92001E3527

WRITTEN QUESTION E-3527/01

by Christopher Huhne (ELDR) to the Commission

(8 January 2002)

Subject: Capital and current spending

1. How does the Commission currently treat capital and current spending undertaken under arrangements such as the Private Finance Initiative or Public Private Partnerships when entering them into the public accounts for Maastricht comparability purposes?

2. What is the impact, if any, on both the flow and stock accounts (if stocks are measured)?

3. Has the Commission changed this treatment recently?

4. Is it considering a change in treatment?

Answer given by Mr Solbes Mira on behalf of the Commission

(19 March 2002)

1. Partnership-type arrangements between the public sector and private enterprise may take many different forms. Private ownership may be introduced into state-owned businesses, or private sector expertise and finance may be used to exploit the commercial potential of government assets. There can also be arrangements whereby the public sector contracts to purchase services long-term, to take advantage of private sector skills, and where the risk of financing and making a return on capital is with the private sector. The service may include maintaining, enhancing or constructing the necessary infrastructure.

General guidance on how capital and current spending should be treated statistically in such arrangements is found in the Eurostat ESA95 Manual on government deficit and debt. The key question is the extent to which risk is transferred from the government sector to the corporation sector. This helps to determine in which sector expenditure on the infrastructure should be recorded, and how payment flows between the two sectors should be recorded. Broadly speaking, the most significant impact on government finances is that many of these arrangements have the effect of spreading the cost of capital spending (fixed investment) over their period of use, thus avoiding a higher initial cost to the government. A description of the type of impact is given in the answer to question 2 below.

2. The type of impact of such arrangements on flows (affecting the government deficit/surplus as measured according to Community methodology) and on stocks (affecting the government debt) is as follows.

If the risk is mainly with the corporation, the fixed investment should not be recorded with the government, so the government deficit improves accordingly. However, the arrangements may involve regular service payments from government to the corporation, which would increase the deficit by these amounts over the contract period. There is not normally an impact on government debt

(although a higher deficit might result in an increase in debt). Nevertheless, in cases similar to financial leasing, where government is considered to bear most of the risk, the debt will increase initially by the amount of the investment.

3. There have been no changes recently in statistical treatment.

4. There are no plans for changes in statistical treatment. However, it is always possible that the methodology will be further refined.