Download Summary of changes made from the June 2000 quarter

1. Early Release of Annual Revisions
On 18th September 2000, at 3 pm, Statistics New Zealand will publish a separate balance of
payments release incorporating revisions from the June 1995 quarter to the March 2000
quarter. This release will enable users to analyse changes before the Balance of Payments
- June 2000 quarter release, on 22nd September 2000.
The revisions are a result of new and improved data and some methodology changes,
relating to:

the introduction of a new methodology for insurance services (refer to section 2)

the annual benchmarking exercise for international investment income

the incorporation of annual benchmarks for transportation and services

the reconciliation with the National Accounts Inter-industry study for 1995/96.
All four of the major components of the current account will be affected by these revisions,
namely Goods, Services, Income and Current transfers.
The effect of the methodology changes will be shown separate from the data
improvements. The revisions release will contain a highlights page and a series of tables,
but no commentary. The commentary will be contained in the Balance of Payments - June
2000 quarter release. INFOS will also be updated on the day at 3pm.
2. Methodology Changes to Insurance Services
The latest international standards, namely the fifth edition of the Balance of Payments Manual,
are being introduced for the Insurance component of services. International insurance services
are now being estimated by service charges included in total premiums earned rather than by net
premiums.
General insurance and life insurance are treated differently. Life insurance guarantees that a
claim will eventually be paid out, which isn’t a certainty for general insurance. Also there is a
substantial lag between the payments of premiums and claims for life insurance, whereas for
general insurance the lag is often a lot shorter.
Consequently general insurance is made up of two components. The first, called the service
component, is the part of the premium that pays the insurance company for the service it
provides and the second, called the transfer component, is that part that the insurance company
keeps and then transfers back to the policyholders when a claim is settled. The service
component is recorded in the current account under services/insurance services, while the
second component is recorded in the current account under current transfers.
International transactions in life insurance services are considered small. What data are
available is collected through the insurance survey. For life insurance imports the service
charge is calculated as premiums minus claims. These data are included within the services
component.
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3. Methodology Changes to International Investment Income - June 2000 quarter
From the June 2000 quarter onwards the investment income component will be collected
and compiled on the basis of the latest international standards, namely the fifth edition of
the Balance of Payments Manual.
The main changes being introduced are:

interest income is to be calculated on an accrual basis rather than a due for payment
basis

using the creditor accrual approach for interest on New Zealand Government debt
securities

using a 10 percent or more ownership criteria as the basis for determining direct
investment and the associated reinvested earnings. (Previously a 25 percent or more
ownership threshold was used for direct investment.)
These changes are being made to take into account changes in the global financial
environment and to make international comparisons easier.
Statistics New Zealand is also implementing several other changes, namely:
 collecting the investment income data via two new collections: the Quarterly
International Investment Survey (QIIS) and the Quarterly Nominees Survey.

using a purposive sample design for QIIS, rather than a stratified random sample design
as was used for the now ceased quarterly International Investment Income survey.

making the definition of direct investment symmetrical, so that for both inwards and
outwards direct investment the direct investment threshold will be applied at each
investor level i.e. if a single investor owns 10% or more of the voting shares then they
are regarded as a direct investor and only their reinvested earnings are accounted for.
This has been the treatment for outwards direct investment but for inwards direct
investment the threshold was applied at the cumulative company/enterprise level. Under
the latter practice if the total foreign ownership in a New Zealand company met or
exceeded the direct investment threshold (then 25%, now 10%) then all foreign investors
were regarded as direct investors and income in the form of reinvested earnings was
attributed to each of the investors. (refer to Appendix One for an example)
The net impact of all the methodological and data collection changes on investment income is
unknown. At this stage we estimate for the June 2000 quarter that total international investment
income debits will be $100 million smaller than if calculated under the old methodology.
Several quarters of data collected and compiled on the new basis will be required to fully
assess the impact of these changes on the investment income component. If any linkages
and backcasting of series is required this would be undertaken in mid-2001.
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4. Future Improvements to the Quarterly Financial Account Statistics
The Statistics New Zealand development programme, for comprehensive quarterly financial
account statistics on a fifth edition of the Balance of Payments Manual basis, is nearing
completion. The Official Sector collection and Managed Funds Survey have been changed so
that they provide data on the new basis and new collections; namely the Quarterly International
Investment Survey (QIIS) and the Quarterly Nominees Survey are now operational. These new
surveys replace the Annual Overseas Debt and Annual Capital Accounts Surveys and the
Quarterly International Investment Income Survey.
A full financial account for New Zealand's Balance of Payments and International Investment
Position statistics will be published quarterly. This will include breakdowns of inwards and
outwards investment into direct investment, portfolio investment and other investment. Other
information that will also be available includes:

the currencies in which New Zealand's international assets and liabilities are
denominated

the residual maturity profile of these assets and liabilities

some country and industry analysis
The timetable for the first release of these new statistics has yet to be finalised, although by
30 June 2001 statistics for at least two quarters will have been released. Prior to the release
of these statistics, users will be informed of what new data are available and of any new
data tables.
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Appendix One
Example:
Company ABC is a New Zealand resident company that has a cumulative overseas ownership of
40%. The latter consists of one overseas direct investor who owns 20% with the remaining
overseas ownership consisting of 4 unrelated overseas portfolio investors who each hold 5%.
If company ABC made a profit of $100 million of which $50 million is distributed as dividends
and $50 million is retained, then $40 million and $30 million would have been recorded for total
investment income debits under the cumulative ownership and single direct investor
methodologies, respectively:
Cumulative Ownership
Methodology
(Old basis: pre June 2000 quarter)
NZ$(million)
Single Direct Investor
Methodology
(New basis: June 2000 quarter
onwards)
NZ$(million)
Income from Foreign Investment
in NZ
1. Direct Investment Income
40
20
1.1 Income on Equity
40
($100m x 40%)
20
($100m x 20%)
1.1.1 Dividends and
distributed branch profits
20
10
1.1.2 Reinvested earnings
and undistributed branch
profits
20
10
0
0
2. Portfolio Investment Income
0
10
($50m x 5% x 4: earnings
distributed to the 4 overseas
portfolio investors)
3. Other Investment Income
0
0
Total Investment Income
40
30
1.2 Income on debt
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