Nature, purpose and history of National Accounts

1.3    National Accounts provide a systematic statistical framework for summarising and analysing economic events, the wealth of an economy, and its components. Historically, the principal economic events recorded in the National Accounts have been production, consumption, and accumulation of wealth. National Accounts have also recorded the income generated by production, the distribution of income among the factors of production and the use of the income, either for consumption or acquisition of assets. The modern accounts additionally record the value of the economy's stock of assets and liabilities, and record the events, unrelated to production and consumption, that bring about changes in the value of the wealth stock. Such events can include revaluations, write-offs, growth and depletion of natural assets, catastrophes, and transfers of natural assets to economic activity.

1.4    The national accounting framework has always consisted of a set of accounts that are balanced using the principles of double entry accounting. However, the accounts are now fully integrated in that there is a balance between the value of assets and liabilities at the beginning of an accounting period, the transactions and other economic events that occur during the accounting period, and the closing values of assets and liabilities. Accounts for the economy as a whole are supported by accounts for the various sectors of the economy, such as those relating to the government, households and corporate entities. The framework also embraces other, more detailed, accounts such as financial accounts and I-O tables, and provides for additional analyses through social accounting matrices and satellite accounts designed to reflect specific aspects of economic activity such as tourism, health and the environment. By applying suitable price measures, the National Accounts can be presented in volume terms as well as in current prices. The time series of the National Accounts can also be adjusted to remove seasonal distortions and to disclose trends.

1.5    National accounting information can serve many different purposes. In general terms, the main purpose of the National Accounts is to provide information that is useful in economic analysis and formulation of macroeconomic policy. The economic performance and behaviour of an economy as a whole can be monitored using information recorded in the National Accounts. National Accounts data can be used to identify causal relationships between macroeconomic variables and can be incorporated in economic models that are used to test hypotheses and make forecasts about future economic conditions. Using National Accounts data, analysts can gauge the impact of government policies on sectors of the economy, and the impact of external factors such as changes in the international economy. Economic targets can be formulated in terms of major national accounting variables, which can also be used as benchmarks for other economic performance measures, such as tax revenue as a proportion of gross domestic product or the contribution of government to national saving. Provided that the National Accounts are compiled according to international standards, they can be used to compare the performance of the economies of different nations.

1.6    However, the full range of information available from a comprehensive national accounting system can serve purposes well beyond immediate concerns of macroeconomic analysts. For example, National Accounts information can be used to analyse income and wealth distribution, financial and other markets, resource allocation, the incidence of taxes and welfare payments, environmental issues, productivity, industry performance, and so on. In fact, the range of analytical purposes that can be served by a complete system of National Accounts has no well-defined limits, and the body of National Accounts data can be seen as a multi-purpose data base that can be used with a high degree of flexibility.

1.7    Surveys and other statistical systems that employ the concepts in the national accounting framework will produce information that is consistent with the National Accounts and with other statistics that are based on the National Accounts framework.

1.8    The idea of estimating national income can be traced back to the seventeenth century. Interest in raising revenue and in assessing England's war potential led to attempts by Sir William Petty in 1665 and Gregory King in 1688 to estimate the national income as either the sum of factor incomes or the sum of expenditures. A little later, Boisguillebert and Vauban used a similar approach in estimating France's national income.

1.9    The eighteenth century French economists called the Physiocrats took a step backwards when they restricted the concept of national income by arguing that only agriculture and the extractive industries were productive. However, Quesnay, one of the Physiocrats, set out the interrelationships between the various activities in the economy in his tableau economique, published in 1758, which was the forerunner of the twentieth century work on I-O statistics.

1.10    In his book, the An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith rejected the Physiocrats' view of the pre-eminent position of agriculture, by recognising manufacturing as another productive activity. However, Smith and the early classical school of economists that he founded did not recognise the rendering of services as productive activity. Karl Marx was also of this view, and the notion persisted in the material product system of National Accounts that was used, until recently, by the centrally planned economies.¹

1.11    Some English economists, in particular Ricardo and Marshall, further refined the concept of production and in the 1920s the welfare economists led by Pigou undertook the first effective measurement of national income.

1.12    The Great Depression of the 1930s, and the attempts by Keynes and others to explain what was happening to the world economy, led economists away from their preoccupation with national income as a single measure of economic welfare. Instead, they attempted to use the new Keynesian General Theory to develop a statistical model of the workings of the economy that could be used by government to develop prescriptions for a high and stable level of economic activity. By the end of the 1930s, the elements of a national accounting system were in place in several countries. The models of Ragnar Frisch and Jan Tinbergen stand out in this period as path-breaking achievements.

1.13    The economic modelling task was given further impetus in the 1940s; first, by the need to efficiently run war-time economies; second, by the publication in 1941 of Wassily Leontief's classic I-O study The Structure of the American Economy; third, by the post-war acceptance by governments of full responsibility for national and international economic management; and last, by the League of Nations publication of an important report about social accounting. By the end of the decade, integrated statistical reporting systems and formal national accounting structures were in place in Australia, the United States, the United Kingdom, Canada, the Scandinavian countries, the Netherlands and France.

1.14    The need of international organisations for comparable data about the economies of member countries was one important factor that prompted development of international standards for national accounting in the late 1940s and early 1950s. The Organisation for European Economic Co-operation sponsored the work of Richard Stone's National Accounts Research Unit at Cambridge University, from which emerged the now-familiar summary accounts of the nation.² Then the United Nations Statistical Office convened its first expert group on the subject. It was also headed by Stone and, in 1953, produced the publication, A System of National Accounts and Supporting Tables (SNA)³, which described the first version of the system that has become the accepted world-wide standard for producing National Accounts.

1.15    There were several other important developments in national accounting in the 1950s. M.A. Copeland and his colleagues in the United States Federal Reserve System prepared the first flow-of-funds tables, which analysed transactions in financial markets. A few countries increased the frequency of National Accounts information by producing quarterly estimates of national income and expenditure (so that their governments could better monitor the business cycle) and also produced information classified by industry and institutional sector (to identify growth industries, poorly performing institutional sectors etc.).

1.16    National accounting's modern era could be said to have started in 1968. In that year, the United Nations Statistical Office published a fully revised version of the SNA, which drew together all the various threads of economic accounting: estimates of national income and expenditure (including estimates at constant prices); I-O production analysis; flow-of-funds financial analysis; and balance sheets of national wealth.⁴ In 1977 the United Nations Statistical Office published detailed international guidelines on the compilation of balance sheet and reconciliation accounts within the SNA framework.⁵

1.17    Since 1968, changes in the structure and nature of economies, the increasing sophistication and growth of financial markets and instruments, emphasis on the interaction of the economy with the environment and other considerations pointed to a need to update the SNA. The task of updating and revising the SNA was coordinated from the mid-1980s by the Inter-secretariat Working Group on National Accounts, working with the assistance of international organisations and experts from national statistical offices around the world. The Working Group consisted of the Commission of the European Communities (Eurostat), the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank. The resulting 1993 SNA was released under the auspices of those five organisations.⁶

1.18    The 1993 SNA aimed to clarify and simplify the 1968 System, while updating the System to reflect new circumstances. The 1993 SNA fully integrated national income, expenditure and product accounts, I-O tables, financial flow accounts and national balance sheets to enable the examination of production relationships and their interaction with countries' net worth and financial positions. 1993 SNA also introduced the concept of satellite accounts to extend the analytical capacity of National Accounts in areas such as tourism, health and the environment. It was one of a quartet of 'harmonised' international statistical standards that included the standards set out in the IMF publications, Balance of Payments Manual 1993 (fifth edition) (BPM5), Manual of Monetary and Financial Statistics (MMFS), and A Manual of Government Finance Statistics (second edition) (GFS). In this context, 'harmonisation' means that the standards employ common concepts and definitions so that valid comparisons can be made of statistics produced from each of the four systems. Complete alignment of the standards was neither feasible nor necessary, because each system serves different purposes. Each system therefore had a proportion of unique concepts and definitions.

1.19    The 2008 SNA was commissioned by the United Nations Statistical Commission to bring the national accounting framework as outlined in the 1993 SNA into line with the needs of data users. It was considered that the economic environment in many countries has evolved significantly since the early 1990s and, in addition, methodological research had resulted in improved methods of measuring some of the more difficult components of the accounts. The 2008 SNA does not recommend fundamental or comprehensive changes. Further consistency with related manuals, such as those on the balance of payments (which was updated simultaneously with the 2008 SNA), on government finance statistics and on monetary and financial statistics, was an important consideration. Therefore, there is more harmonisation between the 2008 SNA and related manuals. The key changes fell into five main groups: assets; the financial sector; globalisation and related issues; the general government (GG) and public sectors; and the informal sector. Australia's policy is to apply each of the standards to the highest feasible degree, a high level of harmonisation will be found between the Australian National Accounts and Australia's balance of payments, government finance, and monetary and finance statistics.