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BROADER MEASURES OF PROGRESS

AUSTRALIAN SYSTEM OF NATIONAL ACCOUNT

The Australian System of National Accounts (ASNA) provides a systematic framework for the presentation of statistics that provide a wide range of information about the Australian economy. ASNA provides policy makers, researchers and analysts with a comprehensive set of information that facilitates analysis of the various industries and sectors of the economy and the way they relate to each other and the rest of the world. They are also a helpful tool for monitoring and understanding the economic impacts of events that occur in the environmental and social spheres.

Although there is a wide range of information presented in the ANSA, many users of national accounts data focus on Gross Domestic Product (GDP). GDP is the total value of goods and services at market prices produced in Australia within a given period after deducting the cost of goods and services used up in the production process. The change in GDP over time, in volume terms (exclusive of the effects of price change), is often considered to be equivalent to a change in the well-being of the people of a country.

Aside from the historical focus on GDP there are a number of reasons why it is considered by the majority of users to be the most complete summary measure presented in the ASNA. First, GDP provides a summary of all production within a single period, and data exist on a comparable basis going back to the 1950's. Second, it can be used to compare nations to provide an insight into their relative economic performance.

However, for some types of analyses, GDP has significant limitations. GDP does not take into account the effect of changes in a nation's Terms of trade or Net income from overseas or Consumption of fixed capital (often referred to as 'depreciation'). These factors mean that GDP may not be the preferred measure when an analyst wishes to understand the extent to which current production processes are sustainable or the extent to which changes in production give rise to changes in the income of the population at large. These factors can also impact on analysis of the relativities between nations.

The first section of this Spotlight presents a number of the alternative summary measures currently available in the ASNA and compares them to GDP to highlight their respective uses. The second section introduces other measures of progress produced by the ABS.

OTHER ASNA MEASURES

A number of alternative summary measures to GDP are included in both the quarterly Australian National Accounts: National Income, Expenditure and Product (cat. no 5206.0) and annual Australian System of National Accounts (cat. no. 5204.0). Four of these measures are outlined below. Each measure is useful to assess different aspects of progress. Which measure to use depends somewhat on the focus of the analysis.

• Net domestic product (NDP): GDP adjusted for the Consumption of fixed capital (depreciation). GDP is a measure of economic activity within a single period and does not account for previously created fixed assets (machinery, buildings and other produced capital) that are used up in the production process. NDP can be interpreted as a measure that takes into account the sustainability of economic growth with respect to fixed assets.
  
• Real gross domestic income (RGDI): GDP adjusted for changes in Australia's Terms of trade (the Terms of trade represents the relationship between the prices of exports and imports). In periods of strong increases (decreases) in the Terms of trade, focusing solely on GDP would not take into account the affect of increased (decreased) income available to Australian residents.
  
• Real gross national income (RGNI): GDP (using the income approach) adjusted for Terms of trade and Real net primary income receivable from non-residents. If the income from GDP is supplemented (or subtracted from) by net inflows of income from overseas, for example through interest and dividend flows, then growth rates in GDP will underestimate the growth in the income available to Australian residents.
  
• Real net national disposable income (RNNDI): GDP adjusted for changes in Australia's Terms of trade, Net real income incomes flows from overseas and Consumption of fixed capital. Real net national disposable income provides the widest view of these four measures of the income available to Australian residents to acquire goods and services for consumption and investment.

Figure 1 compares the annual value of each measure. The different levels of the series reflect the different scope of each measure. The convergence between RGDI, RGNI and GDP can be attributed to improvements in Australia's Terms of trade.

Source: Table 1. Key National Account Aggregates (cat. no. 5204.0)

Figure 2: GDP and RNNDI, Percentage change



Source: Table 1. Key National Account Aggregates (cat. no. 5204.0)

The use of a particular measure depends on the underlying analytical or research question trying to be addressed. If the user is only interested in the production of an economy within a single period then GDP would be an appropriate measure. For other economic analyses the alternative measures outlined above may be more useful.

In order to provide a more comprehensive look at Australia's progress the ABS has developed Measures of Australia's Progress (MAP). MAP is intended to help Australians address the question, ‘Has life in our country got better, especially during the past decade?’ Answering the question is far from easy. Indeed there can be no definitive answer, as there are a range of views about what is most important to individual and national life. The ABS hopes that Australians will use the indicators presented in MAP to form their own views of how the country is progressing. MAP draws on the national accounts for three headline indictors of progress, RNNDI per capita, Multifactor productivity and Real national net worth per capita. For more information on MAP please refer to Measures of Australia's Progress, 2006 (cat. no. 1370.0).

The ABS has also developed a number of other statistical products that can provide further insight into then economic progress of the nation. For example, the National balance sheet presented in the Australian System of National Accounts (cat. no. 5204.0) provides insight into the accumulation and composition of wealth.

Work has also been undertaken to begin to extend the ASNA to take into account the complex relationship between the economy and the environment. Environmental assets provides an overview of Australia's environmental assets and provides estimates for the depletion of those assets.

SUMMARY

The ASNA provides a comprehensive overview of the Australian economy. The summary measures provided by ASNA provide insights into different dimensions of the Australian economy. However, the ABS also has a number of other statistical products which complement and supplement the ASNA to provide a more comprehensive overview of the progress of the nation.

INQUIRIES

For further information about these and related statistics, contact the National Information and Referral Service on 1300 135 070 or Terry Rawnsley on Canberra (02) 6252 6711.