Institutional Sector Accounts: 1999–2009

Data quality

Period-specific information
This section contains information about data that has changed since the last release.

General information
This section has information that does not change between releases.

Period-specific information

Summary analysis tables by institutional sector 2007–2009

This release includes new tables for the period 2007–2009. These summary analysis tables are a re-expression of the main sector tables. They bring together the aggregated flows for each sector.

The summary analysis tables highlight the links between the sector accounts and the consolidated national accounts. They also clearly show how national saving has been allocated to sectors.

The new tables include the ‘rest of the world’ sector, presented from the viewpoint of an overseas resident. Interest paid, for example, is shown as a positive amount representing interest earned by overseas enterprises from investment in New Zealand. Similarly, in most years net lending with the rest of the world is shown as a positive total. This reflects that the rest of the world is a net lender to New Zealand.

Factor income

The production account section of the tables distinguishes current transactions beginning with factor incomes generated from the production of goods and services. Gross domestic product (GDP) equals the sum of factor incomes plus consumption of fixed capital (which is recorded in the capital account).

Income and outlay

This section of the tables summarises transactions related to the redistribution of the factor incomes.

All expenditure transactions in the table (subsidies paid by government, inter-sector transfer payments, consumption, balance on external goods and services, and capital accumulation) are presented as negative entries. Therefore, saving or net lending can be computed simply by adding all the component transactions that appear in the ‘factor income’ and ‘income and outlay’ sections. For some variables, the receipts and payments have been presented in the same row, usually for variables where the inter-sectoral flows are in one direction. For example, the ‘income tax’ row has government receiving income tax (positive entry), while the other domestic sectors are paying income tax to the government sector (negative entries).

Expenditure and saving

Current transactions relate to final demand (consumption and balance on external goods and services). The balance on external goods and services is exports of goods and services less imports of goods and services. Gross domestic expenditure equals consumption and balance on external goods and services plus net investment on fixed assets and inventories, recorded in the capital account. Saving is the residual item.

Capital account

The capital account summarises capital transactions, presenting the sources of funding followed by the various types of capital accumulation. Net lending is the residual item.

How summary analysis tables relate to published national accounts aggregates
  • GDP is the sum of the factor incomes and consumption of fixed capital.
  • Expenditure on gross domestic product (GDE), is the sum of final consumption expenditure, gross capital formation and balance on external goods and services.
  • National saving is the sum of the saving of the domestic sectors.
  • Net lending to the rest of the world is the sum of the borrowing of the domestic sectors (represented by negative net lending). For years in which there is a statistical discrepancy in the national accounts, net lending to the rest of the world is the sum of the borrowing of the domestic sectors less the statistical discrepancy.  

General information

Information about the tables

In New Zealand's national accounting system, data is presented as a set of self-balancing and interrelated accounts. These are: production, income and outlay, capital, financial, reconciliation accounts, and balance sheets.

For each enterprise, sector, or the economy as a whole, the following accounts are compiled.

Production account

The production account records the current value of goods and services produced and the costs associated with their production. Value added is the sum of all production (output) less the consumption of intermediate goods and services in the production process. The production of all resident institutional sectors sums to national production (or gross domestic product) in table 1.1 of National Accounts: Year ended March 2011.

Income and outlay account

The income and outlay account records income received from the various factors of production and how this income is either redistributed or used for final consumption expenditure across the sectors. The balancing item is saving, which is a major source of finance for investment in assets or for reducing financial liabilities. Income across all resident institutional sectors sums to national disposable income, in table 1.2 of National Accounts: Year ended March 2011. Outlay across all resident institutional sectors sums to national use of disposable income, in table 1.2.

Capital account

The capital account records net capital transfers, consumption of fixed capital (depreciation), and net purchases of non-financial assets, inventories, and fixed assets. It also shows whether capital expenditure is financed from saving generated within the current period or from borrowing. The balancing item is net lending. Capital transactions across all institutional sectors sum to the totals in table 1.3 of National Accounts: Year ended March 2011.

Within any sector, these three accounts share variables. The production account is linked to the income and outlay account through value added, which represents the income available to distribute. The income and outlay account is linked to the capital account through saving, which is the total amount available to invest or retain for future use. The capital account is linked to the production account through consumption of fixed capital in the production process.

Financial accounts, reconciliation accounts, and balance sheets have not yet been developed by Statistics New Zealand.  

The concept of saving/s

Saving is estimated as the residual between total income and outlay components. Income and expenditure estimates (including interest and dividend flows) are reconciled within the institutional sector framework.

If we produced the full set of institutional accounts, including balance sheets, we would be able to derive a 'savings' estimate. This 'savings' estimate is also called a net worth or wealth estimate and found in the balance sheets. 'Savings' is, for example, the market value of a sector’s stock of assets less the market value of its stock of liabilities (capital gains). Wealth or net worth can be seen as the accumulated stock of saving. Wealth estimates are outside the current scope of the institutional sector accounts.

Saving excludes the following items that affect net worth:

  • capital gains (or holding gains) which reflect changes in the prices of existing assets and therefore do not represent additions to real stock of produced assets 
  • capital transfers, which reflect changes in ownership of existing assets  
  • events such as the Christchurch earthquake, which result in changes in the real stock of existing assets but do not reflect an economic transaction.

An example of how household sector saving (as measured in this release) differs from the change in net worth (savings) is illustrated as follows. An increase in the value of the owner-occupied housing stock is included in measures of household net worth but not included in household saving. However, increases in mortgage interest payments related to increases in housing values do affect (reduce) household saving. 

This means that measuring saving as a flow measure (income not spent) or net worth (savings) as a stock measure (change in net worth) are not competing methodologies. Instead, the key objective should be to reconcile them in a full set of accounts. 

Methodology for compiling the accounts

The institutional sector accounts are compiled by transaction (flows). Each transaction is allocated to sectors separately, and then full-sector accounts are compiled.

Business surveys are the principal data sources for most transactions in the institutional sector accounts, the same surveys used to compile the national accounts. Business surveys, such as the Annual Enterprise Survey, collect information on financial flows and productive activity. They also collect data on an industry by sector basis. We supplement our surveys with data from other sources (eg Reserve Bank data is used to estimate household interest flows).

Large financial flows are reconciled as far as possible at the enterprise level. For example, large dividends paid by New Zealand-resident enterprises in the balance of payments statistics are checked against dividends paid recorded in business surveys. Large inter-company flows are also cross-checked. Where the data sources are inconsistent, other sources (including annual reports) are consulted, and the source data is then adjusted. By this reconciliation process the gap between national totals for transactions (such as interest paid and interest received) are brought close together. A final adjustment is made to match the flows exactly.

Where conflicting information on interest flows is reported by the debtor and creditor, and both flows appear to be reported correctly, the debtor numbers are used.

In general, gross data is recorded. Even between institutional units within the same sub-sector, receipts are not netted off payments, and vice versa. Where inter-company financial flows are recorded in unconsolidated form, level shifts in some series can occur that are entirely due to the inter-company flows. An example of this would be a company receiving a dividend from a subsidiary, then passing on the same dividend to an overseas parent company. In the accounts such a dividend is effectively recorded several times: paid by the subsidiary and the company, and received by the company and the rest of world, respectively. For large dividends, payments have been matched against receipts, and the accounts are correct on a grossed up basis.

Standard treatments concepts

Capital gains and losses
Capital gains and losses associated with holding or trading capital and financial assets are recorded in reconciliation accounts. Therefore, these gains/losses are excluded from the concept of saving. Foreign exchange movements are eliminated.

Owner-occupied dwellings
Ownership of owner-occupied dwellings is a market activity undertaken by households. Both gross fixed capital formation and intermediate consumption are excluded from final consumption expenditure. This is because expenditure associated with purchasing of owner-occupied dwellings is classified as gross fixed capital formation, and expenditure on alterations and maintenance is classified as intermediate consumption. Payment of imputed rent by owner-occupiers is included in final consumption expenditure. This measures an income flow back to households, valued at market rates.

Consumption of fixed capital (depreciation) is recorded separately in the household capital account. Consequently, the saving residual in the household income and outlay account is net of depreciation on owner-occupied dwellings.

Finance service charge
The finance service charge is earned by banks and other enterprises classified as financial intermediaries.

Conceptually, the interest these intermediaries receive should be net of the finance service charge earned in the income and outlay account for all sectors to balance. This also requires the corresponding payments to be recorded net. In turn, this requires payment of the finance service charge to be allocated by sector. Currently in the NZSNA, payment of the finance service charge is not allocated, it is recorded as being paid by a nominal industry, which has a corresponding negative operating surplus.

Rather than include the nominal industry as a separate institutional sector with negative saving, the finance service charge received has been subtracted from the operating surplus of the financial corporation sector. This also avoids double-counting the relevant interest flows. Moreover, because gross flows of interest received and paid are recorded in the income and outlay accounts, the non-allocation of the finance service charge, though affecting operating surplus for each sector, has no effect on sectoral saving or net lending.

Pension and social security schemes
According to the NZSNA, income for life insurance and superannuation and pension schemes is imputed. Employer contributions to these schemes are part of an individual’s income. Since the accumulated pension and superannuation funds are regarded as household assets, interest earned by the funds is included in household income. To avoid double-counting this income, actual pension payments are treated as a rundown in assets. Internationally, there may be differences in where the line is drawn between funded social security schemes (not classified as part of private saving) and funded pension schemes (usually for state employees).

The estimates do not include income earned by New Zealand residents’ investment in overseas pension funds, due to the difficulty of measurement.

Insurance premiums and pension-fund contributions
Only the service or administration charge component of insurance premiums and pension-fund contributions paid by households is treated as final consumption expenditure. The balance is treated as a transfer payment and classified as secondary income payable.  

Actual final consumption
Actual final consumption of households measures the goods and services households acquire, whether they buy them directly or government non-profit institutions buy on their behalf.

Special features of New Zealand data and methods

Data users should be aware of a number of features of New Zealand's business, tax, and historical context when viewing these accounts.

Relationship between unincorporated businesses and households

The relationship between households and businesses, especially small, owner-operated businesses, may be blurred in many ways.

  • Household owners of businesses may hold property through years of losses, expecting capital gains sale.
  • Business debts may be held within the household sector rather than the business sector.
  • Some final consumption of households that operate farms may be reported as business (farm) expenses.

Statistics NZ classifies unincorporated enterprises to the producer (business) sector. Only the net entrepreneurial income from the business is included as a profit transfer in the household account – no retained earnings (saving) of unincorporated businesses are included in the producer sector. The total net earnings are recorded as being transferred to the household owners, where they mix with other sources of household income before income tax is assessed. While every effort is made to ensure that business-related expenses are excluded from household consumption expenditure, any that remain will overstate household outlays.

Since household owners withdraw all net current income from unincorporated businesses, any actual retained earnings of these businesses has to be shown as a capital contribution from householders. Consequently, household saving is also a source of finance for capital accumulation in the unincorporated producers sector. Net lending for the household sector therefore reflects the lending to the unincorporated businesses they own.

The exception to this occurs where households with rental property businesses hold property through years of losses, expecting capital gains when they sell. This is the reason negative saving is recorded in the unincorporated producers sector.  

Dividend imputation credits

As dividend imputation credits are essentially a tax credit, dividends are estimated net of these credits.

Future development of methodology

Future methodological changes may cause revisions to the institutional sector accounts. The following areas warrant further investigation. A few of these issues were highlighted following the release of Institutional Sector Accounts: 1999–2008, but because of disruption due to the 2010/2011 Christchurch earthquakes, no development work was done. We expect many or all of these issues be investigated in 2012. 

Trust income

Family trusts are an increasingly popular means of holding productive real and financial assets. In the national accounts, family trusts, as the owners of ‘household’ assets, are classified to the household sector. Income earned by the trust is included in household income. However, the different forms of asset ownership possible are quite complex, as are the ways in which the relevant trust flows might be captured in the source data used to compile the accounts. Trust income (especially beneficiary income) is recorded in household income. In principle, some may be recorded in the producer sector. Inland Revenue statistics suggest that this component of trustee income has increased significantly in recent years.

Retained earnings

Under New Zealand law, qualifying companies (by treating the company and its shareholders as one entity as much as possible for income tax purposes) allow a number of tax benefits. Analysis suggests that after changes to the top personal income tax rate in 2000, a greater proportion of earnings were retained within these companies rather than paid out to the working proprietors (as entrepreneurial withdrawals). This is reflected in the institutional sector accounts, where the retained earnings of corporations are not reported as household income. Given that the working proprietor has ready access to the retained earnings of the company, saving recorded in the household income and outlay account was lower than it might be without this particular tax law.

Transfers

Additional analysis of transfers may include a further review of government internal transfers, as these do not always net out. With the move to ANZSIC06, the sales and transfers of private non-profit organisations serving households will once again be reviewed to make sure they are being classified correctly.

Financial intermediation services indirectly measured

The finance service charge is earned by banks and other enterprises classified as financial intermediaries.

Work is underway on incorporating this measure into the national accounts by 2013. This work will replace the finance service charge with the 1993 SNA concept – financial intermediation services indirectly measured (FISIM). When allocating the cost as FISIM, the GDP total will change. It will increase by the value of the amount classified as final consumption expenditure of households, government, and private non-profit institutions serving households, and the value allocated to exports (net of that estimated as imported).

Rounding

Some aggregates in the institutional sector accounts should match existing national accounts aggregates, but instead differ by a few million dollars (usually one or two million). We will investigate this issue to make sure that all input data used is of the same magnitude (the working level is thousands of dollars), and we will also review how aggregation is done. If there are still rounding differences we will investigate whether the aggregates can be 'fixed' to match exactly the published national accounts.

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While all care and diligence has been used in processing, analysing, and extracting data and information in this publication, Statistics NZ gives no warranty it is error-free and will not be liable for any loss or damage suffered by the use directly, or indirectly, of the information in this publication.

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