Implementation of System of National Accounts 2008 and Balance of Payments and International Investment Position Manual

1. IMPLEMENTATION OF SYSTEM OF NATIONAL ACCOUNTS 2008 AND BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION MANUAL 6TH EDITION BY THE AUSTRALIAN BUREAU OF STATISTICS Michael Davies, First Assistant Statistician, Macroeconomics and Integration Group, Australian Bureau of Statistics

2. The ABS… • … is Australia’s official national statistical agency. • … has the authority to conduct statistical collections. • … has obligations to publish and disseminate compilations and analyses of statistical information, and to maintain the confidentiality of information. • …ensures formulation, and compliance with, standards for the carrying out by official bodies of operations for statistical purposes.

3. Standards used in Australia • The ABS is a strong contributor to the development of international standards. • 2008 System of National Accounts (2008SNA) • Balance of Payments and International Investment Position 6th edition (BPM6) • Australian and New Zealand Standard Industrial Classification 2006 (ANZSIC06…..consistent with ISIC REV 4) • Standard Economic Sector Classifications of Australia 2008 (SESCA08)

4. Management of change process • Industry classification fundamental – integral to ABS systems and databases • Simultaneous implementation of 2008SNA/BPM6/SESCA08 to minimise disruption, a ‘big bang approach’. • Therefore, long lead times for implementation of changes • Need to ensure funding/resourcing • Need to ensure business continuity

5. Standards change control • ANZSIC Implementation Board and Macroeconomic Statistics Review Committee set up in 2005 • Methods board to assess and document changes • Transition plans to identify and prioritise tasks • Together with risks and risk mitigation strategies • Communications plans to identify key clients and communication mechanisms • Implementation workshops, information sessions and publications

6. Principles • Standards • Timing of implementation • Coordination and consultation

7. Standards • Departures from standards: • few in number & demonstrate a significant benefit or avoidance of an unwarranted cost • carried through to all accounts/statistics • enable a straightforward reconciliation with the standard where feasible • be implemented after extensive consultation and publicity • Proposed departures were discussed with major users

8. Departures from standards • 2008 SNA • Repurchases agreements and securities lending • Databases • Change from ‘consumption of fixed capital’ to ‘depreciation’ • Goodwill and marketing assets • Valuation of water • Some components of illegal economy • The debtor approach to recording interest: • Realistic e.g. Current market yields • Avoids artificial measurement e.g. indexed debt, concessional loans.

9. Departures from standards • BPM6 • Repurchase agreements • Treatment of originals and copies • Treatment of patented entities • Goodwill and marketing assets • Reclassifications for exchanges in international positions • Treatment of holding companies • Signage

10. Timing of implementation • Changes resulting in changes to GDP should be at same time • Needs 3 year lead time for Australian National Accounts • Some consideration of other changes can take place • Decided to release on the quarter that coincided with the annual publication (Sept quarter 2009, published in December 2009)

12. Timing (Big bang approach) • ABS implemented all changes at once: • Pros • minimised disruption for clients • reduced total cumulative effort: • system, questionnaire changes • balancing • Cons • made it a very large task • was difficult to disentangle individual impacts • not all standards / issues finalised in time • was difficult to be responsive to change

13. Coordination and consultation • Must be centrally coordinated • Provide clients and stakeholders with sufficient information to manage their own changes. • Consulted regularly with key clients • In Australia these include the Reserve Bank of Australia and The Treasury.

14. Extensive User Consultation • A series of information papers released between 2004 and 2009 • 2004 information paper on ANZSIC development • 2006 information paper on ANZSIC implementation plans • 2007 information paper on introduction to revised SNA/BPM • 2008 update on ANZSIC implementation • 2009 information paper on implementation of revised SNA/BPM • Consultation with key government agencies and other users • Including road shows in each State and Territory

15. Managing a long time series under new standards • Implementation involved extensive changes to statistical infrastructure • Business Register coded to ANZIC 2006 from March 2006 • Creation of new survey frames • Back casting methodologies • Systems reengineering and database changes • Parallel runs to generate ‘bridged data’ for measurement of impact • Progressive migration of collections • Starting in 2006 • Culminating with the National Accounts in SQ09

16. Changes to data collections • ABS has a strong integrated suite of economic collections from Survey and Administrative data • Easy changes • Changes to in-house economic surveys • Changes to estimation models • Complex changes • Changes to systems and processes • Changes to compilation of Supply-Use tables after changes • Changes to external administrative collections (Tax data, prudential information)

17. General business of statistics process map

18. Changes to data collections – financial account • New financial sector classification • Separation of money-market funds and other investment funds. • Only those investment funds investing predominantly in financial assets are treated as financial corporations. • Small divergence from standards.

19. Changes to data compilation – Input-Output • Made complex from changes to industry classification • Divergence from 2008SNA use of Producer Prices • Users prefer Basic Prices since Transport is an important consideration • Continued use of 1968SNA methodology

20. Impacts from implementing new standards • Level shift in GDP aggregate • Minimal change to growth rates • Minimal change to Current Account Balance • Minimal change to International Investment Position • Minimal change to Net Foreign Debt

23. Challenges from implementing new standards • R&D • FISIM • These will be described in more detail later

24. User response to implementing new standards • Global Financial Crisis influenced user views on new standards • Calls for a delay to the publication release • Problems with coherence in accounts were of concern • Little user response to 2008SNA/BPM6 changes were the result of a good communication plan

25. Areas of user concern • Unfunded pension liabilities was not a problem as they were already done. • Little impact on productivity measures post capitalisation of Research & Development. • Financial Intermediation Services Indirectly Measured (FISIM) performed badly during crisis. • Change to performance indicators which relied on GDP.

26. Implementing Research & Development case study • Principles: • Treat expenditure on R&D as capital formation. • Should be in terms of future economic benefit. • Practically, this is difficult to measure. • Value R&D output at market prices. • Most R&D is own account and there is no recognised market price • ABS valued R&D at cost. • Difficulty in assigning an asset life for depreciation • Assume international trade in R&D is covered by trade in services collection. • Makes little difference to productivity story

27. International reporting obligations • Problems with early adoption – out of step with other countries. • Evolution of new standards and reporting obligations outside of a formal framework • G20 finance ministers • Basel III developments • Globalisation indicators (for example: Ultimate beneficiaries/owner, foreign affiliates) • Delay in some complementary manuals development (eg. Government Finance, Trade in Services)

29. The Financial Crisis • Global Financial Crisis hits in December 2008 following the collapse of Lehman Bros • Prior to this it was difficult to anticipate the full scale of the crisis and its impact on transmission mechanisms • By this stage a number of critical implementation milestones had been passed • Dual coding of the units frame ceased in June 2008 • Migration of the annual industry collections in August 2008 • Government funding for SNA implementation ceased at the end of 2009. • FISIM estimates became unstable impacting on financial industry output and consumer prices index. • Statistics on derivatives, the main transmission mechanism for the GFC, are a significant data gap in Australia.

30. Some economic phenomena during volatile times

31. Managing national accounts in a volatile environment and lessons learned • Long period of stable growth in Australia from 1992 to mid-2000’s. • There is a tendency for complacency after an extended period of relative market stability Exacerbated by staff turnover: many staff have not been through a full business cycle • Generally most series performed well until 2007. • Statistical discrepancy emerged as a problem after December quarter 2009. • Effective measurement in times of crisis requires statistical infrastructure in place BEFORE the crisis For example, measurement of the financial services industry Full set of accounts, including balance sheets and financial accounts are an advantage.

32. Managing national accounts in a volatile environment and lessons learned - continued • Government measures to stimulate the economy introduced in 2009. • Onset of natural disasters from 2009 onwards • Sovereign debt issues emerged in 2010 and continue to disrupt markets. • Implementation of the full set of accounts helps to manage through crisis events. These problems were faced by many NSOs.

33. FISIM • FISIM performed unpredictably in a financial crisis. • Was influencing CPI and headline inflation rates and National Accounts aggregates. • Responses • Forced a review of the FISIM model. • Removal of FISIM from headline CPI (inflation) • Implemented a revised Balance of Payments model • Improved data sources for National Accounts.

34. Future developments • Revised Government Finance Statistics Manual • Emergence of new practices around 2008SNA and BPM6 from implementation in USA (2013), Canada (2013) and Eurostat (2014).