Appendix 7A Major Private and Public Sector Components of Australia's National and State-Territory Economies

Transcription

1 7A-1 Appendix 7A Major Private and Public Sector Components of Australia's National and State-Territory Economies This appendix describes the major private and public sector components of Australia's national economy and the eight State and Territory economies, and hence provides detailed descriptions of the five private sector expenditure categories and the three major public sector expenditure categories defined in Chapter 7. The overall magnitude of Australia's economy can be described in terms of two common measures of a country's economy: Gross Domestic Product (GDP) and Domestic Final Demand (DFD). These gross aggregates are divided into private and public sector components, and then into further major subdivisions within these private and public sector components. State and Territory components of these measures are also provided. Two alternative measures of total private sector expenditure are defined in the form of Gross Private Product (GPP) and Private Final Demand (PFD). Gross Private Product (GPP) is defined as Gross Domestic Product (GDP) less Public Final Demand (PubFD), and Private Final Demand (PFD) is similarly defined as Domestic Final Demand (DFD) less Public Final Demand. Household Final Consumption expenditure (HFC) is the major component of both GPP and PFD, so GPP and PFD are subdivided into this HFC component and the remaining balance components. Gross Private Product (GPP) is divided into HFC and a component referred to here as Gross Business Product (GBP). Private Final Demand (PFD) is divided into HFC and Business Final Demand (BFD). This appendix contains six sections. The first section defines and describes Australia's aggregate economy in terms of GDP and DFD and their private and public sector components. These measures are broken down into State and Territory components in the second section. The third and fourth sections describes Australia's major private sector expenditure components on an Australia-wide basis and at the State-Territory level. The fifth and sixth sections similarly describe Australia's major public sector expenditure components at both the national and State- Territory levels.

2 7A-2 Australia's Aggregate Economy and Public and Private Sectors Gross Domestic Product (GDP) is defined as "the aggregate value of all final goods produced in the economy during a year" (McTaggart, Findlay and Parkin 2003: 414), and is commonly used to measure the size of a country's economy. The Australian Bureau of Statistics (ABS) document 'Australian System of National Accounts: Concepts, Sources and Methods' (ABS Catalogue no ) provides comprehensive descriptions and definitions of Australia's national accounts and the calculation of Australia's GDP. The ABS (Cat : 20, 30) describes GDP as the "measure of production for the economy as a whole" over an accounting period such as a quarter or year, and elaborates as follows: GDP is the sum, for a particular period, of the gross value added of all resident producers, where gross value added is equal to output less intermediate consumption (both of which are defined below).... GDP can also be derived as the sum of factor incomes (i.e. compensation of employees, gross operating surplus and gross mixed income) and net taxes on production and imports; and as the sum of all final expenditures by residents (final consumption expenditure and gross fixed capital formation), changes in inventories and exports less imports of goods and services. The ABS (Cat : 30) further describes the term value added as "the unduplicated value of goods and services produced in any given period" and Gross value added is defined as "a producer's value of outputs from the production process less the value of commodity inputs (intermediate consumption) plus taxes on products payable less subsidies receivable". Significantly, "in the gross domestic product account only transactions representing final production are shown and intermediate production is netted out" (ABS Cat : 26). The three approaches used to measure GDP are described by the ABS (Catalogue : 87) as follows: the income approach (I), which involves summing net factor incomes, consumption of fixed capital (depreciation) and taxes less subsidies on production and imports; the expenditure approach (E), which involves summing all final expenditures, changes in inventories and exports less imports of goods and services; and the production approach (P), which involves taking the value of goods and services produced by an industry (i.e. output) and deducting the cost of goods and services used up by the industry in the production process (i.e. intermediate consumption) and adding the result across all domestic industries. To this is added taxes less subsidies on products if output is valued at basic prices, as recommended in SNA93. According to the expenditure approach, GDP for Australia as a whole is determined using the following formula (ABS Cat : 93, 99; ABS Cat : 20; McTaggart, Findlay and Parkin 2003: 419; Taylor and Moosa 2002: 127):

3 7A-3 where: GDP = FCE + CAP + INV + NX + SD E...[7A.1] FCE = Final Consumption Expenditure; CAP = Gross Fixed Capital Formation; INV = Change in Inventories; NX = Net International Exports, and SD E = Expenditure Approach Statistical Discrepancy. The Statistical Discrepancy term (SD E ) in [7A.1] is used to reconcile the GDP estimates derived through the three different (income, expenditure and production) approaches described above. Net International Exports (NX) in [7A.1] is given by the expression: where: NX = X M...[7A.2] X = International Exports of Goods and Services; and M = International Imports of Goods and Services. Now each of the terms in [7A.1] has public and private sector components. Final Consumption Expenditure (FCE) is the sum of a private sector component referred to as Household Final Consumption Expenditure (HFC) and a public sector component referred to as General Government Final Consumption Expenditure (GFC), as follows: FCE = HFC + GFC...[7A.3] Gross Fixed Capital Formation (CAP) is the sum of Private Sector Gross Fixed Capital Formation (CAP PRI ) and Public Sector Gross Fixed Capital Formation (CAP PUB ), as follows: CAP = CAP PRI + CAP PUB...[7A.4] Public Sector Gross Fixed Capital Formation (CAP PUB ), in turn, is the sum of General Government Gross Fixed Capital Formation (CAP GOV ) and Public Sector Corporations Gross Fixed Capital Formation (CAP PSC ): CAP PUB = CAP GOV + CAP PSC...[7A.5] Whereas Public Sector Gross Fixed Capital Formation has separate components from both General Government and Public Sector Corporations, the general government sector accounts for the full extent of public sector final consumption expenditure. In Australia's national

4 7A-4 accounts, all expenditures by corporations, in both the public and private sectors, are considered intermediate expenditures, rather than final expenditures. According to the ABS (Cat : 32), "corporations have no final consumption (only intermediate consumption used in producing their outputs), and output for own final consumption is produced only by unincorporated enterprises (including those operated by households)". The Change in Inventories (INV), Net Exports (NX) and Expenditure Approach Statistical Discrepancy (SD E ) terms in [7A.1] can also be divided into private sector and public sector components, again denoted by subscripts PRI and PUB respectively, so that: and INV = INV PRI + INV PUB NX = NX PUB + NX PRI SD E = SD E-PUB + SD E-PRI...[7A.6]...[7A.7]...[7A.8] So with results [7A.3] through [7A.8], expression [7A.1] can be expanded to the following result: GDP = HFC + GFC + CAP PRI + CAP PUB + INV PRI + INV PUB + NX PRI + NX PUB + SD E-PUB + SD E-PRI...[7A.9] Domestic Final Demand (DFD) is another aggregate measure of the national economy which is given as the sum of final consumption and gross fixed capital formation components, as follows (ABS 2000: 87): DFD = FCE + CAP = HFC + GFC + CAP PRI + CAP PUB...[7A.10] So with [7A.10], expression [7A.9] can be written as: GDP = DFD + (INV PRI + INV PUB + NX PRI + NX PUB + SD E-PRI + SD E-PUB ) = DFD + (INV + NX + SD E )...[7A.11] Or, from the DFD perspective: DFD = GDP (INV PRI + INV PUB + NX PRI + NX PUB + SD E-PRI + SD E-PUB ) = GDP (INV + NX + SD E )...[7A.12] So Domestic Final Demand is Gross Domestic Product less Change in Inventories, Net Exports and the Statistical Discrepancy term.

5 7A-5 The sum (INV + NX + SD E ), which equals the difference between GDP and DFD, as in [7A.11], shall be referred to henceforth as Net Exports Plus (NXP), as follows, noting private and public sector components: and NXP = GDP DFD = INV + NX + SD E NXP = NXP PRI + NXP PUB NXP PRI = INV PRI + NX PRI + SD E-PRI NXP PUB = INV PUB + NX PUB + SD E-PUB...[7A.13]...[7A.14]...[7A.16]...[7A.15] So [7A.11] and [7A.12] become: and GDP = DFD + NXP DFD = GDP NXP...[7A.17]...[7A.18] Now GDP as in [7A.9] can be divided into private sector and public sector components GDP PRI and GDP PUB, as follows: where: and GDP = GDP PRI + GDP PUB...[7A.19] GDP PRI = HFC + CAP PRI + INV PRI + NX PRI + SD E-PRI = HFC + CAP PRI + NXP PRI...[7A.20] GDP PUB = GFC + CAP PUB + INV PUB + NX PUB + SD E-PUB = GFC + CAP PUB + NXP PUB...[7A.21] So the private sector component of GDP can also be written as: or GDP PRI = GDP GDP PUB...[7A.22] GDP PRI = GDP (GFC + CAP PUB + INV PUB + NX PUB + SD E-PUB ) = GDP (GFC + CAP PUB + NXP PUB )...[7A.23] Domestic Final Demand (DFD) as in [7A.10] can also be divided into private sector and public sector components PFD (Private Final Demand) and PubFD (Public Final Demand) as follows: Where: and DFD = PFD + PubFD PFD = HFC + CAP PRI PubFD = GFC + CAP PUB...[7A.24]...[7A.25]...[7A.26]

6 7A-6 So Private Final Demand can be written as: PFD = DFD PubFD = DFD (GFC + CAP PUB )...[7A.27] And [7A.20] can also now be written as follows, using [7A.25]: GDP PRI = PFD + (INV PRI + NX PRI + SD E-PRI ) = PFD + NXP PRI...[7A.28] Now Gross Private Product (GPP) could certainly be defined exactly as GDP PRI as in results [7A.20], [7A.23] and [7A.28] above, but will instead, for convenience noting available data, be defined here as Gross Domestic Product (GDP) less Public Final Demand (PubFD), as follows: GPP = GDP PubFD...[7A.29] So with [7A.9] and [7A.26], expression [7A.29] becomes: GPP = HFC + GFC + CAP PRI + CAP PUB + INV PRI + INV PUB + NX PRI + NX PUB + SD E-PRI + SD E-PUB (GFC + CAP PUB ) Which on cancellation gives: GPP = HFC + CAP PRI + INV PRI + INV PUB + NX PRI + NX PUB + SD E-PRI + SD E-PUB = HFC + CAP PRI + (INV + NX + SD E ) = HFC + CAP PRI + NXP...[7A.30] or, noting [7A.28]: GPP = PFD + (INV + NX + SD E ) = PFD + NXP...[7A.31] Comparing [7A.31] and [7A.28] shows that GPP and GDP PRI, as defined above, differ only in that GPP includes both public and private sector components of net exports, changes in inventories and statistical discrepancies, whereas GDP PRI only includes the private sector portions of net exports, changes in inventories and statistical discrepancies, as follows: GPP GDP PRI = (INV + NX + SD E ) (INV PRI + NX PRI + SD E-PRI ) = NXP NXP PRI = NXP PUB = (INV PUB + NX PUB + SD E-PUB )...[7A.32] Gross Private Product (GPP) as defined by [7A.29] through [7A.31] will be used henceforth as an expenditure category, rather than GDP PRI as defined above, because ABS national accounts data (ABS Catalogues and ) do not separate out the public and private sector components of net exports, changes in inventories and statistical discrepancies (this inventory component is, however, separated out in government finance statistics in ABS Cat ). By

7 7A-7 including public sector exports as well as private sector exports, GPP, as defined here, provides a significant measure of private sector strength and productivity augmented, albeit only very slightly, by public sector international trade performance or enterprise. For the analyses to be conducted herein, expenditure categories need to be consistent measures that can be used to validly compare the economic strength, performance and productivity of Australia's eight state-territory units (STUs). Private Final Demand (PFD) and Gross Private Product (GPP), as defined above, provide two convenient, meaningful and usefully distinct measures of private sector and overall economic strength and productivity, and will be employed herein as the two main aggregate private sector expenditure categories. These two expenditure categories differ only slightly, in accordance with [7A.32], but such differences are significant enough to warrant their inclusion as separate overall private sector measures. Significantly, one measure (GPP) includes exports whereas the other (PFD) does not. Table 7A-1 below shows Australia's Gross Domestic Product (GDP) and its public and private sector components PubFD (Public Final Demand) and GPP (Gross Private Product) respectively, as defined above, for the four years under consideration and as four year averages. As stated in Chapter 6, the four financial years of through to inclusive have been selected for analysis because was the first year in which government finance data reflected the change to the accrual accounting approach. Table 7A-1: Australia's Gross Domestic Product (GDP) and Major Public and Private Sector Components GDP ($b) GFC ($b) CAP PUB ($b) PubFD ($b) GPP ($b) Percentages GFC () CAP PUB () PubFD () GPP () GDP () Source: ABS Cat (Australian System of National Accounts) , Table 8 (Gross Domestic Product Account, p. 20). The four year average figures in the rightmost column in Table 7A-1, and other tables that follow, are calculated as simple mean averages using the following familiar expression (an

8 7A-8 example of expression [6.1] from Chapter 6) for GPP, and corresponding formulas for other expenditure categories: GPP AUS,4YA GPPAUS, GPPAUS, GPPAUS, GPPAUS,01-02 =...[7A.33] 4 So private sector expenditure makes up about 78 of Australia's Gross Domestic Product (GDP), and public sector expenditure the remaining 22 or so. Table 7A-2 below now shows Australia's Domestic Final Demand (DFD) and its public and private sector components PubFD (Public Final Demand) and PFD (Private Final Demand) respectively, as defined above here. Table 7A-2: Australia's Domestic Final Demand (DFD) and Major Public and Private Sector Components DFD ($b) GFC ($b) FCF PUB ($b) PubFD ($b) PFD ($b) Percentages GFC () FCF PUB () PubFD () PFD () DFD () Source: ABS Cat (Australian System of National Accounts) , Table 8 (Gross Domestic Product Account, p. 20). The DFD breakdowns in Table 7A-2 for DFD closely resemble the corresponding GDP breakdowns in Table 7A-1, again showing that private sector expenditure makes up about 78 of Australia's Domestic Final Demand (DFD), and public sector expenditures 22 or so. Table 7A-3 below now shows changes in inventory (INV), exports (X), imports (M), net exports (NX), statistical discrepancies (SD E ), and net exports plus (NXP) as in expressions [7A.11] and [7A.17] above. According to expressions [7A.11] and [7A.17], the difference (GDP DFD) should equal the sum (INV + NX + SD E ). The relevant rows of Table 7A-3 confirm this equality, with the very slight discrepancies arising here only because of rounding-off effects.

9 7A-9 Table 7A-3: Selected Components of Australia's Gross Domestic Product (GDP) GDP ($b) INV ($b) X ($b) M ($b) NX = X M SD E ($b) NXP = (INV + NX + SD E ) ($b) (GDP DFD) ($b) Percentages INV () X () M () NX = X M () SD E () NXP = (INV + NX + SD E ) () (GDP DFD) () GDP () Source: ABS Cat (Australian System of National Accounts) , Table 8 (Gross Domestic Product Account, p. 20). It is seen in Table 7A-3 that changes in inventories (INV), net exports (NX), statistical discrepancies (SD E ) and net exports plus (NXP) only make very small individual and collective contributions to GDP. It follows then, noting expression [7A.32], that the difference between GPP and GDP PRI as defined above will generally be very small. Note that the statistical discrepancy is zero for three of the four years considered (all but ). The ABS (Cat p. 406 [paragraph 29.24]) notes that: For years in which the national accounts are benchmarked to supply and use tables, there are no annual statistical discrepancies in the estimates of GDP as these are eliminated in the balancing process. However, for these years there are still quarterly statistical discrepancies as the sources and methods used to interpolate the annual benchmarks are generally independent. The ABS (Cat p. 407 [paragraph 29.26]) notes further that: Small or zero statistical discrepancies do not necessarily mean that the aggregates to which they relate are of higher quality than those subject to larger statistical discrepancies. It is possible that there may be offsetting errors, or, in the case of the GDP statistical discrepancies, similar magnitudes of overstatement/understatement in each measure of GDP. It is for these reasons that statistical discrepancies, while they are useful indicators of quality, need to be interpreted with caution. State and Territory Contributions to Australia's Aggregate Economy Australia's Gross Domestic Product (GDP) can be constructed as the sum of contributions from each of Australia's eight states and territories, as follows:

10 7A-10 GDP AUS,Y = GDP NSW,Y + GDP VIC,Y + GDP QLD,Y + GDP WA,Y + GDP SA,Y + GDP TAS,Y + GDP ACT,Y + GDP NT,Y...[7A.34] The state and territory components in [7A.34] as above are generally referred to as State Domestic Product (SDP) in ABS accounts (ABS Cat ), so that GDP U,Y = SDP U,Y for all STUs U and years Y...[7A.35] So [7A.34] can also be written as follows: SDP AUS,Y = SDP NSW,Y + SDP VIC,Y + SDP QLD,Y + SDP WA,Y + SDP SA,Y + SDP TAS,Y + SDP ACT,Y + SDP NT,Y...[7A.36] Australia's Domestic Final Demand (DFD) can similarly be considered the sum of contributions from each of Australia's eight states and territories: DFD AUS,Y = DFD NSW,Y + DFD VIC,Y + DFD QLD,Y + DFD WA,Y + DFD SA,Y + DFD TAS,Y + DFD ACT,Y + DFD NT,Y...[7A.37] The state and territory components in [7A.37] as above are generally referred to as State Final Demand in ABS accounts (ABS Cat ), so that DFD U,Y = SFD U,Y for all STUs U and years Y...[7A.38] So [7A.37] can also be written as follows: DFD AUS,Y = SFD NSW,Y + SFD VIC,Y + SFD QLD,Y + SFD WA,Y + SFD SA,Y + SFD TAS,Y + SFD ACT,Y + SFD NT,Y...[7A.39] Gross Private Product (GPP), Private Final Demand (PFD) and Public Final Demand (PubFD), as defined above, are likewise defined such that Australia-wide aggregates are the sums of the eight state and territory components, as follows: GPP AUS,Y = GPP NSW,Y + GPP VIC,Y + GPP QLD,Y + GPP WA,Y + GPP SA,Y + GPP TAS,Y + GPP ACT,Y + GPP NT,Y...[7A.40] and PFD AUS,Y = PFD NSW,Y + PFD VIC,Y + PFD QLD,Y + PFD WA,Y + PFD SA,Y + PFD TAS,Y + PFD ACT,Y + PFD NT,Y PubFD AUS,Y = PubFD NSW,Y + PubFD VIC,Y + PubFD QLD,Y + PubFD WA,Y + PubFD SA,Y + PubFD TAS,Y + PubFD ACT,Y + PubFD NT,Y...[7A.41]...[7A.42]

11 7A-11 State and territory GDP (or SDP) and GPP components include net inter-state exports (that is, net exports to other states and territories) as well as net international exports (ABS Catalogue : 13). And state and territory NXP values include Net Interstate Exports (NSE) as well as Net International Exports (NX) as previously defined, as follows: NXP U,Y = INV U,Y + NX U,Y + NSE U,Y + SD E-U,Y...[7A.43] Australia-wide follows: NXP AUS, Y values are the sum of the contributions from the eight STUs, as NXPU,Y = (INVU,Y + NX U,Y + NSEU,Y + NXP AUS,Y = SDE-U,Y )...[7A.44] STUs STUs But NSE U,Y, the sum of all interstate exports, must equal zero, because the sum total of all STUs interstate exports must exactly balance the total of all interstate imports, as follows: STUs NSE = 0...[7A.45] U,Y So with [7A.45], [7A.44] reduces to the following result, consistent with the earlier result [7A.15]: NXPU,Y = (INVU,Y + NX U,Y + NXP AUS,Y = SDE-U,Y )...[7A.46] STUs STUs Tables 7A-4 and 7A-5 below extend on the whole of Australia figures of Table 7A-1 to provide the state and territory contributions to Australia's Gross Domestic Product (GDP), and GDP's Public Final Demand (PubFD) and Gross Private Product (GPP) components.

12 7A-12 Table 7A-4: STU Contributions to Australia's Gross Domestic Product (GDP), and GDP's Public Final Demand (PubFD) and Gross Private Product (GPP) Components ($b) GDP / GSP ($b) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL PubFD ($b) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL GPP ($b) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL Sources: ABS Cat (Australian National Accounts: State Accounts) , Table 4 (Gross State Product at Current Prices, p. 16) and Tables 8-16 (Expenditure Components of Gross State Product Current Prices, pp ); and ABS Cat (Australian System of National Accounts) , Table 8 (Gross Domestic Product Account, p. 20). The "AUS = TOTAL" rows in Table 7A-4 above coincide with the corresponding rows of Table 7A-1. Table 7A-5 now provides percentage figures corresponding to the dollars figures in Table 7A-4.

13 7A-13 Table 7A-5: STU Contributions to Australia's Gross Domestic Product (GDP), and GDP's Public Final Demand (PubFD) and Gross Private Product (GPP) Components () PubFD ( of GDP) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL GPP ( of GDP) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL Table 7A-5 above shows that private sectors (as measured by GPP) made up more than 70 of the economies (as measured by GDP contributions, or GSPs), and public sectors hence less than 30, in all six states and in all four years considered, except for TAS in the single year of Public sectors are much more prominent, however, in the NT and especially the ACT. The public sector makes up about 70 of the ACT's contribution to GDP, apparently owing to its role as national capital. Tables 7A-6 and 7A-7 following are the same as Tables 7A-4 and 7A-5 above but in terms of Domestic Final Demand (DFD) rather than Gross Domestic Product (GDP).

14 7A-14 Table 7A-6: STU Contributions to Australia's Domestic Final Demand (DFD), and DFD's Public Final Demand (PubFD) and Private Final Demand (PFD) Components ($b) DFD / SFD ($b) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL PubFD ($b) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL PFD ($b) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL Sources: ABS Cat (Australian National Accounts: State Accounts) , Tables 8-16 (Expenditure Components of Gross State Product Current Prices, pp ); and ABS Cat (Australian System of National Accounts) , Table 8 (Gross Domestic Product Account, p. 20). The "AUS = TOTAL" rows in Table 7A-6 above again coincide with the corresponding rows of Table 7A-2. Table 7A-7 now provides percentage figures corresponding to the dollars figures in Table 7A-6.

15 7A-15 Table 7A-7: STU Contributions to Australia's Domestic Final Demand (DFD), and DFD's Public Final Demand (PubFD) and Private Final Demand (PFD) Components () PubFD ( of DFD) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL PFD ( of DFD) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL The pattern in Table 7A-7 is very similar to that of Table 7A-5 above, again showing that private sectors (as measured by PFD) made up more than 70 of the economies (as measured by DFD contributions, or SFDs), and public sectors hence less than 30, in all six states and in all four years considered. Again, the public sectors are much more prominent in the Northern Territory and especially the ACT, but they do not stand out as much in Table 7A-7 as they did in Table 7A-5. Whereas Table 7A-5 shows that the ACT's PubFD made up more than 70 of the ACT's GPP contribution in all four years, Table 7A-7 shows that this PubFD amounted to between 46 and 49 in the four years considered. The significant difference here for the ACT relates to the fact that ACT's GPP and PFD measures differ significantly owing to the impact of net exports, as is illustrated further in Table 7A-14 which follows later. Major Private Sector Expenditure Components Five of the 23 expenditure categories employed herein are private sector expenditure components. Gross Private Product (GPP), Private Final Demand (PFD) and Household Final Consumption Expenditure (HFC), as described in the preceding sections, are the three major private sector expenditure categories that are considered and analysed. And as following Tables show, Household Final Consumption Expenditure (HFC) makes up the majority of both GPP

16 7A-16 and PFD as defined above here. So two further private sector expenditure components, as previewed earlier, are defined here for the balancing portions of private sector expenditure apart from HFC components. Firstly, Gross Business Product (GBP) is defined as Gross Private Product (GPP) less Household Final Consumption Expenditure, as follows: GBP = GPP HFC...[7A.47] So GPP can be written as: GPP = HFC + GBP...[7A.48] Secondly, Business Final Demand (BFD) is defined as Private Final Demand (PFD) less Household Final Consumption Expenditure (HFC), as follows: BFD = PFD HFC...[7A.49] So PFD can be expressed as the following sum: PFD = HFC + BFD...[7A.50] With [7A.30], [7A.47] becomes: GBP = CAP PRI + (INV + NX + SD E ) = CAP PRI + NXP...[7A.51] And with [7A.25], [7A.49] becomes: BFD = CAP PRI...[7A.52] So Business Final Demand (BFD) as defined here reduces simply to Private Sector Gross Fixed Capital Formation (CAP PRI ), and GBP as defined here is CAP PRI with the addition of Change in Inventories, Net Exports and the Statistical Discrepancy. Table 7A-8 below shows Gross Private Product (GPP) in terms of its two components HFC (Household Final Consumption Expenditure) and GBP (Gross Business Product) as defined above.

17 7A-17 Table 7A-8: Major Components of GPP for Australia as a Whole GPP ($B) HFC ($B) GBP ($B) Percentages HFC () GBP () GPP () Source: ABS Cat (Australian System of National Accounts) Table 7A-9 now shows Private Final Demand (PFD) in terms of its two components HFC (Household Final Consumption Expenditure) and BFD (Business Final Demand, equating to Private Sector Gross Fixed Capital Formation), as defined above. Table 7A-9: Major Components of PFD for Australia as a Whole PFD ($B) HFC ($B) BFD ($B) Percentages HFC () BFD () PFD () Source: ABS Cat (Australian System of National Accounts) , Table 8 (Gross Domestic Product Account, p. 20). [Note that the BFD values in Table 7A-9 are identical to the 'Total private gross fixed capital formation' entries in Table 8 for all four years except for which the entry is in Table 8 of ABS Cat for , compared to in Table 7A-9 above; this slightest of discrepancies is due to rounding off in calculations.] Tables 7A-8 and 7A-9 show that HFC has made up about 77 of GPP and about 76 of PFD on average over the period to State-Territory Contributions to Major Private Sector Expenditure Components Tables 7A-10 and 7A-11 below extend on the whole of Australia figures of Table 7A-8 to provide the state and territory contributions to Australia's Gross Private Product (GPP), and GPP's Household Final Consumption Expenditure (HFC) and Gross Business Product (GBP) components.

18 7A-18 Table 7A-10: STU Contributions to Australia's Gross Private Product (GPP), and GPP's Household Final Consumption Expenditure (HFC) and Gross Business Product (GBP) Components ($b) GPP ($b) NSW VIC QLD WA SA TAS ACT NT TOTAL HFC ($b) NSW VIC QLD WA SA TAS ACT NT TOTAL GBP ($b) NSW VIC QLD WA SA TAS ACT NT TOTAL

19 7A-19 Table 7A-11: STU Contributions to Australia's Gross Private Product (GPP), and GPP's Household Final Consumption Expenditure (HFC) and Gross Business Product (GBP) Components () HFC () NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL GBP () NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL Table 7A-11 shows that HFC has made up at least 69.9 of GPP contributions in all states and territories in all four years considered, except for WA where HFC has contributed 64.7 or less of GPP in all four years. The HFC percentages exceeding 100 in the ACT (in all four years) and TAS (in and ) are obviously especially anomalous. This observation is largely anticipated by the Australian Bureau of Statistics (Cat : 393 [paragraph 28.46]) as follows: The treatment of national general government final consumption expenditure in regional accounting is rather problematic. Alternative treatments are to attribute final expenditures to the region in which the expenditure was incurred, or to the region in which the beneficiaries reside, or even to consider the national general government consumer unit as extraterritorial and therefore to exclude it from all regions. For practical reasons the first approach has been adopted, although it still requires extensive use of indirect indicators. An implication is that a large proportion of the consumption of national general government services is included in State final demand (SFD) for the Australian Capital Territory, inflating the balancing item for that Territory. If data were available to allocate national general government final consumption expenditure to end users, the balancing item for the Australian Capital Territory would be a much smaller negative, or even a positive, because the provision of the services would be regarded as an interstate export instead of consumption expenditure in the Australian Capital Territory. Estimates for national general government expenditures in the States, on both an annual and a quarterly basis, must therefore be treated with considerable caution. The ABS further notes as follows (Cat : 397 [paragraph 28.82]) in respect of interstate trade in services:

20 7A-20 Interstate trade in services, which is not accounted for in the model used for goods, is likely to be significant in the case of at least some of the States, with the Australian Capital Territory likely to be particularly affected. State estimates of household final consumption expenditure include an adjustment to account for net expenditures interstate on services by households. This item is added to household final consumption expenditure to adjust it from a territorial to a resident basis. In order to ensure consistency of treatment, the current and volume estimates of household expenditures interstate are included here, but with the opposite sign. It has not been possible to include estimates for the net expenditures interstate on services by the business and government sectors. The net effect of making only partial allowance for the interstate flow of services is that the weighted average deflator derived for the identified components of GSP, including SFD, will be attributed to the balance of this item. Tables 7A-12 and 7A-13 following are the same as Tables 7A-10 and 7A-11 but in terms of Private Final Demand (PFD) rather than Gross Private Product (GPP). Table 7A-12: STU Contributions to Australia's Private Final Demand (PFD), and PFD's Household Final Consumption Expenditure (HFC) and Business Final Demand (BFD) Components ($b) PFD ($b) NSW VIC QLD WA SA TAS ACT NT TOTAL HFC ($b) NSW VIC QLD WA SA TAS ACT NT TOTAL BFD ($b) NSW VIC QLD WA SA TAS ACT NT TOTAL

21 7A-21 Table 7A-13: STU Contributions to Australia's Private Final Demand (PFD), and PFD's Household Final Consumption Expenditure (HFC) and Business Final Demand (BFD) Components () HFC () NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL BFD () NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL The pattern in Table 7A-13 is again very similar to that of Table 7A-11 above, showing that HFC has made up at least 70 of PFD contributions in all states and territories in all four years considered, except for WA in and and NT also in and The ACT and TAS figures, however, do not stand out as anomalous in Table 7A-13 as they did in Table 7A-11. Table 7A-14 now shows figures for Net Exports Plus (NXP), for all nine principal political units:

22 7A-22 Table 7A-14: Net Exports Plus (NXP) Contributions to State Domestic Product (SDP) and Gross Domestic Product (GDP) NXP = SDP SFD (for STUs) or GDP DFD (for AUS) ($b) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL SDP / GDP ($b) NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL NXP U,Y = NXP as percentage of SDP / GDP () NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL Sources: ABS Cat (Australian National Accounts: State Accounts) , Table 4 (Gross State Product at Current Prices, p. 16) and Tables 8-16 (Expenditure Components of Gross State Product Current Prices, pp ); and ABS Cat (Australian System of National Accounts) , Table 8 (Gross Domestic Product Account, p. 20). The Percentage Net Exports Plus values ( NXP U, Y ) in Table 7A-14 are derived using the following simple percentage formula, where GDP refers to the Australia-wide Gross Domestic Product for U = AUS, and to State Domestic Product (SDP) for the eight states and territories: NXP U,Y NXPU,Y = 100 for individual years Y...[7A.53] GDP U,Y Four year average values NXP U,4YA are given by the standard expression: NXP NXP U, NXP U, NXP U,00-01 NXP U,01-02 =...[7A.54] 4 + U,4YA

23 7A-23 It is seen in Table 7A-14 above that NXP U, Y has been negative for Australia as a whole for all years under consideration except for Two states, WA and VIC, have had positive NXP U,Y values for all four years, whilst four STUs, QLD, SA, TAS and the ACT, have had negative NXP U, Y values for all four years considered. The U, Y NXP value for NSW has been positive as a four year average and in all years considered except for , whilst the value for NT has been significantly negative as a four year average and in all years considered except for The Percentage Relative Export Rate ( RER U, Y ), of principal political unit U in year Y, is defined as NXP U, Y relative to NXP AUS, Y, as follows: RER U,Y = NXP U,Y NXP AUS,Y...[7A.55] Table 7A-15 displays the RER U, Y values for the nine PPUs as follows: Table 7A-15: Percentage Relative Export Rates ( RER U, Y ) of PPUs RER U,Y = NXP U,Y NXP AUS,Y NSW VIC QLD WA SA TAS ACT NT AUS = TOTAL The percentages in Table 7A-15 reflect the same pattern shown in Table 7A-14, with WA, VIC and NSW achieving positive RER U, Y values for all four years, reflecting NXP U, Y percentages in excess of the Australia-wide average, whilst QLD, SA, TAS and the ACT all have negative RER U,Y and U, Y RER U, Y values for all four years considered, and the NT has had negative NXP values for all years again except for The anomalies observed for the ACT in Tables 7A-5, 7A-7 and 7A-11 especially are to some extent explained by the 15 above. NXP ACT, Y and ACT, Y RER results appearing in Tables 7A-14 and 7A-

24 7A-24 Of the measures described in the preceding passages, GPP, PFD, HFC, GBP and BFD have been selected as private sector expenditure categories for further analysis. Together, these five measures provide distinctive and comprehensive descriptions of Australia's private sector expenditure as a whole, and its major components. Major Public Sector Expenditure Components Australia's public sector expenditures, by all levels of government, are summarised each year by Australian Bureau of Statistics Catalogue , titled 'Government Finance Statistics: Australia'. Statistics are compiled and presented using an Australian Government Finance Statistics system which "is based on international standards set out in the SYSTEM OF NATIONAL ACCOUNTS 1993 (SNA93) and the International Monetary Fund's Government Finance Statistics Manual" (ABS Cat for : 40). All public sector expenditure data employed herein are as obtained from this ABS Cat , for the financial years , , and following the move to the accrual accounting method in Australian government budgets and government finance reporting. Australia's Total Public Sector is defined as "the consolidated total of the General Government, Public Non-financial Corporations and Public Financial Corporations sectors" (ABS Cat : 41). Total Public Sector Expenditure (TPS) is therefore the sum of General Government Expenditure (GOV), Public Non-financial Corporations Expenditure (PSC NON-FIN ) and Public Financial Corporations Expenditure (PSC FIN ), as follows: TPS = GOV + PSC NON-FIN + PSC FIN...[7A.56] So if Public Sector Corporations Expenditure (PSC) is defined as the sum of non- Public Nonfinancial Corporations Expenditure (PSC NON-FIN ) and Public Financial Corporations Expenditure (PSC FIN ), then [7A.56] can be written as: where TPS = GOV + PSC PSC = PSC NON-FIN + PSC FIN...[7A.57]...[7A.58] Total Public Sector Expenditure (TPS), General Government Expenditure (GOV) and Public Sector Corporations Expenditure (PSC) are the three major public sector expenditure categories that are considered and analysed herein.

25 7A-25 Expressions [7A.56] through [7A.58] apply to all levels of government as classified earlier in Table 3-14, so that for all levels combined (LEV = ALL) and for the State-Territory including local level LEV = STL), [7A.57] becomes: and TPS ALL = GOV ALL + PSC ALL TPS STL = GOV STL + PSC STL...[7A.59]...[7A.60] Table 7A-16 below provides, for all levels combined (LEV = ALL), Australia's Total Public Sector Expenditure (TPS) and TPS's General Government (GOV) and Public Sector Corporations (PSC) components, for the four individual years under consideration and as a four year average. Table 7A-16: Total Public Sector Expenditure (TPS) and TPS's General Government (GOV) and Public Sector Corporations PSC) Components, for LEV = ALL TPS ALL ($B) GOV ALL ($B) PSC ALL ($B) Percentages GOV ALL () PSC ALL () TPS ALL () Source: ABS Cat (Government Finance Statistics) to , Tables 1 and 4 (98-99) and Tables 1 and 3 (99-00 through 01-02). Table 7A-16 above shows that General Government expenditure (GOV ALL ) makes up the majority of total public sector expenditure across all levels of government. Public Sector Corporations accounted for nearly 20 of total public sector expenditure in , although this figure has decreased each year, to be 15.6 in Significantly, the TPS ALL figures in Table 4.16 here are approximately twice the PubFD figures shown earlier in Table 7A-1, as in Table 7A-17 below.

26 7A-26 Table 7A-17: Difference Between Total Public Sector Expenditure Across All Levels (TPS ALL ) and Public Final Demand (PubFD) TPS ALL ($B) PubFD ($B) Difference ($B) Percentages of TPS ALL PubFD () Difference () TPS ALL () Percentages of GDP PubFD () Difference () TPS ALL () The GOV ALL figures in Table 4.16 above are also approximately twice the General Government Final Consumption Expenditure (GFC) figures shown earlier in Table 7A-1, as in Table 7A-18 below. Table 7A-18: Difference Between General Government Expenditure Across All Levels (TPS ALL ) and General Government Final Consumption Expenditure (GFC) GOV ALL ($B) GFC ($B) Difference ($B) Percentages of TPS ALL GFC () Difference () GOV ALL () Percentages of GDP GFC () Difference () GOV ALL () The "Difference" figures observed in Tables 7A-17 and 7A-18 arises due to the presence of public sector transfers, including grants between levels of government especially Commonwealth government grants to the States and Territories (McTaggart 2003: ). Such transfers are considered as intermediate expenditures, rather than final expenditures, and are therefore excluded from the public sector components of GDP. Accordingly, total general government and public sector expenditures as stated in national accounts data (in ABS Cat ) are considerably less than the corresponding expenditures stated in government finance statistics (ABS Cat ). Indeed, in Australian government finance statistics (ABS Cat ), general government and total government expenditures are stated as expenses rather than expenditures. McTaggart (2003: 527), similarly, notes that "government expenditure is