National income is one of a family of national accounting measures of New Zealand's total productive activity. It is possible to define total productive activity in many ways. The national accounting framework provides three main measures. One of these is national income, which includes all incomes generated in the processes of production of goods and services. It includes incomes earned as salaries and wages, income from self-employment (e.g., professional farming and private trading), company income, and that earned by Government and local-authority trading concerns. National income is usually referred to as national income at factor cost – that is, it includes all incomes accruing to the various factors of production.
The greater part of the total value of production is represented by factor incomes. In measuring the total value of production of goods and services (referred to as gross national product), it is also necessary to allow for other elements. These include two price effects, indirect taxation and subsidies, which enter into the value of goods sold. Allowance is also made for depreciation of capital – such provision for the maintenance of the nation's total working capital is financed from current production and is consequently a part of total current production. On the other hand, such provision is necessary if the nation's wealth is to be maintained, and consequently is not viewed as a part of the income generated and available for general use.
In measuring national income and gross national product it is usual to restrict coverage in the main to the production of goods and services for sale. Thus the national income does not include any allowance for the output or production of housewives or of home gardening. The exclusion of some such forms of production is occasionally criticised by professional economists. For instance, in certain underdeveloped countries a substantial amount of subsistence farming exists, and some kind of assessment of the value of production for the producer's own use is therefore necessary. Such measurement raises many serious problems. In New Zealand allowance is made for one kind of income which does not take the form of a money flow. The item is provisional for the rental value of owner-occupied houses.
The total value of production can also be described in terms of the final use made of produced goods and services. The measure of total use made of goods and services produced is gross national expenditure and equals gross national product. This total includes measures of personal and Government consumption, capital formation, and changes in stocks held. An adjustment is also made for the difference between the total value of goods and services exported and of goods and services imported. This difference is known as net investment overseas.
An official estimation of national income is comparatively recent, and it is only since the 1939–45 War that international standards of measurement have been developed. From its inception the United Nations Statistical Office has played a central part in the development and formulation of national accounting procedures, and these are now followed in large part in most non-communist countries.
The first recorded estimates for New Zealand were those made at the turn of the century by T. A. Loghlan, the Government Statistician of New South Wales. His estimates were based mainly on income-tax data and were restricted to a measure of private, rather than national, income. In the world history of national accounting, Loghlan's estimates for the Australian States stand as the first official estimates of a nation's income. Loghlan's estimate for New Zealand in 1901–02 was £364 million. Official estimating began in New Zealand with an estimate for the 1925–26 March year of an aggregate private income of £136 million. This estimate was published in the 1932 Official Yearbook. About this time and in the following years several attempts of measurement of national income were made by private economists, including an exhaustive series of estimates by F. B. Stephens.
Official publication of national income estimates on the present pattern began in 1948 and has continued annually since then, and covers the period from 1938–39 up to the present day. From a total of £2149 million in 1938–39, national income has increased at a fairly steady rate of growth to £1,466 million in 1963–64. This growth is at an average annual rate during the period of over 8 per cent in money terms.
In New Zealand national income is measured in the prices obtaining in the year of measurement. During periods of inflation national income will thus tend to rise even if there is no change in the real value or quantity of goods and services produced.
The period covered by the national income estimates has been one of fairly general inflation, with an average rate of increase of 4 per cent per annum in retail prices and of nearly 5 per cent per annum in wholesale prices. Consequently, not all of the 8 per cent per annum growth in national income can be regarded as real, for a substantial part is an inflationary illusion. There are no official estimates of increases in real national income, but studies made suggest that the rate of increase in real national income in the decade 1950–59 lies somewhere between 3 and 4 per cent per annum. A further assessment which can be made is to adjust the total for population change and derive a figure for real national income per head. The steady increase in population over the period means that growth in real national income per head will be lower than that in the range above.
The main totals of the national income estimates for 1963–64 are given in the following table:
| Income | |
| £(million) | |
| Salary and wage payments | 776 |
| Pay and allowances of armed forces | 15 |
| Rental value, owner-occupied houses | 43 |
| Other personal income | 340 |
| Company income | 179 |
| Public authority trading income | 62 |
| Less Public debt interest paid in New Zealand | –45 |
| ——— | |
| National income at factor cost | 1,368 |
| Plus indirect taxation | 127 |
| Less subsidies | –15 |
| Plus depreciation allowances | 115 |
| Gross national product | 1,595 |
| —— |
| Expenditure | |
| £(million) | |
| Personal expenditure on consumer goods and services | 990 |
| Public authority current expenditure on goods and services | 211 |
| Gross capital formation | |
| (a) Private | 223 |
| (b) Government | 141 |
| (c) Changes in stocks | 40 |
| Net investment overseas | –10 |
| —— | |
| Gross national expenditure | 1,595 |
| —— |
As well as measuring total production in terms of the incomes of the factors which generated it, or in terms of how it was used, it can be classified according to the various sectors of the economy in which the income was generated.
In 1954–55 various sector contributions to net national output were:
| Per Cent | |
| Farming, etc. | 23 |
| Primary-produce processing | 2 |
| Manufacturing | 19 |
| Wholesale and retail trade | 17 |
| Transport and communications | 9 |
| Building and construction | 7 |
| Other | 23 |
| —— | |
| 100 |
The term income is now used with such a variety of meanings as to necessitate definition of a number of types of income. Generally, income is a continuing accrual of money to a person or group. Thus salaries and wages, interest earnings, gross or net business earnings, and social security benefits can all be characterised as income, whereas it is not usual to regard non-recurring receipts such as sales of land investments, or other capital assets as income.
Ultimately all income originates in current production and represents a claim against the total value of goods and services produced. The link between production and income generation is not always obvious, and incomes are frequently differentiated according to their different relationships to production. Factor incomes are those incomes accruing to the factors of production, land, labour, and capital; they include salaries and wages, income from self-employment, company and Government trading profits, interest and rents. Factor incomes are sometimes split into two groups: “earned” and “unearned” income. Unearned income includes dividends, interest, and rent, whereas earned income covers only those incomes derived from direct participation in production.
Income such as old age pensions and social security benefits are “transfer” incomes. This term covers the whole range of incomes where the income is not a reward for some service rendered but is an unrequited payment assessed in terms of individual needs, social welfare, or some similar consideration.
Attempts are sometimes made to compare income levels between different time periods. Such comparisons are made difficult by changes in the purchasing power of incomes through time. Thus, though a person's wage may increase during a five-year period by 26 per cent, the prices he pays for the goods and services he consumes may increase by 20 per cent. In this case the gain in real or effective wage rates is only 126-120/120 × 100 or 5 per cent. As an illustration of the power of this inflationary illusion, the table below sets out figures for various years for the index of nominal weekly wage rates, and for this index corrected by the consumers' price index to give an effective wage rates index.
| Changes in Nominal and Effective Wage Rates Base 1955 (=1000) |
||
| Award Wage Rate | Award Rate Adjusted for Changes in Purchasing Power | |
| 1937 | 407 | 834 |
| 1947 | 585 | 910 |
| 1957 | 1067 | 1009 |
| 1958 | 1078 | 976 |
| 1959 | 1098 | 958 |
| 1960 | 1153 | 999 |
| 1961 | 1171 | 997 |
| 1962 | 1200 | 995 |
| 1963 | 1233 | 1002 |
| 1964 | 1270 | 998 |
(Monthly Abstract of Statistics, Department of Statistics.)
Note that the total increase during the period in the nominal wage rate is 195 per cent, while that in the effective wage rate is 19 per cent. This example demonstrates the difficulties inherent in comparing income levels through time.
In considering income levels at any one point in time, several aspects of the problem present themselves. We may wish to consider the distribution of income within the community, the sectors of the economy in which incomes are generated, or the status in the productive process of those in receipt of income. In considering the distribution of incomes, it is convenient to classify incomes according to income groups and then to show these as percentages of totals. The following table is taken from a 1961 population census report where income is defined as all income other than social security benefits and war pensions. This factor is relevant in considering equality of income distribution as the influence of social security benefits, if included, would certainly have reduced the apparent inequality of incomes. There are 1,028,077 persons covered by the table.
| Income Distribution of Specified Cases With Income | |
| Income Group | Per Cent |
| £1–99 | 7.27 |
| £100–299 | 9.80 |
| £300–499 | 14.10 |
| £500–699 | 14.87 |
| £700–899 | 18.94 |
| £900–1,099 | 15.26 |
| £1,100–1,299 | 7.82 |
| £1,300–1,499 | 3.62 |
| £1,500 and over | 8.32 |
(New Zealand Population Census, Incomes, Department of Statistics.)
A table of distribution of incomes received by income groups, while giving a picture of the New Zealand situation, does not give any information on how New Zealand compares with other countries. In his book, Portrait of a Modern Mixed Economy, Professor Westrate makes a comparison of New Zealand data with those for the United Kingdom, the United States of America, the Netherlands, and Sweden, and tentatively concludes that the New Zealand income distribution, before taxation and receipt of social security benefits, is less egalitarian than that of the United Kingdom but more so than that of the other three countries.
The data in the following table represent the results of an industrial classification of the salary and wage payments to employees during the year ended 31 March 1960.
| Amount of Salaries and Wages Paid – Years Ended 31 March 1963 and 1964 – by Industry Groups | ||
| £(000) | ||
| Industry Group | 1962-63 | 1963-64 |
| Agriculture and livestock production | 37,615 | 40,079 |
| Forestry, hunting, and fishing | 2,822 | 2,588 |
| Mining and quarrying | 5,732 | 5,872 |
| Manufacturing, food, beverages, and tobacco | 52,549 | 54,844 |
| Manufacturing, textiles, wearing apparel, and made-up textiles | 28,044 | 29,844 |
| Manufacturing, wood, paper, chemical, etc., products (including miscellaneous manufacturing) | 74,053 | 80,079 |
| Manufacturing, metals, and metal products | 44,400 | 50,156 |
| Construction | 64,083 | 69,831 |
| Electricity, gas, water, and sanitary services (not construction) | 11,545 | 12,208 |
| Commerce – Wholesale and retail trade | 120,350 | 129,131 |
| Commerce – Other | 34,580 | 37,630 |
| Transport, storage, and communication | 91,464 | 94,853 |
| Services, community, business, recreation, and personal | 160,120 | 173,760 |
| Activities not adequately described | 1,379 | 1,058 |
| Totals | 728,197 | 781,935 |
(Supplement to April 1965 Monthly Abstract of Statistics.)
This information is extracted from returns required in connection with the “pay as you earn” income tax legislation. Therefore all employees are covered, and the payments are those which are made during a year which is uniform for all employers.
by John Victor Tuwhakahewa Baker, M.A., M.COM., D.P.A., Government Statistician, Wellington.