19 Sep 2010

GDP used inappropriately, says Australian Treasury official

2:22 pm on 19 September 2010

A senior Australian Treasury official has admitted that his department has been guilty of overusing gross domestic product (GDP), after recognising that it is a flawed measure of economic wellbeing and social progress.

The Treasury's macroeconomics director, Dr David Gruen, told a conference in Sydney on Friday that the body uses GDP to measure economic wealth despite knowing its limitations.

He was quoted by the ABC as saying economists and statisticians have long known it is not and was never intended to be a measure of wellbeing or progress.

Dr Gruen said they "arguably, if inadvertently" do much to promote GDP as a measure of progress.

"For example, speaking of my own institution, in the budget papers we present detailed analysis on the level and growth of GDP as well as its determinants."

Dr Gruen said GDP is largely a measure of market production and has a lot of limitations, particularly because it does not take into account most household production.

It also does not factor in many goods and services produced by the public sector, thus in effect favouring the private sector and privatisation.