International Trade (Unit 3 Topic 1)  

The Balance of Payments

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Every three months the ABS totals up every transaction between Australian residents and the rest of the world. That record is the balance of payments, and it has two sides.

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The current account records flows of goods, services and income. Its largest part is the balance on goods and services (BOGS) — exports minus imports — and it is the only component that feeds directly into GDP. Next is net primary income: the interest, dividends and wages Australia earns from overseas, less what it pays out. Net secondary income covers transfers such as aid and pensions, and is small enough to set aside.

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The capital and financial account records changes in the ownership of assets and liabilities. The part that matters is net investment. Direct investment is a stake of 10 per cent or more, giving real influence over a business, and it is serviced with dividends. Portfolio investment is shares and bonds bought without that influence, and it includes the debt securities that make up most of Australia's foreign debt.

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The two sides are mirror images because every transaction is recorded twice — once for what was exchanged, once for how it was paid for. When Australia imports more than it exports, the money spent overseas comes back as a claim on Australian assets. So a current account deficit is always matched by net capital inflow, and the balance of payments sums to zero.

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That relationship explains Australia's position. Decades of capital inflow have built a large stock of foreign claims, and servicing them — dividends to foreign owners, interest to foreign lenders — is recorded as an outflow in net primary income. In the June quarter 2026 that outflow was $21.9 billion, the single biggest reason the current account deficit reached a record $27.2 billion. Financing a deficit today makes tomorrow's deficit harder to close.