PHYS5033

Environmental Footprints and IO

Analysis

Reading Material

Week 3

Week 3              System of National Accounts and pricing within input-output tables

Input-output tables are usually compiled by national statistical agencies such as the Australian Bureau of Statistics (ABS) and represent one year of economic activity (see Australian Bureau of Statistics, 2022). These are compiled following the framework laid out in the UN’s System of National Accounts (SNA) (United Nations Statistics Division, 2008), which may be adapted for use at a country level (see for example Australian Bureau of Statistics, 2021). The following information has been extracted from the ABS publication Australian System of National Accounts: Concepts, Sources and Methods, 2021, which can be accessed here.

Gross Domestic Product

8.1   The central concept in a national accounting system is economic production. Production is the process whereby inputs of labour, materials (produced or natural), accumulated capital assets and knowledge are combined to provide outputs of goods and services. This definition of production includes:

• production of goods that are supplied to units other than their producers, including goods used as inputs to the production of other goods;

• production of goods that are retained for the producer's own use;

• provision of services of all kinds which add to the value of goods (such as transport and merchandising services);

• provision of services directly bought and sold in the market in their own right (such as the services of doctors, teachers and entertainers);

• provision of knowledge-capturing products (the provision, storage, communication and dissemination of information, advice and entertainment) which the consuming unit can access repeatedly; and

• illegal production, comprising the production of illegal goods and services (i.e. for which distribution or possession is banned by law), and production of legal goods and services by unauthorised producers (e.g. unlicensed medical practitioners   [page 119]

Basic, Producers’ and Purchasers’ Prices

8.11   There is more than one set of prices that can be used to value outputs and inputs depending on how taxes and subsidies on products and transport charges are recorded. ASNA [the Australian System of National Accounts] uses basic prices for the valuation of industry outputs, and purchasers' prices for valuation of intermediate inputs and of final demand. This is in line with the recommendations in 2008 SNA.

8.12   It is important to note the distinction between taxes (and subsidies) on products and other taxes (and subsidies) on production when discussing alternate price measures. Taxes on products are payable per unit of the product (i.e. a flat amount dependent on the physical quantity of the product, or a percentage of the value at which the product is sold). Other taxes on production are imposed on the producer regardless of the production of any product (e.g. land taxes).   [page 121]

Basic Prices

8.13   The basic price is the amount receivable by the producer from the purchaser for a unit of a good or service, minus any tax payable (including deductible value added taxes) plus any subsidy receivable, as a result of production or sale of the unit. Subsidies artificially reduce the sale price, so they are included in the basic price to obtain a measure of the true value of the goods or services produced. Taxes on products, if included, would artificially increase the price and so are excluded. The basic price also excludes any transport charges invoiced separately by the producer as recommended by 2008 SNA. The basic price therefore measures the amount retained by the producer in respect of the good or service that is produced as output.

8.14   Analysts who use Input-Output tables (I-O tables) have expressed a strong preference for the definition of basic prices in the 1968 version of the SNA, which excludes the transport component whether separately invoiced or not. This treatment has been implemented in the I-O tables. This results in changes to estimates of output and intermediate use by industry for series at basic prices, with no impact on gross value added, GDP or series at purchasers' prices.   [page 121]

Producers’ Prices

8.15   2008 SNA states output can also be measured using producers' prices. These are defined as the amount receivable by the producer, from the purchaser, for a unit of a good or service produced as output, minus any non-deductible GST invoiced to the purchaser and excluding any transport charges separately invoiced by the producer. This measure of output is not included within the ASNA.   [page 121]

Purchasers’ Prices

8.16   The purchasers’ price is the amount paid by the purchaser in order to take delivery of goods or services. Purchasers' prices include any taxes payable (less any subsidies receivable) on production and imports, and any transport charges paid separately by the purchaser to take delivery. Value added taxes such as GST are included in purchasers' prices unless they are allowable as deductions from the purchaser's value-added tax liability. Purchasers' prices are also referred to as market prices.

8.17   In the derivation of industry value added, outputs are valued at basic prices and intermediate consumption is valued at purchasers' prices. By convention, the resulting estimates of industry value added are described as being 'at basic prices'.   [page 121-2]

Figure 3.1 provides a visual representation of the relationship between these three prices

Figure 3.1: Relationship between basic price, producers’ price, and purchasers’ price.

Common taxes and subsidies

Some of the most common Australian taxes and subsidies (excluding income and company taxes) that would be considered in the input-output table valuation are included in Table 3.1. These are colour-coded blue for taxes and subsidies on production, and orange for taxes and subsidies on products.

Table 3.1. Common Australian taxes and subsidies.

See this link for more examples.

Trade / retail margins and transport costs

In practical terms, most consumer purchases are made within the retail sector, where individual consumers hand money over to a retailer at the point of final demand. The design of input-tables requires that this expenditure should be accounted for against the sector which received it, which would mean that, if no adjustments were made, most final demand would be accounted for against the retail sector. However, the products purchased by the final consumer are not an output of the retail sector, rather, the retail sector is providing a service which connects the outputs of other sectors with the final consumer. The ‘trade margin’ charged by the retail sector is the output which it contributes to the economic activity captured within the input-output table.

To account for this, adjustments are made as expenditure data are incorporated into an input-output table. Expenditure is accounted for against the sector which produced the final product related to that expenditure using producers’ prices rather than purchasers’ prices, and the value of the trade margin is assigned to the retail sector. In a similar way, expenditure by the final consumer on a product sometimes includes delivery costs. These costs are required for the consumer to receive the product, but they are not an output of the sector which provides that product. In this case, the value of the delivery cost is assigned to the transport sector, which provided the delivery service.

Most input-output tables use basic prices as the valuation within the T matrix because taxes and subsidies may not be applied evenly across all sectors. For example, in Australia fuel excise is not payable if the vehicle being refuelled will not be used on public roads. This means that the mining and agriculture sectors generally do not pay the fuel excise. The Y and v matrices contain information on taxes, subsidies, trade margin, and transport costs so that once calculated, total output and total input by sector are provided at purchasers’ prices and therefore capture the total value of all economic activity in the input-output system.

Consider the example of a pair of jeans purchased for $100 from a retailer, who facilitates home-delivery which is charged as a $10 extra fee. The retailer has purchased these jeans for $80 from a jeans manufacturer, and therefore the trade margin is $20. The final consumer hands over $110 to the retailer, which would be accounted for as illustrated in Figure 3.2

Figure 3.2: Illustration of the accounting of a retail purchase within input-output tables.

References

Australian Bureau of Statistics 2021, Australian System of National Accounts, viewed July 3, 2022,

https://www.ausstats.abs.gov.au/ausstats/subscriber.nsf/0/29225F69B784BD1CCA25870C0021C201/$File/5216.0_2021.pdf

Australian Bureau of Statistics 2022, Australian National Accounts: Input-Output Tables, 2019-20 financial year, viewed July 3, 2022, https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-input-output-tables/latest-release

United Nations Statistics Division 2008, 'System of National Accounts', New York.