National income is an important indicator of how New Zealand’s economy is performing. Along with other key economic variables, for example the gross domestic product (GDP), national income is presented in the national accounts.
Just as business accounts provide a summary record of a firm’s financial operations, so the national accounts for a country summarise the economic behaviour of the nation. The national accounts show:
- the rate the economy is growing or contracting
- industries that are growing faster than others
- the proportion of total income made up of wages
- the amount of goods and services purchased by households and government, or exported
- the amount of income saved
- the level of investment.
In any developed market economy, it is not a simple task to measure how the economy is operating. Millions of transactions amongst businesses, government, non-profit institutions and individuals take place every day, within New Zealand, and between New Zealand and the rest of the world.
The national accounts summarise this complex range of transactions. They provide macroeconomic aggregates – the big picture – so economic management and monitoring can be measured.
Key economic measures
Public attention often focuses on three key measures of total economic performance that are found in the national accounts.
- The production aggregate, the gross domestic product (GDP), is a measure of domestic production, how much is produced within New Zealand.
- The expenditure aggregate, the gross national expenditure (GNE), is a measure of internal demand for both domestic and overseas production.
- The income aggregate, the gross national disposable income (GNDI), is a measure of the total income of New Zealand residents, from domestic production and from net income flows with the rest of the world.
In 1866 Auditor General Charles Knight demonstrated his flair for statistics in a report to government which included the first estimate of New Zealand’s national income, £15.8 million (around $1.5 billion in 2009 terms). An analysis a century later concluded that Knight’s effort had ‘great intellectual merit, overcoming a lack of data and an absence of methodological precedent’.1
GDP over time
The official GDP and national income series for New Zealand are produced by Statistics New Zealand. The current price series are available from 1939, while constant price series have been produced since 1955. The first estimate of national income was made in 1866. Unofficial series going back to 1859 have been produced by a number of academics.
Measures of income, saving and wealth
A full set of national accounts includes information on other important variables such as saving and net borrowing, and these are linked to underlying changes in financial assets and liabilities. National balance sheets are also compiled to illustrate how both the real and financial transactions that occur during a year can lead to changes in New Zealand’s net wealth. As each summary macroeconomic measure is built up from finer-level data, it is possible to break down totals such as GNE and GDP into their industry, sector or commodity components.