Help Print this page 

Document 32013R0549

Title and reference
Regulation (EU) No 549/2013 of the European Parliament and of the Council of 21 May 2013 on the European system of national and regional accounts in the European Union Text with EEA relevance

OJ L 174, 26.6.2013, p. 1–727 (BG, ES, CS, DA, DE, ET, EL, EN, FR, GA, IT, LV, LT, HU, MT, NL, PL, PT, RO, SK, SL, FI, SV)
Special edition in Croatian: Chapter 10 Volume 008 P. 3 - 729

ELI: http://data.europa.eu/eli/reg/2013/549/oj
Languages, formats and link to OJ
BG ES CS DA DE ET EL EN FR GA HR IT LV LT HU MT NL PL PT RO SK SL FI SV
HTML html BG html ES html CS html DA html DE html ET html EL html EN html FR html GA html HR html IT html LV html LT html HU html MT html NL html PL html PT html RO html SK html SL html FI html SV
PDF pdf BG pdf ES pdf CS pdf DA pdf DE pdf ET pdf EL pdf EN pdf FR pdf GA pdf HR pdf IT pdf LV pdf LT pdf HU pdf MT pdf NL pdf PL pdf PT pdf RO pdf SK pdf SL pdf FI pdf SV
Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal Display Official Journal
 To see if this document has been published in an e-OJ with legal value, click on the icon above (For OJs published before 1st July 2013, only the paper version has legal value).
Multilingual display
Dates
  • Date of document: 21/05/2013
  • Date of effect: 16/07/2013; Entry into force Date pub. +20 See Art 13
  • Date of end of validity: 31/12/9999
Miscellaneous information
  • Author: European Parliament, Council of the European Union
  • Form: Regulation
  • Additional information: EEA relevance, COD 2010/0374
Relationship between documents
Text

26.6.2013   

EN

Official Journal of the European Union

L 174/1


REGULATION (EU) No 549/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 21 May 2013

on the European system of national and regional accounts in the European Union

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 338(1) thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Central Bank (1),

Acting in accordance with the ordinary legislative procedure (2),

Whereas:

(1)

Policymaking in the Union and monitoring of the economies of the Member States and of the economic and monetary union (EMU) require comparable, up-to-date and reliable information on the structure of the economy and the development of the economic situation of each Member State or region.

(2)

The Commission should play a part in the monitoring of the economies of the Member States and of the EMU and, in particular, report regularly to the Council on the progress made by Member States in fulfilling their obligations relating to the EMU.

(3)

Citizens of the Union need economic accounts as a basic tool for analysing the economic situation of a Member State or region. For the sake of comparability, such accounts should be drawn up on the basis of a single set of principles that are not open to differing interpretations. The information provided should be as precise, complete and timely as possible in order to ensure maximum transparency for all sectors.

(4)

The Commission should use aggregates of national and regional accounts for Union administrative purposes and, in particular, budgetary calculations.

(5)

In 1970 an administrative document entitled ‘European System of Integrated Economic Accounts(ESA)’ was published, covering the field governed by this Regulation. That document was drawn up solely by the Statistical Office of the European Communities on its responsibility alone and was the outcome of several years’ work, by that office together with Member States’ national statistical institutes, aimed at devising a system of national accounts to meet the requirements of the European Communities’ economic and social policy. It constituted the Community version of the United Nations System of National Accounts which had been used by the Communities up to that time. In order to update the original text a second edition of the document was published in 1979 (3).

(6)

Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community (4) set up a system of national accounts to meet the requirements of the economic, social and regional policy of the Community. That system was broadly consistent with the then new System of National Accounts, which was adopted by the United Nations Statistical Commission in February 1993 (1993 SNA), so that the results in all member countries of the United Nations would be internationally comparable.

(7)

The 1993 SNA was updated in the form of a new System of National Accounts (2008 SNA) adopted by the United Nations Statistical Commission in February 2009 in order to bring national accounts more into line with the new economic environment, advances in methodological research, and the needs of users.

(8)

There is a need to revise the European System of Accounts set up by Regulation (EC) No 2223/96 (the ESA 95) in order to take into account the developments in the SNA so that the revised European System of Accounts, as established by this Regulation, constitutes a version of the 2008 SNA that is adapted to the structures of the Member States’ economies, and so that the data of the Union are comparable with those compiled by its main international partners.

(9)

For the purpose of setting up environmental economic accounts as satellite accounts to the revised European System of Accounts, Regulation (EU) No 691/2011 of the European Parliament and of the Council of 6 July 2011 on European environmental economic accounts (5) established a common framework for the collection, compilation, transmission and evaluation of European environmental economic accounts.

(10)

In the case of environmental and social accounts, the Communication from the Commission to the Council and the European Parliament of 20 August 2009, entitled ‘GDP and beyond — Measuring progress in a changing world’, should also be fully taken into account. There is a need to vigorously pursue methodological studies and data tests in particular on issues related to ‘GDP and beyond’ and the Europe 2020 strategy with the aim of developing a more comprehensive measurement approach for wellbeing and progress in order to support the promotion of smart, sustainable and inclusive growth. In this context, the issues of environmental externalities and social inequalities should be addressed. The issue of productivity changes should also be taken into account. This should allow data that complement GDP aggregates to be made available as soon as possible. The Commission should present in 2013, to the European Parliament and to the Council, a follow-up Communication on ‘GDP and beyond’ and, if appropriate, legislative proposals in 2014. Data on national and regional accounts should be seen as one means of pursuing those aims.

(11)

The possible use of new, automated and real-time collection methods should be explored.

(12)

The revised European System of Accounts set up by this Regulation (ESA 2010) includes a methodology, and a transmission programme which defines the accounts and tables that are to be provided by all Member States according to specified deadlines. The Commission should make those accounts and tables available to users on specific dates and, where relevant, according to a pre-announced release calendar, particularly with regard to monitoring economic convergence and achieving close coordination of the Member States’ economic policies.

(13)

A user-oriented approach to publishing data should be adopted, thus providing accessible and useful information to Union citizens and other stakeholders.

(14)

The ESA 2010 is gradually to replace all other systems as a reference framework of common standards, definitions, classifications and accounting rules for drawing up the accounts of the Member States for the purposes of the Union, so that results that are comparable between the Member States can be obtained.

(15)

In accordance with Regulation (EC) No 1059/2003 of the European Parliament and of the Council of 26 May 2003 on the establishment of a common classification of territorial units for statistics (NUTS) (6), all Member States’ statistics that are transmitted to the Commission and that are to be broken down by territorial units should use the NUTS classification. Consequently, in order to establish comparable regional statistics, the territorial units should be defined in accordance with the NUTS classification.

(16)

The transmission of data by the Member States, including the transmission of confidential data, is governed by the rules set out in Regulation (EC) No 223/2009 of the European Parliament and of the Council of 11 March 2009 on European statistics (7). Accordingly, measures that are taken in accordance with this Regulation should, therefore, also ensure the protection of confidential data and that no unlawful disclosure or non-statistical use occurs when European statistics are produced and disseminated.

(17)

A task force has been set up to further examine the issue of the treatment of financial intermediation services indirectly measured (FISIM) in national accounts, including the examination of a risk-adjusted method that excludes risk from FISIM calculations in order to reflect the expected future cost of realised risk. Taking into consideration the findings of the task force, it may be necessary to amend the methodology for the calculation and allocation of FISIM, by means of a delegated act, in order to provide improved results.

(18)

Research and development expenditure constitutes investment and should therefore be recorded as gross fixed capital formation. However, it is necessary to specify, by means of a delegated act, the format of the research and development expenditure data to be recorded as gross fixed capital formation when a sufficient level of confidence in the reliability and comparability of the data is reached through a test exercise based on the development of supplementary tables.

(19)

Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States (8) requires publication of relevant information on contingent liabilities with potentially large impacts on public budgets, including government guarantees, non-performing loans, and liabilities stemming from the operation of public corporations including the extent thereof. Those requirements necessitate additional publication to that required under this Regulation.

(20)

In June 2012, the Commission (Eurostat) established a Task Force on the implications of Directive 2011/85/EU for the collection and dissemination of fiscal data, which focused on the implementation of the requirements related to contingent liabilities and other relevant information which may indicate potentially large impacts on public budgets, including government guarantees, liabilities of public corporations, Public-Private Partnerships (PPPs), non-performing loans, and government participation in the capital of corporations. Fully implementing the work of that Task Force would contribute to the proper analysis of the underlying economic relationships of PPP contracts, including construction, availability and demand risks, as appropriate, and capture of implicit debts of off balance sheet PPPs, thereby fostering increased transparency and reliable debt statistics.

(21)

The Economic Policy Committee set up by Council Decision 74/122/EEC (9) (EPC) has been carrying out work in relation to the sustainability of pensions and pension reforms. The work of statisticians on the one hand and of experts on ageing populations working under the auspices of the EPC on the other hand should be closely coordinated, at both national and European levels, with respect to macroeconomic assumptions and other actuarial parameters in order to ensure consistency and cross-country comparability of the results as well as efficient communication to users and stakeholders of the data and information related to pensions. It should also be made clear that accrued-to-date pension entitlements in social insurance are not as such a measure of the sustainability of public finances.

(22)

Data and information on Member States’ contingent liabilities are provided in the context of the work related to the multilateral surveillance procedure in the Stability and Growth Pact. By July 2018, the Commission should issue a report evaluating whether those data should be made available in the context of the ESA 2010.

(23)

It is important to underline the significance of Member States’ regional accounts for the regional, economic and social cohesion policies of the Union as well as the analysis of economic interdependencies. Moreover, the need to increase the transparency of accounts at a regional level, including government accounts, is recognised. The Commission (Eurostat) should pay particular attention to the fiscal data of regions where Member States have autonomous regions or governments.

(24)

In order to amend Annex A of this Regulation with a view to ensuring its harmonised interpretation or international comparability, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union (TFEU) should be delegated to the Commission. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including with the European Statistical System Committee established under Regulation (EC) No 223/2009. Moreover, pursuant to Articles 127(4) and 282(5) TFEU, it is of importance that the Commission carry out during its preparatory work, where relevant, consultations with the European Central Bank in its fields of competence. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council.

(25)

Most statistical aggregates used in the economic governance framework of the Union, in particular the excessive deficit and the macroeconomic imbalances procedures, are defined by reference to the ESA. When providing data and reports under those procedures, the Commission should give appropriate information about the impact on the relevant aggregates of the ESA 2010 methodological changes introduced by delegated acts in accordance with the provisions of this Regulation.

(26)

The Commission will carry out an evaluation as to whether the data on Research and Development have reached a sufficient level of quality both in current prices and in volume terms for national accounts purposes before the end of May 2013, in close cooperation with the Member States, with a view to ensuring the reliability and comparability of the ESA Research and Development data.

(27)

Since the implementation of this Regulation will require major adaptations in the national statistical systems, derogations will be granted by the Commission to Member States. In particular, the transmission programme of national accounts data should take into consideration the fundamental political and statistical changes that have occurred in some Member States during the reference periods of the programme. The derogations granted by the Commission should be temporary and subject to review. The Commission should provide support to the Member States concerned in their efforts to ensure the required adaptations to their statistical systems so that those derogations can be discontinued as soon as possible.

(28)

Reducing transmission deadlines could add significant pressure and costs for respondents and national statistical institutes in the Union, with the risk of a lower quality of data being produced. A balance of advantages and disadvantages should, therefore, be considered when setting the data transmission deadlines.

(29)

In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (10).

(30)

Since the objective of this Regulation, namely the establishment of a revised European System of Accounts, cannot be sufficiently achieved by the Member States and can be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective.

(31)

The European Statistical System Committee has been consulted.

(32)

The Committee on Monetary, Financial and Balance of Payments Statistics set up by Council Decision 2006/856/EC of 13 November 2006 establishing a Committee on monetary, financial and balance of payments statistics (11) and the Gross National Income Committee (GNI Committee) set up by Council Regulation (EC, Euratom) No 1287/2003 of 15 July 2003 on the harmonisation of gross national income at market prices (GNI Regulation) (12) have been consulted,

HAVE ADOPTED THIS REGULATION:

Article 1

Subject matter

1.   This Regulation sets up the European System of Accounts 2010 (‘the ESA 2010’ or ‘the ESA’).

2.   The ESA 2010 provides for:

(a)

a methodology (Annex A) on common standards, definitions, classifications and accounting rules that shall be used for compiling accounts and tables on comparable bases for the purposes of the Union, together with results as required under Article 3;

(b)

a programme (Annex B) setting out the time limits by which Member States shall transmit to the Commission (Eurostat) the accounts and tables to be compiled in accordance with the methodology referred to in point (a).

3.   Without prejudice to Articles 5 and 10, this Regulation shall apply to all Union acts that refer to the ESA or its definitions.

4.   This Regulation does not oblige any Member State to use the ESA 2010 in compiling accounts for its own purposes.

Article 2

Methodology

1.   The methodology of the ESA 2010 referred to in point (a) of Article 1(2) is set out in Annex A.

2.   The Commission shall be empowered to adopt delegated acts in accordance with Article 7, concerning amendments to the ESA 2010 methodology in order to specify and improve its content for the purpose of ensuring a harmonised interpretation or to ensure international comparability provided that they do not change its underlying concepts, do not require additional resources for producers within the European Statistical System for their implementation, and do not cause a change in own resources.

3.   In the event of doubt regarding the correct implementation of the ESA 2010 accounting rules, the Member State concerned shall request clarification from the Commission (Eurostat). The Commission (Eurostat) shall act promptly both in examining the request and in communicating its advice on the requested clarification to the Member State concerned and all other Member States.

4.   Member States shall carry out the calculation and allocation of financial intermediation services indirectly measured (FISIM) in national accounts in accordance with the methodology described in Annex A. The Commission shall be empowered to adopt before 17 September 2013 delegated acts in accordance with Article 7 laying down a revised methodology for the calculation and allocation of FISIM. In exercising its power pursuant to this paragraph, the Commission shall ensure that such delegated acts do not impose a significant additional administrative burden on the Member States or on the respondent units.

5.   Research and development expenditure shall be recorded, by Member States, as gross fixed capital formation. The Commission shall be empowered to adopt delegated acts in accordance with Article 7 to ensure the reliability and comparability of the ESA 2010 data of the Member States on research and development. In exercising its power pursuant to this paragraph, the Commission shall ensure that such delegated acts do not impose a significant additional administrative burden on the Member States or on the respondent units.

Article 3

Transmission of data to the Commission

1.   The Member States shall transmit to the Commission (Eurostat) the accounts and tables set out in Annex B within the time limits specified therein for each table.

2.   Member States shall transmit to the Commission the data and metadata required by this Regulation in accordance with a specified interchange standard and other practical arrangements.

The data shall be transmitted or uploaded by electronic means to the single entry point for data at the Commission. The interchange standard and other practical arrangements for the transmission of the data shall be defined by the Commission by means of implementing acts. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 8(2).

Article 4

Quality assessment

1.   For the purpose of this Regulation, the quality criteria set out in Article 12(1) of Regulation (EC) No 223/2009 shall apply to the data to be transmitted in accordance with Article 3 of this Regulation.

2.   Member States shall provide the Commission (Eurostat) with a report on the quality of the data to be transmitted in accordance with Article 3.

3.   In applying the quality criteria referred to in paragraph 1 to the data covered by this Regulation, the modalities, structure, periodicity and assessment indicators of the quality reports shall be defined by the Commission by means of implementing acts. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 8(2).

4.   The Commission (Eurostat) shall assess the quality of the data transmitted.

Article 5

Date of application and of first transmission of data

1.   The ESA 2010 shall be applied for the first time to data established in accordance with Annex B to be transmitted from 1 September 2014.

2.   The data shall be transmitted to the Commission (Eurostat) in accordance with the time limits laid down in Annex B.

3.   In accordance with paragraph 1, until the first transmission of data based on the ESA 2010, Member States shall continue to send to the Commission (Eurostat) the accounts and tables established by applying the ESA 95.

4.   Without prejudice to Article 19 of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 implementing Decision 2007/436/EC, Euratom on the system of the European Communities own resources (13), the Commission and the Member State concerned shall check that this Regulation is being applied correctly and shall submit the outcome of those checks to the Committee referred to in Article 8(1) of this Regulation.

Article 6

Derogations

1.   In so far as a national statistical system necessitates major adaptations for the application of this Regulation, the Commission shall grant temporary derogations to Member States by means of implementing acts. Those derogations shall expire not later than 1 January 2020. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 8(2).

2.   The Commission shall grant a derogation pursuant to paragraph 1 only for a period sufficient to allow the Member State concerned to adapt its statistical system. The proportion of the Member State’s GDP within the Union or within the euro area shall not constitute in itself a justification for granting a derogation. Where appropriate, the Commission shall provide support to the Member States concerned in their efforts to ensure the required adaptations to their statistical system.

3.   For the purposes set out in paragraphs 1 and 2, the Member State concerned shall present a duly justified request to the Commission not later than 17 October 2013.

The Commission, after consulting the European Statistical System Committee, shall report to the European Parliament and the Council not later than 1 July 2018 on the application of the granted derogations in order to verify whether they are still justified.

Article 7

Exercise of the delegation

1.   The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article.

2.   The power to adopt delegated acts referred to in Article 2(2) and (5) shall be conferred on the Commission for a period of five years, from 16 July 2013. The power to adopt delegated acts referred to in Article 2(4) shall be conferred on the Commission for a period of two months from 16 July 2013. The Commission shall draw up a report in respect of the delegation of power not later than nine months before the end of the five-year period. The delegation of power shall be tacitly extended for periods of an identical duration, unless the European Parliament or the Council opposes such extension not later than three months before the end of each period.

3.   The delegation of power referred to in Article 2(2), (4) and (5) may be revoked at any time by the European Parliament or by the Council.

A decision to revoke shall put an end to the delegation of power specified in that Decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force.

4.   As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council.

5.   A delegated act adopted pursuant to Article 2(2), (4) and (5) shall enter into force only if no objection has been expressed either by the European Parliament or the Council within a period of three months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by three months at the initiative of the European Parliament or of the Council.

Article 8

Committee

1.   The Commission shall be assisted by the European Statistical System Committee established by Regulation (EC) No 223/2009. That committee is a committee within the meaning of Regulation (EU) No 182/2011.

2.   Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply.

Article 9

Cooperation with other committees

1.   On all matters falling within the competence of the Committee on Monetary, Financial and Balance of Payments Statistics established by Decision 2006/856/EC, the Commission shall request the opinion of that Committee in accordance with Article 2 of that Decision.

2.   The Commission shall communicate to the Gross National Income Committee (‘GNI Committee’) established by Regulation (EC, Euratom) No 1287/2003 any information concerning the implementation of this Regulation which is necessary for the performance of the GNI Committee’s duties.

Article 10

Transitional provisions

1.   For budgetary and own resources purposes, the European System of Accounts as referred to in Article 1(1) of Regulation (EC, Euratom) No 1287/2003 and the legal acts relating thereto, in particular Regulation (EC, Euratom) No 1150/2000 and Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax (14), shall continue to be the ESA 95 while Council Decision 2007/436/EC, Euratom of 7 June 2007 on the system of the European Communities’ own resources (15) remains in force.

2.   For the purpose of determination of the VAT-based own resource, and by way of exception to paragraph 1, the Member States may use data based on the ESA 2010 while Decision 2007/436/EC, Euratom remains in force, where the required detailed ESA 95 data are not available.

Article 11

Reporting on implicit liabilities

By 2014, the Commission shall submit a report to the European Parliament and to the Council containing existing information on PPPs and other implicit liabilities, including contingent liabilities, outside government.

By 2018, the Commission shall submit a further report to the European Parliament and to the Council assessing the extent to which the information on liabilities published by the Commission (Eurostat) represents the entirety of the implicit liabilities, including contingent liabilities, outside government.

Article 12

Review

By 1 July 2018 and every five years thereafter, the Commission shall submit a report on the application of this Regulation to the European Parliament and the Council.

The report shall evaluate, inter alia:

(a)

the quality of data on national and regional accounts;

(b)

the effectiveness of this Regulation and the monitoring process applied to the ESA 2010; and

(c)

the progress on contingent liabilities data and on the availability of ESA 2010 data.

Article 13

Entry into force

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Strasbourg, 21 May 2013.

For the European Parliament

The President

M. SCHULZ

For the Council

The President

L. CREIGHTON


(1)  OJ C 203, 9.7.2011, p. 3.

(2)  Position of the European Parliament of 13 March 2013 (not yet published in the Official Journal) and decision of the Council of 22 April 2013.

(3)  Commission (Eurostat), European System of Integrated Economic Accounts (ESA), second edition, Statistical Office of the European Communities, Luxembourg, 1979.

(4)  OJ L 310, 30.11.1996, p. 1.

(5)  OJ L 192, 22.7.2011, p. 1.

(6)  OJ L 154, 21.6.2003, p. 1.

(7)  OJ L 87, 31.3.2009, p. 164.

(8)  OJ L 306, 23.11.2011, p. 41.

(9)  Council Decision 74/122/EEC of 18 February 1974 setting up an Economic Policy Committee (OJ L 63, 5.3.1974, p. 21).

(10)  OJ L 55, 28.2.2011, p. 13.

(11)  OJ L 332, 30.11.2006, p. 21.

(12)  OJ L 181, 19.7.2003, p. 1.

(13)  OJ L 130, 31.5.2000, p. 1.

(14)  OJ L 155, 7.6.1989, p. 9.

(15)  OJ L 163, 23.6.2007, p. 17.


ANNEX A

CHAPTER 1

GENERAL FEATURES AND BASIC PRINCIPLES

GENERAL FEATURES

Globalisation

USES OF THE ESA 2010

Framework for analysis and policy

Characteristics of the ESA 2010 concepts

Classification by sector

Satellite accounts

The ESA 2010 and the 2008 SNA

The ESA 2010 and the ESA 95

BASIC PRINCIPLES OF THE ESA 2010 AS A SYSTEM

Statistical units and their groupings

Institutional units and sectors

Local KAUs and industries

Resident and non-resident units; total economy and rest of the world

Flows and stocks

Flows

Transactions

Properties of transactions

Interactions versus intra-unit transactions

Monetary versus non-monetary transactions

Transactions with and without counterparts

Rearranged transactions

Rerouting

Partitioning

Recognising the principal party to a transaction

Borderline cases

Other changes in assets

Other changes in the volume of assets and liabilities

Holding gains and losses

Stocks

The system of accounts and the aggregates

Rules of accounting

Terminology for the two sides of the accounts

Double entry/quadruple entry

Valuation

Special valuations concerning products

Valuation at constant prices

Time of recording

Consolidation and netting

Consolidation

Netting

Accounts, balancing items and aggregates

The sequence of accounts

The goods and services account

The rest of the world account

Balancing items

Aggregates

GDP: a key aggregate

The input-output framework

Supply and use tables

Symmetric input-output tables

CHAPTER 2

UNITS AND GROUPINGS OF UNITS

THE LIMITS OF THE NATIONAL ECONOMY

THE INSTITUTIONAL UNITS

Head offices and holding companies

Groups of corporations

Special purpose entities

Captive financial institutions

Artificial subsidiaries

Special purpose units of general government

THE INSTITUTIONAL SECTORS

Non-financial corporations (S.11)

Public non-financial corporations (S.11001)

National private non-financial corporations (S.11002)

Foreign controlled non-financial corporations (S.11003)

Financial corporations (S.12)

Financial intermediaries

Financial auxiliaries

Financial corporations other than financial intermediaries and financial auxiliaries

Institutional units included in the financial corporations sector

Subsectors of financial corporations

Combining subsectors of financial corporations

Subdividing subsectors of financial corporations into public, national private and foreign controlled financial corporations

Central bank (S.121)

Deposit-taking corporations except the central bank (S.122)

MMF (S.123)

Non-MMF investment funds (S.124)

Other financial intermediaries, except insurance corporations and pension funds (S.125)

Financial vehicle corporations engaged in securitisation transactions (FVC)

Security and derivative dealers, financial corporations engaged in lending and specialised financial corporations

Financial auxiliaries (S.126)

Captive financial institutions and money lenders (S.127)

Insurance corporations (S.128)

Pension funds (S.129)

General government (S.13)

Central government (excluding social security funds) (S.1311)

State government (excluding social security funds) (S.1312)

Local government (excluding social security funds) (S.1313)

Social security funds (S.1314)

Households (S.14)

Employers and own-account workers (S.141 and S.142)

Employees (S.143)

Recipients of property income (S.1441)

Recipients of pensions (S.1442)

Recipients of other transfers (S.1443)

Non-profit institutions serving households (S.15)

Rest of the world (S.2)

Sector classification of producer units for main standard legal forms of ownership

LOCAL KIND-OF-ACTIVITY UNITS AND INDUSTRIES

The local kind-of-activity unit

Industries

Classification of industries

UNITS OF HOMOGENEOUS PRODUCTION AND HOMOGENEOUS BRANCHES

The unit of homogeneous production

The homogeneous branch

CHAPTER 3

TRANSACTIONS IN PRODUCTS AND NON-PRODUCED ASSETS

TRANSACTIONS IN PRODUCTS IN GENERAL

PRODUCTION AND OUTPUT

Principal, secondary and ancillary activities

Output (P.1)

Institutional units: distinction between market, for own final use and non-market

Time of recording and valuation of output

Products of agriculture, forestry and fishing (Section A)

Manufactured products (Section C); construction work (Section F)

Wholesale and retail trade services; repair services of motor vehicles and motorcycles (Section G)

Transportation and storage (Section H)

Accommodation and food services (Section I)

Financial and insurance services (Section K): output of the central bank

Financial and insurance services (Section K): financial services in general

Financial services provided for direct payment

Financial services paid for through loading interest charges

Financial services consisting of acquiring and disposing of financial assets and liabilities in financial markets

Financial services provided in insurance and pension schemes, where activity is financed by loading insurance contributions and from the income return on savings

Real estate services (Section L)

Professional, scientific and technical services (Section M); administrative and support services (Section N)

Public administration and defence services, compulsory social security services (Section O)

Education services (Section P); human health and social work services (Section Q)

Arts, entertainment and recreation services (Section R); Other services (Section S)

Private households as employers (Section T)

INTERMEDIATE CONSUMPTION (P.2)

Time of recording and valuation of intermediate consumption

FINAL CONSUMPTION (P.3, P.4)

Final consumption expenditure (P.3)

Actual final consumption (P.4)

Time of recording and valuation of final consumption expenditure

Time of recording and valuation of actual final consumption

GROSS CAPITAL FORMATION (P.5)

Gross fixed capital formation (P.51g)

Time of recording and valuation of gross fixed capital formation

Consumption of fixed capital (P.51c)

Changes in inventories (P.52)

Time of recording and valuation of changes in inventories

Acquisitions less disposals of valuables (P.53)

EXPORTS AND IMPORTS OF GOODS AND SERVICES (P.6 AND P.7)

Exports and imports of goods (P.61 and P.71)

Exports and imports of services (P.62 and P.72)

TRANSACTIONS IN EXISTING GOODS

ACQUISITIONS LESS DISPOSALS OF NON-PRODUCED ASSETS (NP)

CHAPTER 4

DISTRIBUTIVE TRANSACTIONS

COMPENSATION OF EMPLOYEES (D.1)

Wages and salaries (D.11)

Wages and salaries in cash

Wages and salaries in kind

Employers' social contributions (D.12)

Employers' actual social contributions (D.121)

Employers' imputed social contributions (D.122)

TAXES ON PRODUCTION AND IMPORTS (D.2)

Taxes on products (D.21)

Value added type taxes (VAT) (D.211)

Taxes and duties on imports excluding VAT (D.212)

Taxes on products, except VAT and import taxes (D.214)

Other taxes on production (D.29)

Taxes on production and imports paid to the institutions of the European Union

Taxes on production and imports: time of recording and amounts to be recorded

SUBSIDIES (D.3)

Subsidies on products (D.31)

Import subsidies (D.311)

Other subsidies on products (D.319)

Other subsidies on production (D.39)

PROPERTY INCOME (D.4)

Interest (D.41)

Interest on deposits and loans

Interest on debt securities

Interest on bills and similar short-term instruments

Interest on bonds and debentures

Interest rate swaps and forward rate agreements

Interest on financial leases

Other interest

Time of recording

Distributed income of corporations (D.42)

Dividends (D.421)

Withdrawals from the income of quasi-corporations (D.422)

Reinvested earnings on foreign direct investment (D.43)

Other investment income (D.44)

Investment income attributable to insurance policy holders (D.441)

Investment income payable on pension entitlements (D.442)

Investment income attributable to collective investment fund shareholders (D.443)

Rent (D.45)

Rent on land

Rents on subsoil assets

CURRENT TAXES ON INCOME, WEALTH, ETC. (D.5)

Taxes on income (D.51)

Other current taxes (D.59)

SOCIAL CONTRIBUTIONS AND BENEFITS (D.6)

Net social contributions (D.61)

Employers' actual social contributions (D.611)

Employers' imputed social contributions (D.612)

Households' actual social contributions (D.613)

Households' social contribution supplements (D.614)

Social benefits other than social transfers in kind (D.62)

Social security benefits in cash (D.621)

Other social insurance benefits (D.622)

Social assistance benefits in cash (D.623)

Social transfers in kind (D.63)

Social transfers in kind — general government and NPISHs non-market production (D.631)

Social transfers in kind — market production purchased by general government and NPISHs (D.632)

OTHER CURRENT TRANSFERS (D.7)

Net non-life insurance premiums (D.71)

Non-life insurance claims (D.72)

Current transfers within general government (D.73)

Current international cooperation (D.74)

Miscellaneous current transfers (D.75)

Current transfers to NPISHs (D.751)

Current transfers between households (D.752)

Other miscellaneous current transfers (D.759)

Fines and penalties

Lotteries and gambling

Payments of compensation

VAT- and GNI-based EU own resources (D.76)

ADJUSTMENT FOR THE CHANGE IN PENSION ENTITLEMENTS (D.8)

CAPITAL TRANSFERS (D.9)

Capital taxes (D.91)

Investment grants (D.92)

Other capital transfers (D.99)

EMPLOYEE STOCK OPTIONS (ESOs)

CHAPTER 5

FINANCIAL TRANSACTIONS

GENERAL FEATURES OF FINANCIAL TRANSACTIONS

Financial assets, financial claims, and liabilities

Contingent assets and contingent liabilities

Categories of financial assets and liabilities

Balance sheets, financial account, and other flows

Valuation

Net and gross recording

Consolidation

Netting

Accounting rules for financial transactions

A financial transaction with a current or a capital transfer as counterpart

A financial transaction with property income as counterpart

Time of recording

A from-whom-to-whom financial account

CLASSIFICATION OF FINANCIAL TRANSACTIONS BY CATEGORIES IN DETAIL

Monetary gold and special drawing rights (F.1)

Monetary gold (F.11)

SDRs (F.12)

Currency and deposits (F.2)

Currency (F.21)

Deposits (F.22 and F.29)

Transferable deposits (F.22)

Other deposits (F.29)

Debt securities (F.3)

Main features of debt securities

Classification by original maturity and currency

Classification by type of interest rate

Fixed interest rate debt securities

Variable interest rate debt securities

Mixed interest rate debt securities

Private placements

Securitisation

Covered bonds

Loans (F.4)

Main features of loans

Classification of loans by original maturity, currency, and purpose of lending

Distinction between transactions in loans and transactions in deposits

Distinction between transactions in loans and transactions in debt securities

Distinction between transactions in loans, trade credit and trade bills

Securities lending and repurchase agreements

Financial leases

Other types of loans

Financial assets excluded from the category of loans

Equity and investment fund shares or units (F.5)

Equity (F.51)

Depository receipts

Listed shares (F.511)

Unlisted shares (F.512)

Initial public offering, listing, de-listing, and share buy back

Financial assets excluded from equity securities

Other equity (F.519)

Valuation of transactions in equity

Investment fund shares or units (F.52)

MMF shares or units (F.521)

Non-MMF investment fund shares/units (F.522)

Valuation of transactions in investment fund shares or units

Insurance, pension and standardised guarantee schemes (F.6)

Non-life insurance technical reserves (F.61)

Life insurance and annuity entitlements (F.62)

Pension entitlements (F.63)

Contingent pension entitlements

Claims of pension funds on pension managers (F.64)

Entitlements to non-pension benefits (F.65)

Provisions for calls under standardised guarantees (F.66)

Standardised guarantees and one-off guarantees

Financial derivatives and employee stock options (F.7)

Financial derivatives (F.71)

Options

Forwards

Options vis-à-vis forwards

Swaps

Forward rate agreements (FRAs)

Credit derivatives

Credit default swaps

Financial instruments not included in financial derivatives

Employee stock options (F.72)

Valuation of transactions in financial derivatives and employee stock options

Other accounts receivable/payable (F.8)

Trade credits and advances (F.81)

Other accounts receivable/payable, excluding trade credits and advances (F.89)

ANNEX 5.1 —

CLASSIFICATION OF FINANCIAL TRANSACTIONS

Classification of financial transactions by category

Classification of financial transactions by negotiability

Structured securities

Classification of financial transactions by type of income

Classification of financial transactions by type of interest rate

Classification of financial transactions by maturity

Short-term and long-term maturity

Original maturity and remaining maturity

Classification of financial transactions by currency

Measures of money

CHAPTER 6

OTHER FLOWS

INTRODUCTION

OTHER CHANGES IN ASSETS AND LIABILITIES

Other changes in the volume of assets and liabilities (K.1 to K.6)

Economic appearance of assets (K.1)

Economic disappearance of non-produced assets (K.2)

Catastrophic losses (K.3)

Uncompensated seizures (K.4)

Other changes in volume not elsewhere classified (K.5)

Changes in classification (K.6)

Changes in sector classification and institutional unit structure (K.61)

Changes in classification of assets and liabilities (K.62)

Nominal holding gains and losses (K.7)

Neutral holding gains and losses (K.71)

Real holding gains and losses (K.72)

Holding gains and losses by types of financial asset and liability

Monetary gold and SDRs (AF.1)

Currency and deposits (AF.2)

Debt securities (AF.3)

Loans (AF.4)

Equity and investment fund shares (AF.5)

Insurance, pension and standardised guarantee schemes (AF.6)

Financial derivatives and employee stock options (AF.7)

Other accounts receivable/payable (AF.8)

Assets denominated in foreign currency

CHAPTER 7

BALANCE SHEETS

TYPES OF ASSETS AND LIABILITIES

Definition of an asset

EXCLUSIONS FROM THE ASSET AND LIABILITY BOUNDARY

CATEGORIES OF ASSETS AND LIABILITIES

Produced non-financial assets (AN.1)

Non-produced non-financial assets (AN.2)

Financial assets and liabilities (AF)

VALUATION OF ENTRIES IN THE BALANCE SHEETS

General valuation principles

NON-FINANCIAL ASSETS (AN)

Produced non-financial assets (AN.1)

Fixed assets (AN.11)

Intellectual property products (AN.117)

Costs of ownership transfer on non-produced assets (AN.116)

Inventories (AN.12)

Valuables (AN.13)

Non-produced non-financial assets (AN.2)

Natural resources (AN.21)

Land (AN.211)

Mineral and energy reserves (AN.212)

Other natural assets (AN.213, AN.214 and AN.215)

Contracts, leases and licences (AN.22)

Purchases less sales of goodwill and marketing assets (AN.23)

FINANCIAL ASSETS AND LIABILITIES (AF)

Monetary gold and SDRs (AF.1)

Currency and deposits (AF.2)

Debt securities (AF.3)

Loans (AF.4)

Equity and investment fund shares/units (AF.5)

Insurance, pension and standardised guarantee schemes (AF.6)

Financial derivatives and employee stock options (AF.7)

Other accounts receivable/payable (AF.8)

FINANCIAL BALANCE SHEETS

MEMORANDUM ITEMS

Consumer durables (AN.m)

Foreign direct investment (AF.m1)

Non-performing loans (AF.m2)

Recording of non-performing loans

ANNEX 7.1

SUMMARY OF EACH ASSET CATEGORY

ANNEX 7.2

A MAP OF ENTRIES FROM OPENING BALANCE SHEET TO CLOSING BALANCE SHEET

CHAPTER 8

THE SEQUENCE OF ACCOUNTS

INTRODUCTION

The sequence of accounts

SEQUENCE OF ACCOUNTS

Current accounts

Production account (I)

Distribution and use of income accounts (II)

Primary distribution of income accounts (II.1)

Generation of income account (II.1.1)

Allocation of primary income account (II.1.2)

Entrepreneurial income account (II.1.2.1)

Allocation of other primary income account (II.1.2.2)

Secondary distribution of income account (II.2)

Redistribution of income in kind account (II.3)

Use of income account (II.4)

Use of disposable income account (II.4.1)

Use of adjusted disposable income account (II.4.2)

Accumulation accounts (III)

Capital account (III.1)

Change in net worth due to saving and capital transfers account (III.1.1)

Acquisitions of non-financial assets account (III.1.2)

Financial account (III.2)

Other changes in assets account (III.3)

Other changes in volume of assets account (III.3.1)

Revaluation account (III.3.2)

Neutral holding gains and losses account (III.3.2.1)

Real holding gains and losses account (III.3.2.2)

Balance sheets (IV)

Opening balance sheet (IV.1)

Changes in balance sheet (IV.2)

Closing balance sheet (IV.3)

REST OF THE WORLD ACCOUNTS (V)

Current accounts

External account of goods and services (V.I)

External account of primary incomes and current transfers (V.II)

External accumulation accounts (V.III)

Capital account (V.III.1)

Financial account (V.III.2)

Other changes in assets account (V.III.3)

Balance sheets (V.IV)

GOODS AND SERVICES ACCOUNT (0)

INTEGRATED ECONOMIC ACCOUNTS

AGGREGATES

Gross domestic product at market prices (GDP)

Operating surplus of the total economy

Mixed income of the total economy

Entrepreneurial income of the total economy

National income (at market prices)

National disposable income

Saving

Current external balance

Net lending (+) or borrowing (-) of the total economy

Net worth of the total economy

General government expenditure and revenue

CHAPTER 9

SUPPLY AND USE TABLES AND THE INPUT-OUTPUT FRAMEWORK

INTRODUCTION

DESCRIPTION

STATISTICAL TOOL

TOOL FOR ANALYSIS

SUPPLY AND USE TABLES IN MORE DETAIL

Classifications

Valuation principles

Trade and transport margins

Taxes less subsidies on production and imports

Other basic concepts

Supplementary information

DATA SOURCES AND BALANCING

TOOL FOR ANALYSIS AND EXTENSIONS

CHAPTER 10

PRICE AND VOLUME MEASURES

SCOPE OF PRICE AND VOLUME INDICES IN THE NATIONAL ACCOUNTS

The integrated system of price and volume indices

Other price and volume indices

GENERAL PRINCIPLES OF MEASURING PRICE AND VOLUME INDICES

Definition of prices and volumes of market products

Quality, price and homogeneous products

Prices and volume

New products

Principles for non-market services

Principles for value added and GDP

SPECIFIC PROBLEMS IN THE APPLICATION OF THE PRINCIPLES

Taxes and subsidies on products and imports

Other taxes and subsidies on production

Consumption of fixed capital

Compensation of employees

Stocks of produced fixed assets and inventories

MEASURES OF REAL INCOME FOR THE TOTAL ECONOMY

INTERSPATIAL PRICE AND VOLUME INDICES

CHAPTER 11

POPULATION AND LABOUR INPUTS

TOTAL POPULATION

ECONOMICALLY ACTIVE POPULATION

EMPLOYMENT

Employees

Self-employed persons

Employment and residence

UNEMPLOYMENT

JOBS

Jobs and residence

THE NON-OBSERVED ECONOMY

TOTAL HOURS WORKED

Specifying hours actually worked

FULL-TIME EQUIVALENCE

EMPLOYEE LABOUR INPUT AT CONSTANT COMPENSATION

PRODUCTIVITY MEASURES

CHAPTER 12

QUARTERLY NATIONAL ACCOUNTS

INTRODUCTION

SPECIFIC FEATURES OF QUARTERLY NATIONAL ACCOUNTS

Time of recording

Work-in-progress

Activities concentrated in specific periods within a year

Low-frequency payments

Flash estimates

Balancing and benchmarking of quarterly national accounts

Balancing

Consistency between quarterly and annual accounts — benchmarking

Chain-linked measures of price and volume changes

Seasonal and calendar adjustments

Sequence of compilation of seasonally adjusted chain-linked volume measures

CHAPTER 13

REGIONAL ACCOUNTS

INTRODUCTION

REGIONAL TERRITORY

UNITS AND REGIONAL ACCOUNTS

Institutional units

Local kind-of-activity units and regional production activities by industry

METHODS OF REGIONALISATION

AGGREGATES FOR PRODUCTION ACTIVITIES

Gross value added and gross domestic product by region

The allocation of FISIM to user industries

Employment

Compensation of employees

Transition from regional GVA to regional GDP

Volume growth rates of regional GVA

REGIONAL HOUSEHOLD INCOME ACCOUNTS

CHAPTER 14

FINANCIAL INTERMEDIATION SERVICES INDIRECTLY MEASURED (FISIM)

THE CONCEPT OF FISIM AND THE IMPACT OF THEIR USER ALLOCATION ON MAIN AGGREGATES

CALCULATION OF FISIM OUTPUT BY SECTORS S.122 AND S.125

Statistical data required

Reference rates

Internal reference rate

External reference rates

Detailed breakdown of FISIM by institutional sector

Breakdown into intermediate and final consumption of FISIM allocated to households

CALCULATION OF IMPORTS OF FISIM

FISIM IN VOLUME TERMS

CALCULATION OF FISIM BY INDUSTRY

THE OUTPUT OF THE CENTRAL BANK

CHAPTER 15

CONTRACTS, LEASES AND LICENCES

INTRODUCTION

THE DISTINCTION BETWEEN OPERATING LEASES, RESOURCE LEASES AND FINANCIAL LEASES

Operating leases

Financial leases

Resource leases

Permits to use a natural resource

Permits to undertake specific activities

Public-private partnerships (PPPs)

Service concession contracts

Marketable operating leases (AN.221)

Entitlements to future goods and services on an exclusive basis (AN.224)

CHAPTER 16

INSURANCE

INTRODUCTION

Direct insurance

Reinsurance

The units involved

OUTPUT OF DIRECT INSURANCE

Premiums earned

Premium supplements

Adjusted claims incurred and benefits due

Non-life insurance adjusted claims incurred

Life insurance benefits due

Insurance technical reserves

Defining insurance output

Non-life insurance

Life insurance

Reinsurance

TRANSACTIONS ASSOCIATED WITH NON-LIFE INSURANCE

Allocation of insurance output among users

Insurance services provided to and from the rest of the world

The accounting entries

TRANSACTIONS OF LIFE INSURANCE

TRANSACTIONS ASSOCIATED WITH REINSURANCE

TRANSACTIONS ASSOCIATED WITH INSURANCE AUXILIARIES

ANNUITIES

RECORDING NON-LIFE INSURANCE CLAIMS

Treatment of adjusted claims

Treatment of catastrophic losses

CHAPTER 17

SOCIAL INSURANCE INCLUDING PENSIONS

INTRODUCTION

Social insurance schemes, social assistance and individual insurance policies

Social benefits

Social benefits provided by general government

Social benefits provided by other institutional units

Pensions and other forms of benefit

SOCIAL INSURANCE BENEFITS OTHER THAN PENSIONS

Social security schemes other than pension schemes

Other employment-related social insurance schemes

Recording of stocks and flows by type of non-pension social insurance scheme

Social security schemes

Other employment-related non-pension social insurance schemes

PENSIONS

Types of pension schemes

Social security pension schemes

Other employment-related pension schemes

Defined contribution schemes

Defined benefit schemes

Notional defined contribution schemes and hybrid schemes

Defined benefit schemes as compared to defined contribution schemes

Pension administrator, pension manager, pension fund and multi-employer pension scheme

Recording of stocks and flows by type of pension scheme in social insurance

Transactions for social security pension schemes

Transactions for other employment-related pension schemes

Transactions for defined contribution pension schemes

Other flows related to defined contribution pension schemes

Transactions for defined benefit pension schemes

SUPPLEMENTARY TABLE FOR ACCRUED-TO-DATE PENSION ENTITLEMENTS IN SOCIAL INSURANCE

Design of the supplementary table

The columns of the table

The rows of the table

Opening and closing balance sheets

Changes in pension entitlements due to transactions

Changes to pension entitlements due to other economic flows

Related indicators

Actuarial assumptions

Accrued-to-date entitlements

Discount rate

Wage growth

Demographic assumptions

CHAPTER 18

REST OF THE WORLD ACCOUNTS

INTRODUCTION

ECONOMIC TERRITORY

Residence

INSTITUTIONAL UNITS

BRANCHES AS A TERM USED IN THE INTERNATIONAL ACCOUNTS OF THE BALANCE OF PAYMENTS

NOTIONAL RESIDENT UNITS

MULTI-TERRITORY ENTERPRISES

GEOGRAPHICAL BREAKDOWN

THE INTERNATIONAL ACCOUNTS OF THE BALANCE OF PAYMENTS

BALANCING ITEMS IN THE CURRENT ACCOUNTS OF THE INTERNATIONAL ACCOUNTS

THE ACCOUNTS FOR THE REST OF THE WORLD SECTOR AND THEIR RELATIONSHIP WITH THE INTERNATIONAL ACCOUNTS OF THE BALANCE OF PAYMENTS

The external account of goods and services

Valuation

Goods for processing

Merchanting

Goods under merchanting

Imports and exports of FISIM

The external account of primary and secondary income

The primary income account

Direct investment income

The secondary income (current transfers) account of the BPM6

The external capital account

The external financial account and international investment position (IIP)

BALANCE SHEETS FOR THE REST OF THE WORLD SECTOR

CHAPTER 19

EUROPEAN ACCOUNTS

INTRODUCTION

FROM NATIONAL TO EUROPEAN ACCOUNTS

Conversion of data in different currencies

European institutions

The rest of the world account

Balancing of transactions

Price and volume measures

Balance sheets

‧From whom-to-whom‧ matrices

ANNEX 19.1. —

THE ACCOUNTS OF EUROPEAN INSTITUTIONS

Resources

Uses

Consolidation

CHAPTER 20

THE GOVERNMENT ACCOUNTS

INTRODUCTION

DEFINING THE GENERAL GOVERNMENT SECTOR

Identification of units in the government

Government units

NPIs classified to the general government sector

Other units of general government

Public control

Market/non-market delineation

Notion of economically significant prices

Criteria of the purchaser of the output of a public producer

The output is sold primarily to corporations and households

The output is sold only to government

The output is sold to government and others

The market/non-market test

Financial intermediation and the government boundary

Borderline cases

Public head offices

Pension funds

Quasi-corporations

Restructuring agencies

Privatisation agencies

Defeasances structures

Special purpose entities

Joint ventures

Market regulatory agencies

Supranational authorities

The subsectors of general government

Central government

State government

Local government

Social security funds

THE GOVERNMENT FINANCE PRESENTATION OF STATISTICS

Framework

Revenue

Taxes and social contributions

Sales

Other revenue

Expenditure

Compensation of employees and intermediate consumption

Social benefits expenditure

Interest

Other current expenditure

Capital expenditure

Link with government final consumption expenditure (P.3)

Government expenditure by function (COFOG)

Balancing items

The net lending/net borrowing (B.9)

Changes in net worth due to saving and capital transfers (B.101)

Financing

Transactions in assets

Transactions in liabilities

Other economic flows

Revaluation account

Other changes in volume of assets account

Balance sheets

Consolidation

ACCOUNTING ISSUES RELATING TO GENERAL GOVERNMENT

Tax revenue

Character of tax revenue

Tax credits

Amounts to record

Amounts uncollectible

Time of recording

Accrual recording

Accrual recording of taxes

Interest

Discounted and zero-coupon bonds

Index-linked securities

Financial derivatives

Court decisions

Military expenditure

Relations of general government with public corporations

Equity investment in public corporations and distribution of earnings

Equity investment

Capital injections

Subsidies and capital injections

Rules applicable to particular circumstances

Fiscal operations

Public corporations distributions

Dividends versus withdrawal of equity

Taxes versus withdrawal of equity

Privatisation and nationalisation

Privatisation

Indirect privatisations

Nationalisation

Transactions with the central bank

Restructures, mergers, and reclassifications

Debt operations

Debt assumptions, debt cancellation and debt write-offs

Debt assumption and cancellation

Debt assumption involving a transfer of non-financial assets

Debt write-offs or write-downs

Other debt restructuring

Purchase of debt above the market value

Defeasances and bailouts

Debt guarantees

Derivatives-type guarantees

Standardised guarantees

One-off guarantees

Securitisation

Definition

Criteria for sale recognition

Recording of flows

Other issues

Pension obligations

Lump sum payments

Public-private partnerships

Scope of PPPs

Economic ownership and allocation of the asset

Accounting issues

Transactions with international and supranational organisations

Development assistance

THE PUBLIC SECTOR

Public sector control

Central banks

Public quasi-corporations

Special purpose entities and non-residents

Joint ventures

CHAPTER 21

LINKS BETWEEN BUSINESS ACCOUNTS AND NATIONAL ACCOUNTS AND THE MEASUREMENT OF CORPORATE ACTIVITY

SOME SPECIFIC RULES AND METHODS OF BUSINESS ACCOUNTING

Time of recording

Double entry and quadruple entry accounting

Valuation

Income statement and balance sheet

NATIONAL ACCOUNTS AND BUSINESS ACCOUNTS: PRACTICAL ISSUES

THE TRANSITION FROM BUSINESS ACCOUNTS TO NATIONAL ACCOUNTS: THE EXAMPLE OF NON-FINANCIAL ENTERPRISES

Conceptual adjustments

Adjustments to achieve consistency with the accounts of other sectors

Examples of adjustments for exhaustiveness

SPECIFIC ISSUES

Holding gains/losses

Globalisation

Mergers and acquisitions

CHAPTER 22

SATELLITE ACCOUNTS

INTRODUCTION

Functional classifications

MAJOR CHARACTERISTICS OF SATELLITE ACCOUNTS

Functional satellite accounts

Special sector accounts

Inclusion of non-monetary data

Extra detail and supplementary concepts

Different basic concepts

Use of modelling and inclusion of experimental results

Designing and compiling satellite accounts

NINE SPECIFIC SATELLITE ACCOUNTS

Agricultural accounts

Environmental accounts

Health accounts

Household production accounts

Labour accounts and SAM

Productivity and growth accounts

Research and development accounts

Social protection accounts

Tourism satellite accounts

CHAPTER 23

CLASSIFICATIONS

INTRODUCTION

CLASSIFICATION OF INSTITUTIONAL SECTORS (S)

CLASSIFICATION OF TRANSACTIONS AND OTHER FLOWS

Transactions in products (P)

Transactions in non-produced non-financial assets (NP codes)

Distributive transactions (D)

Current transfers in cash and kind (D.5-D.8)

Transactions in financial assets and liabilities (F)

Other changes in assets (K)

CLASSIFICATION OF BALANCING ITEMS AND NET WORTH (B)

CLASSIFICATION OF BALANCE SHEET ENTRIES (L)

CLASSIFICATION OF ASSETS (A)

Non-financial assets (AN)

Financial assets (AF)

CLASSIFICATION OF SUPPLEMENTARY ITEMS

Non-performing loans

Capital services

Pensions table

Consumer durables

Foreign direct investment

Contingent positions

Currency and deposits

Classification of debt securities according to outstanding maturity

Listed and unlisted debt securities

Long-term loans with outstanding maturity of less than one year and long-term loans secured by mortgage

Listed and unlisted investment shares

Arrears in interest and repayments

Personal and total remittances

REGROUPING AND CODING OF INDUSTRIES (A) AND PRODUCTS (P)

CLASSIFICATION OF THE FUNCTIONS OF THE GOVERNMENT (COFOG)

CLASSIFICATION OF INDIVIDUAL CONSUMPTION BY PURPOSE (Coicop)

CLASSIFICATION OF THE PURPOSES OF NON-PROFIT INSTITUTIONS SERVING HOUSEHOLDS (COPNI)

CLASSIFICATION OF OUTLAYS OF PRODUCERS BY PURPOSE (COPP)

CHAPTER 24

THE ACCOUNTS

Table 24.1

Account 0: Goods and services account

Table 24.2

Full sequence of accounts for the total economy

Table 24.3

Full sequence of accounts for non-financial corporations

Table 24.4

Full sequence of accounts for financial corporations

Table 24.5

Full sequence of accounts for general government

Table 24.6

Full sequence of accounts for households

Table 24.7

Full sequence of accounts for non-profit institutions serving households

 

CHAPTER 1

GENERAL FEATURES AND BASIC PRINCIPLES

GENERAL FEATURES

1.01

The European System of Accounts (hereinafter referred to as ‧the ESA 2010‧ or ‧the ESA‧) is an internationally compatible accounting framework for a systematic and detailed description of a total economy (that is, a region, country or group of countries), its components and its relations with other total economies.

1.02

The predecessor of the ESA 2010, the European System of Accounts 1995 (the ESA 95), was published in 1996 (1). The ESA 2010 methodology as set out in this Annex has the same structure as the ESA 95 publication for the first thirteen chapters, but then has eleven new chapters elaborating aspects of the system which reflect developments in measuring modern economies, or in the use of the ESA 95 in the European Union (the EU).

1.03

The structure of this manual is as follows. Chapter 1 covers the basic features of the system in terms of concepts, and sets out the principles of the ESA and describes the fundamental statistical units and their groupings. It gives an overview of the sequence of accounts, and a brief description of key aggregates and the role of supply and use tables and the input-output framework. Chapter 2 describes the institutional units used in measuring the economy, and how these units are classified into sectors and other groups to allow analysis. Chapter 3 describes all transactions with regard to products (goods and services), as well as non-produced assets, in the system. Chapter 4 describes all the transactions in the economy which distribute and re-distribute income and wealth in the economy. Chapter 5 describes the financial transactions in the economy. Chapter 6 describes the changes that can occur to the value of assets through non-economic events or price changes. Chapter 7 describes balance sheets, and the asset and liability classification scheme. Chapter 8 sets out the sequence of accounts, and the balancing items associated with each account. Chapter 9 describes supply and use tables, and their role in reconciling the measures of income, output and expenditure in the economy. It also describes the input-output tables that can be derived from the supply and use tables. Chapter 10 describes the conceptual basis for the price and volume measures associated with the nominal values found in the accounts. Chapter 11 describes the population and labour market measures which can be used with measures of the national accounts in economic analysis. Chapter 12 gives a brief description of quarterly national accounts, and how they differ in emphasis from the annual accounts.

1.04

Chapter 13 describes the purposes, concepts and compilation issues in drawing up a set of regional accounts. Chapter 14 covers the measurement of financial services provided by financial intermediaries and funded through net interest receipts, and reflects years of research and development by Member States in order to have a measure which is robust and harmonised across Member States. Chapter 15 on contracts, leases and licences is necessary to describe an area of increasing importance in the national accounts. Chapters 16 and 17 on insurance, social insurance and pensions describe how these arrangements are handled in the national accounts, as questions of redistribution become of increasing interest as populations age. Chapter 18 covers the rest of the world accounts, which are the national accounts equivalent to the accounts of the balance of payments measuring system. Chapter 19 on European Accounts is also new, covering aspects of the national accounts where European institutional and trading arrangements raise issues which require a harmonised approach. Chapter 20 describes the accounts for the government sector — an area of special interest as issues of fiscal prudence by Member States continue to be critical in the conduct of economic policy in the EU. Chapter 21 describes the links between business accounts and national accounts, an area of growing interest as multinational corporations become responsible for an increasing share in gross domestic product (GDP) for all countries. Chapter 22 describes the relationship of satellite accounts with the main national accounts. Chapters 23 and 24 are for reference purposes; Chapter 23 sets out the classifications used for sectors, activities and products in the ESA 2010, and Chapter 24 sets out the complete sequence of accounts for every sector.

1.05

The structure of the ESA 2010 is consistent with the worldwide guidelines on national accounting set out in the System of National Accounts 2008 (2008 SNA), apart from certain differences in presentation and the higher degree of precision of some of the ESA 2010 concepts which are used for specific EU purposes. Those guidelines were produced under the joint responsibility of the United Nations (UN), the International Monetary Fund (IMF), the Statistical Office of the European Union (Eurostat), the Organisation for Economic Cooperation and Development (OECD) and the World Bank. The ESA 2010 is focused on the circumstances and data needs in the EU. Like the 2008 SNA, the ESA 2010 is harmonised with the concepts and classifications used in many other social and economic statistics (for example, statistics on employment, statistics on manufacturing and statistics on external trade). The ESA 2010 therefore serves as the central framework of reference for the social and economic statistics of the EU and its Member States.

1.06

The ESA framework consists of two main sets of tables:

(a)

the institutional sector accounts;

(b)

the input-output framework, and the accounts by industry.

1.07

The sector accounts provide, by institutional sector, a systematic description of the different stages of the economic process: production, generation of income, distribution of income, redistribution of income, use of income and financial and non-financial accumulation. The sector accounts also include balance sheets to describe the stocks of assets, liabilities and net worth at the beginning and the end of the accounting period.

1.08

The input-output framework, through the supply and use tables, sets out in more detail the production process (cost structure, income generated and employment) and the flows of goods and services (output, imports, exports, final consumption, intermediate consumption and capital formation by product group). Two important accounting identities are reflected in this framework: the sum of incomes generated in an industry is equal to the value added produced by that industry; and, for any product or grouping of products, supply is equal to demand.

1.09

The ESA 2010 encompasses concepts of population and employment. Such concepts are relevant for the sector accounts, the accounts by industry and the supply and use framework.

1.10

The ESA 2010 is not restricted to annual national accounting, but applies also to quarterly and shorter or longer period accounts. It also applies to regional accounts.

1.11

The ESA 2010 exists alongside the 2008 SNA because of the uses of national accounts measures in the EU. The Member States are responsible for the collection and presentation of their own national accounts to describe the economic situation of their countries. Member States also compile a set of accounts which are submitted to the Commission (Eurostat) as part of a regulatory data transmission programme, for key social, economic and fiscal policy uses in the Union. Those uses include determination of Member State monetary contributions to the EU budget via the ‧fourth resource‧, aid to regions of the EU through the structural funds programme and surveillance of Member States' economic performance in the framework of the excessive deficit procedure and of the Stability and Growth Pact.

1.12

In order that levies and benefits are distributed according to measures compiled and presented in a strictly consistent manner, the economic statistics used for those purposes shall be compiled according to the same concepts and rules. The ESA 2010 is a regulation setting forth the rules, conventions, definitions and classifications to be applied in producing the national accounts in Member States which are to be part of the data transmission programme as set out in Annex B to this Regulation.

1.13

Given the very large sums of money involved in the contributions and benefits system operated in the EU, it is essential that the measurement system be applied consistently in each Member State. In such circumstances, it is important to adopt a cautious approach to estimates which cannot be observed directly in the market place, avoiding the use of model-based procedures for the estimation of measures in the national accounts.

1.14

The ESA 2010 concepts are in several instances more specific and precise than those of the 2008 SNA in order to ensure as much consistency as possible between Member States measures derived from the national accounts. This over-riding requirement for robust consistent estimates has resulted in the identification of a core set of national accounts in the EU. Where the level of consistency of measurement across Member States is insufficient, the latter estimates are generally included in so-called ‧non-core-accounts‧ covering supplementary tables and satellite accounts.

1.15

An example of where it has been considered necessary to be cautious in the design of the ESA 2010 lies in the field of pension liabilities. The case for measuring these to assist in economic analyses is a strong one, but the critical requirement in the EU to produce accounts which are consistent across time and space has obliged a cautious approach.

Globalisation

1.16

The increasingly global nature of economic activity has increased international trade in all its forms, and increased the challenges to countries of recording their domestic economies in the national accounts. Globalisation is the dynamic and multidimensional process whereby national resources become more internationally mobile, while national economies become increasingly interdependent. The feature of globalisation which potentially causes most measurement problems for national accounts is the increasing share of international transactions undertaken by multinational companies, where the transactions across borders are between parents, subsidiaries and affiliates. However other challenges exist, and a more exhaustive list of data issues is as follows:

(1)

transfer pricing between affiliated corporations (valuation of imports and exports);

(2)

the increase in toll processing, where goods are traded across international borders with no change in ownership (goods for processing), and merchanting;

(3)

international trading via the internet, both for corporations and households;

(4)

the trade and use of intellectual property assets across the world;

(5)

workers working abroad, and remitting significant amounts to the family in the domestic territory (workers' remittances, as part of personal transfers);

(6)

multinational corporations organising their business across national boundaries, to maximise production efficiency and minimise the global tax burden. This can give rise to artificial corporation structures which may not reflect the economic reality;

(7)

the use of off-shore financing vehicles (special purpose entities and other forms) to arrange finance for global activities;

(8)

re-exports of goods, and in the EU the transport of goods between Member States after entry into the Union (quasi transport);

(9)

increase in foreign direct investment relationships, and the need to identify and allocate direct investment flows.

1.17

All of these increasingly common aspects of globalisation make the capture and accurate measurement of cross-border flows a growing challenge for national statisticians. Even with a comprehensive and robust collection and measurement system for the entries in the rest of the world sector (and thus also in the international accounts found in the balance of payments), globalisation will increase the need for extra efforts to maintain the quality of national accounts for all economies and groupings of economies.

USES OF THE ESA 2010

Framework for analysis and policy

1.18

The ESA framework can be used to analyse and evaluate:

(a)

the structure of a total economy. Examples of types of measurement used are:

(1)

value added and employment by industry;

(2)

value added and employment by region;

(3)

income distributed by sector;

(4)

imports and exports by product group;

(5)

final consumption expenditure by functional heading and product group;

(6)

fixed capital formation and fixed capital stock by industry;

(7)

the composition of the stocks and flows of financial assets by type of asset and by sector;

(b)

specific parts or aspects of an economy. Examples are:

(1)

banking and finance in the national economy;

(2)

the role of government and its financial position;

(3)

the economy of a specific region (in comparison to that of the nation as a whole);

(4)

household saving and debt levels;

(c)

the development of an economy over time. Examples are:

(1)

the analysis of GDP growth rates;

(2)

the analysis of inflation;

(3)

the analysis of seasonal patterns in household expenditure on the basis of quarterly accounts;

(4)

the analysis of the changing importance of particular types of financial instruments over time, e.g. the increased importance of financial derivatives;

(5)

the comparison of the industrial structures of the national economy over the long term;

(d)

a total economy in relation to other economies. Examples are:

(1)

the comparison of the roles and size of government in the Member States of the EU;

(2)

the analysis of the interdependencies between the economies of the EU, taking into account Member States and their regions;

(3)

the analysis of the composition and destination of the exports of the EU;

(4)

the comparison of GDP growth rates or disposable income per capita in the EU and other developed economies.

1.19

For the EU and its Member States, the figures from the ESA framework play a major role in formulating and monitoring their social and economic policies.

The following examples demonstrate uses of the ESA framework:

(a)

monitoring and guiding the euro area macroeconomic and monetary policymaking, and defining criteria of convergence for the economic and monetary union (EMU) in terms of national accounts figures (e.g. GDP growth rates);

(b)

defining criteria for the excessive deficit procedure: measures of government deficit and debt;

(c)

granting financial support to regions in the EU: the allocation of expenditure funds to regions uses regional accounts statistics;

(d)

determining the own resources of the EU budget. The latter depend on national accounts figures in three ways:

(1)

the total resources for the EU are determined as a percentage of the sum of Member States' gross national incomes (GNI);

(2)

the third own resource of the EU is the VAT own resource. The contributions by the Member States for this resource are largely determined by national accounts figures, because these figures are used to calculate the average VAT rate;

(3)

the relative sizes of the contributions by the Member States for the fourth own resource of the EU are based on their gross national income estimates. These estimates are the basis for the majority of Member States' payments.

Characteristics of the ESA 2010 concepts

1.20

In order to establish a balance between data needs and data possibilities, the concepts in the ESA 2010 have several important characteristics. The characteristics are that the accounts are:

(a)

internationally compatible;

(b)

harmonised with other social and economic statistical systems;

(c)

consistent;

(d)

operational, meaning that they can be measured in practice;

(e)

different from most administrative concepts;

(f)

well-established and fixed over a long period;

(g)

focused on describing the economic process in monetary and readily observable terms;

(h)

capable of applying in different situations and for different purposes.

1.21

The concepts in the ESA 2010 are internationally compatible because:

(a)

the concepts in the ESA 2010 are consistent with those in the worldwide guidelines on national accounting, i.e. the 2008 SNA;

(b)

for the Member States, the ESA 2010 is the standard for submitting national accounts data to all international organisations;

(c)

international compatibility of concepts is essential when comparing statistics for different countries.

1.22

The concepts in the ESA 2010 are harmonised with those in other social and economic statistics because the ESA 2010 employs concepts and classifications (e.g. Statistical classification of economic activities in the European Union ‧NACE rev. 2‧ (2)) that are used for other social and economic statistics of Member States, e.g. in statistics on manufacturing, statistics on external trade and statistics on employment; conceptual differences have been kept to a minimum. Furthermore, the concepts and classifications in the ESA 2010 are harmonised with those of the United Nations.

This harmonisation with social and economic statistics helps the linkage to and comparison with these figures, so that the quality of the national accounts figures can be assured. Furthermore, the information contained in these specific statistics can be better related to the general statistics on the national economy.

1.23

The shared concepts used throughout the national accounting framework and the other social and economic statistical systems enable consistent measures to be derived. For example, the following ratios can be calculated:

(a)

productivity figures, such as value added per hour worked (these figures require consistency between the concepts of value added and hours worked);

(b)

national disposable income per capita (this ratio requires consistency between the concepts of national disposable income and measures of population);

(c)

fixed capital formation as a percentage of fixed capital stock (this ratio requires consistency between the definitions of these flows and stocks);

(d)

government deficit and government debt as percentages of gross domestic product (these figures require consistency between the concepts of government deficit, government debt and gross domestic product).

The internal consistency of concepts allows estimates to be derived by residual, e.g. saving can be estimated as the difference between disposable income and final consumption expenditure.

1.24

The concepts in the ESA 2010 are applied with data collection and measurement in mind. The operational character is revealed in several ways in the guidance for drawing up the accounts.

(a)

Activities or items are only described when significant in size. For example: own-account production of goods by households such as weaving cloth and the production of pottery shall not be recorded as production, because these are insignificant for EU countries.

(b)

Some concepts are accompanied by guidance on how to estimate them. For example, in defining consumption of fixed capital, reference is made to linear depreciation. For estimating fixed capital stock, the Perpetual Inventory Method is to be applied where direct information on the stock of fixed assets is missing. Another example is the valuation of own-account production: in principle, it is valued at basic prices, but if necessary the basic price valuation may be approximated by adding up the various costs involved.

(c)

Some conventions have been adopted. For example the collective services provided by government are all classified as final consumption expenditure.

1.25

However, the data needed for national accounts statistics may not be easy to collect directly, as the underlying concepts usually diverge from the concepts underlying administrative data sources. Examples of the administrative sources are business accounts, records for various types of taxes (VAT, personal income tax, import levies, etc.), social security data and data from supervisory boards on banking and insurance. These administrative data serve as inputs for compiling the national accounts. In general, they are transformed in order to comply with the ESA.

The concepts in the ESA usually differ from their administrative counterparts in that:

(a)

administrative concepts differ between countries. As a consequence, international compatibility is not possible using administrative concepts;

(b)

administrative concepts change over time. As a consequence, comparisons over time are not possible through administrative concepts;

(c)

the concepts underlying administrative data sources are usually not consistent among different administrative systems. However, linking and comparing data, which is crucial for compiling national accounts figures, is only possible with a consistent set of concepts;

(d)

the administrative concepts are generally not optimal for economic analysis and the evaluation of economic policy.

1.26

Nevertheless, administrative data sources meet the data needs of national accounts and other statistics very well, because:

(a)

concepts and classifications originally devised for statistical purposes are also adopted for administrative purposes, e.g. the classification of government expenditure by type;

(b)

administrative data sources explicitly take account of the (separate) data needs of statistics; this applies, for example, to the Intrastat system for providing information about deliveries of goods between Member States.

1.27

The main concepts in the ESA are well-established and fixed over a long period, because:

(a)

they have been approved as the international standard for many years;

(b)

in the successive international guidelines on national accounting, very few of the underlying concepts change.

This conceptual continuity reduces the need to recalculate time series. Furthermore, it limits the vulnerability of the concepts to national and international political pressure. For these reasons, the national accounts figures have been able to serve as an objective database for economic policy and analysis.

1.28

The concepts in the ESA 2010 are focused on describing the economic process in monetary and readily observable terms. Stocks and flows that are not readily observable in monetary terms, or that do not have a clear monetary counterpart, are not recorded in the ESA.

This principle has not been applied strictly, because account should also be taken of the requirement of consistency and the needs of users. For example, consistency requires that the value of collective services produced by government is recorded as output, because the payment of compensation of employees and the purchase of all kinds of goods and services by government are readily observable in monetary terms. Furthermore, for the purposes of economic analysis and policy, describing the collective services of government in relation to the rest of the national economy increases the usefulness of the national accounts as a whole.

1.29

The scope of the concepts in the ESA can be illustrated by considering some important borderline issues.

The following shall be recorded within the production boundary of the ESA (see paragraphs 3.07 to 3.09):

(a)

production of individual and collective services by government;

(b)

own-account production of housing services by owner-occupiers;

(c)

production of goods for own final consumption, e.g. of agricultural products;

(d)

own-account construction, including that by households;

(e)

production of services by paid domestic staff;

(f)

breeding of fish in fish farms;

(g)

production forbidden by law, as long as all units involved in the transaction enter into it voluntarily;

(h)

production from which the revenues are not declared in full to the fiscal authorities, e.g. clandestine production of textiles.

1.30

The following fall outside the production boundary, and shall not be recorded in the ESA:

(a)

domestic and personal services produced and consumed within the same household, e.g. cleaning, the preparation of meals or the care of sick or elderly people;

(b)

volunteer services that do not lead to the production of goods, e.g. care-taking and cleaning without payment;

(c)

natural breeding of fish in open seas.

1.31

The ESA records all outputs that result from production within the production boundary. However, the outputs of ancillary activities shall not be recorded. All inputs consumed by an ancillary activity shall be treated as inputs to the activity it supports. If an establishment undertaking only ancillary activities is statistically observable, in that separate accounts for the production it undertakes are readily available, or if it is in a geographically different location from the establishments it serves, it has to be recorded as a separate unit and allocated to the industrial classification corresponding to its principal activity, in both national and regional accounts. In the absence of suitable basic data being available, the output of the ancillary activity may be estimated by summing costs.

1.32

If activities are regarded as production and their output is recorded, then the concomitant income, employment, final consumption, etc. are also recorded. For example, as the own-account production of housing services by owner-occupiers is recorded as production, so the income and final consumption expenditure it generates for these owner-occupiers are also recorded. As there is, by definition, no labour input to the production of the services of owner-occupied dwellings, no employment is recorded. This maintains consistency with the system of labour statistics, where no employment is recorded for ownership of dwellings. The reverse holds when activities are not recorded as production: domestic services produced and consumed within the same household do not generate income and final consumption expenditure and no employment is involved.

1.33

The ESA also lays down conventions, concerning:

(a)

valuation of government output;

(b)

valuation of the output of insurance services and financial intermediation services indirectly measured;

(c)

recording of the collective services provided by government as final consumption expenditure and not as intermediate consumption;

Classification by sector

1.34

Sector accounts are created by allocating units to sectors and this enables transactions and balancing items of the accounts to be presented by sector. The presentation by sector reveals many key measures for economic and fiscal policy purposes. The main sectors are households, government, corporations (financial and non-financial), non-profit institutions serving households (NPISHs) and the rest of the world.

The distinction between market and non-market activity is an important one. An entity controlled by government, which is shown to be a market corporation, is classified in the corporation sector, outside the general government sector. Thus, the deficit and debt levels of the corporation will not be part of the general government deficit and debt.

1.35

It is important that clear and robust criteria for allocating entities to sectors are set out.

The public sector consists of all institutional units resident in the economy that are controlled by government. The private sector consists of all other resident units.

Table 1.1 sets out the criteria used to distinguish between public and private sector, and in the public sector between the government sector and public corporations sector, and in the private sector between the NPISH sector and the private corporations sector.

Table 1.1

Criteria

Controlled by government

(public sector)

Privately controlled

(private sector)

Non-market output

General government

NPISH

Market output

Public corporations

Private corporations

1.36

Control is defined as the ability to determine the general policy or programme of an institutional unit. Further details in relation to the definition of control are given in paragraphs 2.35 to 2.39.

1.37

Differentiating between market and non-market, and so, for public sector entities, classifying them into the general government sector or the corporations sector, is decided by the following rule:

An activity shall be considered as a market activity when the corresponding goods and services are traded under the following conditions:

(1)

sellers act to maximise their profits in the long term, and do so by selling goods and services freely on the market to whoever is prepared to pay the asking price;

(2)

buyers act to maximise their utility given their limited resources, by buying according to which products best meet their needs at the offered price;

(3)

effective markets exist where sellers and buyers have access to, and information on, the market. An effective market can operate even if these conditions are not met perfectly.

1.38

The detail in the conceptual framework of the ESA offers the opportunity for flexibility: some concepts are not explicitly present in the ESA but can nevertheless easily be derived from it. An example is the creation of new sectors by rearranging the subsectors defined in the ESA.

1.39

Flexibility exists also through the possibility to introduce additional criteria that do not conflict with the logic of the system. For example, these criteria can allow subsector accounts to be drawn up by the scale of employment for producer units or the size of income for households. For employment, subclassification by level of education, age and gender can be introduced.

Satellite accounts

1.40

For some data needs, separate satellite accounts should be drawn up.

Examples are:

(a)

social accounting matrices (SAMs);

(b)

the role of tourism in the national economy;

(c)

the analysis of the costs and financing of health care;

(d)

research and development recognised as capital formation of intellectual property;

(e)

recognition of human capital as assets in the national economy;

(f)

the analysis of the income and expenditure of households on the basis of micro-oriented concepts of income and expenditure;

(g)

the interaction between the environment and the economy;

(h)

production within households;

(i)

analysis of changes in welfare;

(j)

analysis of the differences between national accounts and business accounts figures and their influence on stock and exchange markets;

(k)

estimation of tax revenues.

1.41

Satellite accounts serve such data needs by:

(a)

showing more detail where necessary and leaving out superfluous detail;

(b)

enlarging the scope of the accounting framework by adding non-monetary information, e.g. on pollution and environmental assets;

(c)

changing some basic concepts, e.g. by enlarging the concept of capital formation by including expenditure on education.

1.42

A social accounting matrix (SAM) is a matrix presentation that elaborates the linkages between supply and use tables and the sector accounts. A SAM provides additional information on the level and composition of employment, via a subdivision of compensation of employees by type of person employed. This subdivision applies to both the use of labour by industry, as shown in the use tables, and the supply of labour by socio-economic subgroup, as shown in the allocation of primary income account for subsectors of the sector households. In this way, the supply and use of various categories of labour is shown systematically.

1.43

In satellite accounts, all basic concepts and classifications of the central framework of the ESA 2010 shall be retained. Changes in the concepts shall only be introduced when this is the purpose of the satellite account. In such instances, the satellite account shall also contain a table showing the link between the major aggregates in the satellite account and those in the central framework. In this way, the central framework retains its role as a framework of reference and at the same time more specific needs are addressed.

1.44

In general terms, the central framework does not include measures of stocks and flows that are not readily observable in monetary terms (or without a clear monetary counterpart). By their nature, the analysis of such stocks and flows is usually also well served by compiling statistics in non-monetary terms, e.g.:

(a)

production within households can be described in terms of hours allocated to the alternative uses;

(b)

education can be described in terms of type of education, the number of pupils, the average number of years of education before obtaining a diploma, etc.;

(c)

the effects of pollution can be described in terms of changes in the number of living species, the health of the trees in the forest, the volume of refuse, the amounts of carbon-monoxide and radiation, etc.

1.45

Satellite accounts enable such statistics in non-monetary units to be linked to the national accounts in the central framework. Using the classifications employed in the central framework for such non-monetary statistics enables the link to be made, e.g. the classification by type of household or the classification by industry. In this way, a consistent extended framework is drawn up. This framework can then serve as a database for the analysis and evaluation of interactions between the variables in the central framework and those in the extended part.

1.46

The central framework and its major aggregates do not describe changes in welfare. Extended accounts can be drawn up which include also the imputed monetary values of, for example:

(a)

domestic and personal services produced and consumed within the same household;

(b)

changes in leisure time;

(c)

amenities and disadvantages of urban life;

(d)

inequalities in the distribution of income over persons.

1.47

The extended accounts can also reclassify the final expenditure on regrettable necessities (e.g. defence) as intermediate consumption, i.e. as not contributing to welfare. Similarly, the damage due to floods and other natural disasters may be classified as intermediate consumption, i.e. as a reduction in (absolute) welfare. In this way, one could try to construct a very rough and very imperfect indicator of changes in welfare. However, welfare has many dimensions, most of which are not best expressed in monetary terms. A better solution for measuring welfare is therefore to use, for each dimension, separate indicators and units of measurement. The indicators could be, for example, infant mortality, life expectancy, adult literacy and national income per capita. These indicators could be incorporated into a satellite account.

1.48

In order to attain a consistent, internationally compatible framework, administrative concepts are not employed in the ESA. However, for all kinds of national purposes, obtaining figures based on administrative concepts can be very useful. For example, for estimating tax revenues, statistics of taxable income are required. Such statistics can be provided by making some modifications to the national accounts statistics.

1.49

A similar approach could be taken for concepts used in national economic policy, e.g. for:

(a)

the concept of inflation used for increasing pensions, unemployment benefits or compensation of employees for civil servants;

(b)

the concepts of taxes, social contributions, government and the collective sector used in discussing the optimal size of the collective sector;

(c)

the concept of ‧strategic‧ sectors/industries used in national economic policy or the economic policy of the EU;

(d)

the concept of ‧business investments‧ used in national economic policy;

(e)

a table showing a complete recording of pensions.

Satellite accounts or supplementary tables can meet such data needs.

The ESA 2010 and the 2008 SNA

1.50

The ESA 2010 is based on the concepts of the 2008 SNA, which provides guidelines on national accounting for all countries throughout the world. Nevertheless, there are several differences between the ESA 2010 and the 2008 SNA:

(a)

Differences in presentation:

(1)

In the ESA 2010 there are separate chapters on transactions in products, distributive transactions and financial transactions. In contrast, in the 2008 SNA these transactions are explained in chapters arranged by account, e.g. chapters on the production account, the primary distribution of income account, the capital account and the rest of the world account.

(2)

The ESA 2010 describes a concept by providing a definition and a listing of what is included and what is excluded. The 2008 SNA describes concepts usually in more general terms and explains the rationale behind the conventions adopted.

(b)

The ESA 2010 concepts are in several instances more specific and precise than those of the 2008 SNA:

(1)

The 2008 SNA does not contain specific criteria on the distinction between market, for own final use and non-market categorisation of output. The ESA has therefore introduced more detailed guidance to ensure a uniform approach.

(2)

The ESA 2010 assumes that several types of household production of goods, such as the weaving of cloth and the making of furniture, are not significant in Member States and therefore need not be recorded.

(3)

The ESA 2010 makes reference to institutional arrangements in the EU, such as the Intrastat system for recording intra-EU flows of goods and the contributions by the Member States to the EU.

(4)

The ESA 2010 contains EU-specific classifications, e.g. Classification of products by activity (CPA) (3) for products and NACE Rev. 2 for industries (both are harmonised with the corresponding UN classifications).

(5)

The ESA 2010 contains an additional classification for all external transactions: they are divided into those between residents of the EU and those with residents from outside the EU.

(6)

The ESA 2010 contains a rearrangement of the 2008 SNA subsectors for the financial corporations sector, to meet the needs of the European Monetary Union. The ESA 2010 can be more specific than the 2008 SNA, because the ESA 2010 primarily applies to the Member States. For the data needs in the Union, the ESA should also be more specific.

The ESA 2010 and the ESA 95

1.51

The ESA 2010 differs in scope as well as in concepts from the ESA 95. Most of the differences correspond to differences between the 1993 SNA and the 2008 SNA. The major differences are:

(a)

the recognition of research and development as capital formation leading to assets of intellectual property. This change shall be recorded in a satellite account, and included in the core accounts when sufficient robustness and harmonisation of measures is observable amongst Member States;

(b)

expenditures on weapon systems that meet the general definition of assets have been classified as fixed capital formation, rather than intermediate expenditure;

(c)

the analytical concept of capital services has been introduced for market production, so that a supplementary table may be produced showing them as a component of value added;

(d)

the financial assets boundary has been expanded to include a wider coverage of financial derivative contracts;

(e)

new rules for recording pension entitlements. A supplementary table has been introduced into the accounts, to allow estimates to be recorded for all entitlements in social insurance, whether funded or unfunded. The full range of information required for a comprehensive analysis is provided in this table that shows the entitlements and associated flows for all private and public pension schemes, whether funded or unfunded, and including social security pension schemes;

(f)

the application of the rules on change of ownership of goods has been made universal, resulting in changes to the recording of merchanting, and goods sent for processing, both abroad and in the domestic economy. This results in goods sent for processing abroad being recorded on a net basis, as opposed to a gross basis in the 1993 SNA and the ESA 95. This change has significant implications for the recording of such activities in the supply and use framework;

(g)

more guidance is given on financial corporations in general, and special purpose entities (SPEs) in particular. The treatment of government controlled SPEs abroad has been changed to ensure that liabilities incurred by the SPEs are shown in the government accounts;

(h)

the treatment of super dividends paid by public corporations has been clarified, i.e. they are to be treated as exceptional payments and withdrawals from equity;

(i)

the principles for the treatment of public-private partnerships have been set out, and the treatment of restructuring agencies expanded;

(j)

transactions between government and public corporations, and with securitisation vehicles, have been clarified to improve the recording of items that could significantly affect government debt;

(k)

the treatment of loan guarantees has been clarified, and a new treatment introduced for standardised loan guarantees, such as export credit guarantees and student loans guarantees. The new treatment is that, to the extent of the likely call on the guarantees, a financial asset and liability are to be recognised in the accounts.

1.52

The changes in the ESA 2010 in comparison with the ESA 95 are not restricted to conceptual changes. There are major differences in scope, with new chapters on satellite accounts, government accounts and the rest of the world accounts. There are also significant extensions to the chapters on quarterly accounts and regional accounts.

BASIC PRINCIPLES OF THE ESA 2010 AS A SYSTEM

1.53

The main characteristics of the system are:

(a)

statistical units and their groupings;

(b)

flows and stocks;

(c)

the system of accounts and the aggregates;

(d)

the input-output framework.

Statistical units and their groupings

1.54

The ESA 2010 system uses two types of unit and two corresponding ways of subdividing the economy, which are quite different and serve separate analytical purposes.

1.55

The first purpose of describing income, expenditure and financial flows, and balance sheets, is met by grouping institutional units into sectors on the basis of their principal functions, behaviour and objectives.

1.56

The second purpose of describing processes of production and for input-output analysis is met by the system grouping local kind-of-activity units (local KAUs) into industries on the basis of their type of activity. An activity is characterised by an input of products, a production process and an output of products.

Institutional units and sectors

1.57

Institutional units are economic entities that are capable of owning goods and assets, of incurring liabilities and of engaging in economic activities and transactions with other units in their own right. For the purposes of the ESA 2010 system, the institutional units are grouped together into five mutually exclusive domestic institutional sectors:

(a)

non-financial corporations;

(b)

financial corporations;

(c)

general government;

(d)

households;

(e)

non-profit institutions serving households.

The five sectors together make up the total domestic economy. Each sector is also divided into subsectors. The ESA 2010 system enables a complete set of flow accounts and balance sheets to be compiled for each sector, and subsector, as well as for the total economy. Non-resident units can interact with these five domestic sectors, and the interactions are shown between the five domestic sectors and a sixth institutional sector: the rest of the world sector.

Local KAUs and industries

1.58

When institutional units carry out more than one activity, they shall be partitioned with regard to the type of activity. Local KAUs enable this presentation to be made.

A local KAU groups all the parts of an institutional unit in its capacity as producer which are located in a single site or in closely located sites, and which contribute to the performance of an activity at the class level (four digits) of the NACE Rev. 2.

1.59

Local KAUs are registered for each secondary activity; however, if the accounting documents necessary to separately describe such activities are not available, a local KAU will combine several secondary activities. The group of all local KAUs engaged on the same, or similar, kind-of-activity constitutes an industry.

An institutional unit comprises one or more local KAUs; a local KAU belongs to one and only one institutional unit.

1.60

For analysis of the production process, use is made of an analytical unit of production. This unit is only observable when a local KAU produces one type of product, with no secondary activities. This unit is known as a unit of homogeneous production. Groupings of such units constitute homogeneous branches.

Resident and non-resident units; total economy and rest of the world

1.61

The total economy is defined in terms of resident units. A unit is a resident unit of a country when it has a centre of predominant economic interest on the economic territory of that country — that is, when it engages for an extended period (one year or more) in economic activities on this territory. The institutional sectors referred to in paragraph 1.57 are groups of resident institutional units.

1.62

Resident units engage in transactions with non-resident units (that is, units which are resident in other economies). These transactions are the external transactions of the economy and are grouped in the rest of the world account. So the rest of the world plays a role similar to that of an institutional sector, although non-resident units are included only in so far as they are engaged in transactions with resident institutional units.

1.63

Notional resident units, treated in the ESA 2010 system as institutional units, are defined as:

(a)

those parts of non-resident units which have a centre of predominant economic interest (usually which engage in economic transactions for a year or more) on the economic territory of the country;

(b)

non-resident units in their capacity as owners of land or buildings on the economic territory of the country, but only in respect of transactions affecting such land or buildings.

Flows and stocks

1.64

Two basic kinds of information are recorded: flows and stocks.

Flows refer to actions and effects of events that take place within a given period of time, while stocks refer to positions at a point of time.

Flows

1.65

Flows reflect the creation, transformation, exchange, transfer or extinction of economic value. They involve changes in the value of an institutional unit's assets or liabilities. Economic flows are of two kinds: transactions, and other changes in assets.

Transactions appear in all accounts and tables where flows appear, except the other changes in volume of assets account and the revaluation account. Other changes in assets are recorded only in those two accounts.

Elementary transactions and other flows are grouped into a relatively small number of types according to their nature.

Transactions

1.66

A transaction is an economic flow that is an interaction between institutional units by mutual agreement or an action within an institutional unit that it is useful to treat as a transaction, because the unit is operating in two different capacities. Transactions are split into four main groups:

(a)

transactions in products: which describe the origin (domestic output or imports) and use (intermediate consumption, final consumption, capital formation — covering consumption of fixed capital — or exports) of products;

(b)

distributive transactions: which describe how value added generated by production is distributed to labour, capital and government, and the redistribution of income and wealth (taxes on income and wealth and other transfers);

(c)

financial transactions: which describe the net acquisition of financial assets or the net incurrence of liabilities for each type of financial instrument. Such transactions occur both as counterparts of non-financial transactions, and as transactions involving only financial instruments;

(d)

transactions not included in the three groups above: acquisitions less disposals of non-produced non-financial assets.

Properties of transactions

Interactions versus intra-unit transactions

1.67

Most transactions are interactions between two or more institutional units. However, the ESA 2010 system records some actions within institutional units as transactions. The purpose of recording these intra-unit transactions is to give a more analytically useful picture of output, final uses and costs.

1.68

Consumption of fixed capital, which is recorded as a cost by the ESA 2010 system, is an intra-unit transaction. Most of the other intra-unit transactions are transactions in products, typically recorded when institutional units operating as both producers and final consumers, choose to consume some of the output they have produced. This is often the case for households and general government.

1.69

All own-produced output used for final uses within the same institutional unit shall be recorded. Own-produced output used for intermediate consumption within the same institutional unit shall be recorded only when production and intermediate consumption take place in different local KAUs within the same institutional unit. Output produced and used as intermediate consumption within the same local KAU shall not be recorded.

Monetary versus non-monetary transactions

1.70

Transactions are monetary transactions when the units involved make or receive payments, or incur liabilities or receive assets denominated in units of currency.

Transactions that do not involve the exchange of cash, or assets or liabilities denominated in units of currency, are non-monetary transactions. Intra-unit transactions are non-monetary transactions. Non-monetary transactions involving more than one institutional unit occur among transactions in products (barter of products), distributive transactions (remuneration in kind, transfers in kind, etc.) and other transactions (barter of non-produced non-financial assets). The ESA 2010 system records all transactions in monetary terms. The values to be recorded for non-monetary transactions must therefore be measured indirectly or otherwise estimated.

Transactions with and without counterparts

1.71

Transactions involving more than one unit are of two kinds. They can be ‧something for something‧, i.e. requited transactions, or they can be ‧something for nothing‧, i.e. unrequited transactions. Requited transactions are exchanges between institutional units, i.e. provision of goods, services or assets in return for a counterpart, e.g. money. Unrequited transactions are payments in cash or in kind from one institutional unit to another without counterpart. Requited transactions occur in all four transaction groups, while unrequited transactions are mainly distributive transactions, for example, taxes, social assistance benefits or gifts. Such unrequited transactions are called transfers.

Rearranged transactions

1.72

The transactions are recorded in the same way as they appear to the institutional units involved. However, some transactions are rearranged in order to bring out the underlying economic relationships more clearly. Transactions can be rearranged in three ways: rerouting, partitioning and recognising the principal party to a transaction.

Rerouting

1.73

A transaction that appears to the units involved as taking place directly between units A and C may be recorded in the accounts as taking place indirectly through a third unit B. Thus, the single transaction between A and C is recorded as two transactions: one between A and B, and one between B and C. In this case the transaction is rerouted.

1.74

An example of rerouting is the way in which employers' social contributions paid directly by employers to social insurance funds are recorded in the accounts. The system records these payments as two transactions: employers pay employers' social contributions to their employees, and employees pay the same contributions to social insurance funds. As with all rerouting, the purpose is to bring out the economic substance behind the transaction, which in this case is to show employers' social contributions as contributions paid for the benefit of employees.

1.75

Another type of rerouting is that of transactions recorded as taking place between two or more institutional units, even though, according to the parties involved, no transaction takes place at all. An example is the treatment of property income earned on certain insurance funds, which is retained by insurance enterprises. The system records this property income as being paid by insurance enterprises to policyholders, who then pay the same amount back to the insurance enterprises as premium supplements.

Partitioning

1.76

When a transaction appearing to the parties involved as a single transaction is recorded as two or more differently classified transactions, the transaction is partitioned. Partitioning does not imply including additional units in the transactions.

1.77

The payment of non-life insurance premiums is a typical partitioned transaction. Although policyholders and insurers regard these payments as one transaction, the ESA 2010 system divides them into two quite different transactions: payments in return for non-life insurance services provided, and net non-life insurance premiums. Recording the sale of a product as the sale of the product and the sale of a trade margin is another example of partitioning.

Recognising the principal party to a transaction

1.78

When a unit carries out a transaction on behalf of another unit (the principal) and is funded by that unit, the transaction is recorded exclusively in the accounts of the principal. As a rule, one should not go beyond this principle by trying, for instance, to allocate taxes or subsidies to ultimate payers or ultimate beneficiaries under the adoption of assumptions.

An example is the collection of taxes by one government unit on behalf of another. A tax is attributed to the government unit that exercises the authority to impose the tax (either as a principal or through the delegated authority of the principal) and has final discretion to set and vary the rate of the tax.

Borderline cases

1.79

The definition of a transaction implies that an interaction between institutional units be by mutual agreement. When a transaction is undertaken by mutual agreement, the prior knowledge and consent of the institutional units is implied. The payments of taxes, fines and penalties are by mutual agreement, in that the payer is a citizen subject to the law of the land. However, uncompensated seizure of assets is not regarded as a transaction, even when imposed by law.

Illegal economic actions shall be considered as transactions when all units involved enter the actions by mutual agreement. Thus, purchases, sales or barters of illegal drugs or stolen property are transactions, while theft is not.

Other changes in assets

1.80

Other changes in assets record changes that are not the result of transactions. They are either:

(a)

other changes in the volume of assets and liabilities; or

(b)

holding gains and losses.

Other changes in the volume of assets and liabilities

1.81

Other changes in the volume of assets and liabilities records changes divided into three main categories:

(a)

normal appearance and disappearance of assets other than by transactions;

(b)

changes in assets and liabilities due to exceptional, unanticipated events which are not economic in nature;

(c)

changes in classification and structure.

1.82

Examples of changes within the category referred to in point (a) of paragraph 1.81 are discovery or depletion of subsoil assets, and natural growth of non-cultivated biological resources. Examples of changes within the category referred to in point (b) of paragraph 1.81 are losses in assets due to natural disasters, war or severe acts of crime. Unilateral cancellation of debt and uncompensated seizure of assets also belong to category (b). An example of a change within the category referred to in point (c) of paragraph 1.81 is the reclassification of an institutional unit from one sector to another.

Holding gains and losses

1.83

Holding gains and losses occur when there are changes in the prices of assets. They occur on all kinds of financial and non-financial assets, and on liabilities. Holding gains and losses accrue to the owners of assets and liabilities purely as a result of holding the assets or liabilities over time, without transforming them in any way.

1.84

Holding gains and losses measured on the basis of current market prices are called nominal holding gains and losses. These may be decomposed into neutral holding gains and losses, reflecting changes in the general price level, and real holding gains and losses, reflecting changes in the prices of assets beyond that of the general price change.

Stocks

1.85

Stocks are the holdings of assets and liabilities at a point in time. Stocks are recorded at the beginning and end of each accounting period. The accounts that show stocks are called balance sheets.

1.86

Stocks are also recorded for population and employment. However, such stocks are recorded as mean values over the accounting period. Stocks are recorded for all assets within the system's boundaries; that is, for financial assets and liabilities and for non-financial assets, both produced and non-produced. However, the coverage is limited to those assets that are used in economic activity and that are subject to ownership rights.

1.87

Thus, stocks are not recorded for assets such as human capital and natural resources that are not owned.

Within its boundaries, the ESA 2010 system is exhaustive in respect of both flows and stocks. This implies that all changes in stocks can be fully explained by recorded flows.

The system of accounts and the aggregates

Rules of accounting

1.88

An account records changes in value accruing to a unit or sector according to the nature of the economic flows shown in the account. It is a table with two columns. The current accounts are those which show production, generation and allocation of income, distribution and redistribution of income, and its use. The accumulation accounts are the capital and financial accounts, and the other changes in volume accounts.

Terminology for the two sides of the accounts

1.89

The ESA 2010 system shows ‧resources‧ on the right side of the current accounts where transactions appear which add to the economic value of a unit or a sector. The left side of the accounts shows ‧uses‧ — transactions that reduce the economic value. The right side of the accumulation accounts show ‧changes in liabilities and net worth‧ and the left side shows ‧changes in assets‧. Balance sheets are presented with ‧liabilities and net worth‧ (the difference between assets and liabilities) on the right side and ‧assets‧ on the left. Comparison of two successive balance sheets shows changes in liabilities and net worth and changes in assets.

1.90

A distinction is made in the ESA between legal ownership and economic ownership. The criterion for recording the transfer of goods from one unit to another is that the economic ownership passes from one to the other. The legal owner is the unit entitled in law to the benefits of possession. However, a legal owner can contract with another unit for the latter to accept the risks and rewards of using the goods in production, in return for an agreed payment. The nature of the agreement is a financial lease, where the payments reflect only the placing of the asset at the disposal of the borrower by the provider. For example, when a bank legally owns a plane, but enters into a financial lease arrangement with an airline to operate the plane, then the airline is held to be the owner of the plane as far as transactions in the accounts are concerned. At the same time as the airline is shown as purchasing the plane, a loan is imputed from the bank to the airline reflecting the amounts due in the future for use of the plane.

Double entry/quadruple entry

1.91

For a unit or sector, national accounting is based on the principle of double entry. Each transaction shall be recorded twice, once as a resource (or a change in liabilities) and once as a use (or a change in assets). The total of transactions recorded as resources or changes in liabilities and the total of transactions recorded as uses or changes in assets must be equal, thus permitting a check on the consistency of the accounts.

1.92

National accounts — with all units and all sectors — shall be based on a principle of quadruple entry, since most transactions involve two institutional units. Each transaction shall be recorded twice by the two transactors involved. For example, a social benefit in cash paid by a government unit to a household is recorded in the accounts of government as a use under transfers and a negative acquisition of assets under currency and deposits; in the accounts of the households sector it is recorded as a resource under transfers and an acquisition of assets under currency and deposits.

1.93

Transactions within a single unit (such as the consumption of output by the same unit that produced it) shall require only two entries, whose values have to be estimated.

Valuation

1.94

With the exception of some variables concerning population and labour, the ESA 2010 system shows all flows and stocks in monetary terms. Flows and stocks shall be measured according to their exchange value, i.e. the value at which flows and stocks are in fact, or could be, exchanged for cash. Market prices are, thus, the ESA's reference for valuation.

1.95

In the case of monetary transactions and cash holdings and liabilities, the values required are directly available. In most other cases, the best method of valuation is by reference to market prices for analogous goods, services or assets. This method is used for e.g. barter and the services of owner-occupied dwellings. When no market prices for analogous products are available, for instance in the case of non-market services produced by government, valuation is made by summing production costs. If there is no market price to refer to, and costs are not available, then flows and stocks may be valued at the discounted present value of expected future returns. This last method is only to be used as a last resort.

1.96

Stocks are valued at current prices at the time to which the balance sheet relates, not at the time of production or acquisition of the goods or assets that form the stocks. It is necessary to value stocks at their estimated written-down current acquisition values or production costs.

Special valuations concerning products

1.97

As a result of transport costs, trade margins and taxes less subsidies on products, the producer and the user of a given product usually perceive its value differently. In order to keep as close as possible to the views of the transactors, the ESA 2010 system records all uses at purchaser's prices, which include transport costs, trade margins and taxes less subsidies on products, while output is recorded at basic prices, which exclude those elements.

1.98

Imports and exports of products shall be recorded at border values. Total imports and exports are valued at the exporter's customs frontier, or free on board (FOB). Foreign transport and insurance services between the importer's and the exporter's frontiers are not included in the value of goods but are recorded under services. As it may not be possible to obtain FOB values for detailed product breakdowns, the tables containing details on foreign trade show imports valued at the importer's customs frontier (CIF value). All transport and insurance services to the importer's frontier are included in the value of imported goods. As far as these services concern domestic services, a global FOB/CIF adjustment is made in this presentation.

Valuation at constant prices

1.99

Valuation at constant prices means valuing the flows and stocks in an accounting period at the prices of a previous period. The purpose of valuation at constant prices is to decompose changes over time in the values of flows and stocks into changes in price and changes in volume. Flows and stocks at constant prices are described as being in volume terms.

1.100

Many flows and stocks, e.g. income, do not have price and quantity dimensions of their own. However, the purchasing power of such variables can be obtained by deflating the current values with a suitable price index, e.g. the price index for final national uses, excluding changes in inventories. Deflated flows and stocks are also described as being in real terms. An example is real disposable income.

Time of recording

1.101

Flows shall be recorded on an accrual basis; that is, when economic value is created, transformed or extinguished, or when claims and obligations arise, are transformed or are cancelled.

1.102

Output is recorded when produced and not when paid for by a purchaser. The sale of an asset is recorded when the asset changes hands, not when the corresponding payment is made. Interest is recorded in the accounting period when it accrues, regardless of whether or not it is paid in that period. Recording on an accrual basis applies to all flows, monetary as well as non-monetary and intra-unit as well as flows between units.

1.103

It may be necessary to relax this approach for taxes and other flows concerning general government, which are often recorded on a cash basis in government accounts. It may be difficult to carry out an exact transformation of such flows from cash basis to accrual basis, and so an approximate method may be used.

1.104

As an exception to the general rules governing the recording of taxes and social contributions payable to the general government, they can either be recorded net of the part unlikely to be collected or, if this part is included, it is neutralised in the same accounting period by a capital transfer from the general government to the relevant sectors.

1.105

Flows shall be recorded at the same point of time for all institutional units involved and in all accounts. Institutional units do not always apply the same accounting rules. Even when they do, differences in actual recording may occur for practical reasons such as delays in communication. Consequently, transactions may be recorded at different times by the transactors involved. Such discrepancies shall be eliminated by adjustments.

Consolidation and netting

Consolidation

1.106

Consolidation refers to the elimination, from both uses and resources, of transactions that occur between units when units are grouped, and to the elimination of reciprocal financial assets and liabilities. This occurs commonly when the accounts of subsectors of general government are combined.

1.107

As a matter of principle, flows and stocks between constituent units within subsectors or sectors must not be consolidated.

1.108

However, consolidated accounts may be built up for complementary presentations and analyses. Information on the transactions of such (sub)sectors with other sectors and the corresponding ‧external‧ financial position may be more significant than overall gross figures.

1.109

Moreover, the accounts and tables showing the creditor/debtor relationship provide a detailed picture of financing of the economy and are considered very useful for understanding the channels through which the financing surpluses move from final lenders to final borrowers.

Netting

1.110

Individual units or sectors may have the same kind of transaction both as a use and as a resource (e.g. they both pay and receive interest) and the same kind of financial instrument both as an asset and as a liability. The approach in the ESA is gross recording, apart from the degree of netting which is inherent in the classifications themselves.

1.111

Netting is implicit in various transaction categories, the most outstanding example being ‧changes in inventories‧, which underlines the analytically significant aspect of overall capital formation rather than tracking daily additions and withdrawals. Similarly, with few exceptions, the financial account and other changes in assets accounts record increases in assets and in liabilities on a net basis, bringing out the final consequences of those types of flows at the end of the accounting period.

Accounts, balancing items and aggregates

1.112

For units or groups of units, different accounts record transactions which are connected to an aspect of economic life (for instance, production). For the production account, the transactions will not show a balance between uses and resources without the introduction of a balancing item. Similarly, a balancing item (net worth) must be introduced between the total of assets and the total of liabilities of an institutional unit or sector. Balancing items are meaningful measures of economic performance in themselves. When summed for the whole economy, they are significant aggregates.

The sequence of accounts

1.113

The ESA 2010 system is built around a sequence of interconnected accounts. The full sequence of accounts for the institutional units and sectors is composed of current accounts, accumulation accounts and balance sheets.

1.114

Current accounts deal with the production, generation, distribution and redistribution of income and the use of such income in the form of final consumption. Accumulation accounts cover changes in assets and liabilities and changes in net worth (the difference for any institutional unit or group of units between its assets and liabilities). Balance sheets present stocks of assets and liabilities and net worth.

1.115

The sequence of accounts for local KAUs and industries is shortened to the first current accounts: production account and generation of income account, the balancing item of which is the operating surplus.

The goods and services account

1.116

The goods and services account shows, for the economy as a whole or for groups of products, the total resources (output and imports) and uses of goods and services (intermediate consumption, final consumption, changes in inventories, gross fixed capital formation, acquisitions less disposals of valuables, and exports). This account is not an account in the same sense as the others in the sequence, and does not generate a balancing item which is passed on to the next account in the sequence. It is rather the presentation in table form of an accounting identity, according to which supply is equal to demand for all products and groups of products in the economy.

The rest of the world account

1.117

The rest of the world account covers transactions between resident and non-resident institutional units and the related stocks of assets and liabilities.

As the rest of the world plays a role in the accounting structure similar to that of an institutional sector, the rest of the world account is established from the point of view of the rest of the world. A resource for the rest of the world is a use for the total economy and vice versa. If a balancing item is positive, it means a surplus of the rest of the world and a deficit of the total economy, and vice versa if the balancing item is negative.

The rest of the world account is unlike the other sector accounts in that it does not show all the accounting transactions in the rest of the world, but only those which have a counterparty in the domestic economy being measured.

Balancing items

1.118

A balancing item is obtained by subtracting the total value of the entries on one side of an account from the total value on the other side.

Balancing items embody a great deal of information and include some of the most important entries in the accounts, as can be seen from the following examples of balancing items: value added, operating surplus, disposable income, saving, net lending/net borrowing.

The following diagram shows the sequence of accounts in flow form — each balancing item is shown in bold.

A diagram of the sequence of accounts

Image

1.119

The first account in the sequence is the production account, which records the output and inputs of the production process, leaving value added as the balancing item.

1.120

The value added is taken forward to the next account which is the generation of income account. Here the compensation of employees in the production process is recorded, as well as taxes due to government because of the production, so that the operating surplus (or mixed income from the self-employed of the households sector) can be derived as the balancing item for each sector. This step is necessary so that the amount of value added retained in the producing sector as operating surplus or mixed income can be measured.

1.121

Then the value added, broken down between compensation of employees, taxes and operating surplus/mixed income, is taken forward with this breakdown to the allocation of primary income account. The breakdown allows the allocation of each factor income to the receiving sector, as opposed to the producing sector. For example, all compensation of employees is allocated between the households sector and the rest of the world sector, whereas operating surplus remains in the corporations sector where it was generated. Also recorded in this account are the property income flows into the sector, and those out of the sector, so that the balancing item is the balance of primary incomes flowing into the sector.

1.122

The next account records redistribution of these incomes through transfers — the secondary distribution of income account. The major instruments of redistribution are government taxes on, and social benefits for, the households sector. The balancing item is disposable income.

1.123

The main sequence of core accounts carries on to the use of disposable income account; an account relevant to the households sector, as it is here that household final expenditure is recorded, leaving household saving as the balancing item.

1.124

At the same time a parallel account is created, the redistribution of income in kind account. This account has the specific purpose of showing social transfers in kind as an imputed transfer from government to the households sector, so that household income can rise by the value of individual government services. In the next account (use of adjusted disposable income account), the household use of disposable income is increased by the same amount, as if the households sector were buying the individual services provided by government. Those two imputations cancel out, so that the balancing item is saving, identical to saving in the main sequence of accounts.

1.125

Saving is taken on to the capital account where it is used to fund capital formation, allowing for capital transfers in and out of the sectors. Underspend or overspend on the acquisition of real assets results in the balancing item net lending or borrowing. Net lending is a surplus loaned out, and net borrowing is the financing of a deficit.

1.126

Finally, the financial accounts are met, where the detailed lending and borrowing of each sector is laid out so that a balancing item of net lending or borrowing is observed. This should exactly match the net lending/borrowing balancing item of the capital account, and any difference must be a measurement discrepancy between the real and financial recordings of economic activity.

1.127

Considering the bottom row of the diagram, the left-hand account is the opening balance sheet, showing the level of all assets and liabilities, both real and financial, at the start of a specified period. The wealth of an economy is measured by its net worth (assets less liabilities) and this is shown at the bottom of the balance sheet.

1.128

Moving from left to right from the opening balances, the various changes to assets and liabilities that occur in the period of account are recorded. The capital account and financial account show the changes due to transactions in real assets and financial assets and liabilities respectively. In the absence of other effects, this would enable the immediate calculation of the closing position, by adding the changes to the opening position.

1.129

However, changes can occur outside the economic cycle of production and consumption, and such changes will affect the values of assets and liabilities at the closing period. One type of change is a change in volume of assets — real changes to fixed capital brought about by events which are not part of the economy. An example would be a catastrophic loss — a large earthquake, when a significant amount of assets were destroyed not through an economic transaction of exchange or transfer. This loss must be recorded in the other changes in volume account, to account for the lower level of assets than expected purely by looking at economic events. A second way in which assets (and liabilities) can change in value, other than as the result of an economic transaction, is through a change in price resulting in holding gains and losses in the stock of assets held. This change is recorded in the revaluation accounts. Allowing for these two extra effects on the values of the stock of assets and liabilities enables the closing balance sheet values to be estimated as the opening position adjusted for the changes in the flow accounts of the bottom row of the figure.

Aggregates

1.130

The aggregates are composite values which measure the result of the activity of the total economy; for example, output, value added, disposable income, final consumption, saving, capital formation, etc. Although the calculation of the aggregates is not the sole purpose of the ESA, they are important as summary indicators for purposes of macroeconomic analysis and comparisons over time and space.

1.131

Two types of aggregates are distinguished:

(a)

aggregates which refer directly to transactions in the ESA 2010 system, such as the output of goods and services, final consumption, gross fixed capital formation, compensation of employees, etc.;

(b)

aggregates which represent balancing items in the accounts, such as GDP at market prices, operating surplus of the total economy, GNI, national disposable income, saving, current external balance, and net worth of the total economy (national wealth).

1.132

There are important uses for national accounts measures per head of population. For broad aggregates such as GDP or national income or household final consumption, the denominator commonly used is the total (resident) population. When subsectoring the accounts or part of the accounts of the households sector, data on the number of households and the number of persons belonging to each subsector are used.

GDP: a key aggregate

1.133

GDP is one of the key aggregates in the ESA. GDP is a measure of the total economic activity taking place on an economic territory which leads to output meeting the final demands of the economy. There are three ways of measuring GDP at market prices:

(1)

the production approach, as the sum of the values added by all activities which produce goods and services, plus taxes less subsidies on products;

(2)

the expenditure approach, as the total of all final expenditures made in either consuming the final output of the economy, or in adding to wealth, plus exports less imports of goods and services;

(3)

the income approach, as the total of all incomes earned in the process of producing goods and services plus taxes on production and imports less subsidies.

1.134

These three approaches to measuring GDP also reflect the different ways in which GDP can be considered in terms of components. Value added can be broken down by institutional sector, and by the type of activity or industry which is contributing to the total, e.g. agriculture, manufacturing, construction, services, etc.

Final expenditures can be broken down by type: household expenditure, NPISH final expenditure, government final expenditure, change in inventories, fixed capital formation and exports, less the cost of imports.

Total incomes earned can be broken down by type of income — compensation of employment, and operating surplus.

1.135

In order to achieve the best estimate of GDP, it is good practice to feed the elements of these three approaches into a supply and use framework. This enables value added and income estimates by industry to be reconciled, and supply and demand for products to be balanced. This integrated approach ensures consistency between the components of GDP, and a better estimate of the level of GDP than from only one of the three approaches. By deducting consumption of fixed capital from GDP, net domestic product at market prices (NDP) is obtained.

The input-output framework

1.136

The input-output (I-O) framework brings together components of Gross Value Added (GVA), industry inputs and outputs, product supply and demand, and the composition of uses and resources across institutional sectors for the economy. This framework breaks the economy down to display transactions of all goods and services between industries and final consumers for a single period (for example, a quarter or a year). Information may be presented in two ways:

(a)

supply and use tables;

(b)

symmetric input-output tables.

Supply and use tables

1.137

Supply and use tables show the whole economy by industry (e.g. motor vehicles industry) and products (e.g. sports goods). The tables show links between components of GVA, industry inputs and outputs, and product supply and demand. Supply and use tables link different institutional sectors of the economy (e.g. public corporations) together with detail of imports and exports of goods and services, government expenditure, household and NPISHs expenditure and capital formation.

1.138

Producing supply and use tables allows an examination of consistency and coherence of national accounts components within a single detailed framework and, by incorporating the components of the three approaches to measuring GDP (i.e. production, income and expenditure), enables a single estimate of GDP to be determined.

1.139

When balanced in an integrated manner, supply and use tables also provide coherence and consistency in linking the components of the following three accounts:

(1)

goods and services account;

(2)

production account (by industry and by institutional sector); and

(3)

generation of income account (by industry and by institutional sector).

Symmetric input-output tables

1.140

Symmetric input-output tables are derived from the data in supply and use tables and other additional sources to form the theoretical basis for subsequent analyses.

1.141

These tables contain symmetric (product by product or industry by industry) tables, the Leontief Inverse and other diagnostic analyses such as output multipliers. These tables show separately the consumption of domestically produced and imported goods and services, providing a theoretical framework for further structural analysis of the economy, including the composition as well as the effect of changes in final demand on the economy.


(1)  Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community (OJ L 310, 30.11.1996, p. 1).

(2)  Regulation (EC) No 1893/2006 of the European Parliament and of the Council of 20 December 2006 establishing the statistical classification of economic activities NACE Revision 2 (OJ L 393, 30.12.2006, p. 1).

(3)  Regulation (EC) No 451/2008 of the European Parliament and of the Council of 23 April 2008 establishing a new statistical classification of products by activity (CPA) (OJ L 145, 4.6.2008, p. 65).

 

CHAPTER 2

UNITS AND GROUPINGS OF UNITS

2.01

The economy of a country is a system whereby institutions and people interact through exchanges and transfers of goods, services and means of payment (e.g. money) for the production and consumption of goods and services.

In the economy, the units interacting are economic entities that are capable of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities. They are known as institutional units.

Defining the units used in national accounts serves various purposes. First, units are the essential building blocks in defining economies in geographical terms, e.g. nations, regions, and nation groupings such as monetary or political unions. Second, they are the essential building blocks for grouping units into institutional sectors. Third, they are essential for defining which flows and stocks are recorded. Transactions between various parts of the same institutional unit are, in principle, not recorded in the national accounts.

2.02

The units and groupings of units used in national accounts shall be defined with reference to the kind of economic analysis for which they are intended, and not in terms of the types of unit usually employed in statistical inquiries. The latter units (e.g. enterprises, holding companies, kind-of-activity units, local units, government departments, non-profit institutions, households, etc.) may not be satisfactory for the purposes of national accounts, since they are based on criteria of a legal, administrative or accounting nature.

Statisticians shall take into account the definitions of units of analysis as laid down in the ESA 2010, in order to ensure that, in the surveys in which data are collected, all the elements of information needed to compile data based on the units of analysis used in the ESA 2010 are gradually introduced.

2.03

A feature of the ESA 2010 system is the use of types of unit corresponding to three ways of subdividing the economy:

(1)

to analyse flows and positions, it is essential to select units which make it possible to study behavioural relationships among economic agents;

(2)

to analyse the process of production, it is essential to select units that bring out relationships of a technico-economic nature, or that reflect local activities;

(3)

to allow regional analyses, units that reflect local kinds of activity are needed.

Institutional units are defined to meet the first of these objectives. Behavioural relationships, as described in point (1), require units reflecting all of their institutional economic activity.

The production processes, technico-economic relationships and regional analyses referred to in points (2) and (3) require units such as local KAUs. These units are described later in this chapter.

Before giving definitions of the units used in the ESA 2010, it is necessary to define the limits of the national economy.

THE LIMITS OF THE NATIONAL ECONOMY

2.04

The units which constitute the economy of a country and whose flows and stocks are recorded in the ESA 2010 are those which are resident. An institutional unit is resident in a country when it has its centre of predominant economic interest in the economic territory of that country. Such units are known as resident units, irrespective of nationality, legal form or presence on the economic territory at the time they carry out a transaction.

2.05

Economic territory consists of the following:

(a)

the area (geographic territory) under the effective administration and economic control of a single government;

(b)

any free zones, including bonded warehouses and factories under customs control;

(c)

the national air-space, territorial waters and the continental shelf lying in international waters, over which the country enjoys exclusive rights;

(d)

territorial enclaves, these being geographic territories situated in the rest of the world and used, under international treaties or agreements between states, by general government agencies of the country (such as embassies, consulates, military bases, scientific bases, etc.);

(e)

deposits of oil, natural gas, etc. in international waters outside the continental shelf of the country, worked by units resident in the territory as defined in points (a) to (d).

Fishing boats, other ships, floating platforms and aircraft are treated in the ESA as mobile equipment, whether owned and/or operated by units resident in the country, or owned by non-residents and operated by resident units. Transactions involving the ownership (gross fixed capital formation) and use (renting, insurance, etc.) of mobile equipment are attributed to the economy of the country of which the owner and/or operator respectively are residents. In cases of financial leasing, a change of ownership is assumed.

Economic territory may be an area larger or smaller than that defined above. An example of a larger area is a currency union such as the European Monetary Union; an example of a smaller area is a part of a country such as a region.

2.06

Economic territory excludes extraterritorial enclaves.

Also excluded are the parts of the country's own geographic territory used by the following organisations:

(a)

general government agencies of other countries;

(b)

institutions and bodies of the European Union; and

(c)

international organisations under international treaties between states.

The territories used by the institutions and bodies of the European Union and international organisations are separate economic territories. A feature of such territories is that the only residents are the institutions.

2.07

Centre of predominant economic interest indicates that a location exists within the economic territory of a country where a unit engages in economic activities and transactions on a significant scale, either indefinitely or over a finite but long period of time (a year or more). The ownership of land and buildings within the economic territory is deemed to be sufficient for the owner to have a centre of predominant economic interest there.

Enterprises are almost always connected to only a single economy. Taxation and other legal requirements tend to result in the use of a separate legal entity for operations in each legal jurisdiction. In addition, a separate institutional unit is identified for statistical purposes where a single legal entity has substantial operations in two or more territories (e.g. for branches, land ownership, and multi-territory enterprises). As a result of splitting such legal entities, the residence of each of the subsequently identified enterprises is clear. Centre of predominant economic interest does not mean that entities with substantial operations in two or more territories should not be split.

In the absence of any physical dimension to an enterprise, its residence is determined according to the economic territory under whose laws the enterprise is incorporated or registered.

2.08

Units deemed to be residents of a country can be subdivided into:

(a)

units that are engaged in production, finance, insurance or redistribution, in respect of all their transactions except those relating to ownership of land and buildings;

(b)

units which are principally engaged in consumption, in respect of all their transactions except those relating to ownership of land and buildings;

(c)

all units in their capacity as owners of land and buildings with the exception of owners of extraterritorial enclaves which are part of the economic territory of other countries or are independent states.

2.09

For units other than households, in respect of all their transactions except those relating to ownership of land and buildings, the following two cases may be distinguished:

(a)

activity is conducted exclusively on the economic territory of the country: units which carry out such activity are resident units of the country;

(b)

activity is conducted for a year or more on the economic territories of several countries: only that part of the unit that has a centre of predominant economic interest in the economic territory of the country is deemed to be a resident unit of that country.

A resident institutional unit may be a notional resident unit, in respect of the activity conducted in the country for a year or more by a unit which is resident in another country. When the activity is carried on for less than a year, the activity remains part of the activities of the producer institutional unit and no separate institutional unit is recognised. When the activity is insignificant, even though lasting longer than a year, and for the installation of equipment abroad, no separate unit is recognised and the activities are recorded as that of the producing institutional unit.

2.10

Households, except in their capacity as owners of land and buildings, are resident units of the economic territory where they have a centre of predominant economic interest. They are resident irrespective of periods spent abroad of less than one year. They shall include, in particular, the following:

(a)

border workers, defined as people who cross the frontier daily to work in a neighbouring country;

(b)

seasonal workers, defined as people who leave the country for several months according to season, but less than a year, to work in another country;

(c)

tourists, patients, students, visiting officials, businessmen, salesmen, artists and crew members who travel abroad;

(d)

locally recruited staff working in the extraterritorial enclaves of foreign governments;

(e)

the staff of the institutions of the European Union and of civilian or military international organisations which have their headquarters in extraterritorial enclaves;

(f)

the official, civilian or military representatives of the government of the country (including their households) established in territorial enclaves.

Students are always treated as residents, irrespective of the length of their studies abroad.

2.11

All units, in their capacity as owners of land and/or buildings forming part of the economic territory, are resident units or notional resident units of the country in which that land or those buildings in question are located.

THE INSTITUTIONAL UNITS

2.12

Definition: an institutional unit is an economic entity characterised by decision-making autonomy in the exercise of its principal function. A resident unit is regarded as constituting an institutional unit in the economic territory where it has its centre of predominant economic interest if it has decision-making autonomy and either keeps a complete set of accounts, or is able to compile a complete set of accounts.

To have autonomy of decision in respect of its principal function, an entity must be:

(a)

entitled to own goods and assets in its own right; it will be able to exchange the ownership of goods and assets in transactions with other institutional units;

(b)

able to take economic decisions and engage in economic activities for which it is responsible and accountable at law;

(c)

able to incur liabilities on its own behalf, to take on other obligations or further commitments and to enter into contracts; and

(d)

able to draw up a complete set of accounts, comprised of accounting records covering all its transactions carried out during the accounting period, as well as a balance sheet of assets and liabilities.

2.13

The following principles apply whenever an entity does not possess the characteristics of an institutional unit:

(a)

households are deemed to enjoy autonomy of decision in respect of their principal function and are, therefore, institutional units nonetheless, even though they do not keep a complete set of accounts;

(b)

entities which do not keep a complete set of accounts, and are not able to compile a complete set of accounts if required to do so, are not institutional units;

(c)

entities which, while keeping a complete set of accounts, have no autonomy of decision, are part of the units which control them;

(d)

entities do not need to publish accounts to be an institutional unit;

(e)

entities forming part of a group of units engaged in production and keeping a complete set of accounts are deemed to be institutional units even if they have partially surrendered their autonomy of decision to the central body (the head office) responsible for the general direction of the group; the head office itself is deemed to be an institutional unit distinct from the units which it controls;

(f)

quasi-corporations are entities which keep a complete set of accounts and have no legal status. They have an economic and financial behaviour that is different from that of their owners and similar to that of corporations. They are deemed to have autonomy of decision and are considered as distinct institutional units.

Head offices and holding companies

2.14

Head offices and holding companies are institutional units. The two types are:

(a)

A head office is a unit that exercises managerial control over its subsidiaries. Head offices are allocated to the dominant non-financial corporations sector of their subsidiaries, unless all or most of their subsidiaries are financial corporations, in which case they are treated as financial auxiliaries (S.126) in the financial corporations sector.

Where there is a mixture of non-financial and financial subsidiaries, then the predominant share-by-value-added determines the sector classification.

Head offices are described under international standard industrial classification of all economic activities revision (ISIC Rev. 4), Section M, class 7010 (NACE Rev. 2, M 70.10) as follows:

This class includes the overseeing and managing of other units of the company or enterprise; undertaking strategic or organisational planning and decision-making role of the company or enterprise; exercising operational control and managing the day-to-day operation of their related units.

(b)

A holding company that holds the assets of subsidiary corporations but does not undertake any management activities is a captive financial institution (S.127) and classified as a financial corporation.

Holding companies are described under ISIC Rev.4, Section K, class 6420 (NACE Rev. 2, K 64.20) as follows:

This class includes the activities of holding companies, i.e. units that hold the assets (owning controlling-levels of equity) of a group of subsidiary corporations and whose principal activity is owning the group. The holding companies in this class do not provide any other service to the businesses in which the equity is held, i.e. they do not administer or manage other units.

Groups of corporations

2.15

Large groups of corporations are created when a parent controls several subsidiaries, which may in turn control their own subsidiaries, and so on. Each member of the group is treated as a separate institutional unit if it satisfies the definition of an institutional unit.

2.16

An advantage of not treating groups of corporations as single institutional units is that groups are not always stable over time, nor easily identifiable in practice. It can be difficult to obtain data on groups whose activities are not closely integrated. Many groups are too large and heterogeneous to be treated as single units, and their size and composition can change over time as a result of mergers and takeovers.

Special purpose entities

2.17

A special purpose entity (SPE) or special purpose vehicle (SPV) is usually a limited company or a limited partnership, created to fulfil narrow, specific or temporary objectives and to isolate a financial risk, a specific taxation or a regulatory risk.

2.18

There is no common definition of an SPE, but the following characteristics are typical:

(a)

they have no employees and no non-financial assets;

(b)

they have little physical presence beyond a ‧brass plate‧ or sign confirming their place of registration;

(c)

they are always related to another corporation, often as a subsidiary;

(d)

they are resident in a different territory from the territory of residence of the related corporations. In the absence of any physical presence an enterprise's residence is determined according to the economic territory under whose laws the enterprise is incorporated or registered;

(e)

they are managed by employees of another corporation which may or may not be a related one. The SPE pays fees for services provided to it and in turn charges its parent or other related corporation a fee to cover those costs. This is the only production the SPE is involved in, although it will often incur liabilities on behalf of its owner and will usually receive investment income and holding gains on the assets it holds.

2.19

Whether a unit has all or none of these characteristics, and whether it is described as an SPE or some similar designation or not, it shall be treated in the same way as any other institutional unit by being allocated to sector and industry according to its principal activity unless the SPE has no independent rights of action.

2.20

So captive financial institutions, artificial subsidiaries and special purpose units of general government with no independence of action are allocated to the sector of their controlling body. The exception occurs when they are non-resident, in which case they are recognised separately from their controlling body. But in the case of government, the activities of the subsidiary shall be reflected in the government accounts.

Captive financial institutions

2.21

A holding company that simply owns the assets of subsidiaries is one example of a captive financial institution. Examples of other units that are also treated as captive financial institutions are units with the characteristics of SPEs as described above, including investment and pension funds and units used for holding and managing wealth for individuals or families, issuing debt securities on behalf of related companies (such a company may be called a conduit), and carrying out other financial functions.

2.22

The degree of independence from its parent may be demonstrated by exercising some substantive control over its assets and liabilities to the extent of carrying the risks and reaping the rewards associated with the assets and liabilities. Such units are classified in the financial corporations sector.

2.23

An entity of this type that cannot act independently of its parent and is simply a passive holder of assets and liabilities (sometimes described as being on autopilot) is not treated as a separate institutional unit unless it is resident in an economy different from that of its parent. If it is resident in the same economy as its parent, it is treated as an ‧artificial subsidiary‧ as described below.

Artificial subsidiaries

2.24

A subsidiary, wholly owned by a parent corporation, may be created to provide services to the parent corporation, or other corporations in the same group, in order to avoid taxes, to minimise liabilities in the event of bankruptcy, or to secure other technical advantages under the tax or corporation legislation in force in a particular country.

2.25

In general, such types of entities do not satisfy the definition of an institutional unit because they lack the ability to act independently from their parent corporation and may be subject to restrictions on their ability to hold or transact assets held on their balance sheets. Their level of output and the price they receive for it are determined by the parent that (possibly with other corporations in the same group) is their sole client. They are, thus, not treated as separate institutional units, but are treated as an integral part of the parent, and their accounts are consolidated with those of the parent, unless they are resident in an economic territory different from that where the parent is resident.

2.26

A distinction must be made between artificial subsidiaries as just described and a unit undertaking only ancillary activities. Ancillary activities are limited in scope to the type of service functions that virtually all enterprises need to some extent or another such as cleaning premises, running the staff payroll or providing the information technology infrastructure for the enterprise (see Chapter 1, paragraph 1.31).

Special purpose units of general government

2.27

General government may also set up special purpose units, with characteristics and functions similar to the captive financial institutions and artificial subsidiaries. Such units do not have the power to act independently and are restricted in the range of transactions they can engage in. They do not carry the risks and rewards associated with the assets and liabilities they hold. Such units, if they are resident, shall be treated as an integral part of general government and not as separate units. If they are non-resident, they shall be treated as separate units. Any transactions carried out by them abroad shall be reflected in corresponding transactions with government. Thus, a unit that borrows abroad is then regarded as lending the same amount to general government, and on the same terms, as the original borrowing.

2.28

In summary, the accounts of SPEs with no independent rights of action are consolidated with the parent corporation, unless they are resident in a different economy from that of the parent. There is one exception to this general rule, and that is when a non-resident SPE is set up by government.

2.29

Notional resident units shall be defined as:

(a)

those parts of non-resident units which have a centre of predominant economic interest (being, in most cases, units which engage in economic production for a year or more) on the economic territory of the country;

(b)

non-resident units in their capacity as owners of land and/or buildings on the economic territory of the country, but only in respect of transactions affecting such land or buildings.

Notional resident units, irrespective of only keeping partial accounts and irrespective of autonomy of decision, shall be treated as institutional units.

2.30

The following shall be considered as institutional units:

(a)

units that have autonomy of decision and a complete set of accounts such as:

(1)

private and public corporations;

(2)

cooperatives or partnerships recognised as independent legal entities;

(3)

public producers which by virtue of special legislation are recognised as independent legal entities;

(4)

non-profit institutions recognised as independent legal entities; and

(5)

agencies of general government;

(b)

units which have a complete set of accounts and which are deemed to have autonomy of decision despite not having separate incorporation from their parent: quasi-corporations;

(c)

units which do not necessarily keep a complete set of accounts, but which are deemed to have autonomy of decision, namely:

(1)

households;

(2)

notional resident units.

THE INSTITUTIONAL SECTORS

2.31

Macroeconomic analysis does not consider the actions of each institutional unit separately — it considers the aggregate activities of similar institutions. So units are combined into groups called institutional sectors, some of which are divided into subsectors.

Table 2.1 —   Sectors and subsectors

Sectors and subsectors

 

Public

National private

Foreign controlled

Non-financial corporations

S.11

S.11001

S.11002

S.11003

Financial corporations

S.12

 

 

 

Monetary financial institutions (MFIs)

Central bank

S.121

 

 

 

Other monetary financial institutions (OMFI)

Deposit-taking corporations except the central bank

S.122

S.12201

S.12202

S.12203

Money market funds (MMFs)

S.123

S.12301

S.12302

S.12303

Financial corporations except MFIs and Insurance corporations and pension funds (ICPFs)

Non-MMF investment funds

S.124

S.12401

S.12402

S.12403

Other financial intermediaries, except insurance corporations and pension funds

S.125

S.12501

S.12502

S.12503

Financial auxiliaries

S.126

S.12601

S.12602

S.12603

Captive financial institutions and money lenders

S.127

S.12701

S.12702

S.12703

ICPFs

Insurance corporations (IC)

S.128

S.12801

S.12802

S.12803

Pension funds (PF)

S.129

S.12901

S.12902

S.12903

General government

S.13

 

 

 

Central government (excluding social security funds)

S.1311

 

 

 

State government (excluding social security funds)

S.1312

 

 

 

Local government (excluding social security funds)

S.1313

 

 

 

Social security funds

S.1314

 

 

 

Households

S.14

 

 

 

Employers and own-account workers

S.141+S.142

 

 

 

Employees

S.143

 

 

 

Recipients of property and transfer income

S.144

 

 

 

Recipients of property income

S.1441

 

 

 

Recipients of pensions

S.1442

 

 

 

Recipients of other transfers

S.1443

 

 

 

Non-profit institutions serving households

S.15

 

 

 

Rest of the world

S.2

 

 

 

Member States and institutions and bodies of the European Union

S.21

 

 

 

Member States of the European Union

S.211

 

 

 

Institutions and bodies of the European Union

S.212

 

 

 

Non-member countries and international organisations non-resident in the European Union

S.22

 

 

 

2.32

Each sector and subsector groups together the institutional units which have a similar type of economic behaviour.

Diagram 2.1 —   Allocation of units to sectors

Image

2.33

The institutional units are grouped into sectors on the basis of the type of producer they are and depending on their principal activity and function, which are considered to be indicative of their economic behaviour.

2.34

Diagram 2.1 shows how units are allocated to the main sectors. In order to determine the sector of a unit which is resident and not a household, according to the diagram, it is necessary to determine whether it is controlled by general government or not, and whether it is a market or a non-market producer.

2.35

Control over a financial or non-financial corporation shall be defined as the ability to determine general corporate policy, for example by choosing appropriate directors if necessary.

2.36

A single institutional unit (another corporation, a household, a non-profit institution or a government unit) secures control over a corporation or quasi-corporation by owning more than half the voting shares or otherwise controlling more than half the shareholders' voting power.

2.37

In order to control more than half the shareholders' voting power, an institutional unit need not own any of the voting shares itself. A given corporation, corporation C, could be a subsidiary of another corporation B in which a third corporation A owns a majority of the voting shares. Corporation C is said to be subsidiary of corporation B when either corporation B controls more than half of the shareholders' voting power in corporation C or corporation B is a shareholder in C with the right to appoint or remove a majority of the directors of C.

2.38

General government secures control over a corporation as a result of special legislation, decree or regulation which empowers the government to determine corporate policy. The following indicators are the main factors to consider in deciding whether a corporation is controlled by government:

(a)

government ownership of the majority of the voting interest;

(b)

government control of the board or governing body;

(c)

government control of the appointment and removal of key personnel;

(d)

government control of key committees in the entity;

(e)

government possession of a golden share;

(f)

special regulations;

(g)

government as a dominant customer;

(h)

borrowing from government.

A single indicator may be sufficient to establish control, but, in other cases, a number of separate indicators may collectively indicate control.

2.39

For non-profit institutions recognised as independent legal entities, the five indicators of control to be considered are:

(a)

the appointment of officers;

(b)

the provisions of enabling instruments;

(c)

contractual agreements;

(d)

the degree of financing;

(e)

the degree of government risk exposure.

As with corporations, a single indicator may be sufficient to establish control in some cases, but, in other cases, a number of separate indicators may collectively indicate control.

2.40

Differentiating between market and non-market, and so for public sector entities classification between the general government sector and the corporations sector, depends on the criteria set out in paragraph 1.37.

2.41

A sector shall be divided into subsectors according to the criteria relevant to that sector; for example government can be split into central, state and local government and social security funds. This permits a more precise description of the economic behaviour of the units.

The accounts for sectors and subsectors record all the activities, whether principal or secondary, of the institutional units covered by the appropriate sector.

Each institutional unit belongs to only one sector or subsector.

2.42

When the principal function of the institutional unit is to produce goods and services, the type of producer must be decided first, in order to allocate it to a sector.

2.43

Table 2.2 shows the type of producer and the principal activities and functions that are characteristic of each sector:

Table 2.2 —   Type of producer and principal activities and functions classified by sector

Type of producer

Principal activity and function

Sector

Market producer

Production of market goods and non-financial services

Non-financial corporations (S.11)

Market producer

Financial intermediation including insurance

Auxiliary financial activities

Financial corporations (S.12)

Public non-market producer

Production and supply of non-market output for collective and individual consumption, and carrying out transactions intended to redistribute national income and wealth

General government (S.13)

Market producer or private producer for own final use

Consumption

Production of market output and output for own final use

Households (S.14)

As consumers

As entrepreneurs

Private non-market producer

Production and supply of non-market output for individual consumption

Non-profit institutions serving households (S.15)

2.44

The rest of the world (S.2) sector refers to flows and positions between resident units and non-resident units — the non-resident units are not characterised by similar objectives and types of behaviour, but are only recognised through their flows and positions with resident units.

Non-financial corporations (S.11)

2.45

Definition: the non-financial corporations sector (S.11) consists of institutional units which are independent legal entities and market producers, and whose principal activity is the production of goods and non-financial services. The non-financial corporations sector also includes non-financial quasi-corporations (see paragraph 2.13(f)).

2.46

The institutional units covered are the following:

(a)

private and public corporations which are market producers principally engaged in the production of goods and non-financial services;

(b)

cooperatives and partnerships recognised as independent legal entities which are market producers principally engaged in the production of goods and non-financial services;

(c)

public producers which are recognised as independent legal entities and which are market producers principally engaged in the production of goods and non-financial services;

(d)

non-profit institutions or associations serving non-financial corporations, which are recognised as independent legal entities and which are market producers principally engaged in the production of goods and non-financial services;

(e)

head offices controlling a group of corporations which are market producers, where the preponderant type of activity of the group of corporations as a whole - measured on the basis of value added — is the production of goods and non-financial services;

(f)

SPEs whose principal activity is the provision of goods or non-financial services;

(g)

private and public quasi-corporations which are market producers principally engaged in the production of goods and non-financial services.

2.47

Non-financial quasi-corporations are all entities which are market producers principally engaged in the production of goods and non-financial services and which meet the conditions qualifying them as quasi-corporations (see point (f) of paragraph 2.13).

Non-financial quasi-corporations must keep enough information to enable a complete set of accounts to be drawn up, and are operated as if they were corporations. The de facto relationship to their owner is that of a corporation to its shareholders.

Non-financial quasi-corporations owned by households, government units or non-profit institutions are grouped with non-financial corporations in the non-financial corporations sector, and not in the sector of their owner.

2.48

The existence of a complete set of accounts, including balance sheets, is not a sufficient condition for market producers to be treated as institutional units such as quasi-corporations. Partnerships and public producers, other than those included under points (a), (b), (c) and (f) of paragraph 2.46 and sole proprietorships — even if they keep a complete set of accounts — are in general not distinct institutional units because they do not enjoy autonomy of decision, their management being under the control of the households, non-profit institutions or governments which own them.

2.49

Non-financial corporations include notional resident units which are treated as quasi-corporations.

2.50

The non-financial corporations sector is divided into three subsectors:

(a)

public non-financial corporations (S.11001);

(b)

national private non-financial corporations (S.11002);

(c)

foreign controlled non-financial corporations (S.11003).

2.51

Definition: the public non-financial corporations subsector consists of all non-financial corporations, quasi-corporations and non-profit institutions, recognised as independent legal entities, that are market producers and are subject to control by government units.

2.52

Public quasi-corporations are quasi-corporations owned directly by government units.

National private non-financial corporations (S.11002)

2.53

Definition: the national private non-financial corporations subsector consists of all non-financial corporations, quasi-corporations and non-profit institutions which are recognised as independent legal entities and which are market producers, that are not controlled by government or by non-resident institutional units.

This subsector includes corporate and quasi-corporate direct foreign investment units not classified in the foreign controlled non-financial corporations subsector (S.11003).

Foreign controlled non-financial corporations (S.11003)

2.54

Definition: the foreign controlled non-financial corporations subsector consists of all non-financial corporations and quasi-corporations that are controlled by non-resident institutional units.

This subsector includes:

(a)

all subsidiaries of non-resident corporations;

(b)

all corporations controlled by a non-resident institutional unit that is not itself a corporation; for example, a corporation which is controlled by a foreign government. It includes corporations controlled by a group of non-resident units acting in concert;

(c)

all branches or other unincorporated agencies of non-resident corporations or unincorporated producers which are notional resident units.

Financial corporations (S.12)

2.55

Definition: the financial corporations sector (S.12) consists of institutional units which are independent legal entities and market producers, and whose principal activity is the production of financial services. Such institutional units comprise all corporations and quasi-corporations which are principally engaged in:

(a)

financial intermediation (financial intermediaries); and/or

(b)

auxiliary financial activities (financial auxiliaries).

Also included are institutional units providing financial services, where most of either their assets or their liabilities are not transacted on open markets.

2.56

Financial intermediation is the activity in which an institutional unit acquires financial assets and incurs liabilities on its own account by engaging in financial transactions on the market. The assets and liabilities of financial intermediaries are transformed or repackaged in relation to, for example, maturity, scale, risk, etc. in the financial intermediation process.

Auxiliary financial activities are activities related to financial intermediation but which do not involve financial intermediation themselves.

Financial intermediaries

2.57

The financial intermediation process channels funds between third parties with a surplus and those with a lack of funds. A financial intermediary does not only act as an agent for other institutional units, but places itself at risk by acquiring financial assets and incurring liabilities on its own account.

2.58

In the financial intermediation process, all categories of liabilities may be involved with the exception of the liability category of other accounts payable (AF.8). The financial assets involved in the financial intermediation process may be classified in any category with the exception of the category of insurance, pension and standardised guarantee schemes (AF.6) but including the other accounts receivable category. Financial intermediaries may invest their funds in non-financial assets including real estate. In order to be considered a financial intermediary, a corporation should incur liabilities on the market and transform funds. Real estate corporations are not financial intermediaries.

2.59

The function of insurance corporations and pension funds consists of the pooling of risks. The liabilities of such institutions are insurance, pension and standardised guarantee schemes (AF.6). The counterparts of liabilities are investments by the insurance corporations and pension funds, acting as financial intermediaries.

2.60

Investment funds, hereinafter referred to as money market funds (MMFs) and non-money market funds (non-MMFs), primarily incur liabilities through the issue of investment fund shares or units (AF.52). They transform such funds by acquiring financial assets and/or real estate. Investment funds are classified as financial intermediaries. Any change in the value of their assets and liabilities other than their own shares is reflected in their own funds (see paragraph 7.07). Given that the amount of own funds equals the value of the investment fund's shares or units, any change in the value of the fund's assets and liabilities will be reflected in the market value of such shares or units. Investment funds investing in real estate are financial intermediaries.

2.61

Financial intermediation is limited to acquiring assets and incurring liabilities with the general public or specified and relatively large sub-groups thereof. Where the activity is limited to small groups of persons or families, no financial intermediation takes place.

2.62

Exceptions to the general limitation of financial intermediation to financial transactions on the market may exist. Examples are municipal credit and savings banks which rely on the municipality involved, or financial lease corporations that depend on a parent group of companies for acquiring funds or investing funds. Their lending or their acceptance of savings shall be independent of the municipality involved or the parent group, respectively, in classifying them as financial intermediaries.

Financial auxiliaries

2.63

Auxiliary financial activities comprise auxiliary activities for realising transactions in financial assets and liabilities or the transformation or repackaging of funds. Financial auxiliaries do not put themselves at risk by acquiring financial assets or incurring liabilities. They facilitate financial intermediation. Head offices, all or most of the subsidiaries of which are financial corporations, are financial auxiliaries.

Financial corporations other than financial intermediaries and financial auxiliaries

2.64

Other financial corporations other than financial intermediaries and financial auxiliaries are institutional units providing financial services, where most of either their assets or their liabilities are not transacted on open markets.

Institutional units included in the financial corporations sector

2.65

The institutional units included in the financial corporations sector (S.12) are the following:

(a)

private or public corporations which are principally engaged in financial intermediation and/or in auxiliary financial activities;

(b)

cooperatives and partnerships recognised as independent legal entities which are principally engaged in financial intermediation and/or in auxiliary financial activities;

(c)

public producers recognised as legal entities, which are principally engaged in financial intermediation and/or in auxiliary financial activities;

(d)

non-profit institutions recognised as legal entities which are principally engaged in financial intermediation and/or in auxiliary financial activities, or which are serving financial corporations;

(e)

head offices when all or most of their subsidiaries are, as financial corporations, principally engaged in financial intermediation and/or financial auxiliary activities. These head offices are classified as financial auxiliaries (S.126);

(f)

holding companies, where the main role is the holding of assets of a group of subsidiary corporations. The make-up of the group can be financial or non-financial — this does not affect the classification of holding companies as captive financial institutions (S.127);

(g)

SPEs whose principal activity is the provision of financial services;

(h)

unincorporated investment funds comprising investment portfolios owned by the group of participants, and whose management is undertaken, in general, by other financial corporations. Such funds are institutional units, separate from the managing financial corporation;

(i)

unincorporated units principally engaged in financial intermediation and subject to regulation and supervision (in most cases classified as deposit-taking corporations except the central bank, insurance corporations or pension funds) are deemed to enjoy autonomy of decision and to have autonomous management independent of their owners; their economic and financial behaviour is similar to that of financial corporations. In this case they are treated as separate institutional units. Examples are branches of non-resident financial corporations.

Subsectors of financial corporations

2.66

The financial corporations sector is subdivided into the following subsectors:

(a)

central bank (S.121);

(b)

deposit-taking corporations except the central bank (S.122);

(c)

money market funds (MMFs) (S.123);

(d)

non-MMF investment funds (S.124);

(e)

other financial intermediaries, except insurance corporations and pension funds (S.125);

(f)

financial auxiliaries (S.126);

(g)

captive financial institutions and money lenders (S.127);

(h)

insurance corporations (S.128); and

(i)

pension funds (S.129).

Combining subsectors of financial corporations

2.67

Monetary financial institutions (MFIs) as defined by the ECB consist of all institutional units included in the central bank (S.121), deposit-taking corporations except the central bank (S.122) and MMF (S.123) subsectors.

2.68

Other monetary financial institutions consist of those financial intermediaries through which the effects of the monetary policy of the central bank (S.121) are transmitted to the other entities of the economy. They are deposit-taking corporations except the central bank (S.122) and MMF (S.123).

2.69

Financial intermediaries dealing with the pooling of risks are insurance corporations and pensions funds (ICPF). They consist of the insurance corporations (S.128) and pension funds (S.129) subsectors.

2.70

Financial corporations except MFI and ICPF consist of the non-MMF investment funds (S.124), other financial intermediaries, except insurance corporations and pension funds (S.125), financial auxiliaries (S.126) and captive financial institutions and money lenders (S.127) subsectors.

Subdividing subsectors of financial corporations into public, national private and foreign controlled financial corporations

2.71

With the exception of subsector S.121, each subsector is further subdivided into:

(a)

public financial corporations;

(b)

national private financial corporations; and

(c)

foreign controlled financial corporations.

The criteria for this subdivision are the same as for non-financial corporations (see paragraphs 2.51 to 2.54).

Table 2.3 —   Financial corporations sector and its subsectors

Sectors and subsectors

Public

National private

Foreign controlled

Financial corporations

S.12

 

 

 

Monetary financial institutions (MFI)

Central bank

S.121

 

 

 

Other monetary financial institutions (OMFI)

Deposit-taking corporations except the central bank

S.122

S.12201

S.12202

S.12203

MMF

S.123

S.12301

S.12302

S.12303

Financial corporations except MFI and ICPF

Non-MMF investment funds

S.124

S.12401

S.12402

S.12403

Other financial intermediaries, except insurance corporations and pension funds

S.125

S.12501

S.12502

S.12503

Financial auxiliaries

S.126

S.12601

S.12602

S.12603

Captive financial institutions and money lenders

S.127

S.12701

S.12702

S.12703

Insurance corporations and pension funds (ICPFs)

Insurance corporations (IC)

S.128

S.12801

S.12802

S.12803

Pension funds (PF)

S.129

S.12901

S.12902

S.12903

Central bank (S.121)

2.72

Definition: the central bank subsector (S.121) consists of all financial corporations and quasi-corporations whose principal function is to issue currency, to maintain the internal and external value of the currency and to hold all or part of the international reserves of the country.

2.73

The following financial intermediaries are classified in subsector S.121:

(a)

the national central bank, including when it is part of a European system of central banks;

(b)

central monetary agencies of essentially public origin (e.g. agencies managing foreign exchange or issuing currency) which keep a complete set of accounts and enjoy autonomy of decision in relation to central government. When these activities are performed either within central government or within the central bank, no separate institutional units exist.

2.74

Subsector S.121 does not include agencies and bodies, other than the central bank, which regulate or supervise financial corporations or financial markets. They are classified in subsector S.126.

Deposit-taking corporations except the central bank (S.122)

2.75

Definition: the deposit-taking corporations except the central bank subsector (S.122) includes all financial corporations and quasi-corporations, except those classified in the central bank and in the MMF subsectors, which are principally engaged in financial intermediation and whose business is to receive deposits and/or close substitutes for deposits from institutional units, hence not only from MFIs, and, for their own account, to grant loans and/or to make investments in securities.

2.76

Deposit-taking corporations except the central bank cannot be described simply as ‧banks‧, because they may include some financial corporations which do not call themselves banks, or some financial corporations which are not permitted to do so in some countries, while some other financial corporations describing themselves as banks may not in fact be deposit-taking corporations. The following financial intermediaries are classified in sub-sector S.122:

(a)

commercial banks, ‧universal‧ banks, ‧all-purpose‧ banks;

(b)

savings banks (including trustee savings banks and savings banks and loan associations);

(c)

post office giro institutions, post banks, giro banks;

(d)

rural credit banks, agricultural credit banks;

(e)

cooperative credit banks, credit unions;

(f)

specialised banks (e.g. merchant banks, issuing houses, private banks); and

(g)

electronic money institutions principally engaged in financial intermediation.

2.77

The following financial intermediaries are classified in subsector S.122 where it is their business to receive repayable funds from the public, whether in the form of deposits or in other forms such as the continuing issue of long-term debt securities:

(a)

corporations engaged in granting mortgages (including building societies, mortgage banks and mortgage credit institutions);

(b)

municipal credit institutions.

Otherwise, financial intermediaries are classified in subsector S.124.

2.78

Subsector S.122 does not include:

(a)

head offices which oversee and manage other units of a group consisting predominantly of deposit-taking corporations except the central bank, but which are not deposit-taking corporations. Such head offices are classified in subsector S.126;

(b)

non-profit institutions recognised as independent legal entities serving deposit-taking corporations, but not engaged in financial intermediation. They are classified in subsector S.126; and

(c)

electronic money institutions not principally engaged in financial intermediation.

MMF (S.123)

2.79

Definition: the MMF subsector (S.123) consists of all financial corporations and quasi-corporations, except those classified in the central bank and in the credit institutions subsectors, which are principally engaged in financial intermediation. Their business is to issue investment fund shares or units as close substitutes for deposits from institutional units, and, for their own account, to make investments primarily in money market fund shares/units, short-term debt securities, and/or deposits.

2.80

The following financial intermediaries are classified in subsector S.123: investment funds including investment trusts, unit trusts and other collective investment schemes whose shares or units are close substitutes for deposits.

2.81

Subsector S.123 does not include:

(a)

head offices which oversee and manage a group consisting predominantly of MMFs, but which are not MMFs themselves. They are classified in subsector S.126;

(b)

non-profit institutions recognised as independent legal entities serving MMFs, but not engaged in financial intermediation. They are classified in subsector S.126.

Non-MMF investment funds (S.124)

2.82

Definition: the non-MMF investment funds subsector (S.124) consists of all collective investment schemes, except those classified in the MMF subsector, which are principally engaged in financial intermediation. Their business is to issue investment fund shares or units which are not close substitutes for deposits, and, on their own account, to make investments primarily in financial assets other than short-term financial assets and in non-financial assets (usually real estate).

2.83

Non-MMF investment funds cover investment trusts, unit trusts and other collective investment schemes whose investment fund shares or units are not seen as close substitutes for deposits.

2.84

The following financial intermediaries are classified in subsector S.124:

(a)

open-ended investment funds whose investment fund shares or units are, at the request of the holders, repurchased or redeemed directly or indirectly out of the undertaking's assets;

(b)

closed-ended investment funds with a fixed share capital, where investors entering or leaving the fund must buy or sell existing shares;

(c)

real estate investment funds;

(d)

investment funds investing in other funds (‧funds of funds‧);

(e)

hedge funds covering a range of collective investment schemes, involving high minimum investments, light regulation, and a range of investment strategies.

2.85

Subsector S.124 does not include:

(a)

pension funds which are part of the pension funds subsector;

(b)

special purpose government funds, called sovereign wealth funds. A special purpose government fund is classified as captive financial institution if it is a financial corporation. The classification of a ‧special purpose government fund‧ either as part of general government sector or as part of the financial corporation sector shall be determined according to the criteria concerning special purpose units of general government set out in paragraph 2.27;

(c)

head offices which oversee and manage a group consisting predominantly of non-MMF investment funds, but which are not investment funds themselves. They are classified in subsector S.126;

(d)

non-profit institutions recognised as independent legal entities serving non-MMF investment funds, but not engaged in financial intermediation. They are classified in subsector S.126.

Other financial intermediaries, except insurance corporations and pension funds (S.125)

2.86

Definition: the other financial intermediaries, except insurance corporations and pension funds subsector (S.125) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation by incurring liabilities in forms other than currency, deposits, or investment fund shares, or in relation to insurance, pension and standardised guarantee schemes from institutional units.

2.87

Subsector S.125 includes financial intermediaries predominantly engaged in long-term financing. In most cases, this predominant maturity distinguishes that subsector from the OMFI subsectors (S.122 and S.123). Based on the non-existence of liabilities in the form of investment fund shares which are not seen as close substitutes for deposits or insurance, pension and standardised guarantee schemes, the borderline with the non-MMF investment funds (S.124), the insurance corporations (S.128), and the pension funds (S.129) subsectors can be determined.

2.88

The other financial intermediaries, except insurance corporations and pension funds subsector (S.125) is further subdivided into subsectors consisting of financial vehicle corporations engaged in securitisation transactions (FVC), security and derivative dealers, financial corporations engaged in lending, and specialised financial corporations. This is shown in Table 2.4.

Table 2.4 —   Other financial intermediaries, except insurance corporations and pension funds subsector (S.125) and its subdivisions

Other financial intermediaries, except insurance corporations and pension funds

Financial vehicle corporations engaged in securitisation transactions (FVC);

Security and derivative dealers;

Financial corporations engaged in lending; and

Specialised financial corporations

2.89

Subsector S.125 does not include non-profit institutions recognised as independent legal entities serving other financial intermediaries, but not engaged in financial intermediation. They are classified in subsector S.126.

Financial vehicle corporations engaged in securitisation transactions (FVC)

2.90

Definition: financial vehicle corporations engaged in securitisation transactions (FVC) are undertakings carrying out securitisation transactions. FVC that satisfy the criteria of an institutional unit are classified in S.125, otherwise they are treated as an integral part of the parent.

Security and derivative dealers, financial corporations engaged in lending and specialised financial corporations

2.91

Security and derivative dealers (on own account) are financial intermediaries on own account.

2.92

Financial corporations engaged in lending include for example financial intermediaries engaged in:

(a)

financial leasing;

(b)

hire purchase and the provision of personal or commercial finance; or

(c)

factoring.

2.93

Specialised financial corporations are financial intermediaries, for example:

(a)

venture and development capital companies;

(b)

export/import financing companies; or

(c)

financial intermediaries which acquire deposits and/or close substitutes for deposits, or incur loans vis-à-vis monetary financial institutions only; these financial intermediaries cover also central counterparty clearing houses (CCPs) carrying out inter-MFI repurchase agreement transactions.

2.94

Head offices which oversee and manage a group of subsidiaries principally engaged in financial intermediation and/or in auxiliary financial activities are classified in subsector S.126.

Financial auxiliaries (S.126)

2.95

Definition: the financial auxiliaries subsector (S.126) consists of all financial corporations and quasi-corporations which are principally engaged in activities closely related to financial intermediation but which are not financial intermediaries themselves.

2.96

The following financial corporations and quasi-corporations are classified in subsector S.126:

(a)

insurance brokers, salvage and average administrators, insurance and pension consultants, etc.;

(b)

loan brokers, securities brokers, investment advisers, etc.;

(c)

flotation corporations that manage the issue of securities;

(d)

corporations whose principal function is to guarantee, by endorsement, bills and similar instruments;

(e)

corporations which arrange derivative and hedging instruments, such as swaps, options and futures (without issuing them);

(f)

corporations providing infrastructure for financial markets;

(g)

central supervisory authorities of financial intermediaries and financial markets when they are separate institutional units;

(h)

managers of pension funds, mutual funds, etc.;

(i)

corporations providing stock exchange and insurance exchange;

(j)

non-profit institutions recognised as independent legal entities serving financial corporations, but not engaged in financial intermediation (see point (d) of paragraph 2.46);

(k)

payment institutions (facilitating payments between buyer and seller).

2.97

Subsector S.126 also includes head offices whose subsidiaries are all or mostly financial corporations.

Captive financial institutions and money lenders (S.127))

2.98

Definition: the captive financial institutions and money lenders subsector (S.127) consists of all financial corporations and quasi-corporations which are neither engaged in financial intermediation nor in providing financial auxiliary services, and where most of either their assets or their liabilities are not transacted on open markets.

2.99

In particular, the following financial corporations and quasi-corporations are classified in subsector S.127:

(a)

units as legal entities such as trusts, estates, agencies accounts or ‧brass plate‧ companies;

(b)

holding companies that hold controlling-levels of equity of a group of subsidiary corporations and whose principal activity is owning the group without providing any other service to the businesses in which the equity is held, that is, they do not administer or manage other units;

(c)

SPEs that qualify as institutional units and raise funds in open markets to be used by their parent corporation;

(d)

units which provide financial services exclusively with own funds, or funds provided by a sponsor, to a range of clients and incur the financial risk of the debtor defaulting. Examples are money lenders, corporations engaged in lending to students or for foreign trade from funds received from a sponsor such as a government unit or a non-profit institution, and pawnshops that predominantly engage in lending;

(e)

special purpose government funds, usually called sovereign wealth funds, if classified as financial corporations.

Insurance corporations (S.128)

2.100

Definition: the insurance corporations subsector (S.128) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation as a consequence of the pooling of risks mainly in the form of direct insurance or reinsurance (see paragraph 2.59).

2.101

Insurance corporations provide services of:

(a)

life and non-life insurance to individual units or groups of units;

(b)

reinsurance to other insurance corporations.

2.102

Services of non-life insurance corporations may be provided in the form of insurance against the following:

(a)

fire (e.g. commercial and private property);

(b)

liability (casualty);

(c)

motor (own damage and third party liability);

(d)

marine, aviation and transport (including energy risks);

(e)

accident and health; or

(f)

financial insurance (provision of guarantees or surety bonds).

Financial insurance or credit insurance corporations, also called guarantee banks, provide guarantees or surety bonds to back securitisation and other credit products.

2.103

Insurance corporations are mainly incorporated or mutual entities. Incorporated entities are owned by shareholders and many are listed on stock exchanges. Mutuals are owned by their policyholders and return their profits to the ‧with profits‧ or ‧participating‧ policyholders through dividends or bonuses. ‧Captive‧ insurers are normally owned by a non-financial corporation and mostly insure the risks of their shareholders.

Box 2.1 —   Types of insurance

Type of insurance

Sector/subsector

Direct insurance

Life insurance

Policyholder makes regular or one-off payments to an insurer in return for which the insurer guarantees to provide the policyholder with an agreed sum, or an annuity, at a given date or earlier.

Insurance corporations

Non-life insurance

Insurance to cover risks like accidents, sickness, fire, credit, etc.

Insurance corporations

Reinsurance

Insurance bought by an insurer to protect himself against an unexpectedly large number of claims or exceptionally heavy claims.

Insurance corporations

Social insurance

Social security

The participants are obliged by general government to insure against certain social risks.

Social security pensions

Social security funds

Other social security

Employment related social insurance other than social security

Employers can make it a condition of employment that employees insure against certain social risks.

Employment related pensions

Sector of employer, insurance corporations and pension funds or non-profit institutions serving households

Other employment related social insurance

2.104

Subsector S.128 does not include:

(a)

institutional units which fulfil each of the two criteria listed in paragraph 2.117. They are classified in sub-sector S.1314;

(b)

head offices which oversee and manage a group consisting predominantly of insurance corporations, but which are not insurance corporations themselves. They are classified in sub-sector S.126;

(c)

non-profit institutions recognised as independent legal entities serving insurance corporations, but not engaged in financial intermediation. They are classified in subsector S.126.

Pension funds (S.129)

2.105

Definition: the pension funds subsector (S.129) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation as the consequence of the pooling of social risks and needs of the insured persons (social insurance). Pension funds as social insurance schemes provide income in retirement, and often benefits for death and disability.

2.106

Subsector S.129 consists of only those social insurance pension funds that are institutional units separate from the units that create them. Such autonomous funds have autonomy of decision and keep a complete set of accounts. Non-autonomous pension funds are not institutional units and remain part of the institutional unit that sets them up.

2.107

Examples of participants in pension fund schemes include employees of a single enterprise or a group of enterprises, employees of a branch or industry, and persons having the same profession. The benefits included in the insurance contract can be:

(a)

paid after the death of the insured to the widow(er) and children;

(b)

paid after retirement; or

(c)

paid after the insured becomes disabled.

2.108

In some countries, all those types of risks can be insured by life insurance corporations as well as through pension funds. In other countries, it is required that some of those classes of risks are insured through life insurance corporations. In contrast to life insurance corporations, pension funds are restricted by law to specified groups of employees and self-employed.

2.109

Pension fund schemes may be organised by employers or by general government. They may also be organised by insurance corporations on behalf of employees; or separate institutional units may be established to hold and manage the assets to be used to meet the pension entitlements and to distribute the pensions.

2.110

Subsector S.129 does not include:

(a)

institutional units which fulfil each of the two criteria listed in paragraph 2.117. They are classified in subsector S.1314;

(b)

head offices which oversee and manage a group consisting predominantly of pension funds, but which are not pension funds themselves. They are classified in subsector S.126;

(c)

non-profit institutions recognised as independent legal entities serving pension funds, but not engaged in financial intermediation. They are classified in subsector S.126.

General government (S.13)

2.111

Definition: the general government sector (S.13) consists of institutional units which are non-market producers whose output is intended for individual and collective consumption, and are financed by compulsory payments made by units belonging to other sectors, and institutional units principally engaged in the redistribution of national income and wealth.

2.112

The institutional units included in sector S.13 are for example the following:

(a)

general government units which exist through a legal process to have judicial authority over other units in the economic territory, and administer and finance a group of activities, principally providing non-market goods and services, intended for the benefit of the community;

(b)

a corporation or quasi-corporation which is a government unit, if its output is mainly non-market and a government unit controls it;

(c)

non-profit institutions recognised as independent legal entities which are non-market producers and which are controlled by general government;

(d)

autonomous pension funds, where there is a legal obligation to contribute, and where general government manages the funds with respect to the settlement and approval of contributions and benefits.

2.113

The general government sector is divided into four subsectors:

(a)

central government (excluding social security funds) (S.1311);

(b)

state government (excluding social security funds) (S.1312);

(c)

local government (excluding social security funds) (S.1313);

(d)

social security funds (S.1314).

Central government (excluding social security funds) (S.1311)

2.114

Definition: this subsector includes all administrative departments of the state and other central agencies whose competence extends normally over the whole economic territory, except for the administration of social security funds.

Included in subsector S.1311 are those non-profit institutions which are controlled by central government and whose competence extends over the whole economic territory.

Market regulatory organisations which are either exclusively or principally distributors of subsidies are classified in S.1311. Those organisations which are exclusively or principally engaged in buying, holding and selling agricultural or food products are classified in S.11.

State government (excluding social security funds) (S.1312)

2.115

Definition: this subsector consists of those types of public administration which are separate institutional units exercising some of the functions of government, except for the administration of social security funds, at a level below that of central government and above that of the governmental institutional units existing at local level.

Included in subsector S.1312 are those non-profit institutions which are controlled by state governments and whose competence is restricted to the economic territories of the states.

Local government (excluding social security funds) (S.1313)

2.116

Definition: this subsector includes those types of public administration whose competence extends to only a local part of the economic territory, apart from local agencies of social security funds.

Included in subsector S.1313 are those non-profit institutions which are controlled by local governments and whose competence is restricted to the economic territories of the local governments.

Social security funds (S.1314)

2.117

Definition: the social security funds subsector includes central, state and local institutional units whose principal activity is to provide social benefits and which fulfil each of the following two criteria:

(a)

by law or by regulation certain groups of the population are obliged to participate in the scheme or to pay contributions; and

(b)

general government is responsible for the management of the institution in respect of the settlement or approval of the contributions and benefits independently from its role as supervisory body or employer.

There is usually no direct link between the amount of the contribution paid by an individual and the risk to which that individual is exposed.

Households (S.14)

2.118

Definition: the households sector (S.14) consists of individuals or groups of individuals as consumers and as entrepreneurs producing market goods and non-financial and financial services (market producers) provided that the production of goods and services is not by separate entities treated as quasi-corporations. It also includes individuals or groups of individuals as producers of goods and non-financial services for exclusively own final use.

Households as consumers may be defined as small groups of persons who share the same living accommodation, who pool their income and wealth and who consume certain types of goods and services collectively, mainly housing and food.

The principal resources of households are the following:

(a)

the compensation of employees;

(b)

property income;

(c)

transfers from other sectors;

(d)

receipts from the disposal of market products; and

(e)

imputed receipts from the output of products for own final consumption.

2.119

The households sector includes:

(a)

individuals or groups of individuals whose principal function is consumption;

(b)

persons living permanently in institutions who have little or no autonomy of action or decision in economic matters (e.g. members of religious orders living in monasteries, long-term patients in hospitals, prisoners serving long sentences, old persons living permanently in retirement homes). Such people are treated as a single institutional unit: a single household;

(c)

individuals or groups of individuals whose principal function is consumption and that produce goods and non-financial services for exclusively own final use; only two categories of services produced for own final consumption are included within the system: services of owner-occupied dwellings and domestic services produced by paid employees;

(d)

sole proprietorships and partnerships without legal status, other than those treated as quasi-corporations, and which are market producers; and

(e)

non-profit institutions serving households, which do not have independent legal status, or those which do but which are of only minor importance.

2.120

In the ESA 2010, the households sector is subdivided into the following subsectors:

(a)

employers (S.141) and own-account workers (S.142);

(b)

employees (S.143);

(c)

recipients of property income (S.1441);

(d)

recipients of pensions (S.1442);

(e)

recipients of other transfers (S.1443).

2.121

Households are allocated to subsectors according to the largest income category (employers' income, compensation of employees, etc.) of the household as a whole. When more than one income of a given category is received within the same household, the classification is based on the total household income within each category.

Employers and own-account workers (S.141 and S.142)

2.122

Definition: the employers and own-account workers subsector consists of the group of households for which the (mixed) incomes (B.3) accruing to the owners of household unincorporated enterprises from their activity as producers of market goods and services with or without paid employees are the largest source of income for the household as a whole, even if it does not account for more than half of total household income.

Employees (S.143)

2.123

Definition: the employees subsector consists of the group of households for which the income accruing from compensation of employees (D.1) is the largest source of income for the household as a whole.

Recipients of property income (S.1441)

2.124

Definition: the recipients of property income subsector consists of the group of households for which property income (D.4) is the largest source of income for the household as a whole.

Recipients of pensions (S.1442)

2.125

Definition: the recipients of pensions subsector consists of the group of households for which the income accruing from pensions is the largest source of income for the household as a whole.

Pension households are households whose largest source of income consists of retirement or other pensions, including pensions from previous employers.

Recipients of other transfers (S.1443)

2.126

Definition: the recipients of other transfers subsector consists of the group of households for which the income accruing from other current transfers is the largest source of income for the household as a whole.

Other current transfers are all current transfers other than property income, pensions and income of persons living permanently in institutions.

2.127

If information on the relative contributions of the sources of income of the household as a whole is not available for sectoring purposes, the income of the reference person is used for classifying purposes. The reference person of a household is the person with the largest income. If the latter information is not available, the income of the person who states that he/she is the reference person is used for subsectoring households.

2.128

Other criteria for subsectoring households can be used, e.g. breakdown of households as entrepreneurs by activity: agricultural households and non-agricultural households.

Non-profit institutions serving households (S.15)

2.129

Definition: the non-profit institutions serving households (NPISHs) sector (S.15) consists of non-profit institutions which are separate legal entities, which serve households and which are private non-market producers. Their principal resources are voluntary contributions in cash or in kind from households in their capacity as consumers, from payments made by general government and from property income.

2.130

Where such institutions are not very important, they are not included in the NPISH sector, but in the households sector (S.14), as their transactions are indistinguishable from units in that sector. Non-market NPISHs controlled by general government are classified in the general government sector (S.13).

The NPISHs sector includes the following main kinds of NPISHs that provide non-market goods and services to households:

(a)

trade unions, professional or learned societies, consumers' associations, political parties, churches or religious societies (including those financed but not controlled by governments), and social, cultural, recreational and sports clubs; and

(b)

charities, relief and aid organisations financed by voluntary transfers in cash or in kind from other institutional units.

Sector S.15 includes charities, relief or aid agencies serving non-resident units and excludes entities where membership gives a right to a predetermined set of goods and services.

Rest of the world (S.2)

2.131

Definition: the rest of the world sector (S.2) is a grouping of units without any characteristic functions and resources; it consists of non-resident units insofar as they are engaged in transactions with resident institutional units, or have other economic links with resident units. Its accounts provide an overall view of the economic relationships linking the national economy with the rest of the world. The institutions of the EU and international organisations are included.

2.132

The rest of the world is not a sector for which complete sets of accounts have to be kept, but it is convenient to treat the rest of the world as a sector. Sectors are obtained by disaggregating the total economy to obtain more homogeneous groups of resident institutional units, which are similar in respect to their economic behaviour, objectives and functions. This is not the case for the rest of the world sector: for this sector, there are recorded the transactions and other flows of non-financial and financial corporations, non-profit institutions, households and general government with non-resident institutional units and other economic relationships between residents and non-residents, e.g. claims by residents on non-residents.

2.133

The accounts for the rest of the world include only transactions carried out between resident institutional units and non-resident units, subject to the following exceptions:

(a)

the services of transport (up to the border of the exporting country) provided by resident units in respect of imported goods are shown in the rest of the world accounts with FOB imports, even though they are produced by resident units;

(b)

transactions in foreign assets between residents belonging to different sectors in the domestic economy are shown in the detailed financial accounts for the rest of the world. These transactions do not affect the country's financial position vis-à-vis the rest of the world; they affect the financial relationships of individual sectors with the rest of the world;

(c)

transactions in the country's liabilities between non-residents belonging to different geographical zones are shown in the geographical breakdown of the rest of the world accounts. Although these transactions do not affect the country's overall liability to the rest of the world, they affect its liabilities to different parts of the world.

2.134

The rest of the world sector (S.2) is subdivided into:

(a)

Member States and institutions and bodies of the European Union (S.21):

(1)

Member States of the European Union (S.211);

(2)

Institutions and bodies of the European Union (S.212);

(b)

non-member countries and international organisations non-resident of EU (S.22).

Sector classification of producer units for main standard legal forms of ownership

2.135

The following overview and paragraphs 2.31 to 2.44 summarise the principles underlying the classification of producer units into sectors, using the standard terminology for describing the main types of institutions.

2.136

Private and public corporations which are market producers are classified as follows:

(a)

those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b)

those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations).

2.137

Cooperatives and partnerships which are recognised as independent legal entities and are market producers are classified as follows:

(a)

those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b)

those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations).

2.138

Public producers which by virtue of special legislation are recognised as independent legal entities and which are market producers are classified as follows:

(a)

those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b)

those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations).

2.139

Public producers which are not recognised as independent legal entities and are market producers are classified as follows:

(a)

If they are quasi-corporations:

(1)

those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(2)

those principally engaged in financial intermediation and financial auxiliary activities: in sector S.12 (financial corporations).

(b)

If they are not quasi-corporations: in sector S.13 (general government), as they remain an integral part of the units which control them.

2.140

Non-profit institutions (associations and foundations) recognised as independent legal entities are classified as follows:

(a)

those which are market producers and principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(b)

those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12 (financial corporations);

(c)

those which are non-market producers:

(1)

in sector S.13 (general government), if they are public producers controlled by general government;

(2)

in sector S.15 (non-profit institutions serving households), if they are private producers.

2.141

Sole proprietorships and partnerships which are not recognised as independent legal entities and are market producers are classified as follows:

(a)

If they are quasi-corporations:

(1)

those principally engaged in the production of goods and non-financial services: in sector S.11 (non-financial corporations);

(2)

those principally engaged in financial intermediation and financial auxiliary activities: in sector S.12 (financial corporations).

(b)

If they are not quasi-corporations, they are classified in sector S.14 (households).

2.142

Head offices are classified as follows:

(a)

in sector S.11 (non-financial corporations), if the preponderant type of activity of the group of corporations which are market producers as a whole is the production of goods and non-financial services (see point (e) of paragraph 2.46);

(b)

in sector S.12 (financial corporations), if the preponderant type of activity of the group of corporations as a whole is financial intermediation (see point (e) of paragraph 2.65).

Holding companies which are holders of assets of a group of subsidiary corporations are always treated as financial corporations. Holding companies hold the assets of a group of companies, but do not undertake any management activities with respect to the group.

2.143

Table 2.5 shows in schematic form the various cases enumerated above.

Table 2.5 —   Sector classification of producer units for main standard legal forms of ownership

Type of producer

Standard legal description

Market producers (goods and non-financial services)

Market producers (financial intermediation)

Non-market producers

Public producers

Private producers

Private and public corporations

S.11 non-financial corporations

S.12 financial corporations

 

 

Cooperatives and partnerships recognised as independent legal entities

S.11 non-financial corporations

S.12 financial corporations

 

 

Public producers which by virtue of special legislation are recognised as independent legal entities

S.11 non-financial corporations

S.12 financial corporations

 

 

Public producers not recognised as independent legal entities

Those with the characteristics of quasi-corporations

S.11 non-financial corporations

S.12 financial corporations

 

 

The rest

 

 

S.13 general government

 

Non-profit institutions recognised as independent legal entities

S.11 non-financial corporations

S.12 financial corporations

S.13 general government

S.15 non-profit institutions serving households

Partnerships not recognised as independent legal entities

Sole proprietorships

Those with the characteristics of quasi-corporations

S.11 non-financial corporations

S.12 financial corporations

 

 

The rest

S.14 households

S.14 households

 

 

Head offices whose preponderant type of activity of the group of corporations controlled by them is the production of:

goods and non-financial services

S.11 non-financial corporations

 

 

 

financial services

 

S.12 financial corporations

 

 

LOCAL KIND-OF-ACTIVITY UNITS AND INDUSTRIES

2.144

Most institutional units producing goods and services are engaged in a combination of activities at the same time. They may be engaged in a principal activity, some secondary activities and some ancillary activities.

2.145

An activity occurs when resources such as equipment, labour, manufacturing techniques, information networks or products are combined, leading to the creation of specific goods or services. An activity is characterised by an input of products, a production process and an output of products.

Activities can be determined by reference to a specific level of NACE Rev. 2.

2.146

If a unit carries out more than one activity, all the activities which are not ancillary activities (see Chapter 3, paragraph 3.12) are ranked according to the gross value added. On the basis of the preponderant gross value added generated, a distinction can then be made between principal activity and secondary activities.

2.147

In order to analyse flows occurring in the process of production and in the use of goods and services, it is necessary to choose units which emphasise relationships of a technico-economic kind. This requirement means that institutional units must be partitioned into smaller and more homogeneous units with regard to the kind of production. Local kind-of-activity units are intended to meet this requirement as an operational approach.

The local kind-of-activity unit

2.148

Definition: the local kind-of-activity unit (local KAU) is the part of a kind-of-activity unit (KAU) which corresponds to a local unit. The local KAU is called establishment in the 2008 SNA and ISIC Rev. 4. A KAU groups all the parts of an institutional unit in its capacity as producer contributing to the performance of an activity at class level (four digits) of the NACE Rev. 2 and corresponds to one or more operational subdivisions of the institutional unit. The institutional unit's information system must be capable of indicating or calculating for each local KAU at least the value of production, intermediate consumption, compensation of employees, the operating surplus and employment and gross fixed capital formation.

The local unit is an institutional unit, or part of an institutional unit, producing goods or services situated in a geographically identified place.

A local KAU may correspond to an institutional unit as producer; on the other hand, it can never belong to two different institutional units.

2.149

If an institutional unit producing goods or services contains a principal activity and also one or several secondary activities, it is subdivided into the same number of KAUs, and the secondary activities are classified under different headings from the principal activity. The ancillary activities are not separated from the principal or secondary activities. But KAUs falling within a particular heading of the classification system can produce products outside the homogeneous group on account of secondary activities connected with them which cannot be separately identified from available accounting documents. Thus a KAU may carry out one or more secondary activities.

Industries

2.150

Definition: an industry consists of a group of local KAUs engaged in the same, or similar, kind-of-activity. At the most detailed level of classification, an industry consists of all the local KAUs falling within a single class (four digits) of NACE Rev. 2 and which are therefore engaged in the same activity as defined in the NACE Rev. 2.

Industries comprise both local KAUs producing market goods and services and local KAUs producing non-market goods and services. An industry by definition consists of a group of local KAUs engaged in the same type of productive activity, irrespective of whether or not the institutional units to which they belong produce market or non-market output.

2.151

Industries are classified in three categories:

(a)

industries producing market goods and services (market industries) and goods and services for own final use. Services for own final use are housing services produced by owner-occupiers, and domestic services produced by employing paid staff;

(b)

industries producing non-market goods and services of general government: non-market industries of general government;

(c)

industries producing non-market goods and services of non-profit institutions serving households: non-market industries of non-profit institutions serving households.

Classification of industries

2.152

The classification used for grouping local KAUs into industries is the NACE Rev. 2.

UNITS OF HOMOGENEOUS PRODUCTION AND HOMOGENEOUS BRANCHES

2.153

For analysis of the production process, the unit best suited to this analysis is the unit of homogeneous production. This unit has a unique activity defined by its inputs, process of production, and outputs.

The unit of homogeneous production

2.154

Definition: a unit of homogeneous production carries out a unique activity which is identified by its inputs, process of production, and its outputs. The products which constitute the inputs and outputs are themselves distinguished by their physical characteristics, the extent to which they are processed and the technique of production used. They can be identified by a classification of products (classification of products by activity — CPA). The CPA is a product classification the elements of which are structured according to the industrial origin criterion, industrial origin being defined by NACE Rev. 2.

The homogeneous branch

2.155

Definition: the homogeneous branch consists of a grouping of units of homogeneous production. The set of activities covered by a homogeneous branch is identified by reference to a product classification. The homogeneous branch produces those goods or services specified in the classification and only those products.

2.156

Homogeneous branches are units designed for economic analysis. Units of homogeneous production cannot usually be observed directly; data collected from the units used in statistical enquiries have to be re-arranged to form homogeneous branches.

 

CHAPTER 3

TRANSACTIONS IN PRODUCTS AND NON-PRODUCED ASSETS

TRANSACTIONS IN PRODUCTS IN GENERAL

3.01

Definition: products are all goods and services that are created within the production boundary. Production is defined in paragraph 3.07.

3.02

The following main categories of transactions in products are distinguished in the ESA:

Transaction categories

Code

Output

P.1

Intermediate consumption

P.2

Final consumption expenditure

P.3

Actual final consumption

P.4

Gross capital formation

P.5

Exports of goods and services

P.6

Imports of goods and services

P.7

3.03

Transactions in products are recorded as follows:

(a)

in the goods and services account, output and imports are recorded as resources and the other transactions in products are recorded as uses;

(b)

in the production account, output is recorded as a resource and intermediate consumption is recorded as a use; gross value added is the balancing item of these two transactions in products;

(c)

in the use of disposable income account, final consumption expenditure is recorded as a use;

(d)

in the use of adjusted disposable income account, actual final consumption is recorded as a use;

(e)

in the capital account, gross capital formation is recorded as a use (a change in non-financial assets);

(f)

in the external account of goods and services, imports of goods and services are recorded as a resource, and exports of goods and services are registered as uses.

Many major balancing items in the accounts, like value added, gross domestic product, national income and disposable income, are defined in terms of transactions in products. The definition of transactions in products defines those balancing items.

3.04

In the supply table (see paragraph 1.136), output and imports are recorded as supplies. In the use table, intermediate consumption, gross capital formation, final consumption expenditure and exports are registered as uses. In the symmetric input-output table, output and imports are recorded as supplies and the other transactions in products as uses.

3.05

Supplies of products are valued at basic prices (see paragraph 3.44). Uses of products are valued at purchasers' prices (see paragraph 3.06). For some types of supplies and uses, e.g. for imports and exports of goods, more specific valuation principles are used.

3.06

Definition:

The purchaser's price is the price the purchaser pays for the products. The purchaser's price includes the following:

(a)

taxes less subsidies on the products (but excluding deductible taxes like VAT on the products);

(b)

transport charges paid separately by the purchaser to take delivery at the required time and place;

(c)

deductions for any discounts for bulk or off-peak-purchases from standard prices or charges.

The purchaser's price excludes the following:

(a)

interest or services charges added under credit arrangements;

(b)

extra charges incurred as a result of late payment, where late payment means failing to pay within the period stated at the time the purchases were made.

If the time of use does not coincide with the time of purchase, adjustments are made to the value to take account of the changes in price due to the lapsing of time (in a manner symmetrical with changes in the prices of the inventories). Such modifications are important if the prices of the products involved change significantly within a year.

PRODUCTION AND OUTPUT

3.07

Definition: production is an activity carried out under the control, responsibility and management of an institutional unit that uses inputs of labour, capital and goods and services to produce outputs of goods and services.

Production does not cover natural processes which have no human involvement or direction, such as the unmanaged growth of fish stocks in international waters, but production does include fish farming.

3.08

Production includes:

(a)

the production of all individual or collective goods and services that are supplied to units other than their producers;

(b)

the own-account production of all goods that are retained by their producers for their own final consumption or gross fixed capital formation.

Examples of own-account production for gross fixed capital formation are the production of fixed assets such as construction, the development of software and mineral exploration for own gross fixed capital formation. The concept of gross fixed capital formation is described in paragraphs 3.124-3.138.

Own-account production of goods by households pertains in general to:

(1)

own-account construction of dwellings;

(2)

the production and storage of agricultural products;

(3)

the processing of agricultural products, like the production of flour by milling, the preservation of fruit by drying and bottling, the production of dairy products like butter and cheese and the production of beer, wine and spirits;

(4)

the production of other primary products, like mining salt, cutting peat and carrying water;

(5)

other kinds of processing, like weaving cloth, the production of pottery and making furniture;

(c)

the own-account production of dwelling services by owner-occupiers;

(d)

domestic and personal services produced by employing paid domestic staff;

(e)

volunteer activities that result in goods. Examples of such activities are the construction of a dwelling, church or other building. Volunteer activities that do not result in goods, e.g. care-taking and cleaning without payment, are excluded.

The activities listed above in points (a) to (e) are included as production irrespective of being illegal or not-registered at tax, social security, statistical and other public authorities.

Own-account production of goods by households is recorded when this type of production is significant, i.e. when it is quantitatively important in relation to the total supply of that good in a country.

The only own-account production of goods by households included is the construction of dwellings, and the production, storage and processing of agricultural products.

3.09

Production excludes the production of domestic and personal services that are produced and consumed within the same household. Examples of domestic services produced by households themselves that are excluded are:

(a)

cleaning, decoration and maintenance of the dwelling as far as these activities are also common for tenants;

(b)

cleaning, servicing and repair of household durables;

(c)

preparation and serving of meals;

(d)

care, training and instruction of children;

(e)

care of sick, infirm or old people; and

(f)

transportation of members of the household or their goods.

Domestic and personal services produced by employing paid domestic staff and the services of owner-occupied dwellings are included in production.

Principal, secondary and ancillary activities

3.10

Definition: the principal activity of a local KAU is the activity where the value added of such activity exceeds that of any other activity carried out within the same unit. The classification of the principal activity is determined by reference to NACE rev. 2, first at the highest level of the classification and then at more detailed levels.

3.11

Definition: a secondary activity is an activity carried out within a single local KAU in addition to the principal activity. The output of the secondary activity is a secondary product.

3.12

Definition: an ancillary activity is an activity whose output is intended for use within an enterprise.

An ancillary activity is a supporting activity undertaken within an enterprise in order to enable the principal or secondary activities of local KAUs to be carried out. All inputs consumed by an ancillary activity — materials, labour, consumption of fixed capital, etc. — are treated as inputs into the principal or secondary activity which it supports.

Examples of ancillary activities are:

(a)

purchasing;

(b)

sales;

(c)

marketing;

(d)

accounting;

(e)

data processing;

(f)

transportation;

(g)

storage;

(h)

maintenance;

(i)

cleaning; and

(j)

security services.

Enterprises have a choice between engaging in ancillary activities and purchasing such services on the market from specialist service producers.

Own-account capital formation is not an ancillary activity.

3.13

Ancillary activities are not isolated to form distinct entities or separated from the principal or secondary activities or entities they serve. Accordingly, ancillary activities must be integrated with the local KAU they serve.

Ancillary activities may be carried out in separate locations, located in a region other than the local KAU they serve. The strict application of the rule referred to in the first subparagraph for the geographical allocation of the ancillary activities would result in the underestimation of the aggregates in the regions where ancillary activities are concentrated. In accordance, therefore, with the principle of residence, ancillary activities have to be allocated to the region where they are situated; they remain in the same industry as the local KAU they serve.

Output (P.1)

3.14

Definition: output is the total of products created during the accounting period.

Examples of output include the following:

(a)

the goods and services which one local KAU provides to a different local KAU belonging to the same institutional unit;

(b)

the goods produced by a local KAU that remain in inventories at the end of the period in which they are produced, whatever their subsequent use. Goods and services produced and consumed within the same accounting period and within the same local KAU are not separately identified. They are not recorded as part of the output or intermediate consumption of that local KAU.

3.15

When an institutional unit contains more than one local KAU, the output of the institutional unit is the sum of the outputs of its component local KAUs, including outputs delivered between the component local KAUs.

3.16

Three types of output are distinguished in the ESA 2010:

(a)

market output (P.11);

(b)

output produced for own final use (P.12);

(c)

non-market output (P.13).

This distinction is also applied to local KAUs and institutional units:

(a)

market producers;

(b)

producers for own final use;

(c)

non-market producers.

The distinction between market, for own final use and non-market is fundamental in view of the following:

(a)

it affects the valuation of output and related concepts, such as value added, gross domestic product and final consumption expenditure by the government and NPISH;

(b)

it affects the classification of institutional units by sector, e.g. which units are included in the sector general government and which are not.

The distinction determines the valuation principles to be applied to output. Market output and output produced for own final use are valued at basic prices. The total output of non-market producers is valued by summing the costs of production. The output of an institutional unit is valued as the sum of the outputs of its local KAUs and depends thus also on the distinction between market, for own final use and non-market.

The distinction is also used to classify institutional units by sector. Non-market producers are classified in the general government sector or the non-profit institutions serving households sector.

The distinctions are defined in a top-down way, i.e. the distinction is first defined for institutional units, then for local KAUs and then for their output.

At the product level output is classified as market output, output for own final use and non-market output according to the characteristics of the institutional unit and the local KAU that produce that output.

3.17

Definition: market output consists of output that is disposed of on the market or intended to be disposed of on the market.

3.18

Market output includes:

(a)

products sold at economically significant prices;

(b)

products bartered;

(c)

products used for payments in kind (including compensation of employees in kind and mixed income in kind);

(d)

products supplied by one local KAU to another within the same institutional unit to be used as intermediate inputs or for final uses;

(e)

products added to the inventories of finished goods and work-in-progress intended for one or other of the above uses (including natural growth of animal and vegetable products and uncompleted structures for which the buyer is unknown).

3.19

Definition: economically significant prices are prices that have a substantial effect on the amounts of products that producers are willing to supply and on the amounts of products that purchasers wish to acquire. Such prices arise when both of the following conditions apply:

(a)

the producer has an incentive to adjust supply either with the goal of making a profit in the long run or, at a minimum, covering capital and other costs; and

(b)

consumers have the freedom to purchase or not purchase and make the choice on the basis of the prices charged.

Not economically significant prices are likely to be charged in order to raise some revenue or achieve some reduction in the excess demand that may occur when services are provided completely free.

The economically significant price of a product is defined in relation to the institutional unit and local KAU that has produced the output. For example, all the output of unincorporated enterprises owned by households sold to other institutional units is sold at economically significant prices; it is thus to be regarded as market output. For the output of other institutional units, the ability to undertake a market activity at economically significant prices will be checked notably through a quantitative criterion (the 50 % criterion), using the ratio of sales to production costs. To be a market producer, the unit shall cover at least 50 % of its costs by its sales over a sustained multi-year period.

3.20

Definition: output produced for own final use consists of goods or services that are retained either for own final consumption or for capital formation by the same institutional unit.

3.21

Products retained for own final consumption can only be produced by the households sector. Examples of products retained for own final consumption include:

(a)

agricultural products retained by farmers;

(b)

dwelling services produced by owner-occupiers;

(c)

household services produced by employing paid staff.

3.22

Products used for own capital formation can be produced by any sector. Examples of such products are:

(a)

machine tools produced by engineering enterprises;

(b)

dwellings, or extensions to dwellings, produced by households;

(c)

own-account construction, including communal construction undertaken by groups of households;

(d)

own-account software;

(e)

own-account research and development. Expenditure on research and development is only to be recorded as fixed capital formation when a sufficiently high level of reliability and comparability of the estimates across the Member States has been achieved.

3.23

Definition: non-market output is output that is provided to other units for free, or at prices that are not economically significant.

Non-market output (P.13) is subdivided into two items: ‧Payments for non-market output‧ (P.131), which consists of various fees and charges, and ‧Non-market output, other‧ (P.132), which is output provided for free.

Non-market output is produced for the following reasons.

(a)

It may be technically impossible to make individuals pay for collective services because their consumption of such services cannot be monitored and controlled. The production of collective services is organised by government units and financed out of funds other than receipts from sales, namely taxation or other government incomes.

(b)

Government units and NPISHs may also produce and supply goods or services to individual households for which they could charge but choose not to do so as a matter of social or economic policy. Examples are the provision of education or health services, for free or at prices that are not economically significant.

3.24

Definition: market producers are local KAUs or institutional units the majority of output of which is market output.

If a local KAU or institutional unit is a market producer, its main output is by definition market output, as the concept of market output is defined after having applied the distinction market, for own final use and non-market output, to the local KAU and institutional unit that have produced that output.

3.25

Definition: producers for own final use are local KAUs or institutional units the major part of the output of which is for own final use within the same institutional unit.

3.26

Definition: non-market producers are local KAUs or institutional units the major part of the output of which is provided for free or at not economically significant prices.

Institutional units: distinction between market, for own final use and non-market

3.27

For institutional units as producers, the distinction between market, for own final use and non-market is summarised in Table 3.1. The classification by sectors is also shown.

Table 3.1 —   The distinction between market producers, producers for own final use and non-market producers for institutional units

Type of institutional unit

Classification

Private or public?

 

NPI or not?

Market producer?

Type of producer

Sector(s)

1.

Private producers

1.1

Unincorporated enterprises owned by households (excluding quasi-corporate enterprises owned by households)

 

 

1.1 = Market or for own final use

Households

 

1.2

Other private producers (including quasi-corporate enterprises owned by households)

1.2.1

Private NPIs

1.2.1.1

Yes

1.2.1.1 = Market

Corporations

 

 

 

1.2.1.2

No

1.2.1.2 = Non-market

NPISH

 

 

1.2.2

Other private producers not NPI

 

1.2.2 = Market

Corporations

2.

Public producers

 

 

2.1

Yes

2.1 = Market

Corporations

 

 

 

2.2

No

2.2 = Non-market

General government

3.28

Table 3.1 shows that, in order to determine whether an institutional unit should be classified as a market producer, a producer for own-final use or a non-market producer, several distinctions are made sequentially. The first distinction is between private and public producers. A public producer is a producer that is controlled by the general government, where control is as defined in paragraph 2.38.

3.29

As Table 3.1 shows, private producers are found in all sectors except general government. In contrast, public producers are only found in the non-financial corporations sector, the financial corporations sector, and the general government sector.

3.30

A specific category of private producers is that of unincorporated enterprises owned by households. These are market producers or producers for own final use. The latter occurs in case of the production of services of owner-occupied dwellings and the own-account production of goods. All unincorporated enterprises owned by households are classified to the households sector apart from quasi-corporate enterprises owned by households. These are market producers and classified in the non-financial corporations and financial corporations sectors.

3.31

For other private producers, a distinction is made between private non-profit institutions and other private producers.

Definition: a private non-profit institution (NPI) is defined as a legal or social entity acting for the purpose of producing goods and services whose status does not permit them to be a source of income, profit or other financial gains for the units that establish, control or finance them. Where their productive activities generate surpluses, such surpluses cannot be appropriated by other institutional units.

A private NPI is classified to the non-financial corporations and financial corporations sectors, if it is a market producer.

A private NPI is classified to the NPISH sector if it is a non-market producer, except when it is under the control of government. When a private NPI is controlled by government, then it is classified in the general government sector.

All other private producers that are not NPIs are market producers. They are classified in the non-financial corporations and financial corporations sectors.

3.32

In distinguishing between market and non-market output and between market and non-market producers, several criteria are to be used. The market-non-market criteria in question (see paragraph 3.19 on the definition of economically significant prices) seek to assess the existence of market circumstances and sufficient market behaviour by the producer. According to the quantitative market-non-market criterion, products sold at economically significant prices should cover at least a majority of the production costs by sales.

3.33

In applying this quantitative market-non-market criterion, sales and production costs are defined as follows.

(a)

Sales shall mean the sales excluding taxes on products but including all payments made by general government or the institutions of the Union and granted to any kind of producer in this type of activity, i.e. all payments linked to the volume or value of output are included, but payments to cover an overall deficit or settle debts are excluded.

This definition of sales corresponds to that of output at basic prices except that:

(1)

output at basic prices is only defined after it has been decided on whether the output is market or non-market: sales are only used in valuing market output; non-market output is valued at costs;

(2)

the payments made by general government to cover an overall deficit of public corporations and quasi-corporations constitute part of other subsidies on products as defined in point (c) of paragraph 4.35. As a consequence, market output at basic prices includes the payments made by general government to cover an overall deficit.

(b)

Sales exclude other sources of revenue like holding gains (though they could be a normal and expected part of business revenue), investment grants, other capital transfers (e.g. debt redemption) and the purchase of equity.

(c)

For the purpose of this criterion, production costs are equal to the sum of intermediate consumption, compensation of employees, consumption of fixed capital, other taxes on production plus costs of capital. Other subsidies on production are not deducted. To ensure consistency of the concepts ‧sales‧ and ‧production costs‧ when applying the quantitative market-non-market criterion, ‧production costs‧ shall exclude all costs incurred for own-account capital formation. For the sake of simplicity, the costs of capital may in general be approximated by the net actual interest payments. However, for producers of financial services, the interest charge is taken, i.e. a correction is made for financial intermediation services indirectly measured (FISIM).

The quantitative market-non-market criterion is applied by looking over a range of years. Minor fluctuations in the size of sales from one year to another do not require a reclassification of institutional units (and their local KAUs and output).

3.34

Sales may consist of various elements. For example, in the case of health care services provided by a hospital, sales may correspond to:

(a)

purchases by employers to be recorded as income in kind paid to their employees and final consumption expenditure by these employees;

(b)

purchases by private insurance companies;

(c)

purchases by social security funds and general government to be classified as social benefits in kind;

(d)

purchases by households without reimbursement (final consumption expenditure).

Only other subsidies on production and gifts (e.g. from charities) received are not treated as sales.

Similarly, as an illustrative example, the sale of transport services by an enterprise may correspond to intermediate consumption by producers, income in kind provided by employers, social benefits in kind provided by the government and purchases by households without reimbursement.

3.35

Private non-profit institutions serving businesses are a special case. They are usually financed by contributions or subscriptions from the group of businesses concerned. The subscriptions are treated not as transfers but as payments for services rendered, i.e. as sales. These NPIs are therefore market producers and are classified in the non-financial corporations or the financial corporations sector.

3.36

In applying the criterion of comparing sales and production costs of private or public NPIs, including in sales, all the payments linked to volume of output may be misleading in some specific cases. This can be the case, for example, in relation to the financing of private and public schools. Payments by general government can be linked to the number of pupils but be the subject of negotiation with general government. In such a case, those payments are not recorded as sales, although they may have an explicit link with a measure of the volume of output, such as the number of pupils. This implies that a school mainly financed by such payments is a non-market producer.

3.37

Public producers can be market producers or non-market producers. Market producers are classified in the non-financial and financial corporations sectors. If the institutional unit is a non-market producer, it is classified in the general government sector.

3.38

Local KAUs as market producers and as producers for own final use cannot supply non-market output. Their output can thus only be recorded as market output or output for own final use and valued correspondingly (see paragraphs 3.42 to 3.53).

3.39

Local KAUs as non-market producers can supply as secondary output market outputs and output for own final use. The output for own final use consists of own-account capital formation. The occurrence of market output should in principle be determined by applying the qualitative and quantitative market-non-market criteria to individual products. Such secondary market output by non-market producers might be the case for instance when government hospitals charge economically significant prices for some of their services.

3.40

Other examples are sales of reproductions by government museums and sales of weather forecasts by meteorological institutes.

3.41

Non-market producers may also have revenues from the sale of their non-market output at not economically significant prices, e.g. the museum's revenues from tickets for entrance. These revenues pertain to non-market output. However, if both types of revenues (revenues from tickets and those from the sale of posters and cards) are difficult to distinguish, they can all be treated as either revenues for market output or revenues from non-market output. The choice between these two alternative registrations should depend on the assumed relative importance of both types of revenues (from tickets versus those from the sale of posters and cards).

Time of recording and valuation of output

3.42

Output is to be recorded and valued when it is generated by the production process.

3.43

All output is to be valued at basic prices, but specific conventions hold for:

(a)

the valuation of non-market output;

(b)

the valuation of total output of a non-market producer (local KAU);

(c)

the valuation of the total output of an institutional unit of which a local KAU is a non-market producer.

3.44

Definition: the basic price is the price receivable by the producers from the purchaser for a unit of a good or service produced as output minus any tax (i.e. taxes on products) payable on that unit as a consequence of its production or sale, plus any subsidy (i.e. subsidies on products) receivable on that unit as a consequence of its production or sale. It excludes any transport charges invoiced separately by the producer. It also excludes holding gains and losses on financial and non-financial assets.

3.45

Output for own final use (P.12) is valued at the basic prices of similar products sold on the market. This generates net operating surplus or mixed income for such output. An example is services of owner-occupied dwellings generating net operating surplus. If basic prices of similar products are not available, output for own final use should be valued at the costs of production plus a mark-up (except for non-market producers) for net operating surplus or mixed income.

3.46

Additions to work-in-progress are valued at the current basic price of the finished product.

3.47

In order to estimate in advance the value of output treated as work-in-progress, the value is based on the actual costs incurred, plus a mark-up (except for non-market producers) for the estimated operating surplus or mixed income. The provisional estimates are subsequently replaced by those obtained by distributing the actual value (once known) of the finished products, over the period of work-in-progress.

The value of the output of finished products is the sum of the values of:

(a)

finished products sold or bartered;

(b)

entries of finished products into inventories, less withdrawals;

(c)

finished products for own final use.

3.48

For buildings and structures acquired in an incomplete state, a value is estimated based on costs to date, including a mark-up for operating surplus or mixed income. This mark-up results when the value can be estimated on the basis of the prices of similar buildings and structures. The amounts of stage payments may be used to approximate the values of gross fixed capital formation undertaken by the purchaser at each stage, assuming no advance payments or arrears.

Where the own-account construction of a structure is not completed within a single accounting period, the value of the output is estimated by the following method. The ratio of the costs incurred in the current period to the total costs over the whole time of construction is calculated. This ratio is applied to the estimate of total output at the current basic price. If it is not possible to estimate the value of the finished structure at current basic price, it is valued by its total costs of production plus a mark-up (except for non-market producers) for net operating surplus or mixed income. If some or all of the labour is provided free, as may happen with communal construction by households, an estimate of what the cost of paid labour would have been is included in the estimated total production costs using wage rates for similar labour inputs.

3.49

The total output of a non-market producer (a local KAU) is valued at the total costs of production, i.e. the sum of:

(a)

intermediate consumption (P.2);

(b)

compensation of employees (D.1);

(c)

consumption of fixed capital (P.51c);

(d)

other taxes on production (D.29) less other subsidies on production (D.39).

Interest payments (excluding FISIM) are not included as costs of non-market production. The costs of non-market production also do not include an imputation for a net return on capital, nor an imputation for the rental value of the non-residential buildings owned and used in non-market production.

3.50

The total output of an institutional unit is the sum of the total output of its constituent local KAUs. This applies also to institutional units that are non-market producers.

3.51

In the absence of secondary market output by non-market producers, non-market output is valued at the costs of production. In the case of secondary market output by non-market producers, non-market output is valued as a residual item, i.e. as the total costs of production minus their revenues from market output.

3.52

Market output by non-market producers is valued at basic prices. Total output of a non-market local KAU covering market, non-market and own final use output is valued by the sum of production costs. The value of its market output is given by its receipts from sales of market products, the value of its non-market output being obtained residually as the difference between the value of its total output and the sum of its market output and output for own final use. The value of its receipts from the sale of non-market goods or services at prices that are not economically significant does not figure in these calculations — they are part of the value of its non-market output.

3.53

A list of exceptions and clarifications to the times of recording and the valuation of output follows, in the order of CPA sections.

Products of agriculture, forestry and fishing (Section A)

3.54

The output of agricultural products is recorded as being produced continuously over the entire period of production (and not only when the crops are harvested or animals slaughtered).

Growing crops, standing timber and stocks of fish or animals reared for purposes of food are treated as inventories of work-in-progress during the process, and transformed into inventories of finished products when the process is completed.

Output excludes any changes in uncultivated biological resources, e.g. growth of animals, birds, fish living in the wild or uncultivated growth of forests.

Manufactured products (Section C); construction work (Section F)

3.55

In the case of the construction of a building or other structure extending over several accounting periods, the output produced each period is treated as being sold to the purchaser at the end of the period, i.e. recorded as fixed capital formation by the purchaser rather than work-in-progress in the construction industry. The output is treated as being sold to the purchaser in stages. When the contract calls for stage payments, the value of the output may be approximated by the value of stage payments made each period. Where there is no certainty as to the ultimate purchaser, the incomplete output produced each period is recorded as work-in-progress.

Wholesale and retail trade services; repair services of motor vehicles and motorcycles (Section G)

3.56

The output of wholesale and retail services is measured by the trade margins realised on the goods they purchase for resale.

Definition: a trade margin is the difference between the actual or imputed sale price realised on a good purchased for resale, and the price that would have to be paid by the distributor to replace the good at the time it is sold or otherwise disposed of.

Trade margins realised on some goods can be negative if their sale prices are marked down. Trade margins are negative on goods that are not sold, but instead go to waste or are stolen. Trade margins on goods given to employees as compensation in kind, or withdrawn for final consumption by owners, are equal to zero.

Holding gains and losses are not included in the trade margin.

The output of a wholesaler or retailer is given by the following identity:

 

the value of output =

 

the value of sales

 

plus the value of goods purchased for resale and used for intermediate consumption, compensation of employees in kind or mixed income in kind,

 

minus the value of goods purchased for resale,

 

plus the value of additions to inventories of goods for resale,

 

minus the value of goods withdrawn from inventories of goods for resale,

 

minus the value of recurrent losses due to normal rates of wastage, theft or accidental damage.

Transportation and storage (Section H)

3.57

The output of transport services is measured by the value of the amounts receivable for transporting goods or persons. Transportation for own use within the local KAU is considered ancillary activity and is not separately identified and recorded.

3.58

The output of storage services is measured as the value of an addition to work-in-progress. Increases in the price of goods while in inventories should not be regarded as work-in-progress and production, but be treated as holding gains. If the increase in value reflects a rise in price with no change in quality, then there is no further production during the period in addition to the costs of storage or the explicit purchase for a storage service. However, in three cases the increase in value is regarded as production:

(a)

the quality of the good may improve with the passage of time, e.g. in case of wine; only in cases where maturing is part of the regular production process, the increase of the quality of the good is regarded as production;

(b)

seasonal factors affecting the supply or demand for a specific good that lead to regular, predictable variations in price over the year, even though its physical qualities may not have changed;

(c)

the production process is sufficiently long that discounting factors are applied to work carried out significantly long before delivery.

3.59

Most changes in prices of goods while in inventories are not additions to work-in-progress. In order to estimate the increase in the value of goods stored over and above the storage costs, use may be made of the expected increase in value over and above the general rate of inflation over a predetermined period. Any gain that occurs outside the predetermined period continues to be recorded as a holding gain or loss.

Storage services do not include any change in price due to holding financial assets, valuables or other non-financial assets like land and buildings.

3.60

The output of travel agency services is measured as the value of service charges of agencies (fees or commission charges) and not by the full expenditures made by travellers to the travel agency, including charges for transport by third parties.

3.61

The output of tour operator services is measured by the full expenditure made by travellers to the tour operator.

3.62

Travel agency services and tour operator services are distinguished by the fact that travel agency services amount only to intermediation on behalf of the traveller, while tour operator services create a new product called a tour, which has various components of travel, accommodation and entertainment.

Accommodation and food services (Section I)

3.63

The value of the output of the services of hotels, restaurants and cafes includes the value of the food, beverages, etc. consumed.

Financial and insurance services (Section K): output of the central bank

The central bank delivers the following services:

(a)

monetary policy services;

(b)

financial intermediation services;

(c)

supervisory services overseeing financial corporations.

The output of the central bank is measured as the sum of its costs.

Financial and insurance services (Section K): financial services in general

Financial services consist of the following services:

(a)

financial intermediation (including insurance and pension services);

(b)

services of financial auxiliaries; and

(c)

other financial services.

3.64

Financial intermediation is financial risk management and liquidity transformation. Corporations engaged in these activities obtain funds for example by taking deposits, and issuing bills, bonds and other securities. The corporations use these funds as well as own funds to acquire financial assets by making loans to others and by purchasing bills, bonds or other securities. Financial intermediation includes insurance and pension services.

3.65

Auxiliary financial activities facilitate risk management and liquidity transformation. Financial auxiliaries act on behalf of other units and do not put themselves at risk by incurring financial liabilities or by acquiring financial assets as part of an intermediation service.

3.66

Other financial services include monitoring services such as monitoring the stock and bond market, security services such as safeguarding expensive jewellery and important documents, and trading services such as foreign exchange dealing and dealing in securities.

3.67

Financial services are produced almost exclusively by financial institutions because of the stringent supervision of those services. For example, if a retailer wishes to offer credit facilities to its customers, the credit facilities are usually offered by a financial corporation subsidiary of the retailer or by another specialised financial institution.

3.68

Financial services may be paid for directly or indirectly. Some transactions in financial assets may involve both direct charges and indirect charges. Financial services are provided and charged for in four main ways:

(a)

financial services provided for direct payment;

(b)

financial services paid for through loading interest charges;

(c)

financial services in acquiring and disposing of financial assets and liabilities in financial markets;

(d)

financial services provided in insurance and pension schemes, where the activity is financed by loading insurance contributions and from the income return on savings.

Financial services provided for direct payment

3.69

These financial services are provided for explicit charges, covering a wide range of services that may be provided by different types of financial institutions. The following examples illustrate the nature of the services charged for directly:

(a)

banks charge households to arrange a mortgage, manage an investment portfolio, and administer an estate;

(b)

specialised institutions charge non-financial corporations for organising a takeover or for administering a restructuring of a group of corporations;

(c)

credit card companies charge units that accept credit cards usually a percentage of each sale;

(d)

a card holder is charged an explicit fee, usually each year, for holding the card.

Financial services paid for through loading interest charges

3.70

For example, in financial intermediation, a financial institution like a bank accepts deposits from units wishing to receive interest on funds for which the unit has no immediate use and lends them to other units whose funds are insufficient to meet their needs. The bank thus provides a mechanism to allow the first unit to lend to the second. Each of the two parties pays a fee to the bank for the service provided: the unit lending funds pays by accepting a rate of interest lower than the ‧reference‧ rate of interest, while the unit borrowing funds pays by accepting a rate of interest higher than the ‧reference‧ rate of interest. The difference between the interest rate paid to banks by borrowers and the interest rate actually paid to depositors is a charge for FISIM.

3.71

It is seldom the case that the amount of funds lent by a financial institution exactly matches the amount deposited with them. Some money may have been deposited but not yet loaned. Some loans may be financed by the bank's own funds and not from borrowed funds. Irrespective of the source of finance, a service is provided for the loans and deposits offered. FISIM are imputed for all loans and deposits. These indirect charges apply only to loans and deposits provided by, or deposited with, financial institutions.

3.72

The reference rate lies between bank interest rates on deposits and loans. It does not correspond to an arithmetic average of the rates on loans or deposits. The rate prevailing for inter-bank borrowing and lending is a suitable choice. However, different reference rates are needed for each currency in which loans and deposits are denominated, especially when a non-resident financial institution is involved.

FISIM are described in detail in Chapter 14.

Financial services consisting of acquiring and disposing of financial assets and liabilities in financial markets

3.73

When a financial institution offers a security (e.g. bill or bond) for sale, a service charge is levied. The purchase price (the ask price) is equal to the estimated market value of the security plus a margin. Another charge is levied when a security is sold, the price offered to the seller (the bid price) being equal to the market value minus a margin. Margins between buying and selling prices apply also to equities, investment fund shares and foreign currencies. These margins are for the provision of financial services.

Financial services provided in insurance and pension schemes, where activity is financed by loading insurance contributions and from the income return on savings

3.74

The following financial services fall under this heading. Each of them results in a redistribution of funds.

(a)

Non-life insurance. Under a non-life insurance policy, the insurance company accepts a premium from a client and holds it until a claim is made or the period of the insurance expires. The insurance company invests the premium and the resulting property income is an extra source of funds. The property income represents income foregone by the client and is treated as an implicit supplement to the actual premium. The insurance company sets the level of the actual premiums to be such that the sum of the premiums plus the property income earned on them less the expected claims will leave a margin that the insurance company will retain as the output of the insurance company.

Non-life insurance output is calculated as:

 

total premiums earned

 

plus implicit premium supplements (equal to the property income earned on technical reserves)

 

less adjusted claims incurred.

The insurance corporation has at its disposal reserves consisting of unearned premiums (actual premiums relating to the next accounting period) and claims outstanding. Claims outstanding cover claims that have not yet been reported, have been reported but are not yet settled or have been reported and settled but are not yet paid. These reserves are called technical reserves and are used to generate investment income. Holding gains and losses are not income from investment of the insurance technical reserves. Insurance technical reserves may be invested in secondary activities of the insurance company, e.g. the letting of dwellings or offices. The net operating surplus on these secondary activities is income from the investment of insurance technical reserves.

The appropriate level of claims used in calculating output is called ‧adjusted claims‧ and these can be determined in two ways. The expectation method estimates the level of adjusted claims from a model based on the past pattern of claims payable by the corporation. The second method uses accounting information: adjusted claims are derived ex post as actual claims incurred plus the change in equalisation provisions, i.e. the funds set aside to meet unexpectedly large claims. Where the equalisation provisions are insufficient to bring adjusted claims back to a normal level, contributions from own funds are added to the measure of adjusted claims. A major feature of both methods is that unexpectedly large claims do not lead to volatile and negative estimates of output.

Changes in technical reserves and equalisation provisions in response to changes in financial regulation are recorded as other changes in the volume of assets; they are irrelevant for calculating output. If, due to lack of information, both methods for estimating adjusted claims are not possible, it may be necessary to estimate output instead by the sum of costs including an allowance for normal profits.

In case of with-profits insurance, the change in the reserves for with-profits insurance is deducted to obtain output.

(b)

A life insurance policy is a type of saving scheme. For a number of years, the policyholder pays premiums to the insurance corporation against a promise of benefits at some future date. These benefits may be expressed in terms of a formula related to the premiums paid or may be dependent on the level of success the insurance corporation has in investing the funds. The method of calculating output for life insurance follows the same general principles as for non-life insurance. However, because of the time intervals between the time when premiums are received and when benefits are paid, special allowances must be made for changes in the technical reserves. The output of life insurance is derived as:

 

premiums earned

 

plus premium supplements, less benefits due

 

less increases (plus decreases) in life insurance technical reserves.

Premiums are defined in exactly the same way for life insurance as for non-life insurance. Premium supplements are more significant for life insurance than for non-life insurance. Benefits are recorded as they are awarded or paid. There is no need under life insurance to derive an adjusted estimate of benefits since there is not the same unexpected volatility in the payment under a life policy. Life insurance technical reserves increase each year because of new premiums paid and new investment income allocated to the policyholders (but not withdrawn by them) and decrease because of benefits paid. It is thus possible to express the level of output of life insurance as the difference between the total investment income earned on the life insurance technical reserves less the part of this investment income actually allocated to the policy holders and added to the insurance technical reserves.

When this method is not feasible for data reasons or does not yield meaningful results, output of life insurance shall also be calculated as the sum of production costs plus an allowance for ‧normal profit‧.

(c)

The output of reinsurance is to be determined in exactly the same way as for non-life insurance, whether it is life or non-life policies that are being reinsured.

(d)

The output of running a social insurance scheme depends on the way in which it is organised. The following are examples of how such schemes are organised.

(1)

Social security schemes are social insurance schemes that cover the community at large, and are imposed and controlled by government. Their purpose is to provide benefits for citizens to meet the demands of old age, invalidity or death, sickness, work injury, unemployment, family and health care, etc. If separate units are distinguished, their output is determined in the same way as all non-market output as the sum of costs. If separate units are not distinguished, the output of social security is included with the output of the level of government at which it operates.

(2)

When an employer operates his own social insurance scheme, the value of the output is determined as the sum of costs including an estimate for a return to any fixed capital used in the operation of the scheme. The value of output is measured in the same way where the employer establishes a separate pension fund to manage the scheme.

(3)

Where an employer uses an insurance corporation to manage the scheme on his behalf, the value of the output is the fee charged by the insurance corporation.

(4)

For a multi-employer scheme, the value of output is measured as for life insurance policies: it is investment income received by the schemes less the amount added to reserves.

(e)

Measuring the output of standardised loan guarantee schemes depends on the type of producer involved. If a standardised loan guarantee scheme operates as a market producer, the value of output is calculated in the same way as non-life insurance. If the scheme operates as a non-market producer, the value of output is calculated as the sum of costs.

Real estate services (Section L)

3.75

The output of services of owner-occupied dwellings is valued at the estimated value of rental that a tenant would pay for the same accommodation, taking into account factors such as location, neighbourhood amenities, etc., as well as the size and quality of the dwelling itself. For garages located separately from dwellings, which are used by the owner for final consumption purposes in connection with using the dwelling, a similar imputation is to be made. The rental value of owner-occupied dwellings abroad, e.g. holiday homes, should not be recorded as part of domestic production, but as imports of services and the corresponding net operating surplus as primary income received from the rest of the world. For owner-occupied dwellings owned by non-residents, analogous entries are made. In case of time-sharing apartments, a proportion of the service charge is recorded.

3.76

To estimate the value of owner-occupied dwelling services, the stratification method is used. The stock of dwellings is stratified by location, nature of dwelling and other factors that affect the rental. Information about actual rentals from rented dwellings is used to obtain an estimate of the rental value of the total stock of dwellings. The average actual rental per stratum is applied to all dwellings in that particular stratum. If the information on rentals is derived from sample surveys, the grossing-up to total stock rentals relates to both a part of the rented and all owner-occupied dwellings. The detailed procedure to determine a rental per stratum is carried out for a base year and is then extrapolated to the later periods.

3.77

The rental to be applied to owner-occupied dwellings in the stratification method is defined as the private mark