Adjustments made to output

9.49    Most ANZSIC divisional estimates of Australian production at basic prices have an adjustment for the estimated level of understatement of income. The calculated value for each ANZSIC subdivision's understatement of income is added to the division's total output estimate to form the final Australian production at basic prices.

9.50    The percentage adjustment for each ANZSIC subdivision's estimated understatement of income is different. The estimated understatement of income is based on industry analysis conducted by the Australian Taxation Office from their audits of business income and business expenses.

9.51    It is considered that no understatement of income adjustments is required for the following industries:

• Electricity supply
• Gas supply
• Rail transport
• Water, pipeline and other transport
• Air and space transport
• Finance
• Insurance and superannuation funds
• Ownership of dwellings
• Government administration and regulatory services and Defence Off-June year reporting

9.52    Business units may report on a calendar year basis other than for the year ending June, so an adjustment is required to ensure all output data are on a June financial year basis before they are used in S-U compilation. This adjustment is applied by deriving off-June factors for each data item using Business Indicators: Australia (QBIS) for each ANZSIC subdivision. The appropriate off-June factors are then applied to data items reported by individual businesses in the EAS for each ANZSIC subdivision who did not respond on a June financial year basis. Hence the data reported on an off-June financial year basis is adjusted onto a June financial year basis.

9.53    Further information can be found in the ABS publication, Experimental Estimates for Australian Industry Adjusted for Off-June Year Reporting.

9.54    An estimate for own account R&D is included to derive output. More information can be found in the ABS publication, Research and Experimental Development, Businesses, Australia.

9.55    Intermediate consumption (or intermediate use) consists of the value of the goods and services consumed as inputs to the production process. The goods and services may be either transformed (e.g. flour may be transformed into bread) or completely consumed or used up (e.g. electricity and most services) in the process of producing outputs.

9.56    In addition to goods and services used directly in the production process, intermediate consumption includes the value of all goods and services used as inputs into ancillary activities. Ancillary activities are undertaken within an enterprise for the sole purpose of supporting the main and secondary activities. Ancillary activities include purchasing, sales, marketing, accounting, data processing, transportation, storage, and security. The output of an ancillary activity is not intended for use outside the enterprise.

9.57    Intermediate consumption does not include valuables consisting of works of art, precious metals and stones and articles made out of them, that are acquired as stores of value and are not used up in the process of production. However, intermediate consumption does include precious stones and metals used in the production of jewellery and similar items.

9.58    Intermediate consumption excludes the costs incurred by the gradual using up of fixed assets, which is recorded as consumption of fixed capital in the income and capital accounts. Rentals paid on fixed assets that are leased from other institutional units under operating leases are included as part of intermediate consumption, along with fees, commissions, royalties, etc., payable under licensing arrangements.

9.59    As described previously, the ASNA includes output for own intermediate use in limited cases. In these cases, the imputed value of brown coal and electricity produced by those TAUs is also included in their intermediate consumption.

9.60    Operating leases are leases that provide for the renting of machinery or equipment for specified periods of time that are substantially shorter than the total expected service lives of the machinery or equipment. An operating leasing is a form of production in which the owner of the machinery or equipment (the lessor) provides a service to the user (or lessee). The lessor is usually responsible for the maintenance and repair of the equipment as part of the service provided to the lessee. Rentals are treated as payment for the total service provided, and are included in the intermediate consumption of producers. For operating leases, consumption of fixed capital is charged to the lessor.

9.61    Under a financial lease, a change of ownership from the lessor to the lessee is deemed to have taken place, even though the leased goods legally remain the property of the lessor, at least until the lease expires. Financial leasing is an alternative to lending as a method of financing the acquisition of machinery and equipment, in which the lessor effectively makes a loan to the lessee to enable the latter to finance the acquisition of the equipment. Rentals under financial leases are treated as a combination of loan repayments and interest payments and not as part of intermediate consumption. Under a financial lease, consumption of fixed capital is charged to the lessee.

9.62    Certain goods and services used up by producers do not enter directly into the production process but are consumed by employees working on that process. Where goods and services are provided to employees and are used by the employees in their own time and at their own discretion, the goods and services constitute remuneration in kind rather than intermediate consumption. Fringe benefits, such as the private use of company cars, airline lounge memberships, telephones and rent subsidies, fall into this category. This distinction is important, because the inclusion of remuneration in kind in compensation of employees, rather than in intermediate consumption, increases labour income and GDP.

9.63    This boundary is not always clear cut. The following provides an explanation of the treatment of particular expenditures.

9.64    Expenditure on large items of machinery and equipment is recorded as gross fixed capital formation while regular expenditure on small durables, such as hand tools, is normally regarded as intermediate consumption.

9.65    The 2008 SNA recommends that ordinary maintenance and repairs of fixed assets used in production constitute intermediate consumption and that major renovations, reconstructions or enlargements of fixed assets are to be treated as gross fixed capital formation. Ordinary maintenance and repairs are necessary to ensure effective utilisation of assets over their expected service lives. Such maintenance and repairs do not change the asset or its usual level of performance. Major renovations, reconstructions or enlargements increase the performance capacity of existing assets or significantly extend their previously expected service lives. Examples are extending or enlarging existing buildings or structures and refitting or restructuring the interior of a building or ship.

9.66    Research and development is treated as capital formation except in any cases where it is clear that the activity does not entail any economic benefit for its owner, in which case it is treated as intermediate consumption. This is a change in treatment as recommended by 2008 SNA and has been implemented in ASNA.

9.67    Expenditures on mineral and petroleum exploration are not treated as intermediate consumption. Whether successful or not, they are needed to acquire new reserves and so are all treated as gross fixed capital formation.

9.68    Expenditure on major military equipment (such as weapon delivery systems) is treated as gross fixed capital formation in the ASNA. Expenditures on durable military items such as boots, bombs and bullets, torpedoes and spare parts, are recorded as increases in inventories on acquisition and decreases in inventories on use or disposal, and therefore as intermediate consumption as they are used up.