The Australian System of National Accounts

In Figure 2.1 below, an example of the composition of the supply-use (S-U) tables that underpin the Input-Output (I-O) tables is presented. The S-U framework comprises of two tables 'supply' and 'use'. The supply table shows the total supply of products from domestic and foreign producers that are available for use in the domestic economy. The use table presents the use of this supply by industries as intermediate inputs and by final users.

• Within supply is industry, and beneath this is output. Products under output are farmer to grain, baker to bread, and hospital to health services. These all make up total output (A). Also under supply are taxes/subsidies, margins, and imports.
• Supply equals use. Within use is industry, and beneath this is intermediate input. Products under intermediate input are fertiliser to farmer, flour to baker, and pharmaceuticals to hospital. These all make up total intermediate input (B). Also under use is final demand. Beneath final demand are government, households, capital, exports, and inventories.
• Gross value added (production) equals total output minus total intermediate input, or A minus B.
• A minus B equals gross value added income. This includes compensation of employees, other net taxes on production, and gross operating surplus

The Input-Output (I-O) tables present a comprehensive picture of the supply and use of all products in the economy, and the incomes generated from production.

They provide a framework for checking the consistency of statistics on flows of goods and services obtained from quite different kinds of statistical sources - industrial surveys, household expenditure inquiries, investment surveys, foreign trade statistics, etc. The Australian System of National Accounts (ASNA), and the I-O tables in particular, serves as a coordinating framework for economic statistics, both conceptually for ensuring the consistency of the definitions and classifications used and as an accounting framework for ensuring the numerical consistency of data drawn from different sources. The I-O framework is also appropriate for data estimation purposes, and for detecting weaknesses in data quality and estimation. By providing information on the structure of, and the nature of product flows through the economy, the I-O tables assist in the decomposition of transactions into prices and volumes for the calculation of an integrated set of price and volume measures. As an analytical tool, input-output data are conveniently integrated into macroeconomic models in order to analyse the link between final demand and industrial output levels.

Input-Output tables can be presented in either basic prices or purchasers’ prices, and the valuation basis for products is an important factor dependent upon which section of the supply-use framework the products are situated.

If users are looking at a use matrix within an I-O table, for the intermediate inputs matrix, industries appear across columns and products across rows. In the intermediate inputs matrix, each cell indicates the amount of a product purchased by each industry as an intermediate input into the industry’s production process.  Within the final demand matrix, products are presented in the rows, and final demand categories (rather than industries) valued at purchasers' prices appear across the columns. The tables below are valued at basic and purchasers’ prices with Output indexes I-O framework at basic prices (Table 2.2) and Input indexes I-O framework at purchasers’ prices (Table 2.3). 

The 'Supply' table of the Input-Output tables

If looking at a supply matrix within an Input-Output table, the domestic output matrix forms the main body of the table. In this matrix, industries appear across columns and products across rows, and each cell indicates the amount of each product that is produced domestically by each industry at basic prices. Total domestic supply by commodity (valued at basic prices) presents the sum of the domestic output and imports. Imports are valued at domestic port value, that is, free on board, which is equivalent to the importer’s customs frontier price. An example of the supply 'output' table is demonstrated in Table 2.2 below.

The 'Use' table of the Input-Output tables

Table 2.3 is an industry-level use table in the supply-use framework. This table comprises the intermediate inputs matrix, final demand matrix, and value-added matrix. The structure of the use table shows the use of products by industries and by final users as well as the value added by industry at purchasers’ prices. Valuation in purchasers’ prices shows inputs to industries and final uses at values that reflect the actual cost to the user of the product. These costs include the costs of transporting the product to the user in addition to any wholesale and retail mark-ups incurred while bringing the product to market.

The intermediate inputs matrix forms the central part of the use table. This represents expenditure of products by industry that are used as an intermediate input into the industry’s production process. These products are valued at purchasers’ prices, meaning that taxes, transportation costs, and wholesale and retail trade margins are embedded in the total along with the underlying value of the product purchased. No distinction is made in the use table between imports and domestically produced output.

The final demand matrix within the ‘Use’ table presents expenditure-side components of GDP, including household and government final consumption expenditures, gross final capital formation, change in inventories and exports.

At the most aggregate level, the supply and use of products in the National Accounts is the macroeconomic identity equating total supply with total use. Total Supply is the sum of outputs, imports, margins and net taxes (taxes less subsidies on products). Total Use is the sum of intermediate consumption, final consumption of households and governments, capital formation, changes in inventories, and exports.

Gross Domestic Product
There are three approaches which can be used to measure Gross Domestic Product (GDP):

1. The income approach - involves summing net factor incomes, consumption of fixed capital (depreciation) and taxes less subsidies on production and imports
2. The expenditure approach - involves summing all final expenditures, changes in inventories and exports less imports of products
3. The production approach - involves taking the value of products produced by an industry (i.e. output) and deducting the cost of products used up by the industry in the production process (i.e. intermediate consumption) and adding the result across all domestic industries. Taxes less subsidies are added on products if output is valued at basic prices, as recommended in the Australian System of National Accounts (ASNA).

GDP is internationally recognised as the central National Accounts aggregate for measuring national economic performance. It is a measure of production, as distinct from final demand. It measures the value added by the productive activity carried out by all the unit’s resident in an economy. Compiling indexes for tracking the relative change in GDP and its components that can be attributed to price and volume change is one of the primary objectives for ABS Price Indexes.

The individual elements in the value aggregate equation represent detailed product flows that are classified into categories of transactions.

There are two defining aspects of recording transactions: timing and valuation.

Timing of transactions covered

To associate each transaction with a date, the National Accounts use an accrual basis for accounting as outlined in the ASNA. Accrual accounting records flows at the time economic value is created, transformed, exchanged, transferred or extinguished. This means that flows that imply a change of ownership are entered when the change occurs, services are recorded when provided, output at the time products are created and intermediate consumption when materials and supplies are being used.

Valuation

There are two valuation principles in the National Accounts, one for suppliers and one for users. For suppliers, transactions in products are to be valued at basic prices. The basic prices is the price per unit of product receivable by the producer. As the producer does not receive taxes (if any) on products but does receive subsidies (if any) on products, taxes on products are excluded from the  basic price, while subsidies on products are included. Subsidies artificially reduce the sale price, so they are included in the  basic price to obtain a measure of the true value of products produced. Taxes on products, if included, would artificially increase the price and so are excluded. Separately invoiced transportation charges paid by consumers, or any distribution margins added by other, retail/wholesale service producers are also excluded from the basic price. On the other hand, the user, as purchaser, pays all of these charges, and users’ purchases are therefore valued at purchasers’ prices, which add taxes net of subsidies on products and margins for included transportation, insurance, and distribution services to the basic price.

Accordingly, output and imports are valued at basic prices, to which are added taxes less subsidies on products (net taxes) and margins to arrive at total supply. The components of total uses (including both final expenditure and intermediate consumption) are valued at purchasers’ prices. This is interpreted for the final consumption of households and government. For capital formation expenditures, the notion of purchasers’ prices also includes the costs of setting up fixed capital equipment. For exports, purchasers’ prices include export taxes net of subsidies, according to the free on board value at the Australian customs frontier.