Story: National income and GDP

Page 5. National income

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Gross national income

The gross domestic product for income (GDP(I)) is one of the three ways of calculating GDP. It measures the incomes generated from domestic production, whether income goes to New Zealand residents or to people overseas. To understand the income, consumption and saving behaviour of resident New Zealanders, economists measure national income as distinct from domestic income – national income is the income New Zealanders earn and have available to spend or save.

Just as income generated in domestic production is paid to non-residents as a return on their investments in New Zealand, similarly New Zealand residents receive income from investments overseas. Gross national income (GNI) measures the incomes earned by New Zealand residents from their ownership of factors of production, regardless of where those factors are employed. It is derived from GDP(I), subtracting the income earned from domestic production remitted overseas, but adding incomes received by residents from other countries. GNI was formerly known as gross national product (GNP).

Because of New Zealand’s high levels of overseas borrowing, investment flows leaving the country are greater than investment flows coming in. This lowers New Zealand’s national income. This net outflow has increased as a proportion of GDP – in the early 1970s GNI was approximately 98% of GDP, but by the mid-1990s it had fallen to about 93%. For a decade it stayed close to this level, even picking up slightly, but from 2004 the downward track resumed as overseas borrowing increased.

National disposable income

GNI is a better measure of New Zealanders’ income or claim on resources than GDP. GNI is further refined by:

  • adjusting GNI for other net transfers with the rest of the world, such as foreign aid, insurance claims and personal remittances, to produce the gross national disposable income (GNDI)
  • deducting consumption of fixed capital (wear and tear on machinery and buildings) which is technically a charge against production, to produce net national disposable income (NNDI).

NNDI is the national equivalent of the disposable income an individual might have to either spend or save.

Real gross national disposable income

A constant price income measure, the real gross national disposable income (RGNDI) measures the real purchasing power of national disposable income, by taking account of changes in the terms of trade (the relative value of exports and imports) and the real value of net investment and transfer incomes with the rest of the world. It is a measure of the volume of goods and services New Zealand residents have command over.

Trends in national income

New Zealand has a large trading sector and significant international investment flows, and the real purchasing power of the incomes received by New Zealanders may be greater than or less than the volumes produced as measured by the conventional GDP volume statistic.

New Zealand’s net investment income from the rest of the world has been recorded as being in deficit since official national accounts were first released for 1938/39. This reflects the fact that the country has always relied heavily on foreign investment to develop its economy.

There have been changes in the shares of national income taken by labour, business and government. In the 1970s workers’ share of national income averaged 63% of NNDI, but this had fallen to an average 53% in the 2000 to 2007 period. Over the same time the income share going to resident businesses increased by 3%, and government’s share rose by 7%, reflecting the shift by government to raise revenue through indirect taxes in the late 1980s, with the introduction of a goods and services tax (GST).

How to cite this page:

Jeff Cope, 'National income and GDP - National income', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/national-income-and-gdp/page-5 (accessed 22 March 2019)

Story by Jeff Cope, published 11 Mar 2010