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Feature Article: Updated National Accounts Annual Benchmarks


INTRODUCTION

Each year the annual and quarterly national accounts are revised using updated annual benchmarks from annual supply and use tables. Annual supply and use tables provide a balanced measure of GDP from the production, income and expenditure approaches. Usually, only data for the latest four years are revised, however, for this annual cycle, the complete time series has been revised. The impact of the revisions can be seen largely in changes to the levels of GDP and component series rather than in revisions to the movements in these series. Further, because revisions to annual movements are small the quarterly pattern of the time series will largely remain as currently published.

The revisions come from four sources:

• changes to annual source data due to changes in the methods used to collect and compile the annual economic activity data that form the basis of the annual supply and use tables
• the incorporation of updated benchmark information
• changes arising from work on the 2002-03 Information and Communication Technology (ICT) satellite account
• changes from improvements in methods used to estimate various components of GDP.

CHANGES TO MAJOR AGGREGATES

Table 1 below presents a number of key current price measures published in this edition of 5204.0 and the corresponding estimates as published in the 2004 edition. The revisions shown are the differences between the respective measures. It can be seen that gross domestic product has been revised by $21.9 billion in 1999-00 and by $25.0 billion in 2003-04. Revisions to gross national income are of a similar order of magnitude. Revisions to GDP per capita, national saving and household saving are also shown.

The graphs following Table 1 show the previously published estimates of annual percentage change in GDP in volume terms compared to to the estimates published in this edition. These movements are very similar. The second graph presents the respective movements in implicit price deflators (IPD) for the same period, 1994-95 through 2003-04. Again revisions to the movement of the IPDs are minimal.

Table 1. Comparative estimates, Pre and post historical revision - Current prices
	1999-00	2000-01	2001-02	2002-03	2003-04
	$m	$m	$m	$m	$m
Estimates in this publication
Gross domestic product	645 153	689 340	735 783	782 798	838 251
GDP per capita	33 882	35 751	37 676	39 621	41 946
Gross national income	626 904	670 603	716 116	760 307	814 517
National saving	28 693	26 709	33 452	34 405	42 384
Household saving	7 282	10 303	5 486	-10 235	-15 329
Estimates as per 2004 edition of 5204.0
Gross domestic product	623 461	668 426	713 229	758 147	813 225
GDP per capita	32 735	34 667	36 521	38 374	40 647
Gross national income	605 205	649 724	693 929	736 678	789 980
National saving	22 447	23 230	28 165	27 006	33 198
Household saving	6 175	12 087	3 320	-12 584	-15 227
Revisions
Gross domestic product	21 692	20 914	22 554	24 651	25 026
GDP per capita	1 147	1 084	1 155	1 247	1 299
Gross national income	21 699	20 879	22 187	23 629	24 537
National saving	6 246	3 479	5 287	7 399	9 186
Household saving	1 107	-1 784	2 166	2 349	-102

Graph 1. GDP volume measure, Percentage change



Graph 2. Implicit price deflators, Percentage change

The most significant revisions to the data published in 8155.0 came from the introduction of changes associated with The New Tax System (TNTS) that had a number of significant implications for ABS business statistics. A description of the changes was initially presented in Information Paper: ABS Statistics And The New Tax System (cat. no. 1358.0) that was released on 26 April 2000. The paper foreshadowed changes in the statistical infrastructure used by the ABS to support compilation of ABS economic series. Information Paper: Improvements in ABS Economic Statistics [Arising from the New Tax System] (cat. no. 1372.0) released on 6 May 2002 provided further information about these changes and their treatment in statistical series.

Most of these changes directly impacted on the ABS Business Register (ABSBR), which contains a list of businesses from which samples are selected to collect data for ABS economic series, including the annual Economic Activity Survey (EAS). The series have been impacted by the changes in the following ways:

• the population of businesses has increased
• the statistical units model, i.e. the way in which business structures are represented on the ABSBR, is more closely aligned with taxation reporting requirements
• the industry classification of some businesses has changed.

In addition, because the industry code being used for the majority of units is now sourced directly from the Australian Business Register, there have been shifts in the allocation of output and intermediate consumption, hence value added across industries. The main industries affected by this change are Manufacturing, Property and business services and Retail trade. The revisions to gross value added by industry, in respect of 2002-03, are shown in Table 2 below.

Overall GDP has been revised upwards by 3.1% for 2002-03. Although somewhat smaller in dollar terms, a number of industries have been revised significantly in relation to the previous estimate. For example, both Cultural and recreational services and Personal and other services have new estimates that are over 20% lower than previously published.

In order to implement the revised level in the time series of national accounts, EASTax data were compiled on both the new and old basis for 2000-01. Data on the new basis were also available for 2001-02 and 2002-03. This enabled a good understanding of the changes in levels and the impact on movements from the changes to be assessed. The general strategy for backcasting prior to 2000-01 has been to preserve the existing movements by industry but to shift the level of the series to the new basis. Care has been taken to ensure that the revised time series are economically meaningful by using all available information.

The updated information from the annual EASTax data source provides a comprehensive measure of the Australian economy. In the past the annual SU benchmarks were compiled using more industry specific information (for example, using annual manufacturing survey information for the manufacturing industry estimates). While these industry specific data were not inconsistent with the broader EASTax dataset there were some concerns about possible overlaps and gaps between the different surveys in terms of complete coverage of the economy. The application of the updated EASTax data in this round of annual SU tables has been completed in a far more comprehensive fashion. While there have been some shifts in the relative size of different industries, the overall basis for the measurement of macroeconomic activity has been improved. Work is currently underway to further improve the integration of the range of economic surveys with a particular interest in better aligning product and industry level source data and quarterly and annual source data.

INCORPORATION OF UPDATED BENCHMARK INFORMATION

In addition to incorporation of updated benchmark information from the EASTax data source, a range of other updated benchmarks have been incorporated.

Capital formation on alterations and additions to dwellings

Estimates of capital formation on alterations and additions to dwellings are based on the compilation of benchmarks that use a variety of source data. A new benchmark for 2002-03 has been compiled by combining data from the ABS Construction Industry Survey 2002-03, the ABS Household Expenditure Survey 2003-04 and the 2003 BIS Schrapnel survey on the Home Improvements Market in Australia. The 2002-03 estimate of alterations and additions based on these new benchmarks is $22.9 billion, a revision of $3.2 billion on the previously published estimate. Interpolation between benchmarks and extrapolation from the latest benchmarks are based on quarterly building activity survey data for alterations and additions.

Output of financial intermediaries

Estimates of the output of financial intermediaries such as banks and credit unions are based on data on the balances of deposits and loans held by these institutions and the counterparties to those balances. This information is published quarterly in Australian National Accounts: Financial Accounts (cat. no. 5232.0). In 2003 the balances data in the financial accounts were revised to incorporate changes required to record the data on the conceptual basis presented in the international standards for national accounts, System of National Accounts 1993 (SNA93). This updated balances information has now been incorporated in the estimation system for measuring the output of financial intermediaries. The 2002-03 estimate of FISIM based on these revised balances is $1.2 billion lower than the previous estimate. Consequently estimates of financial sector gross operating surplus and consumption of financial services by using industries and by the household and general government sectors have been revised downward.

Taxes on production

A number of changes to the aggregate taxes on production have been made. First, in the course of introducing the goods and services tax (GST) into the national accounts, data relating to collections of wholesale sales tax (WST) were removed from the accounts from the September quarter 2001 and later quarters. This was done to more accurately record the taxes on an accruals basis, as these transactions where considered to relate to production in previous periods. In the course of making these adjustments, the wine equalisation tax (WET) and the luxury car tax (LCT) were also inadvertently excluded. These ongoing sales taxes have now been included in the estimates resulting in an increase in the level of taxes on production for 2000-01 and later years. Second, taxes paid by the general government sector are now included in the estimates of taxes on production rather than being netted out. Third, the treatment of fringe benefits tax has been changed and it is now classified as a tax on income rather than as a tax on production.

The impact of each of these changes are not the same, some contribute positively to the aggregate, others negatively. In 2002-03 the net impact of these changes resulted in a downward revision of $0.4 billion.

Other annual source data

In addition to the changes outlined above updated data from the balance of payments, public finance and the Australian Prudential Regulatory Authority (APRA) have been incorporated.

CHANGES ARISING FROM ICT SATELLITE ACCOUNT WORK

The ABS is developing a satellite account on the measurement of information and communication technologies (ICT) in respect of 2002-03. This work examines a range of ICT products and essentially involves confrontation of measures of these products through a supply and use framework, thereby improving the overall cohesiveness of our ICT-related estimates. This exercise has given rise to benchmark level and time series revisions for a number of national accounting aggregates, in particular to gross fixed capital formation on computer software and computer hardware and to certain components of household final consumption expenditure.

Benchmark estimates of gross fixed capital formation of computer software are produced for those years for which detailed information is available. Appropriate indicators are then used to interpolate between these benchmarks and extrapolate beyond the most recent benchmark year. Prior to the release of this publication, benchmarks for gross fixed capital formation of computer software (the most recent of which related to 1994-95 and 1995-96) had been moved forward solely on the basis of imports of computer software. Various data collected by the ABS have allowed the production of more recent benchmarks. At the same time, the indicators used to interpolate between benchmarks and extrapolate beyond the most recent benchmark have been improved. Of particular note is that the number of computing professionals will now be used as the indicator for the series 'customised computer software', since this is considered a more appropriate indicator for this type of product. Revisions to gross fixed capital formation on computer software extend back to 1984-85. The estimate of private gross fixed capital formation on software has been revised down by $0.8 billion in respect of 2002-03.

The 2002-03 estimate of gross fixed capital formation of computer hardware has been revised upwards by $0.9 billion based on data obtained from the 2002-03 ABS Government Technology Survey and the 2002-03 ABS Economic Activity Survey. Historical estimates for this item have been revised back to 1993-94.

Investigations associated with the 2002-03 ICT satellite account have also led to changes to the household final consumption expenditure categories of 'communications' and 'recreation and culture'. For communications, the 2003-04 Household Expenditure Survey (HES) has been used to create updated benchmark information on household spending on telephone carrier services. Data from the ABS Household Use of Information Technology Survey (HUIT) and the ABS Internet Activity Survey provide the basis for updated estimates of household expenditure on Internet provider services. For 2002-03 the upward revision to the current price estimate for this component is $0.7 billion.

The 2003-04 HES also provided the updated benchmarks for household final consumption expenditure on computer hardware and computer software. For these latter items, the indicators used to interpolate between benchmarks and extrapolate beyond the most recent benchmark have also been updated and are now based on information derived from HUIT and the ABS Census of Population and Housing.

Improved estimates of price change for computer software have also been developed. Previous estimates for price change on the three types of computer software (prepackaged, customised and own-account) assumed a constant price fall of 6% per annum. The new methodology provides separate price indexes for each of the three components. The US Bureau of Labour Statistics index for prepackaged software is used, adjusted for some exchange rate variation. The price index for own-account software was derived from labour price index data, adjusted for changes in labour productivity for the IT industry. The customised index is a weighted average of the prepackaged index and own-account software index. The revised indexes show an ongoing price decline for computer software but to a smaller degree than the current estimates. On average the weighted price index for software over the last five years declines at an annual rate of 4.5%.

CHANGES TO METHODS

Compensation of employees

The current method for estimating compensation of employees (COE) is complex and requires the use of a range of data sources to ensure complete coverage of all employees and the various types of remuneration. To date, the primary data sources for COE have been the Quarterly Business Indicators Survey (QBIS) and the quarterly Survey of Employment and Earnings - Public Sector (SEE). These two sources measure wages and salaries for the private and public sectors respectively. Other elements of COE such as superannuation contributions and payments in kind are sourced from the annual EASTax data set and some ATO data on fringe benefits. Some recent conceptual developments and data confrontation exercises have led to a change in approach that affect the level of the COE series but do not impact greatly on movements in COE.

It has been decided to incorporate fringe benefits tax (FBT) as part of COE. In the past FBT was treated as a production tax paid by business and, while included in the calculation of GDP it was not part of COE. The new treatment leaves GDP unchanged but increases the income taxes paid by individuals in the household income account. Household saving is unaffected. It has also been decided to change the treatment of the superannuation contributions tax. This tax was treated as income tax payable by corporations but this has been changed to be shown as income tax payable by individuals. There is no impact on GDP from this change but the level of household saving is reduced. This is offset by an increase in the saving of the corporation sectors.

A number of changes have been made to data sources. First, the annual benchmarks for wages and salaries for private sector units and public corporations are now sourced from the annual EASTax data rather than by summing quarterly survey data. Data for general government units continues to be sourced from SEE. This change means that around 80% of COE will come from a single data source. Second, a new benchmark for payments in kind has been introduced using data from the irregular Survey of Labour Costs 2002-03. Third, better measures of COE flows to and from non-residents have been introduced.

Overall the change to the estimates of compensation of employees has been significant, with an upward revision of $18.1 billion in respect of 2002-03. Average compensation per employee in 2002-03 has been revised up by $1,434 to $46,122. Comparative estimates of the various components of the income measure of GDP are presented in Table 3.

Agriculture industry value added

An improved derivation of intermediate use in the Agriculture industry has been introduced leading to changes in the estimate of value added. Previous estimates of intermediate use were derived as a residual, by deducting estimates of compensation of employees, gross operating surplus and other taxes on production from output. Intermediate use is estimated directly in the new method. This is possible because reliable external data sources and EASTax data are now available. Other methodological changes to measures of Agricultural industry value added include valuing agriculture output at gross value of agricultural production, rather than at local value of agricultural production, and using EASTax based wages and salaries and employer social contribution estimates.

The way in which data on agricultural income are published have also changed. The separate Agricultural income tables that are published in the various national accounts releases have been maintained but there have been changes to some line items to better reflect the valuation concepts used in the supply and use tables.

Construction industry value added and associated outputs

Previously, the estimates of output and intermediate input recorded in the supply and use tables were on a net basis, that is transactions within the construction industry by sub-contractors and the like were not recorded. The improved methodology adopted for this update recognises these intra industry flows, i.e., the transactions are now recorded on a gross basis. This approach has been facilitated by data from the 2002-03 Construction Industry Survey, which will enable improved estimation and analysis for this industry into the future.

The outputs of the construction industry such as dwellings and other buildings are of particular analytical interest. Using data from the 2002-03 Construction Industry Survey and the new method outlined above, a data confrontation exercise was undertaken against the long standing ABS data sources for building and construction activity. It is difficult to reconcile the estimates from these different sources precisely for a variety of reasons. However, on the basis of this information and some additional demand side data available on the value of alterations and additions, improved estimates of the value of alterations and additions on residential buildings and non-residential buildings have been compiled. The overall effect has been an upward revision to the level estimates of capital formation, private and public, for alterations and additions to both residential and non-residential buildings. In respect of 2002-03 these changes have resulted in a revision of $9.2 billion to the level of private gross fixed capital formation. However, movement estimates remain largely unaffected. Comparative estimates of the various components of the expenditure measure of GDP are presented in Table 4.

Retail industry value added

Annual estimates of value added for the Retail industry are now based on the annual EASTax data source described above. These were previously based on the 1998-99 Retail Industry Survey, moved forward using subannual indicators such as the Monthly Retail Trade series. The level of sales by retailers are higher as a result of this change, although movement estimates are largely unaffected. This in turn has resulted in various upward adjustments to some categories of household final consumption expenditure.

Education industry value added and associated outputs

Estimates of value added for the education industry now directly incorporate information from the EASTax data set. This information provides a measure of the activity of non-government schools and commercial education providers. The contribution of government schools and other government educational facilities are estimated separately, then consolidated with the above information. These estimates were previously compiled through a hybrid methodology that involved aggregation of various demand side estimates of education.

Adoption of this improved method for estimating the output of education industry highlighted a deficiency in the estimates of household final consumption on education. Specifically the estimate of household final consumption of non-government schools output was found to be understated. This component is now estimated as the sum of the recurrent expenses incurred by those schools in delivering their education service. The improved measures of output has resulted in an upward revision of $4.4 billion in this component of household consumption on education.

Household expenditure on motor vehicles

Investigation has shown that, in recent years, household expenditure on motor vehicles has been significantly understated. The existing method estimates expenditure on motor vehicles by multiplying the number of new cars purchased by an average price. This average price is benchmarked infrequently and is moved forward using movements in the consumer price index for motor vehicles. However, the CPI series is adjusted for the increasing quality of motor vehicles thus leading to relative price falls in the CPI compared to changes in the nominal prices paid for cars by households. While this treatment is correct for CPI purposes it represents an understatement of the movements in actual prices paid by consumers.

A new national accounts methodology to estimate current price expenditure has been developed utilising car price data that is not adjusted for quality change. These data are sourced from the VFACTS data produced by the Federal Chamber of Automotive Industries. The volume of household consumption on motor vehicles is derived using the new current price series deflated by the quality adjusted CPI series. The methodology for estimating household expenditure on motor vehicles has also been altered to account for changes in the structure of the motor vehicle market, particularly the rising proportion of sports utility vehicles, and for improvements in data available on numbers of motor vehicles purchased by households. For 2002-03 the estimate of household consumption expenditure on this item has been revised upwards by $2.9 billion.

Recording of general government transactions

Previously, data for the general government sector was compiled on a consolidated basis, i.e. by netting out transactions between general government units. This is also the basis used by the ABS to compile government finance statistics (GFS). In order to more completely measure activity recorded in the production account, adjustments have now been included to gross up the production account items affected by consolidation. These items are state payroll taxes (PRT) paid by government units and commonwealth fringe benefit taxes (FBT) paid by government units.

The effect of this change is to increase the level of government output, and thus value added for industries that include government units, and to increase the level of government final consumption expenditure. In the case of PRT the level of taxes on production has increased. In the case of FBT, the level of compensation of employees has increased and taxes on income paid by individuals has increased, consistent with the changes to the treatment of FBT outlined above. In 2002-03 these changes resulted in an upward revision of $2.1 billion to government final consumption expenditure and taxes on production.

CONCLUSION

There is a substantial amount of change described in this article. Nonetheless, employing new methodologies and data sources ensures that the best available data are being used in the compilation of accounts. Ongoing reviews of methods and data sources will continue although it is unlikely that revisions of a similar scope will occur in the near future.

Overall, while there is a noticeable impact on the level of GDP as a result of the changes, there is only a small impact on movements in GDP both in current price and in volume terms.

Questions concerning the nature of the revisions should be directed to Ian Bobbin (email <ian.bobbin@abs.gov.au>, phone 02 6252 6908).

REVISIONS TABLES

Table 2: Industry gross value added, Current prices - 2002-03
	New	Old	Revision	Proportion
	$m	$m	$m	%
Agriculture, forestry and fishing	23 171	21 164	2 007	8.7
Mining	35 508	34 271	1 237	3.5
Manufacturing	89 965	82 462	7 503	8.3
Electricity, gas and water supply	17 904	16 961	943	5.3
Construction	45 345	45 668	-323	-0.7
Wholesale trade	38 865	39 282	-417	-1.1
Retail trade	46 341	39 403	6 938	15.0
Accommodation, cafes and restaurants	16 227	15 456	771	4.8
Transport and storage	34 604	37 389	-2 785	-8.0
Communication services	21 750	20 351	1 399	6.4
Finance and insurance	52 832	57 963	-5 131	-9.7
Property and business services	91 304	79 391	11 913	13.0
Government administration and defence	31 138	29 634	1 504	4.8
Education	34 177	33 144	1 033	3.0
Health and community services	45 384	43 957	1 427	3.1
Cultural and recreational services	10 333	13 160	-2 827	-27.4
Personal and other services	14 244	17 494	-3 250	-22.8
Ownership of dwellings	62 999	63 860	-861	-1.4
Gross value added at basic prices	712 091	691 010	21 081	3.0
Taxes less subsidies on products	70 707	67 137	3 570	5.0
Gross domestic product	782 798	758 147	24 651	3.1

Table 3. Income from GDP, Current prices - 2002-03
			New	Old	Revision	Proportion
			$m	$m	$m	%
Compensation of employees
	Wages and salaries		337 716	324 545	13 171	3.9
	Employers' social contributions		39 552	34 644	4 908	12.4
	Total compensation of employees		377 268	359 189	18 079	4.8
Gross operating surplus
	Non-financial corporations
		Private non-financial corporations	128 568	125 076	3 492	2.7
		Public non-financial corporations	19 015	19 537	-522	-2.7
		Total non-financial corporations	147 583	144 613	2 970	2.0
	Financial corporations		22 646	26 679	-4 033	-17.8
	Total corporations		170 229	171 292	-1 063	-0.6
	General government		14 165	13 930	235	1.7
	Dwellings owned by persons		57 768	58 792	-1 024	-1.8
	Total gross operating surplus		242 162	244 014	-1 852	-0.8
Gross mixed income			70 698	61 896	8 802	12.5
Total factor income			690 128	665 099	25 029	3.6
Taxes less subsidies on production and imports			92 670	93 048	-378	-0.4
Gross domestic product			782 798	758 147	24 651	3.1

Table 4. Expenditure on GDP, Current prices - 2002-03
			New	Old	Revision	Proportion
			$m	$m	$m	%
Final consumption expenditure
	General government		141 564	136 848	4 716	3.3
	Households		462 095	453 202	8 893	1.9
	Total final consumption expenditure		603 659	590 050	13 609	2.3
Private gross fixed capital formation
	Private business investment
		Machinery and equipment	54 491	54 527	-36	-0.1
		Non-dwelling construction	33 087	28 062	5 025	15.2
		Livestock	1 357	1 357	-	-
		Intangible fixed assets	10 661	11 446	-785	-7.4
		Total private business investment	99 595	95 392	4 203	4.2
	Dwellings		51 479	47 254	4 225	8.2
	Ownership transfer costs		14 006	14 025	-19	-0.1
	Total private gross fixed capital formation		165 081	156 671	8 410	5.1
Public gross fixed capital formation
	Public corporations		10 939	10 781	158	1.4
	General government		17 769	17 350	419	2.4
	Total public gross fixed capital formation		28 708	28 131	577	2.0
Total gross fixed capital formation			193 788	184 802	8 986	4.6
Domestic final demand			797 447	774 853	22 594	2.8
Changes in inventories			2 829	2 173	656	23.2
Gross national expenditure			800 276	777 026	23 250	2.9
Exports of goods and services			149 691	148 293	1 398	0.9
less Imports of goods and services			167 170	167 169	1	-
Gross domestic product			782 798	758 147	24 651	3.1
- nil or rounded to zero (including null cells)