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Taking on the West Island: 
How does New Zealand’s labour productivity stack up?

4.2 Financial Intermediation Services Indirectly Measured (FISIM)

FISIM are financial services that depositors and borrowers (both firms and households) pay indirectly to bank-type organisations through the depositor-borrower interest rate margin. These services are in the nature of security and convenience for depositors and liquidity and convenience for borrowers.

In New Zealand, total FISIM is treated as intermediate use rather than some of it being allocated according to use in final consumption or exports. Instead, FISIM is measured as intermediate consumption in a nominal industry outside the measured sector. Figure 5 plots FISIM as a share of New Zealand nominal GDP. In current price terms, FISIM grew by 4.5 percent per annum, while total GDP grew by 5.2 percent per annum, from 1988 to 2007. In contrast,the ABS attributes FISIM to individual industries, exports, and final consumption. The use of FISIM for dwellings (household mortgages) is deemed to be intermediate usage and not final consumption (ie, it is an intermediate input into the output of owner-occupied dwellings). The Australian ‘supply and use’ tables for 2005 suggest that one-third of FISIM is in final consumption and two-thirds is for intermediate use (including that used by owner-occupied dwellings).

Figure 5 - FISIM as a share of New Zealand GDP
Figure 5 - FISIM as a share of New Zealand GDP.
Source: Statistics New Zealand

The current treatment of FISIM has three implications for New Zealand's GDP and productivity estimates. Firstly, it reduces the level of GDP and economy-wide productivity, as all FISIM is counted as an intermediate input, as opposed to some of it being allocated to final consumption or exports. Secondly, it inflates the level of output and productivity in the measured sector, as not all intermediate use is accounted for in calculating value added. Thirdly, it reduces the level of output and productivity in the non-measured sector, where all intermediate use is recorded and scored as a negative.

If New Zealand allocated one-third of FISIM to final consumption in 2005, the level of current price GDP would have increased between 1-2 percent. Overall, the effect of allocating FISIM on GDP growth and productivity growth will depend on the actual allocations, but is likely to be small. There are plans to allocate FISIM in the near future in accordance with the System of National Accounts 1993 (SNA93).

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