RDP 9004: Saving and Investment in the 1980s Data Appendix

A. National Accounts Data

Data are drawn mainly from the December Quarter 1989 National Accounts (ABS Catalogue No. 5206). The quarterly original data was summed to give annual data. Some series relating to the public sector are only available from the Annual National Accounts (ABS Catalogue No. 5204.0) and where necessary these accounts were used. The following diagram shows the structure of the National Accounts from a saving viewpoint.

GDP, private consumption, dwelling and equipment investment, non-dwelling construction, public and private GFCE, and the statistical discrepancy are from Table 5 of the National Accounts. Table 12 provides national saving called Finance of Gross Accumulation and net lending to overseas. Tables 21 and 22 provide household disposable income and household saving. Public saving is calculated from the annual national accounts National Income and Expenditure 1988–89 (ABS Catalogue No. 5204.0). Public saving is the sum of gross accumulation of General Government – Table 14, Public Trading Enterprises – Table 34, and Public Financial Enterprises – Table 43. Private saving is calculated residually as the difference between national and public saving.

B. Inflation Adjustment of Private Sector Saving

The effect of inflation on the private sector's income is determined by the rate of inflation and the net position of the private sector in financial assets. The net position of the private sector can be calculated in two ways; firstly as a residual from the net positions of the public and foreign sectors, and secondly by directly examining private sector assets and liabilities. Measurement errors apart, the two approaches are equivalent. Diagram B1 below shows a world balance sheet split into three sectors: the Australian Public sector, the Australian Private sector and the Rest of the World.

Every liability is held as an asset by another sector so that total assets are equal to total liabilities. Thus we have

The net position of the private sector (C − D) can be calculated either directly by summing the components of C and subtracting D, or residually, in which case:

These methods are equivalent.. The calculation using the residual method is shown below.

Public sector debt is defined as the sum of Commonwealth Government Securities redeemable in Australia, Commonwealth Government Securities redeemable overseas (RBA Bulletin Table I.11), Semi and Local Government Borrowings (RBA Bulletin Table I.13) and holdings of notes and coin by the public and bank deposits with the RBA. Occasional Paper No. 8A provided data for earlier years not covered by the RBA Bulletin.

In order to adjust private sector income for inflation we need to split the net position of the private sector into a position relative to the public sector and a position relative to the foreign sector. The two components should be adjusted separately becaue the effect of inflation on the value of nominal assets depends on the curency of denomination. The calculation of private claims on the public sector is shown in Table B2. Claims of the private sector on the public sector are given by the sum of Notes and Coin. CGS redeemable overseas (from RBA Bulletin table I.11), CGS Redeemable in Australia, and Semi and Local-Government Borrowings (from RBA Bulletin table I.13 – Total Borrowings Outstanding) less Public external debt.^[32]

Table B3 shows how we adjust for the erosion of the value of private sector claims on the government.

The foreign sector also has claims on the private sector which are eroded by inflation. Our method of adjusting for this assumes that interest payments to the foreign sector have a real component equal to the domestic real interest rate times the outstanding stock; the inflation component is defined as the remainder. The adjustment to income of the foreign sector is therefore defined by

This adjustment can then be further split into public and private sector components of the external debt. Data on net external debts of the public and private sectors are available only since 1980. The graphs below show the effect of the external sector inflation adjustment on private saving and on the current account deficit.

These calculations suggest that inflation adjustments affecting the external sector are relatively small. Inflation adjusted saving figures used in the main part of the paper are adjusted only for the transfer between the public and private sectors.

C. DEPRECIATION

A simple accounting identity determines how the net capital stock is calculated. This identity holds in real constant price terms:

NET CAPITAL STOCK (t) = NET CAPITAL STOCK (t−1) + PRIVATE FIXED GROSS CAPITAL EXPENDITURE − DEPRECIATION.

We perform our simulations by setting

DEPRECIATION (t) = d * NET CAPITAL STOCK (t−1).

We choose values for d of 0.03, 0.06, and 0.10. We can work with nominal values by multiplying and dividing each term in the identity by its deflator.

Table C1 compares simulations using a depreciation rate of 0.065 and the official figures (ABS Catalogue No. 5221.0).

Table C2 shows official figures and simulations using current prices. Our simulations use the deflators implied by the official figures.

Table C3 shows current price simulations using depreciation rates of 3.0 and 10.0 percent.

Differences between the real capital slock to GDP ratio and the ratio calculated on current prices are due to relative changes in the GDP and Capital stock deflators.

D. CONSUMER DURABLES ADJUSTMENT

The consumer durables adjustment affects measures of both income and consumption. Adjusted consumption attempts to measure the flow of services actually consumed in a period rather than expenditure on consumer durables which will provide service flows in the future. The adjustment is as follows:

Adjusted consumption = Consumption expenditure − Expenditure on consumer durables + Service flows from consumer durables.

Income must also be altered to reflect the net flows from the stock of durables:

Adjusted income = Income + Service flows from consumer durables − Depreciation of consumer durables.

Subtracting adjusted consumption from adjusted income gives adjusted saving:

Adjusted saving = saving + Expenditure on consumer durables − Depreciation of consumer durables.

The National Accounts provides data on expenditure on consumer durables and the NIF model data base contains estimates of the stock of motor vehicles and the stock of household durables. We use the NIF estimates of depreciation for consumer durables and motor vehicles of 25% and 28.6% respectively. Table D below shows the data we use and the resultant adjustments.

Footnote

We interpolate public and private external debt back to zero in 1961. This is of little significance due to the low levels of external debt prior to the 1980s. [32]