Australian Defence Industry Account, experimental estimates methodology

Satellite accounts are linked to, but distinct from, the SNA. The national accounts are compiled for the whole economy and for all units belonging to the same industry. However, it is useful for economic analysis to identify and measure activities that occur across a range of the standard industries. Satellite accounts are a useful tool to do this.

Satellite accounts allow experimentation with new concepts and methodologies, with a wider degree of freedom than is possible within the central system. They provide a framework which enables attention to be focused on a certain aspect of economic and social life in a way that is coherent with the national accounts (SNA chapter 29). The ADIA captures defence activity, the industries that contribute to this activity, and the value add this activity makes to the economy.

The ADIA has been designed to estimate the first-round economic impacts that Defence spending contributes to the Australian economy. The Australian defence industry represents the production of goods and services invoiced to the Department of Defence. Therefore, the scope of the ADIA is limited to Australian organisations that have directly received payments from Defence and have produced the good and/or services that they deliver to Defence within Australia. Therefore, the ADIA GVA excludes:

• Defence expenditure to overseas entities;
• Defence expenditure to Australian entities that have imported the good and/or service represented on the invoice;
• Transfers to other commonwealth government agencies; and
• Wholesale and retail sales with no identified value add components (wholesale and retail margins are included).

Gross Value Added (GVA) is defined as output (at basic prices) minus intermediate use (at purchaser prices); GVA can be broken down by industry and institutional sector. The sum of GVA over all industries or sectors plus taxes on products minus subsidies on products gives gross domestic product (GDP).

The GVA of the Australian defence industry is a measure of the direct contribution of Defence expenditure to the Australian economy.

ANZSIC provides a standard framework under which business units carrying out similar productive activities can be grouped together, with each resultant group referred to as an industry. An individual business entity is assigned to an industry based on its predominant activity (e.g., mining, manufacturing, retail trade). The ANZSIC underpins the standardised collection, analysis, and dissemination of economic data on an industry basis in Australia.

More information on ANZSIC can be found here: 1292.0 - Australian and New Zealand Standard Industrial Classification (ANZSIC), 2006 (Revision 2.0) (abs.gov.au)

National accounts are designed to provide a systematic summary of economic activity and have been developed to facilitate the practical application of economic theory. At their summary level, the accounts reflect key economic flows: production, income, consumption, investment and saving. At their more detailed level, they are designed to present a statistical picture of the structure of the economy and the detailed processes that make up domestic production and its distribution.

More information on the ASNA can be found here: Australian System of National Accounts: Concepts, Sources and Methods, 2020-21 financial year | Australian Bureau of Statistics (abs.gov.au)

SUIC classifies industries within the economy when compiling Supply Use and Input Output tables within the national accounts. SUIC is based on ANZSIC, however groups some of the industries together to allow comparability across time.

SUPC classifies products utilised within the economy, organised according to the industry to which each product is primary. The Australia National Accounts Supply Use tables are compiled at this level of product classification.

Invoice-level data for all the expenditure made by the Department of Defence. The dataset contains the dollar amount of each invoice paid by the Department of Defence. It includes descriptions of the expenditure, the Australian Business Number (ABN) of the organisations receiving the expenditure and other related metadata. 

Frequency: Near real time for each financial year.  

Geography: Variable, dependent on invoice records.

Key data used:

• Sets output at Purchaser Price (PP) estimates for the Australian defence industry.
• Provides key location information for organisations in the Australian defence industry.
• Provides metadata used to code defence contracts to ABS product and industry classifications.

Supply Use tables are an integral and essential element of the ABS national accounts. They are the building blocks for the Australian System of National Accounts as they are used to ensure GDP is balanced for all three approaches (production, expenditure, and income) and provide the annual benchmarks (levels) from which the quarterly estimates are compiled. They provide detailed information about the supply and use of products in the Australian economy, and the structure of and interrelationships between Australian industries.

Frequency: Annual; financial year.

Geography: National.

Key data used:

• Model the conversion of Defence invoices from Purchases Prices (PP) to Basic Prices (BP).
• Model margin output of Defence invoices.
• Create Total Intermediate Use (TIU) to output and primary input to output ratios to inform the GVA of Defence invoices.

The Economic Activity Survey (EAS) produces estimates of the economic and financial performance of Australian industry. The estimates are derived using a combination of data directly collected by the Australian Bureau of Statistics (ABS), and Business Activity Statement (BAS) data provided by businesses to the Australian Taxation Office (ATO).

The EAS collection provides key measures of the performance of Australian industries. The EAS provides data which feeds into the National Accounts Supply Use and Input Output tables.

Frequency: Annual, financial year.

Geography: National.

Key data used:

• To roll forward ratios derived from the supply use tables.

The ABS Business Register is a list of organisations which undertake economic activity in Australia. The data on the ABS Business Register is primarily sourced from the Australian Business Register (ABR), the Australian Tax Office (ATO) and via ABS profiling of large, and/or complex businesses. The ABS uses an Economic Units Model on the ABS Business Register to describe the characteristics of businesses, and the structural relationships between related businesses.

Frequency: Quarterly updates.

Geography: Main state of operation, postal address information.

Key data used:

• Classification of units in scope of the ADIA to their Australian and New Zealand Standard Industrial Classification (ANZSIC).
• Provides additional location information on units in the scope of the ADIA.

High quality product and industry coding is critical for the compilation of the ADIA. The coding allows for integration between the DFG dataset and ABS economic datasets, including the National Accounts Supply Use Tables. The coding aligns the goods and services descriptions of each invoice in the DFG dataset to a SUPC.

• Manual coding: Invoice descriptions are used to code high value invoices to the appropriate SUPC.
• Automated coding: For lower value invoices, description-based rules are used to code to SUPC. This includes initial training of the ABS’ Intelligent Coder (a tool that uses machine learning to improve the accuracy and efficiency of statistical coding).  
• For all units that are not covered by the above unit level information, the supplying business's ANZSIC was used to infer the most likely SUPC.

• The ABN of each Defence invoice is coded to ANZSIC industry using the ABS Business Register.
• Each invoice is also allocated a SUIC based on the primary producing industry for the product supplied.

The DFG dataset informs the output of the Australian defence industry at PP. However, output at BP is required to derive GVA estimates. To do this conversion ratios of BP to PP from the National Accounts Supply Use Tables are applied as follows:

• The National Accounts Supply Use Tables split total output at PP by output at BP, Margins, Taxes, and Subsidies.
• The percentage contribution of each variable to output at PP is calculated at the SUPC level.
• These ratios are applied to the Defence invoices based on the specific SUPC they are coded to. 
• This informs output at BP for all Defence invoices, as well as the margins, taxes and subsidies associated with the invoice.

Each Defence invoice is allocated a SUIC. The SUIC is based on the main supplying industry of the SUPC the individual invoice was coded to. Utilising the SUIC associated with the SUPC ensures that the inputs into production are captured as accurately as possible. The primary input and TIU ratios of the SUIC are then used to model the primary inputs for each invoice. The steps are captured below:

• The use table provides output at Basic Prices for each SUIC and the components that make up this output. This includes Total Intermediate Use (TIU) for each industry and the primary inputs to production, including Compensation of employees, Gross operating surplus and Taxes on production less subsidies on production.
• Proportions of TIU and the primary inputs to the total output at BP are calculated for each SUIC.
• These proportions are multiplied by output at BP for each in scope invoice.
• The derived TIU estimates are then subtracted from the Output at BP, to derive the GVA value for each individual invoice. 

The ADIA publishes the 2020-21 estimates before the 2020-21 Supply Use tables are available. To model the inputs to production for 2020-21, the 2020-21 Economic Activity Survey data is used to estimate changes in the inputs to production ratios from 2019-20 to 2020-21. This is done using the following approach:

• For the 2019-20 and 2020-21 reference periods TIU to output ratios by SUIC is derived from the EAS dataset.
• The percentage change of these ratios is calculated.
• This percentage change is applied to the 2019-20 TIU to output ratios obtained from the Supply Use tables, to inform a 2020-21 ratio.
• The remaining inputs to production ratios are then recalculated to ensure the sum of all primary input and TIU equal to output at BP.

The value of margins for each invoice is removed from the output at BP for the supplying unit. The margin estimates are then reallocated to the main supplying SUIC for the specific margin. The tables below illustrate the industry each margin output is allocated to.

The ABS Business Register is used to code the ABNs for the supplying organisations to an ANZSIC. The invoices derived GVA component is then aggregated by ANZSIC division to display industry GVA estimates.     

To aggregate GVA estimates to state and territory a combination of data assets and analysis are utilised. The following represent the priority with which state codes are applied:

• Specific intelligence on a unit’s location;
• DFG metadata indicating the good or service delivery postcode;
• Main state of operation address sourced from the ABS Business Register;
• DFG metadata indicating vendor postcode or address;
• Postcode address sourced from the ABS Business Register.