVISIONS TO FINANCE AND INSURANCE ESTIMATES IN THE AUSTRALIAN SYSTEM OF NATIONAL ACCOUNTS


INTRODUCTION

In the Australian System of National Accounts (ASNA), the Finance and insurance industry is consistent with the definition provided in the Australian and New Zealand Standard Industrial Classification, 2006 (ANZSIC06). The Finance and insurance industry is assumed to be equivalent to the financial corporations sector as specified in the Standard Institutional Sector Classification of Australia, 2008 (SISCA 2008). Consequently, no unincorporated enterprises are classified to the Finance and insurance industry in the ASNA.

The Finance and insurance industry consists of the Finance subdivision (ANZSIC 62), the Insurance and superannuation funds subdivision (ANZSIC 63) and the Auxiliary finance and insurance services subdivision (ANZSIC 64). Finance includes the central bank, banks, other depository corporations (credit unions, building societies, cash management trusts and registered financial corporations), central borrowing authorities, securitisers, public unit trusts excluding property trusts, public development authorities, investment companies, common funds, cooperative housing societies, public housing schemes and other financial corporations. Insurance and superannuation funds includes pension funds, life insurance corporations, friendly societies and non-life insurance corporations. Auxiliary finance and insurance services includes units providing auxiliary financial services, such as fund managers, brokers, dealers and financial consultants.


FINANCE AND INSURANCE IN THE ASNA

Finance and insurance activities are included in all three approaches to estimating Gross Domestic Product (GDP). On the production side they are included as Finance and insurance Gross value added at basic prices (GVA); on the income side as Financial Corporations Gross operating surplus (GOS), Finance and insurance Compensation of employees (COE), plus taxes less subsidies on production and imports; and on the expenditure side they are included as Household final consumption expenditure (HFCE) on Insurance and other financial services, General government Final consumption expenditure on insurance and other financial services and exports of insurance and other financial services.

The relationships between the various aggregates discussed above for the Finance and insurance industry are as follows:

Gross Domestic Product (Production) = GVA at basic prices + Taxes less Subsidies on Products
where Gross Value Added at basic prices (GVA) = Outputs - Intermediate Inputs
Gross Domestic Product (Income) = Gross Operating Surplus (GOS) + Compensation of Employees (COE) + Taxes less Subsidies on Production and Imports
where Gross Operating Surplus = GVA - COE - Other Taxes less Subsidies on Production
and Taxes less Subsidies on Production and Imports = Taxes less Subsidies on Products + Other Taxes less Subsidies on Production

Outputs of the Finance and insurance industry include financial intermediation services indirectly measured (FISIM); insurance service charges (ISC) for both non-life insurance, and life insurance and superannuation funds; direct charges; other operating income; rental income; and imputed output for financial intermediaries not elsewhere classified (FINec) and the central bank. Intermediate inputs include administrative and investment related expenses; and special System of National Accounts (SNA) adjustments, such as use of FISIM, and the use of non-life insurance ISC.

In 2010-11 Finance and insurance was the largest industry in the Australian economy, comprising 10.6% of GVA at basic prices. Within the Finance and insurance industry, the Finance subdivision is the major contributor to the industry for both GVA and GOS, and within finance, banks are the major contributor. The main driver of the significant bank contribution to GVA and GOS is its output component FISIM. FISIM is an imputed service charge that accrues to financial corporations, such as banks, as a result of the margin between interest rates paid on deposits and interest rates charged on loans.


REVISIONS TO FINANCE AND INSURANCE GOS, GVA AND HFCE

The graph below highlights the substantial revisions to the Financial corporations GOS since the 2009-10 release of the ASNA. These revisions are due mainly to improvements in methodologies and validation procedures, the introduction of new methodologies, inclusion of new data sources and the incorporation of the latest available data from existing data sources.

FISIM and related interest estimates for banks, other depository corporations, central borrowing authorities and securitisers were revised due the implementation of improved quality assurance edits and validation processes. This has resulted in revisions to total FISIM and its components, (for example, FISIM on dwellings) for the time series back to 1988-89 driven mainly by FISIM generated by banks. As a result of the review of FISIM, the sectoral interest estimates in the income accounts have also been revised throughout the time series.

A major review was undertaken into the treatment of the central bank in the national accounts and balance of payments. The ABS now treats the central bank as comprising two units - one unit undertaking market operations and another unit undertaking other activities. The market operations unit captures the central bank's daily repurchase (lending) program with financial intermediaries and this change has resulted in significant revisions to direct charges.

A double count of the expense estimates of pension funds was corrected. Previously, expense estimates included expenses associated with funds invested through life insurance companies in the pension fund sector as well as in the expenses for life insurance corporations. These expenses are now included only as expenses of life insurance corporations.

The ISC for life insurance corporations and friendly societies is now estimated as the cost of running the business plus a profit margin, whereas previously it was measured only at cost. The ISC was also revised due to improved coverage of operating expenses reported in the source data.

Revisions to non-life insurance outputs and inputs are due mainly to data source updates and corrections, and alignment of methodologies with 2008 SNA recommendations. Some of these changes include; use of gross direct premiums and claims for direct insurers and reinsurers; the netting of non-reinsurance recoveries against claims and; the use of an improved sectoral allocation of business class information for premiums and claims. As a result of the review of output and input estimates of non-life insurance, the sectoral non-life insurance claims and premiums estimates in the income accounts have been revised throughout the time series.

The imputed output for financial intermediaries not elsewhere classified (FINec) is now estimated as the cost of running the business, whereas previous methodology was generating a value for GOS for this sector. The majority of units in FINec are investment funds. The distributed surplus of these funds is recorded as dividends and reinvested earnings in the income accounts.

Revisions to services to finance and insurance are due to incorporating improved source data from the ABS Annual Integrated Survey.

The graph below illustrates the impact the current price revisions have on the Finance and insurance GVA Chain volume measure (CVM) series.

Revisions to the chain volume estimates of household final consumption expenditure (HFCE) on Insurance and other financial services are shown in the graph below. One of the significant contributors to the revisions of HFCE on Insurance and other financial services in volume terms are those flowing through from the current price estimates driven by revisions to direct charges less FISIM and non-life insurance services consumed by the household sector.

For further information please contact Amanda Seneviratne on Canberra (02) 6252 5338 or email <amanda.seneviratne@abs.gov.au>.