Expenditure Approach
Elriëtte Botes
17-19 October 2012
Pretoria, South Africa

 Expenditure Approach
 Final Consumption Expenditure by Households
 Final Consumption Expenditure by General Government
 Gross Capital Formation

Gross Fixed Capital Formation

Change in inventories
 Net Exports
 Challenge
2

Expenditure Approach
KEYNESIAN EQUATION
Y = C + I + G + (X – M)
GDP = C + I + G + (X –M) ± Res.
3

GDP from the expenditure approach is compiled according to the UN System of National Accounts’ definitions, methods and classifications.
It is based on the following accounting identity
KEYNESIAN EQUATION


Y = C + I + G + (X – M)
GDP = C + I + G + (X –M) ± Res.
4

Y = C + G + I + ( X - M )
C → C onsumption expenditure by households (61%)
G→
Government consumption expenditure (21%)
I →
Gross fixed capital formation (22%)
+ change in inventories (-2.5%)
Res. →
Residual (-0.5% of GDP)
= Gross domestic expenditure
X→
Value of exports
M→
Less Value of imports
X – M (-1%)
= Expenditure on Gross domestic product (GDP)
5

Overall estimation
Yearly





Consolidation of :
Annual Financial Statistics (Stats SA)
Quarterly Financial Statistics (Stats SA)
Annual Reports
Government publications (Stats SA)
N01’s
6

Expenditure Approach
R millions
Final consumption expenditure 300
Households 200
General government 100
Gross capital formation 300
Gross fixed capital formation 310
Inventories -10
Export of goods and services 120 less imports of goods and services 110
Equals Gross domestic product from expenditure side 610
7

Expenditure Approach
Y = C + G + I + ( X - M )
610 =200+100+(310-10)+(120-110)
Where:
C = Final consumption expenditure by households
G = Final consumption expenditure by general government
I = Gross capital formation (GFCF+ change in inventories)
Where : C + G + I = Gross domestic expenditure 600
X – M = 120-110 = 10
= Expenditure on Gross domestic product (GDP) 610

Sum of final consumption expenditure on goods and services by resident household
Durable goods – 7%
Semi-durable goods - 9%
Non-durable goods - 41%
Services - 43%
9

Durable goods
Semi-durable goods
Non-durable goods
Services
Total PCE
R millions
15
16
80
89
200
10

Reflects current and capital spending in general government
Central government
Provincial government
Local government
Current expenditure on salaries and wages - 58%
The rest is expenditure on goods and services by e.g
Defence
Health
Education
Housing
Social welfare
11

R millions
80 Current expenditure on salaries and wages
Plus Expenditure on other goods and services 25
10 Plus Consumption of fixed capital
Less fees and charges 15
Equals Final consumption expenditure general government 100
12

Reflects current and capital spending in general government
Central government
Provincial government
Local government
Central government – Defence, National government,
Extra-budgetary institutions, Social Security
Provincial government – 9 provincial government authorities
Local government - municipalities, metro councils
13

Collection of data
58%
44%
Defence
Health
Education
Housing
Social welfare
10%
–
–
12%
Licence fees
Entrance fees
14

Collection of data sources
Quarterly
Information from Public finance division
– Treasury, SARS, F04, Stats SA
Department of Defence
Annually
Statistics Releases from Stats SA such as:
Consolidated Expenditure by the General Government
Sector: P9119.4
National Government Expenditure: P9119.3
Financial Statistics of extra-budgetary accounts: P9102
Provincial Government Expenditure: P9121
Financial Statistics of local authorities: P9114
15

Process of estimation continued
NA adjusts GFS data to accrual basis
–
Where it can identify specific large transactions, such as the delay of certain payments from the end of one month to the beginning of the next
–
COE - adjustment are made only in extra ordinary cases such as strike, backpayments
–
Goods and services – bulk payments can cause quarterly fluctuations and distort the expenditure pattern
(payments are spread throughout expenditure period but not recorded when actual payments are made)
–
Although there are accrual adjustments, NA , GFS and
Statssa fiscal year totals are always the same
■
Depreciation is calculated on the capital stock of GG
- per asset type according to the economic life time of the asset
- per level of government
16

Compensation of employees
A constant level for COE is determined in the benchmark year.
By extrapolating this level with the QES number of employees growth rate, the constant value is calculated.
Goods & services
Use PPI to deflate G & S
Consumption of fixed capital
Use PPI to deflate current values
Fees & charges
Deflate the current figure using a derived deflator
(Current COE+G & S/Constant COE+G & S)
17

Gross Capital Formation
Gross Capital Formation
=
I
Gross Fixed Capital
Formation
18

Domestic fixed investment on new assets
Private sector
Public corporation
General government
Country’s capital stock on
Residential buildings
Non-residential buildings
Construction works
Transport equipment
Computer equipment
Machinery and equipment
19

• According to institution
Private sector
Public corporation
General government
Total GFCF
• According to asset type
Residential buildings
Non-residential buildings
Construction works
Transport equipment
Machinery and equipment
Computers and other equipment
Transfer costs
Total GFCF
•
According to economic activity
R millions
197
44
69
310
92
18
6
310
24
35
99
36
20

Inventories
Reflect goods that has been produced during a certain period but has not been sold
Production – sales = stocks
Raw materials
Work-in-progress
Stockpiling of strategic goods
21

Inventories
Reflect goods that has been produced during a certain period but has not been sold
Production – sales = stocks
Raw materials
Work-in-progress
Stockpiling of strategic goods
22

•
Reflect goods that has been produced during a certain period but has not been sold
•
Production – sales = stocks
•
Raw materials
•
Work-in-progress
•
Stockpiling of strategic goods
R millions
-10
23

Collection of data
Agriculture
 Info from Department of Agriculture
Mining

N01’s
 Gold: Chamber of mines, Dept of Minerals and Energy - Q,
BOP - Price
Manufacturing

N01’s
Electricity, gas and water

N01’s
Construction

N01’s
24

Collection of data continued
Trade

N01’s
 Agric stock-in-trade - SAGIS
Transport and communication

N01’s
Finance

N01’s
Services

N01’s
25

Net exports
Exports – Imports = Net exports
Main components of the external account
C + G + I = GDE
C + I + G + (X – M) = GDP
26

Process of estimation continued
27

Gross National Income
GNI = GDP + primary income from the rest of the world – primary income to the rest of the world
GDP → level of economic activity in the country
GNI → indication of income in the country
28

Gross Saving
Saving
Household saving Corporate saving Government saving
29

Household saving = PDI - PCE
Government saving = Current income of government - Current expenditure
Corporate saving = Current income of business enterprises - Current expenditure
S = I
S>I (BOP SURPLUS)
S<I (BOP DEFICIT)
30

Challenge
Quarterly national accounts constitute a system of integrated quarterly time series coordinated through an accounting framework. However the constraints of data availability, time, and resources mean that QNA are usually less complete and reliable than annual national accounts (OECD)
31