What are the National Accounts and what do they tell me?
Every day there are millions of transactions taking place in the New Zealand economy:
- businesses buy and sell goods and services
- Government collects taxes and makes transfer payments to beneficiaries
- people are paid for the work they do and use this income to buy food or pay rent.
Measuring these transactions is a huge and complex task but one which is essential to understanding how the economy operates. In New Zealand, as in most other countries, these transactions are classified, measured and recorded in the national accounts, providing a convenient summary of the key economic and financial flows in New Zealand. They also provide a framework in which to analyse and compare important economic variables such as household consumption and savings. The national accounts are organised within the framework of the New Zealand System of National Accounts (NZSNA), which contains data collected from a wide and varied range of surveys and censuses, providing the necessary basis for subsequent socio-economic analysis.
The national accounts record all types of transactions. They do so for the economy as a whole, and for certain groups or sectors within it. This provides information on economic activities such as:
- the production of goods and services and the costs involved in producing them
- the incomes earned by various groups within the economy, and what they do with them
- the economic relationship with the rest of the world.
With this sort of information, answers can be provided to questions such as:
- What is produced?
- Who produces it?
- What inputs are used up?
- Who owns the labour, capital and other resources used up, and what do they receive in exchange?
- What happens to these incomes when they are received? How much does the Government take, how much is saved?
- How much is invested?
- How much of the income has to be used overseas to repay debt?
Public attention, however, often focuses on the three key measures of total economic performance: (i) the production aggregate, Gross Domestic Product (GDP); (ii) the expenditure aggregate, Gross National Expenditure (GNE); and (iii) the income aggregate, Gross National Disposable Income (GNDI).
GDP is a measure of domestic production while GNE is a measure of the internal demand for both domestic and overseas production. The focus of GNDI is to measure the total income of New Zealand residents, not only from domestic production but also from the net income flows with the rest of the world.
The information from the national accounts, whether a measure of total performance or detailed statistics by sector or industry, has a wide range of users. These include:
- government departments for policy formation
- economic analysts for forecasting
- researchers interested in understanding economic trends
- overseas investors and agencies
- business accountants.
To clarify the scope of the NZSNA, it is a good idea to start with a simplified model of the economy. Figure 1.1 depicts the economy as a circular flow of economic processes, which are identified in most economic models.
Figure 1.1
Simple Model of the Economy
In the simplified form illustrated, there are two processes: production and consumption. The transactors in the economy have been grouped according to whether they are producers or owners/consumers. The bottom half of the producer and owner/consumer boxes show the types of NZSNA accounts in which their respective transactions are presented.
In the production process:
- goods and services are produced
- incomes are generated and paid to the individuals and groups who own the means of production (labour, capital, land and entrepreneurship)
- these incomes are used to consume the items produced.
What data is available and when?
A wide range of economic series are produced within the NZSNA. Examples of principal series and accounts published include:
- Gross Domestic Product (GDP), Gross National Income (GNI), Net Lending to Rest of World
- Contribution to GDP by Industry
- Gross Fixed Capital Formation by Sector of Ownership and Type of Capital Good
- Change in Inventories by Industry Group
- Final Consumption Expenditure of Resident Households by Purpose and by Type
- Final Consumption Expenditure by Central and Local Government
- Income and Outlay Accounts by Institutional (Economic) Sector
- Capital Accounts by Institutional Sector.
The following two regular publications are produced under the New Zealand System of National Accounts:
Quarterly Gross Domestic Product
The Quarterly Gross Domestic Product (GDP) Hot off the Press is published within 13 weeks of the end of the reference quarter (March, June, September and December). For example, results for a March quarter are published near the end of June. The release contains estimates for quarterly GDP and expenditure on GDP. The GDP series are chain volume measures expressed in 1995/96 prices and both seasonally adjusted and actual figures are available. For the expenditure on GDP series there are both constant and current price quarterly figures (seasonally adjusted and actual).
GDP is analysed by industry groups, and expenditure on GDP by major expenditure groups (eg household consumption, government expenditure, investment, exports and imports).
Further details on how GDP series are compiled and for a glossary of terms.
Annual National Accounts
The Annual National Accounts Hot off the Press is published each November and contains annual current price estimates for the year ended the previous March. The accounts consist of four related consolidated accounts for the total economy:
- Gross Domestic Product and Expenditure
- National Income and Outlay
- National Capital
- External
Some of the interesting figures that are available in these accounts are National Savings, National Disposable Income, Net Lending to the Rest of the World.
Further details on how these National Accounts are compiled and for a glossary of terms.
Other publications that are produced under the New Zealand System of National Accounts include:
Tourism Satellite Accounts
Tourism Satellite Accounts, which involve the rearrangement of existing information in the national accounts, provide a summary measure of the contribution tourism makes to production and employment.
Input-Output Study
Produced annually, these inter-industry studies are an economic analysis of the industrial structure of the nation's economy for a given year. They record:
- the factors of production used by each industry, such as labour, capital, etc. [see flow (b) in the diagram].
- how much of the production is used as final uses, such as private consumption, investment and exports [see flow (c) in the diagram].
The studies also record how much each industry purchases from and sells to other industries.
See Input-Output Study for details of the Inter-Industry Study 1996 and the tables available.
Institutional Sector Accounts
These accounts analyse the economy by economic sectors. Within these sectors are institutions (enterprises, government departments, households, etc) groups according to their economic roles. The units in each sector are expected to have similar reactions to market, fiscal and monetary policy stimuli. The sectors covered are:
- non-financial businesses
- financial businesses (eg banks, insurance companies)
- government organisations
- households
- private non-profit organisations which serve households.
The accounts include for each sector:
- production accounts (what goods and services are produced)
- income and outlay accounts (how the production is financed)
- capital accounts (what investment is required and how it is financed).
The accounts summarise key transactions between each sector and with the rest of the world. These transactions include income from interest and dividends, income tax, government benefits, investment in housing etc. They also record each sector's contribution to national savings, total investment and their share of borrowing from the rest of the world.
For further information see Institutional Sector Accounts.
Upgraded National Accounts
The New Zealand System of National Accounts is now based on the international standard, the System of National Accounts 1993. The publication Upgraded National Accounts 2000 details the changes and new series developed.
New and coming up
See Developments for ongoing and recently published developments in the national accounts.
Frequently asked questions
What is GDP?
A major objective of national accounts is to measure the value added resulting from production. If all production, including non-marketed output was added together, considerable duplication would occur because many goods and services provided by one producer are purchased by another for use in subsequent production. As a result the value of some goods and services becomes incorporated in the value of other goods and services. One purpose of the national accounting process is to remove the value of intermediate consumption and so arrive at a value of production free of duplication. This is the concept of value added, or GDP.
For individual producers, total output less intermediate consumption measures their value added and represents the producers contribution to GDP.
For industries, value added equals the value of total output of each industry less the cost of goods and services used in production.
The sum of the value-added for each industry is not, however, equal to GDP, the difference being import duties, GST on production, and other indirect taxes not allocated to producers. Collectively, these duties and taxes are referred to as ‘Taxes on production and imports’. These taxes are levied on the purchaser of the taxed commodity and not on the seller, so they are not recorded in the production accounts as a charge against the value of output.
GDP, therefore, equals the sum of value added for all producers, plus taxes on production and imports.
What is the latest GDP figure?
The latest GDP figure can be found in the Quarterly Gross Domestic Product (GDP) Hot off the Press
Aren't GDP and expenditure on GDP the same thing?
There are three approaches to measuring GDP. In theory they all result in the same total but in practice they are often a little different because of different data sources, etc. The three different measures are:
- Expenditure - this approach measures directly the value of goods and services produced for final use, by measuring purchases by owners/consumers.
- Production - this approach measures the value added of producers, by deducting the value of goods and services used up in production from the total value of goods and services produced.
- Income - this approach measures the value added of producers by summing the incomes accruing to the factors of production i.e. labour payments plus profit.
The transactions making up GDP and Expenditure on GDP are estimated independently, using diverse data sources. The combination of survey and other measurement errors and timing differences in the various components results in a difference between the estimates. In the current price accounts this difference is called the statistical discrepancy. By a process of balancing each industry's output with other industry's inputs, it is possible to reduce the discrepancy to zero.
What does the term 'real' mean?
The terms "real" and "constant price" refer to the same thing. The constant price value series is a time series of volume components expressed in the prices of a single period. This is done so that changes in the level and structure of the economy can be analysed without the distorting effects of price changes or variations.
What does the term 'nominal' mean?
A nominal value is a value which is expressed in the prices current at the time the value was generated.
What is seasonal adjustment?
This is a process by which seasonal fluctuations (eg Christmas shopping, dairy production) are smoothed. This is done so that significant changes in the direction and level of economic activity can be identified rather than disguised by large seasonal fluctuations.
Is there more to National Accounts than GDP?
Yes - there are many other important variables that can be found in the National Accounts. These include national and household saving, total investment in the economy, national disposable income, net lending to the rest of the world. These can be found in the consolidated national accounts in the Annual National Accounts Hot off the Press.
Can I compare figures for New Zealand with other countries?
On the whole, yes. The New Zealand economic accounts are based on an international standard agreed to by the United Nations, the OECD, the World Bank and the International Monetary Fund. In practice most countries do have minor variations from the standard to take account of conditions peculiar to each country.
Click on this link for further information on National Accounts.
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