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Document 01996R2223-20130701

Consolidated text: Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community

ELI: http://data.europa.eu/eli/reg/1996/2223/2013-07-01

1996R2223 — EN — 01.07.2013 — 012.001


This document is meant purely as a documentation tool and the institutions do not assume any liability for its contents

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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)

Amended by:

 

 

Official Journal

  No

page

date

►M1

COUNCIL REGULATION (EC) No 448/98 of 16 February 1998

  L 58

1

27.2.1998

►M2

COMMISSION REGULATION (EC) No 1500/2000 of 10 July 2000

  L 172

3

12.7.2000

 M3

REGULATION (EC) No 2516/2000 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 7 November 2000

  L 290

1

17.11.2000

►M4

COMMISSION REGULATION (EC) No 995/2001 of 22 May 2001

  L 139

3

23.5.2001

►M5

REGULATION (EC) No 2558/2001 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 3 December 2001

  L 344

1

28.12.2001

►M6

COMMISSION REGULATION (EC) No 113/2002 of 23 January 2002

  L 21

3

24.1.2002

►M7

REGULATION (EC) No 359/2002 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 12 February 2002

  L 58

1

28.2.2002

 M8

REGULATION (EC) No 1267/2003 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 June 2003

  L 180

1

18.7.2003

►M9

REGULATION (EC) No 1392/2007 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 13 November 2007

  L 324

1

10.12.2007

►M10

REGULATION (EC) No 400/2009 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 23 April 2009

  L 126

11

21.5.2009

►M11

COMMISSION REGULATION (EU) No 715/2010 of 10 August 2010

  L 210

1

11.8.2010

►M12

COUNCIL REGULATION (EU) No 517/2013 of 13 May 2013

  L 158

1

10.6.2013



NB: This consolidated version contains references to the European unit of accout and/or the ecu, which from 1 January 1999 should be understood as references to the euro — Council Regulation (EEC) No 3308/80 (OJ L 345, 20.12.1980, p. 1) and Coundil Regulation (EC) No 1103/97 (OJ L 162, 19.6.1997, p. 1).




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COUNCIL REGULATION (EC) No 2223/96

of 25 June 1996

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



THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 213 thereof,

Having regard to the draft Regulation submitted by the Commission,

Having regard to the opinion of the European Parliament ( 1 ),

Having regard to the opinion of the European Monetary Institute ( 2 ),

Having regard to the opinion of the Economic and Social Committee ( 3 ),

(1) Whereas the implementation and supervision of Economic and Monetary Union require comparable, up-to-date and reliable information on the structure and developments in the economic situation of each country and/or region;

(2)

Whereas the Commission must play a part in the administration of Economic and Monetary Union and, in particular, report to the Council on the progress made by the Member States in fulfilling their obligations for the achievement of Economic and Monetary Union;

(3)

Whereas economic accounts are a basic tool for analysing the economic situation of a country and/or region on condition that they are drawn up on the basis of a single set of principles that are not open to differing interpretations;

(4)

Whereas the Commission must use aggregates of national accounts for Community administrative and, in particular, budgetary calculations;

(5)

Whereas in 1970 an administrative document entitled ‘European System of Integrated Economic Accounts’ (ESA) was published, covering the field governed by this Regulation, which had been drawn up solely by the Statistical Office of the European Communities and on its responsibility alone; whereas that document was the outcome of several years' work by the Statistical Office of the European Communities, together with Member States' national statistical institutes, to devise a system of national accounts meeting the requirements of the European Communities' economic and social policy, and whereas it constituted the Community version of the United Nations System of National Accounts which had been used by the Community up to that time;

(6)

Whereas in order to update the original text a second edition of the document was published in 1979 (hereinafter referred to as ‘ESA Second edition’) ( 4 );

(7)

Whereas the United Nations Statistical Commission adopted in February 1993 the new System of National Accounts (SNA) so that the results in all member countries of the United Nations should be internationally comparable;

(8)

Whereas attention should be paid in the case of environmental accounts to the communication from the Commission to the European Parliament and the Council of 21 December 1994 entitled ‘Directions for the European Union on environmental indicators and green national accounting’;

(9)

Whereas the Community cooperates with third countries to mutual advantage, particularly those in the European Economic Area (EEA);

(10)

Whereas a European System of Accounts must be established to meet the requirements of Economic and Monetary Union and will have to be used for compiling the national and regional accounts provided for by Community legislation;

(11)

Whereas the results of the accounts and tables of all the Member States drawn up according to the system set up by this Regulation must be made available by the Commission to users on precise dates, particularly with regard to monitoring the economic convergence and achieving the closest coordination of the Member States' economic policies;

(12)

Whereas the system set up by this Regulation 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 requirements of the Community, so that results that are comparable between the Member States can be obtained;

(13)

Whereas these statistical results, must be accessible to citizens in accordance with the principle of transparency;

(14)

Whereas the system established by this Regulation, which constitutes a version of the SNA adapted to the structures of the Member States' economies, must follow the layout of the SNA so that the Community's data are comparable with those compiled by its main international partners;

(15)

Whereas the dates must be grouped according to broad category of the accounts and tables, and whereas only the information essential to the requirements of the Community must be processed and communicated to the Commission on precise dates;

(16)

Whereas, however, in view of the volume and size of the accounts concerned, the level of detail and the geographical coverage, as well as the situation in this respect in the Member States, certain extra periods of time for forwarding data shall be granted exceptionally and temporarily to Member States which objectively are unable to meet the deadlines laid down by this Regulation;

(17)

Whereas a decision on how financial intermediation services indirectly measured (Fisim) are to be broken down should be taken at a later date;

(18)

Whereas, according to the principle of subsidiarity, the creation of common statistical standards so that comparable information can be produced is a task that can only be dealt with effectively at Community level and whereas such standards will be implemented in each Member State under the aegis of the organizations and institutions responsible for compiling official statistics;

(19)

Whereas it is necessary to set up a procedure to adapt and update the provisions of this Regulation in cooperation with the Statistical Programme Committee of the European Community (SPC), established by Council Decision 89/382/EEC, Euratom ( 5 ); whereas that adaptation procedure will be limited to amendments which do not increase own resources;

(20)

Whereas the Statistical Programme Committee and the Committee on Monetary, Financial and Balance of Payments Statistics (CMFB), established by Decision 91/115/EEC ( 6 ), have declared themselves in favour of the draft of this Regulation;

(21)

Whereas Council Directive 89/130/EEC, Euratom of 13 February 1989 on the harmonization of the compilation of gross national product at market prices (GNPmp) ( 7 ) stipulates that GNPmp can be comparable only if the definitions and accounting rules of the European System of Integrated Economic Accounts are applied, and whereas 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 ( 8 ) provides that, in order to calculate the weighted average rate of VAT, the breakdown of transactions liable to tax shall be effected by means of national accounts prepared in accordance with the European System of Integrated Economic Accounts, and whereas for those instruments, and in the context of Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol on the excessive deficit procedure ( 9 ), Council Decision 94/728/EC, Euratom of 31 October 1994 on the system of the European Communities' own resources ( 10 ) and Council Decision 94/729/EC of 31 October 1994 on budgetary discipline ( 11 ), a transitional period for implementing the system set up by this Regulation should be provided,

HAS ADOPTED THIS REGULATION:



Article 1

Purpose

1.  The purpose of this Regulation is to set up the European System of Accounts 1995 hereinafter referred to as ‘ESA 95’, by providing for:

(a) a methodology on common standards, definitions, classifications and accounting rules, intended to be used for compiling accounts and tables on comparable bases for the purposes of the Community, together with results as required under the terms of Article 3;

(b) a programme for transmitting for Community purposes on precise dates the accounts and tables compiled according to the ESA 95.

2.  Taking into account Articles 7 and 8, this Regulation shall apply to all Community acts that refer to the ESA or its definitions.

3.  This Regulation does not oblige any Member State to use the ESA 95 in compiling accounts for its own purposes.

Article 2

Methodology

1.  The methodology of the ESA 95 referred to in Article 1 (1) (a) is set out in Annex A.

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2.  Amendments to the ESA 95 methodology which are intended to clarify and improve its content shall be adopted by the Commission provided that they do not change its underlying concepts, do not require additional resources for their implementation and do not cause an increase in own resources. Those measures, designed to amend non-essential elements of this Regulation, inter alia, by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 4(2).

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3.  In accordance with the relevant provisions of the Treaty, the Council shall, not later than 2, take a decision on introducing the system for breaking down the financial intermediation services indirectly measured (Fisim) described in Annex I of Annex A, and shall, if appropriate, adopt the necessary measures for the implementation thereof.

Article 3

Transmission to the Commission

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

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2.  The Member States shall transmit the results of Annex B, including the data which have been declared confidential by Member States in accordance with national legislation or practice concerning statistical confidentiality, under the provisions of Council Regulation (Euratom, EEC) No 1588/90 of 11 June 1990 on the transmission of data subject to statistical confidentiality to the Statistical Office of the European Communities ( 12 ), which governs the confidential treatment of information.

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Within the limits set in Article 2(2), any changes — new tables, countries and/or regions concerned — in the data requested from the Member States shall be adopted by the Commission. Those measures, designed to amend non-essential elements of this Regulation, inter alia, by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 4(2).

Article 4

1.  The Commission shall be assisted by the Statistical Programme Committee (hereinafter referred to as the Committee).

2.  Where reference is made to this paragraph, Article 5a(1) to (4) and Article 7 of Decision 1999/468/EC shall apply, having regard to the provisions of Article 8 thereof.

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Article 5

The Committee's tasks

The Committee shall examine all matters that are raised by its chairman relating to the implementation of this Regulation either on his own initiative or at the request of a Member State.

Article 6

Cooperation with other committees

1.  On all matters falling within the competence of the Committee on Monetary, Financial and Balance of Payments Statistics (CMFB), the Commission shall request the opinion of that Committee in accordance with Article 2 of Decision 91/115/EEC.

2.  The Commission shall communicate to the Committee on Gross National Product, set up by Directive 89/130/EEC, Euratom any information concerning the implementation of this Regulation which is necessary for the performance of its duties.

Article 7

Date of application and of first transmission of data

1.  The ESA 95 shall be applied for the first time to data established in accordance with Annex B to be transmitted in April 1999.

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

3.  In accordance with paragraph 1, until the first transmission based on the ESA 95, Member States shall continue to send to the Commission (Statistical Office) the accounts and tables established by applying the ESA second edition.

4.  Without prejudice to Article 19 of Council Regulation (EEC, Euratom) No 1552/89 of 29 May 1989 ( 13 ) implementing Decision 88/376/EEC, Euratom on the system of the Communities' own resources, the Commission and the Member State concerned shall check that this Regulation is being applied and shall submit the outcome of those checks to the Committee provided for in Article 4 (1) of this Regulation.

Article 8

Transitional provisions

1.  For budgetary and own resources purposes and by way of derogation from Article 1 (2) and Article 7, the European system of integrated economic accounts in force within the meaning of Article 1 (1) of Directive 89/130/EEC, Euratom and the legal acts relating thereto, in particular Regulations (EEC, Euratom) No 1552/89 and No 1553/89 and Decisions 94/728/EC, Euratom and 94/729/EC, shall be the ESA second edition while Decision 94/728/EC, Euratom remains in force.

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1a.  For the purpose of determination of the VAT-based own resource, and by way of exception from paragraph 1, the Member States may use data based on the new European system of integrated economic accounts (ESA 95) while Decision 94/728/EC, Euratom remains in force.

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2.  For the purpose of the Member States' reports to the Commission under the excessive deficit procedure laid down in Regulation (EC) No 3605/93, the European system of integrated economic accounts shall be the ESA second edition until the 1 September 1999 reports.

3.  Application of the ESA second edition as laid down in paragraphs 1 and 2 of this Article shall be ensured by adjusting the data received by virtue of Article 7 (1) on the basis of the ESA 95 to take account of the changes resulting from any differences in concepts, definitions or nomenclatures between the ESA second edition and the ESA 95.

Implementation of this principle shall be established in accordance with the procedure laid down in Article 6 of Council Directive 89/130/EEC, Euratom by December 1996 at the latest.

Article 9

This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Communities.




ANNEX A

EUROPEAN SYSTEM OF ACCOUNTS

ESA 1995

CONTENTS

CHAPTER 1.

GENERAL FEATURES

THE USES OF THE ESA

Framework for analysis and policy

Eight characteristics of ESA concepts

The 1995 ESA and the 1993 SNA

The 1995 ESA and the 1970 ESA

THE ESA AS A SYSTEM

Statistical units and their groupings

Institutional units and sectors

Local kind of activity units 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

Recognizing 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

The input-output framework

CHAPTER 2.

UNITS AND GROUPING OF UNITS

THE LIMITS OF THE NATIONAL ECONOMY

THE INSTITUTIONAL UNITS

THE INSTITUTIONAL SECTORS

Non-financial corporations (S.11)

Subsector: Public non-financial corporations (S.11001)

Subsector: National private non-financial corporations (S.11002)

Subsector: Foreign controlled non-financial corporations (S.11003)

Financial corporations (S.12)

Subsector: The central bank (S.121)

Subsector: Other monetary financial institutions (S.122)

Subsector: Other financial intermediaries, except insurance corporations and pension funds (S.123)

Subsector: Financial auxiliaries (S.124)

Subsector: Insurance corporations and pension funds (S.125)

General government (S.13)

Subsector: Central government (S.1311)

Subsector: State government (S.1312)

Subsector: Local government (S.1313)

Subsector: Social security funds (S.1314)

Households (S.14)

Subsector: Employers (including own-account workers) (S.141 + S.142)

Subsector: Employees (S.143)

Subsector: Recipients of property incomes (S.1441)

Subsector: Recipients of pensions (S.1442)

Subsector: Recipients of other transfer incomes (S.1443)

Subsector: Others (S.145)

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

The industry

CLASSIFICATION OF INDUSTRIES

UNITS OF HOMOGENEOUS PRODUCTION AND HOMOGENEOUS BRANCHES

The unit of homogeneous production

The homogeneous branch

THE CLASSIFICATION OF HOMOGENEOUS BRANCHES

CHAPTER 3.

TRANSACTIONS IN PRODUCTS

PRODUCTION AND OUTPUT

Principal, secondary and ancillary activities

Output (P.1)

Time of recording and valuation of output

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.51)

Time of recording and valuation of gross fixed capital formation

Changes in inventories (P.52)

Time of recording and valuation of changes in inventories

Acquisitions less disposals of valuables (P.53)

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

Imports and exports of goods (P.61 and P.71)

Imports and exports of services (P.62 and P.72)

TRANSACTIONS IN EXISTING GOODS

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

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, loans and accounts receivable and payable

Interest on 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 direct foreign investment (D.43)

Property income attributed to insurance policy holders (D.44)

Rents (D.45)

Rents on land

Rents on sub-soil 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)

Social contributions (D.61)

Actual social contributions (D.611)

Imputed social contributions (D.612)

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

Social security benefits in cash (D.621)

Private funded social benefits (D.622)

Unfunded employee social benefits (D.623)

Social assistance benefits in cash (D.624)

Social transfers in kind (D.63)

Social benefits in kind (D.631)

Social security benefits, reimbursements (D.6311)

Other social security benefits in kind (D.6312)

Social assistance benefits in kind (D.6313)

Transfers of individual non-market goods or services (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

Current transfers between households

Fines and penalties

Lotteries and gambling

Payments of compensation

GNP based fourth own resource

Other

ADJUSTMENT FOR THE CHANGE IN THE NET EQUITY OF HOUSEHOLDS IN PENSION FUNDS RESERVES (D.8)

CAPITAL TRANSFERS (D.9)

Capital taxes (D.91)

Investment grants (D.92)

Other capital transfers (D.99)

CHAPTER 5.

FINANCIAL TRANSACTIONS

CLASSIFICATION OF FINANCIAL TRANSACTIONS

Monetary gold and special drawing rights (SDRS) (F.1)

Monetary gold (F.11)

Special drawing rights (SDRS) (F.12)

Currency and deposits (F.2)

Currency (F.21)

Transferable deposits (F.22)

Other deposits (F.29)

Securities other than shares (F.3)

Securities other than shares, excluding financial derivatives (F.33)

Short-term securities other than shares, excluding financial derivatives (F.331)

Long-term securities other than shares, excluding financial derivatives (F.332)

Financial derivatives (F.34)

Loans (F.4)

Short-term loans (F.41)

Long-term loans (F.42)

Shares and other equity (F.5)

Shares and other equity, excluding mutual funds shares (F.51)

Quoted shares, excluding mutual funds shares (F.511), and unquoted shares, excluding mutual funds shares (F.512)

Other equity (F.513)

Mutual funds shares (F.52)

Insurance technical reserves (F.6)

Net equity of households in life insurance reserves and in pension funds reserves (F.61)

Net equity of households in life insurance reserves (F.611)

Net equity of households in pension funds reserves (F.612)

Prepayments of insurance premiums and reserves for outstanding claims (F.62)

Other accounts receivable/payable (F.7)

Trade credits and advances (F.71)

Other accounts receivable/payable, excluding trade credits and advances (F.79)

Memorandum item: direct foreign investment (F.m)

ACCOUNTING RULES FOR FINANCIAL TRANSACTIONS

Valuation

Time of recording

Compiling financial transactions from changes in balance sheets

Annex 5.1: Link with measures of money

CHAPTER 6.

OTHER FLOWS

CONSUMPTION OF FIXED CAPITAL (K.1)

ACQUISITIONS LESS DISPOSALS OF NON-FINANCIAL NON-PRODUCED ASSETS (K.2)

OTHER CHANGES IN ASSETS (K.3 to K.12)

OTHER CHANGES IN VOLUME (K.3 to K.10 AND K.12)

ECONOMIC APPEARANCE OF NON-PRODUCED ASSETS (K.3)

ECONOMIC APPEARANCE OF PRODUCED ASSETS (K.4)

NATURAL GROWTH OF NON-CULTIVATED BIOLOGICAL RESOURCES (K.5)

ECONOMIC DISAPPEARANCE OF NON-PRODUCED ASSETS (K.6)

CATASTROPHIC LOSSES (K.7)

UNCOMPENSATED SEIZURES (K.8)

OTHER VOLUME CHANGES IN NON-FINANCIAL ASSETS N.E.C. (K.9)

OTHER VOLUME CHANGES IN FINANCIAL ASSETS AND LIABILITIES N.E.C. (K.10)

CHANGES IN CLASSIFICATIONS AND STRUCTURE (K.12)

Changes in sector classification and structure (K.12.1)

Changes in classification of assets and liabilities (K.12.2)

NOMINAL HOLDING GAINS/LOSSES (K.11)

Neutral holding gains/losses (K.11.1)

Real holding gains/losses (K.11.2)

Holding gains by type of financial asset

Currency and deposits (AF.2)

Loans (AF.4) and other accounts receivable/payable (AF.7)

Securities other than shares (AF.3)

Shares and other equity (AF.5)

Insurance technical reserves (AF.6)

Financial assets in foreign currency

CHAPTER 7.

BALANCE SHEETS

TYPES OF ASSETS

Non-financial produced assets (AN.1)

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

Financial assets and liabilities (AF)

VALUATION OF ENTRIES IN THE BALANCE SHEETS

General valuation principles

NON-FINANCIAL ASSETS (AN)

Produced assets (AN.1)

Fixed assets (AN.11)

Tangible fixed assets (AN.111)

Intangible fixed assets (AN.112)

Inventories (AN.12)

Valuables (AN.13)

Non-produced assets (AN.2)

Tangible non-produced assets (AN.21)

Land (AN.211)

Subsoil assets (AN.212)

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

Intangible non-produced assets (AN.22)

Financial assets and liabilities (AF)

Monetary gold and SDRs (AF.1)

Currency and deposits (AF.2)

Securities other than shares (AF.3)

Loans (AF.4)

Shares and other equity (AF.5)

Insurance technical reserves (AF.6)

Other accounts receivable/payable (AF.7)

Memorandum items

Consumer durables (AN.m)

Direct foreign investment (AF.m)

Financial balance sheets

Annex 7.1: Definition of each asset category

Annex 7.2: A map of entries from opening balance sheet to closing balance sheet

CHAPTER 8.

SEQUENCE OF ACCOUNTS AND BALANCING ITEMS

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 tranfers 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

MATRIX PRESENTATION

Matrix presentation of ESA accounts

Properties of accounting matrices

Adaptation of the reduced format matrix to specific types of analysis

CHAPTER 9.

INPUT-OUTPUT FRAMEWORK

SUPPLY AND USE TABLES

TABLES LINKING THE SUPPLY AND USE TABLES TO THE SECTOR ACCOUNTS

SYMMETRIC INPUT-OUTPUT TABLES

CHAPTER 10.

PRICE AND VOLUME MEASURES

SCOPE OF PRICE AND VOLUME INDICES IN THE ACCOUNTS SYSTEM

The integrated system of price and volume indices

Price and volume indices for other aggregates

GENERAL PRINCIPLES OF MEASURING PRICE AND VOLUME INDICES

Definition of prices and volumes of market products

Differences in quality and differences in price

Principles for non-market services

Principles for value added and GDP

PROBLEMS IN THE APPLICATION OF THE PRINCIPLES

General application

Application to specific flows

Flows of goods and market services

Flows of non-market services

Taxes and subsidies on products and imports

Consumption of fixed capital

Compensation of employees

Stocks of produced fixed assets and inventories

Measures of real income for the total economy

CHOICE OF INDEX NUMBER FORMULAE AND THE BASE YEAR

INTERSPACIAL 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

TOTAL HOURS WORKED

FULL-TIME EQUIVALENCE

EMPLOYEE LABOUR INPUT AT CONSTANT COMPENSATION

CHAPTER 12.

QUARTERLY ECONOMIC ACCOUNTS

CHAPTER 13.

REGIONAL ACCOUNTS

REGIONAL TERRITORY

UNITS AND RESIDENCE

METHODS OF REGIONALIZATION

AGGREGATES BY INDUSTRY

HOUSEHOLD ACCOUNTS

ANNEXES

I. FINANCIAL INTERMEDIATION SERVICES INDIRECTLY MEASURED (Fisim)

Changes to be made in the ESA chapters if Fisim is to be allocated

II. LEASING AND HIRE PURCHASE OF DURABLE GOODS

Definitions

Leasing

Operating leasing

Financial leasing

Hire purchase

Treatment in the accounts

Operating leasing

Financial leasing

Hire purchase

III. INSURANCE

Introduction

Definitions

Social insurance

Social security schemes of government

Private funded social insurance schemes

Unfunded social insurance schemes operated by employers

Other insurance

Other life insurance

Other non-life insurance

Reinsurance

Insurance auxiliaries

Treatment in the accounts

Social insurance

Social security schemes of government

Private funded social insurance schemes

Unfunded social insurance schemes operated by employers

Other insurance

Other life insurance

Other non-life insurance

Reinsurance

Insurance auxiliaries

Insurance numerical example

IV. CLASSIFICATIONS AND ACCOUNTS

Classifications

Classification of institutional sectors (S)

Classification of transactions and other flows

Classification of balancing items (B)

Classification of assets (A)

Regrouping and coding of industries (A*), products (P*) and fixed assets (fixed capital formation) (AN)

Classification of individual consumption by purpose (Coicop)

Classification of the functions of the government (Cofog)

Classification of the purposes of non-profit institutions serving householdS (Copni)

Accounts

V. DEFINITION OF GOVERNMENT DEFICIT FOR THE PURPOSE OF THE EXCESSIVE DEFICIT PROCEDURE

Tables

2.1

Sectors and sub-sectors

2.2

The type of producer, the principal activities and functions classified by sector

2.3

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

3.1

The distinction between market producers, producers for own final use and other non-market producers for institutional units

3.2

Institutional units, local KAUs and output and the distinction between market, for own final use and other non-market

3.3

The distinction market, for own final use and other non-market for local KAUs and their output

3.4

The treatment of transportation of exported goods

3.5

The treatment of transportation of imported goods

5.1

Classification of financial transactions

8.1

Synoptic presentation of the accounts, balancing items and main aggregates

8.2

Account I: Production account

8.3

Account II.1.1: Generation of income account

8.4

Account II.1.2.: Allocation of primary income account

8.5

Accounts II.1.2.1: Entrepreneurial income and II.1.2.2: Allocation of other primary income

8.6

Account II.2: Secondary distribution of income account

8.7

Account II.3: Redistribution of income in kind account

8.8

Account II.4.1: Use of disposable income account

8.9

Account II.4.2: Use of adjusted disposable income account

8.10

Account III.1.1: Change in net worth due to saving and capital transfers account

8.11

Account III.1.2: Acquisition of non-financial assets account

8.12

Account III.2: Financial account

8.13

Account III.3.1: Other changes in volume of assets account

8.14

Account III.3.2: Revaluation account

8.15

Account IV: Balance sheets

8.16

Full sequence of accounts for rest of the world (external transactions account)

8.17

Account 0: Goods and services account

8.18

Integrated economic accounts

8.19

Matrix presentation of the full sequence of accounts and balancing items for the total economy

8.20

Schematic presentation of a Social Accounting Matrix

8.21

Example of a more detailed Social Accounting Matrix

8.22

Example of a detailed submatrix: Net value added (basic prices)

9.1

A simplified supply table

9.2

A simplified use table

9.3

A simplified combined supply and use table

9.4

A simplified symmetric input-output table (product by product)

9.5

A supply table at basic prices, including a transformation into purchaser's prices

9.6

A use table at purchaser's prices

9.7

A simple trade and transport margins table

9.8

A simple taxes less subsidies on products table

9.9

A use table for imports

9.10

A use table at basic prices for domestic output

9.11

Table linking the supply and use tables to the sector accounts

9.12

A symmetric input-output table at basic prices (product by product)

9.13

A symmetric input-output table for domestic output (product by product)

A.I.1

Effect of allocating FISIM to institutional sectors, including changes for non-market producers

A.I.2

Effect to allocating FISIM to nominal sector only

A.III.1

Social security schemes of Government

A.III.2

Private funded social insurance schemes

A.III.3

Unfunded schemes operated by employers

A.III.4

Other life insurance

A.III.5

Other non-life insurance

A.IV.1

Account 0: Goods and services account

A.IV.2

Full sequence of accounts for the total economy

A.IV.3

Full sequence of accounts for non-financial corporations

A.IV.4

Full sequence of accounts for financial corporations

A.IV.5

Full sequence of accounts for general government

A.IV.6

Full sequence of accounts for households

A.IV.7

Full sequence of accounts for non-profit institutions serving households

CHAPTER 1

GENERAL FEATURES

1.01.

The European System of National and Regional Accounts (1995 ESA, or simply: 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.

The 1995 ESA, replaces the European System of Integrated Economic Accounts published in 1970 (1970 ESA; a second, slightly modified, edition appeared in 1978).

The 1995 ESA is fully consistent with the revised world-wide guidelines on national accounting, the System of National Accounts (1993 SNA, or simply: SNA; these guidelines have been produced under the joint responsibility of the United Nations, the IMF, the Commission of the European Communities, the OECD and the World Bank). However, the ESA is focused more on the circumstances and data needs in the European Union. Like the SNA, the ESA is harmonized with the concepts and classifications used in many other, social and economic statistics. Cases in point are statistics on employment, statistics on manufacturing and statistics on external trade. The ESA can therefore serve as the central framework of reference for the social and economic statistics of the European Union and its Member States.

1.02.

The ESA framework consists of two main sets of tables:

(a) the sector accounts ( 14 );

(b) the input-output framework ( 15 ) and the accounts by industry (15) .

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.

The input-output framework and the accounts by industry describe 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).

The ESA encompasses concepts of population and employment ( 16 ). These concepts are relevant for both the sector accounts and the input-output framework.

The ESA is not restricted to annual national accounting, but applies also to quarterly accounts ( 17 ) and regional accounts ( 18 ).

Framework for analysis and policy

1.03.

The ESA framework can be used to analyse and evaluate:

(a) the structure of a total economy. Cases in point 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 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 a total economy. Cases in point are:

1. banking and finance in the national economy;

2. the role of government;

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

(c) The development of a total economy over time. Cases in point 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 options;

5. the comparison of the industrial structures of the national economy over the long term, e.g. over a period of 30 years.

(d) A total economy in relation to other total economies. Cases in point are:

1. the comparison of the roles of government in the Member States of the European Union;

2. the analysis of the interdependencies between the economies of the European Union;

3. the analysis of the composition and destination of the exports of the European Union;

4. the comparison of GDP growth rates or disposable income per capita in the European Union and in the United States and Japan.

1.04.

For the European Union and its Member States, the figures from this framework play a major role in formulating and monitoring their social and economic policy.

Furthermore, there are some very important specific uses:

(a) for monitoring and guiding European monetary policy: the criteria of convergence for the European Monetary Union have been defined in terms of national accounts figures (government deficit, government debt and GDP);

(b) for granting monetary support to regions in the European Union: the expenditure for the Structural Funds of the European Union is partly based on regionalized national accounts figures;

(c) for determining the own resources of the European Union. The latter depend on national accounts figures in three ways:

1. the total resources for the European Union are determined as a percentage of the Member States' gross national products (GNP);

2. the third own resource of the European Union is the VAT own resource. The contributions by the Member States for this resource are largely affected by national accounts figures, because they 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 European Union are based on their gross national products.

Eight characteristics of ESA concepts

1.05.

In order to establish a good balance between data needs and data possibilities, the concepts in the ESA have eight important characteristics. They are:

(a) internationally compatible;

(b) harmonized with those in other social and economic statistics;

(c) consistent;

(d) operational;

(e) different from most administrative concepts;

(f) well-established and fixed for a long period;

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

(h) flexible and multi-purpose.

1.06.

The concepts are internationally compatible because:

(a) for European Union Member States, the ESA is the standard for submitting national accounts data to all international organizations. Only in the national publications is strict adherence to the ESA not obligatory;

(b) the concepts in the ESA are in all respects consistent with those in the world-wide guidelines on national accounting, i.e. the SNA.

International compatibility of concepts is crucial when comparing statistics for different countries.

1.07.

The concepts are harmonized with those in other social and economic statistics because:

(a) the ESA employs many concepts and classifications (e.g. ►M11  NACE Rev. 2 ◄ ) that are also used for the other social and economic statistics of European Union 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, these European Union concepts and classifications are also harmonized with those of the United Nations;

(b) like the SNA, the concepts in the ESA are also harmonized with those in the major international guidelines on some other economic statistics, in particular the IMF Balance of Payments Manual (BPM), the IMF Government Finance Statistics (GFS), the OECD Revenue Statistics and the ILO resolutions on the concepts of employment, hours worked and labour costs.

This harmonization with other, social and economic statistics greatly aids the linkage to and comparison with these figures. As a consequence, better national accounts figures can be compiled. Furthermore, the information contained in these specific statistics can now be better related to the general statistics on the national economy, i.e. the national accounts figures like GNP or value added per industry and sector.

1.08.

The identities in the accounting framework enforce the consistency of the concepts used to describe the different parts of the economic process (production, income distribution, use of income, accumulation). As a result of this internal consistency, statistics from different parts of the accounting framework can be usefully related to each other. So, for example, the following ratios can be calculated:

(a) productivity figures, such as value added per hour worked (this figure requires consistency between the concepts of value added and hours worked);

(b) national disposable income per capita (this ratio requires consistency between the concepts national disposable income and 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 debt as percentages of gross domestic product (these figures require consistency between the concepts of government deficit, government debt and gross domestic product).

This internal consistency of concepts also allows some estimates to be derived by residual, e.g. saving can be estimated as the difference between disposable income and final consumption expenditure ( 19 ).

1.09.

The concepts in the ESA are operational concepts since they are designed with their measurement in mind. The operational character of the concepts is revealed in several ways:

(a) some activities or items have only to be described when significant in size. This pertains, for example, to own-account production of goods by households: weaving cloth and the production of pottery are not to berecorded as production, because these types of production are deemed to be insignificant for European Union countries. Another case in point is that small inexpensive tools and appliances are only recorded as fixed capital formation when the purchaser's expenditure on such durables exceeds ECU 500 (at 1995 prices) per item (or, when bought in quantities, for the total amount bought); when this expenditure does not exceed this threshold, these items are recorded as intermediate consumption;

(b) some concepts are accompanied by clear indications of how to estimate them. For example, in defining capital consumption reference is made to linear depreciation and for estimating fixed capital stock the Perpetual Inventory Method is recommended. Another case in point is the valuation of own-account production: in principle, it should be at basic prices, but if necessary the basic prices may be approximated by adding up the various costs involved;

(c) some simplifying conventions have been adopted. For example, by convention, the collective services provided by government are all final consumption expenditure;

(d) the concepts are harmonized with those in social and economic statistics used as inputs for compiling the national accounts.

1.10.

However, at the same time, the concepts are not always easy to put into operation as they usually diverge in some respects from those employed in administrative data sources. Cases in point are business accounts, data on 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 often serve as inputs for compiling the national accounts. In general, they will therefore have to be transformed in order to comply with the ESA.

The concepts in the ESA usually differ in some respects from their administrative counterparts because:

(a) administrative concepts differ between countries. As a consequence, international compatibility cannot be attained through administrative concepts;

(b) administrative concepts change over time. As a consequence, comparability in time cannot be attained through administrative concepts;

(c) the concepts underlying administrative data sources are usually not consistent with each other. 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.

Nevertheless, sometimes, 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 may also be adopted for administrative purposes, e.g. the classification of government expenditure by type;

(b) administrative data sources may 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 European Union Member States.

1.11.

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

(a) they have been approved as the international standard for the next decades;

(b) in the successive international guidelines on national accounting most of the basic concepts have hardly been changed.

This conceptual continuity reduces the need to recalculate time series and to learn new concepts. 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 data base for economic policy and analysis for decades.

1.12.

The ESA concepts are focused on describing the economic process in monetary and readily observable terms. For the most part, stocks and flows that are not readily observable in monetary terms, or that do not have a clear monetary counterpart are not taken into account.

This principle has not been applied strictly, because account should also be taken of the requirement of consistency and the various data needs. 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 also the usefulness of the national accounts as a whole.

1.13.

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

The following fall within the production boundary of the ESA (see paragraphs 3.07. to 3.09.):

(a) production of indiviual and collective services by government;

(b) the 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) the production of services by paid domestic staff;

(f) breeding of fish in fish farms;

(g) production forbidden by law, e.g. prostitution and production of drugs;

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

The following fall outside the production boundary:

(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. caretaking and cleaning without payment;

(c) natural breeding of fish in open seas.

In general, the ESA records all outputs that result from production within the production boundary. However, there are some specific exceptions to this rule:

(a) the outputs of ancillary activities are not to be recorded; 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;

(b) outputs produced for intermediate consumption in the same local kind-of-activity unit (KAU, see paragraph 1.29.) are not to be recorded; however, all outputs produced for other local KAUs belonging to the same institutional unit are to be recorded as output.

The accounting logic of the ESA implies that if activities are regarded as production and their output is to be recorded, then the concomitant income, employment, final consumption, etc. are also to be recorded. For example, as the own-account production of housing services by owner-occupiers is recorded as production, so is the income and final consumption expenditure it generates for these owner-occupiers. 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 according to the ESA concepts, no employment is involved.

The ESA also contains many specific conventions, e.g.:

(a) the valuation of government output;

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

(c) recording all the collective services provided by government as final consumption expenditure and none as intermediate consumption;

(d) recording the use of financial intermediation services indirectly measured as the intermediate consumption of a nominal sector or a nominal industry.

1.14.

The concepts in the ESA are multi-purpose: for a great range of uses the ESA concepts will be acceptable, though they may need to be supplemented for some uses (see paragraph 1.18.).

1.15.

The detail in the conceptual framework of the ESA offers the opportunity for flexible use: some concepts are not explicitly present in the ESA but can nevertheless easily be derived from it. For example, value added at factor cost can be derived by subtracting net other taxes on production from value added at basic prices. Another case in point is the creation of new sectors by rearranging the subsectors defined in the ESA.

1.16.

Flexible use is also possible by introducing additional criteria which do not conflict with the logic of the system. For example, these criteria might be the scale of employment for producer units or the size of income for households. For employment, subclassification by level of education, age and sex can be introduced.

1.17.

This flexible use may be incorporated in a Social Accounting Matrix (SAM). The SAM is a matrix presentation which elaborates the linkages between supply and use tables and the sector accounts (see paragraphs 8.133. to 8.155). A SAM commonly provides additional information on the level and composition of (un)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.

1.18.

For some specific data needs the best solution is to draw up separate satellite accounts. Cases in point are the data needs for e.g.:

(a) the analysis of the role of tourism in the national economy;

(b) the analysis of the costs and financing of health care;

(c) the analysis of the importance of research & development and human capital for the national economy;

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

(e) the analysis of the interaction between the environment and the economy;

(f) the analysis of production within households;

(g) the analysis of changes in welfare;

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

(i) the estimation of tax revenues.

1.19.

Satellite accounts can 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 amount of the expenditure on research & development or the expenditure on education.

1.20.

An important feature of the satellite accounts is that in principle all basic concepts and classifications of the standard framework are retained. Only when the specific purpose of the satellite account definitely requires a modification, are changes in the basic concepts introduced. In such instances, the satellite account should also contain a table showing the link between the major aggregates in the satellite account and those in the standard framework. In this way, the standard framework retains its role as a framework of reference and at the same time justice is done to more specific needs.

1.21.

The standard framework does not pay much attention to stocks and flows which 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 most easily 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 are best 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.

The satellite accounts offer a possibility to link such statistics in non-monetary units to the standard national accounts framework. The linkage is possible by using for these non-monetary statistics, as far as possible, the classifications employed in the standard framework, 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 data base for the analysis and evaluation of all kinds of interactions between the variables in the standard framework and those in the extended part.

1.22.

The standard 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, e.g.:

(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.

They 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 could 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 best not 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 in a satellite account.

1.23.

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. These statistics can be provided by making some modifications to the national accounts statistics.

A similar approach could be taken for some 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.

Satellite accounts or simple supplementary tables could meet such, usually specifically national, data needs.

The 1995 ESA and the 1993 SNA

1.24.

The ESA (the 1995 ESA) is fully consistent with the revised System of National Accounts (the 1993 SNA), which provides guidelines on national accounting for all countries throughout the world. Nevertheless, there are several differences between the 1995 ESA and the 1993 SNA:

(a) differences in presentation, e.g.:

1. in the ESA there are separate chapters on transactions in products, distributive transactions and financial transactions. In contrast, in the SNA these transactions are explained in seven 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 describes a concept by providing a definition and a listing of what is included and what is excluded. The SNA describes concepts usually in more general terms and endeavours also to explain the rationale behind the conventions adopted;

3. the ESA also contains chapters on regional accounts and quarterly accounts;

4. the SNA also contains a chapter on satellite accounts.

(b) The ESA concepts are in several instances more specific and precise than those of the SNA, e.g.:

1. the SNA does not contain very precise definitions on the distinction between market, for own final use and other non-market for institutional units, local KAUs and their outputs. This implies that in this respect the valuation of output and the classification by sectors are not defined sufficiently precisely. The ESA has therefore introduced several extra clarifications and also added in some specific instances the criterion that the sales of a market producer should cover at least 50 % of the production costs (see Table 3.1);

2. the ESA specifies concrete recording thresholds, e.g. for recording small tools and appliances devices as intermediate consumption;

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

4. the ESA makes explicit reference to specific institutional arrangements in the European Union, such as the Intrastat system for recording intra-European Union flows of goods and the contributions by the Member States to the European Union;

5. the ESA contains European Union-specific classifications, e.g.: CPA for products and ►M11  NACE Rev. 2 ◄ for industries (specific but harmonized with the corresponding UN classifications);

6. the ESA contains an additional classification for all external transactions: they should be divided into those between residents of the European Union and those with residents from outside the European Union.

The ESA can be more specific than the SNA, because the ESA primarily applies to the European Union Member States. For the data needs of the European Union, the ESA should also be more specific.

The 1995 ESA and the 1970 ESA

1.25.

The 1995 ESA differs in scope as well as in concepts from the 1970 ESA. Most of these differences correspond to differences between the 1968 SNA and 1993 SNA. Some of these major differences in scope are:

(a) the inclusion of balance sheets;

(b) the inclusion of other changes in assets accounts, i.e. the introduction of the concepts other changes in volume, nominal holding gains and real holding gains;

(c) the introduction of a subsectoring of households;

(d) the introduction of a new concept of final consumption: Actual Final Consumption;

(e) the introduction of a new price-adjusted income concept: real national disposable income;

(f) the inclusion of the concept of purchasing power parities.

Some of the major differences in concepts are:

(a) literary-artistic work (writing books, composing music) is now regarded as production; payments for literary-artistic work are therefore payments for services and not property income;

(b) the valuation of the output of insurance services has changed in some respects, e.g. the revenues from the investment of technical reserves are now also taken into account in valuing the output of non-life insurance;

(c) more detailed treatment of trade and transport margins;

(d) the introduction of chain linking for calculating constant prices;

(e) the concept of financial leasing has been introduced (the 1968 SNA and 1970 ESA contained only the concept of operational leasing);

(f) expenditure on mineral exploration and on computer software is now recorded as capital formation (instead of as intermediate consumption);

(g) capital consumption should also be recorded for infrastructural works of government (roads, dikes, etc.);

(h) identification of new financial instruments, such as repurchase agreements, and derivative financial instruments such as options.

There are also differences that do not result from changes in the SNA, e.g.:

(a) the introduction of supply and use tables (this was already included in the 1968 SNA);

(b) the introduction of some registration thresholds and the reference to specific institutional arrangements in the European Union (see paragraph 1.24.);

(c) a clear choice in favour of valuing output at basic prices (the 1970 ESA, the 1968 SNA and the 1993 SNA also accept valuation at producer's prices);

(d) the introduction of the concepts of economically active population and unemployment (these concepts are absent in the 1968 and 1993 SNA).

1.26.

The main features 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.

1.27.

A characteristic feature of the system is the use of two types of unit and two ways of subdividing the economy which are quite different and serve separate analytical purposes.

In order to describe income, expenditure and financial flows, and balance sheets, the system groups institutional units into sectors on the basis of their principal functions, behaviour and objectives.

In order to describe processes of production and for input-output analysis, the system groups local kind-of-activity units (local KAUs) into industries on the basis of their type of activity. An activity is characterized by an input of products, a production process and an output of products.

1.28.

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

(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 economy. Each sector is also divided into subsectors. The system makes provision for a complete set of flow accounts and balance sheets to be compiled for each sector, and subsector if desired, as well as for the total economy.

1.29.

Most institutional units in their capacity as producers carry out more than one activity; to emphasize relationships of a technico-economic kind, they have to be partitioned with regard to the type of activity.

Local kind-of-activity units are intended to meet this requirement as an operational approach. A local KAU groups all the parts of an institutional unit in its capacity as producer which are located in a single or closely located sites, and which contribute to the performance of an activity at the class level (four digits) of the ►M11  NACE Rev. 2 ◄ .

In principle, as many local kind-of-activity units must be registered as there are secondary activities; however, if the accounting documents that would be necessary to describe such activities are not available, a local kind-of-activity unit may include one or several secondary activities.

The group of all local KAUs engaged on the same, or similar, kind-of-activity constitutes an industry.

There is a hierarchical relationship between institutional units and local KAUs. An institutional unit contains one or more entire local KAUs; a local KAU belongs to one and only one institutional unit.

For more refined analysis of the production process, use is made of an analytical unit of production. This unit, which is not observable (except in the case of a local KAU only producing one type of product), is the unit of homogeneous production, defined as covering no secondary activities. Groupings of these units constitute homogeneous branches.

1.30.

The total economy is defined in terms of resident units. A unit is said to be a resident unit of a country when it has a centre of 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 above are groups of resident institutional units.

Resident units engage in transactions with non-resident units (that is, units which are residents in other economies). These transactions are the external transactions of the economy and are grouped in the Rest of the World account. So, in the system's accounting structure, 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. Consequently, as far as coding of classifications is concerned, a specific item for the rest of the world is included at the end of the classification of sectors.

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

(a) those parts of non-resident units which have a centre of economic interest (that is in most cases which engage in economic transactions for a year or more or which carry out a construction activity for a period of less than a year if the output constitutes gross fixed capital formation) 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.

1.31.

The system records two basic kinds of information: 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.

1.32.

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 the assets appear only in these two accounts.

Elementary transactions and other flows are innumerable. The system groups them into a relatively small number of types according to their nature.

1.33.

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, often because the unit is operating in two different capacities. It is convenient to divide transactions into four main groups:

(a) transactions in products: which describe the origin (domestic output or imports) and use (intermediate consumption, final consumption, capital formation or exports) of products ( 21 );

(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) ( 22 );

(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 often occur as counterparts of non-financial transactions, but they may also occur as transactions involving only financial instruments ( 23 );

(d) transactions not included in the three groups above: consumption of fixed capital and acquisitions less disposals of non-produced non financial assets ( 24 ).

1.34.

Most transactions are interactions between two or more institutional units. However, the 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.

Consumption of fixed capital, which is recorded as a cost by the system, is an important 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 themselves. This is often the case for households and general government.

1.35.

All own-produced output used for final uses within the same institutional unit is recorded. Own-produced output used for intermediate consumption within the same institutional unit is recorded only when production and intermediate consumption take place in different local kind-of-activity units within the same institutional unit. Output produced and used as intermediate consumption within the same local kind-of-activity unit is not recorded.

1.36.

Most transactions recorded by the system are monetary transactions, where 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 normally 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 system records all transactions in monetary terms. The values to be recorded for non-monetary transactions must therefore be measured indirectly or otherwise estimated.

1.37.

Transactions involving more than one unit are either ‘something for something’ or ‘something for nothing’ transactions. The former are exchanges between institutional units, i.e. provision of goods, services or assets in return for a counterpart, e.g. money. The latter typically are payments in cash or in kind from one institutional unit to another without counterpart. ‘Something for something’ transactions occur in all four transaction groups, while ‘something for nothing’ transactions occur mainly among distributive transactions, in the form of, for example, taxes, social assistance benefits or gifts.

1.38.

The system's treatment of most transactions is straightforward; that is, 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 recognizing the principal party to a transaction.

1.39.

A transaction that appears to the units involved as taking place directly between units A and C may be recorded 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.

As well-known example of a rerouting is employers' social contributions paid directly by employers to social insurance funds. The system records these payments as two transactions: employers pay employer's social contributions to their employees, and employees pay the same contributions to social insurance funds. As with all reroutings, the purpose of rerouting employers' social contributions is to bring out the economic substance behind the transaction. In this case this means to show employer's social contributions as contributions paid for the benefit of employees.

Another type of rerouting is that of transactions recorded as taking place between two or more institutional units, although 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 policy holders, who then pay the same amount back to the insurance enterprises as premium supplements.

1.40.

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 usually not imply involving additional units in the transactions.

The payment of non-life insurance premiums is a typical partitioned transaction. Although policy holders and insurers regard these payments as one transaction, the system divides them into two quite different transactions: payments in return for non-life insurance services provided, and net non-life insurance premiums. The recording of trade margins is another important case of partitioning.

1.41.

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

1.42.

The definition of a transaction stipulates 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. However, this does not mean that all units necessarily enter a transaction voluntarily, because some transactions are imposed by law. This applies mainly to certain distributive transactions, such as payments of taxes, fines and penalties. However, uncompensated seizure of assets is not regarded as a transaction, even when imposed by law.

Illegal economic actions are transactions only when all units involved enter the actions voluntarily. Thus, purchases, sales or barters of illegal drugs or stolen property are transactions, while theft is not.

1.43.

Other changes in assets record changes that are not the result of transactions ( 25 ). They are either:

(a) other changes in the volume of assets and liabilities; or

(b) holding gains and losses.

1.44.

These changes can be roughly 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;

(c) changes in classification and structure.

1.45.

Examples of changes within category (a) are discovery or depletion of subsoil assets, and natural growth of non-cultivated biological resources. Category (b) comprises changes (normally losses) in assets due to natural disasters, war or severe acts of crime ( 26 ). Unilateral cancellation of debt and uncompensated seizure of assets also belong to category (b). Category (c) consists of changes as a consequence of reclassification and restructuring of institutional units or of assets and liabilities.

1.46.

Holding gains and losses result from 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.

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 relative prices of assets.

1.47.

Stocks are 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 ( 27 ).

Stocks are also recorded for population and employment. However, these 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. Thus, stocks are not recorded for assets such as human capital and natural resources that are not owned.

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

Rules of accounting

1.48.

An account is a means of recording, for a given aspect of economic life, the uses and resources or the changes in assets and the changes in liabilities during the accounting period, or the stock of assets and liabilities existing at the beginning or at the end of this period.

1.49.

The system employs the term ‘resources’ for the right side of the current accounts where transactions appear which add to the amount of economic value of a unit or a sector. The left side of the accounts, which relates to transactions that reduce the amount of economic value of a unit or sector, is termed ‘uses’.

The right side of the accumulation accounts is called ‘changes in liabilities and net worth’ and their left side is called ‘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.

1.50.

For a unit or sector, national accounting is based on the principle of double entry. Each transaction must 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.

In practice though, national accounts — with all units and all sectors — are based on a principle of quadruple entry, since most transactions involve two institutional units. Each transaction of this type must 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 household sector it is recorded as a resource under transfers and an acquisition of assets under currency and deposits.

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

1.51.

With the exception of some variables concerning population and labour, the system shows all flows and stocks in monetary terms. The system does not attempt to determine the utility of flows and stocks. Instead, flows and stocks are 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 ESA's basic reference for valuation.

1.52.

In the case of monetary transactions and cash holdings and liabilities, the values required are directly available. In most other cases, the preferred 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 should be made according to production costs. If neither of these two methods are feasible, flows and stocks may be valued at the discounted present value of expected future returns. However, due to the great uncertainty involved, this last method is only recommended as a last resort.

1.53.

Stocks should be 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 sometimes necessary to value stocks at their estimated written-down current acquisition values or production costs.

1.54.

Because 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 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 these elements.

1.55.

Imports and exports of products are 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.

1.56.

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 said to be in volume terms.

Many flows and stocks, e.g. income, do not have price and quantity dimensions of their own. However, the purchasing power of these 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 said to be in real terms. An example is real disposable income.

1.57.

The system records flows 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.

Thus, output is recorded when produced, not when paid for by a purchaser, and 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 actually paid in that period. Recording on an accrual basis applies to all flows, monetary as well as non-monetary and intra-unit a well as between units.

However, in some cases it is necessary to show flexibility as regards time of recording. This applies in particular to taxes and other flows concerning general government, which are often recorded on a cash basis in government accounts. It is sometimes difficult to carry out an exact transformation of these flows from cash basis to accrual basis. In these cases it might therefore be necessary to use approximations. ►M4  Additional to this flexibility as regards time of recording, it was necessary for practical reasons linked to the excessive deficit procedure to define a particular recording of taxes and social contributions payable to the government sector, so that net lending/borrowing of general government (and of counterpart sectors) shall not include amounts of taxes and social contributions unlikely to be collected. By derogation to the general principle of recording transactions, taxes and social contributions payable to the general government can either be recorded net of the part unlikely to be collected or, if this part is included, it should be neutralised in the same accounting period by a capital transfer from the general government to the relevant sectors. ◄

Any flow should be recorded at the same point of time for all institutional units involved and in all accounts in question. This principle may seem simple, but its implementation is not. 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. These discrepancies must be eliminated by adjustments.

1.58.

Consolidation refers to the elimination, from both uses and resources, of transactions which occur between units when the latter are grouped, and to the elimination of reciprocal financial assets and liabilities.

For subsectors or sectors, flows and stocks between constituent units are not consolidated between constituent units as a matter of principle.

However, consolidated accounts may be built up for complementary presentations and analyses. For certain kinds of analysis, information on the transactions of these (sub)sectors with other sectors and the corresponding ‘external’ financial position is more significant than overall gross figures.

Moreover, the accounts and tables showing the creditor/debitor 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.

1.59.

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 system recommends gross recording, apart from the degree of netting which is inherent in the classifications themselves.

In fact, 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 these types of flows at the end of the accounting period.

1.60.

For units (institutional units; local kind-of-activity units) or groups of units (institutional sectors and, by extension, the rest of the world; industries), different sub-accounts record the transactions or other flows which are connected to some specific aspect of economic life (for instance, production). Such a set of transactions usually does not balance; the total amounts recorded as receivable and payable usually differ. Therefore, a balancing item must be introduced. Usually, a balancing item must also 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 constitute significant aggregates.

The sequence of accounts

1.61.

The system is built around a sequence of inter-connected accounts.

The full sequence of accounts for the institutional units and sectors is composed of current accounts, accumulation accounts and balance sheets.

Current accounts deal with the production, generation, distribution and redistribution of income and the use of this 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.

1.62.

It is not possible to envisage a complete set of accounts, including balance sheets, being compiled for a local KAU, because generally such an entity is not capable of owning goods or assets in its own right or capable of receiving or disbursing income. The sequence of accounts for local kind-of-activity units 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

1.63.

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).

The Rest of the World account

1.64.

The Rest of the World account covers transactions between resident and non-resident institutional units and the related stocks of assets and liabilities when relevant.

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.

Balancing items

1.65.

A balancing item is an accounting construct obtained by subtracting the total value of the entries on one side of an account from the total value on the other side. It cannot be measured independently of the other entries; as a derived entry, it reflects the application of the general accounting rules to the specific entries on the two sides of the account.

Balancing items are not only devices introduced to ensure that accounts balance. They encapsulate 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.

Aggregates

1.66.

The aggregates are composite values which measure the result of the activity of the total economy considered from a particular point of view; for example, output, value added, disposable income, final consumption, saving, capital formation, etc. Although the calculation of the aggregates is neither its sole nor its main purpose, the system does recognize their importance as summary indicators and key magnitudes for purposes of macro-economic analysis and comparisons over time and space.

Two types of aggregates can be distinguished:

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

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

1.67.

A dimension is added to the usefulness of a number of national accounts figures by calculating these figures per head. 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 household sector, data on the number of households and the number of persons belonging to each subsector are also necessary ( 31 ).

1.68.

The input-output framework consists of supply and use tables by industry, tables linking the supply and use tables to the sector accounts and symmetric input-output tables by homogeneous branch (product).

1.69.

Supply and use tables are matrices (rows of products, columns of industries), showing how the output of industries is broken down by type of products and how the domestic and imported supply of goods and services is allocated between various intermediate or final uses, including exports. The use table also shows by industry the structure of production costs and the income generated.

The supply and use tables are the coordinating framework for all tables by industry and (or) by product, which include data on labour inputs, gross fixed capital formation, stocks of fixed assets, detailed price indices and thus describe in detail cost structure, income generated, employment, labour productivity, capital intensity.

1.70.

It is possible to link the supply and use tables to the sector accounts by cross-classifying output, intermediate consumption and the components of value added by sector and by industry.

CHAPTER 2

UNITS AND GROUPINGS OF UNITS

2.01.

The economy of a country is the outcome of the activity of a very large number of units which carry out numerous transactions of various kinds for purposes of production, finance, insurance, redistribution and consumption.

2.02.

The units and groupings of units used in national accounts must 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. These latter units (enterprises, holding companies, kind-of-activity units, local units, government departments, non-profit institutions, households, etc.) may not always be satisfactory for the purposes of national accounts, since they are generally based on traditional criteria of a legal, administrative or accounting nature.

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

2.03.

A feature of the system is the use of three types of unit corresponding to two very different ways of subdividing the economy. To analyse the process of production, it is essential to select units which bring out relationships of a technico-economic nature; to analyse flows affecting income, capital and financial transactions and balance sheets, it is essential to select units which make it possible to study behavioural relationships among economic agents.

Given these two objectives, institutional units appropriate for the analysis of economic behaviour, local kind-of-activity units and units of homogeneous production appropriate for the analysis of technico-economic relationships are defined later in this chapter. In practice, these three types of unit are formed by combining or subdividing the basic units of statistical inquiries or sometimes received directly from statistical inquiries. Before giving precise definitions of these three types of unit used in the ESA, it is necessary to define the limits of the national economy.

2.04.

The units, whether institutional, local kind-of-activity or of homogeneous production, which constitute the economy of a country and whose transactions are recorded in the ESA, are those which have a centre of economic interest on the economic territory of that country. These units, known as resident units, may or may not have the nationality of that country, may or may not be legal entities, and may or may not be present on the economic territory of the country at the time they carry out a transaction. Having thus defined the limits of the national economy in terms of resident units, it is necessary to define the meaning of the terms economic territory and centre of economic interest.

2.05.

The term economic territory means:

(a) the geographic territory administered by a government within which persons, goods, services and capital move freely;

(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 ( 33 );

(d) territorial enclaves (i.e. 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 (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 the preceding subparagraphs.

2.06.

The economic territory does not include extraterritorial enclaves (i.e. the parts of the country's own geographic territory used by general government agencies of other countries, by the institutions of the European Union or by international organizations under international treaties or agreements between States ( 34 )).

2.07.

The term centre of economic interest indicates the fact there exists some location within the economic territory on, or from, which a unit engages, and intends to continue to engage, in economic activities and transactions on a significant scale, either indefinitely or over a finite but long period of time (a year or more). It follows that a unit which carries out such transactions on the economic territory of several countries is deemed to have a centre of economic interest in each of them. The ownership of land and buildings within the economic territory is deemed to be sufficient in itself for the owner to have a centre of economic interest there.

2.08.

On the basis of these definitions, units deemed to be residents of a country can be sub-divided into:

(a) units which are principally 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 ( 35 ), 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 States sui generis (see paragraph 2.06.).

2.09.

In the case of units which are principally engaged in production, finance, insurance or redistribution, in respect of all their transactions except those relating to ownership of land and buildings, the following two cases may be distinguished:

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

(b) activity conducted for a year or more on the economic territories of several countries: only that part of the unit which has a centre of economic interest on the economic territory of the country is deemed to be a resident unit. It may be:

1. either an institutional resident unit (see paragraph 2.12.), whose activities conducted for a year or more in the rest of the world are excluded and treated separately ( 36 ) or

2. a notional resident unit (see paragraph 2.15.), in respect of the activity conducted in the country for a year or more by a unit which is resident in another country. (36) 

2.10.

In the case of units which are principally engaged in consumption, except in their capacity as owners of land and buildings, households which have a centre of economic interest in the country are deemed to be resident units, even if they go abroad for short periods (less than a year). They include, in particular, the following:

(a) border workers, i.e. people who cross the frontier daily to work in a neighbouring country;

(b) seasonal workers, i.e. people who leave the country for several months, but less than a year, to work in another country in sectors in which additional manpower is needed periodically;

(c) tourists, patients, students ( 37 ), 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 organizations 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.

2.11.

All units in their capacity as owners of land and/or buildings which form part of the economic territory are deemed to be resident units or notional resident units (see paragraph 2.15.) of the country in which the land or buildings in question are located.

2.12.



Definition:

The institutional unit is an elementary economic decision-making centre characterized by uniformity of behaviour and decision-making autonomy in the exercise of its principal function. A resident unit is regarded as constituting an institutional unit if it has decision-making autonomy in respect of its principal function and either keeps a complete set of accounts or it would be possible and meaningful, from both an economic and legal viewpoint, to compile a complete set of accounts if they were required.

In order to be said to have autonomy of decision in respect of its principal function, a unit must:

(a) be entitled to own goods or assets in its own right; it will therefore be able to exchange the ownership of goods or assets in transactions with other institutional units;

(b) be able to take economic decisions and engage in economic activities for which it is itself held to be directly responsible and accountable at law;

(c) be able to incur liabilites on its own behalf, to take on other obligations or further commitments and to enter into contracts.

In order to be said to keep a complete set of accounts, a unit must keep accounting records covering all its economic and financial transactions carried out during the accounting period, as well as a balance sheet of assets and liabilities.

2.13.

The following principles apply whenever entities do not clearly possess both the characteristics of an institutional unit:

(a) households always enjoy autonomy of decision in respect of their principal function and must therefore be institutional units, even though they do not keep a complete set of accounts;

(b) entities which do not keep a complete set of accounts, and for which it would not be possible or meaningful to compile a complete set of accounts if required, are combined with the institutional units into whose accounts their partial accounts are integrated;

(c) entities which, while keeping a complete set of accounts, have no autonomy of decision in the exercise of their principal function are combined with the units which control them;

(d) entities which satisfy the definition of an institutional unit are treated as such even if they do not publish their accounts;

(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 holding corporation) responsible for the general direction of the group; the holding corporation itself is deemed to be an institutional unit distinct from the units which it controls, unless (b) is applicable;

(f) quasi-corporations keep a complete set of accounts and have no independent legal status. However, they have an economic and financial behaviour that is different from that of their owners and similar to that of corporations. Therefore they are deemed to have autonomy of decision and are considered as distinct institutional units.

2.14.

Holding corporations are institutional units whose main function is to control and direct a group of subsidiaries.

2.15.

Notional resident units are defined as:

(a) those parts of non-resident units which have a centre of economic interest (that is in most cases which engage in economic transactions for a year or more or which carry out a construction activity for a period of less than a year if the output constitutes gross fixed capital formation) 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.

Notional resident units, even if they keep only partial accounts and may not always enjoy autonomy of decision, are treated as institutional units.

2.16.

In conclusion, the following are deemed to be institutional units:

(a) units which have a complete set of accounts and autonomy of decision:

1. private and public corporations;

2. cooperatives or partnerships recognized as independent legal entities;

3. public producers which by virtue of special legislation are recognized as independent legal entities;

4. non-profit institutions recognized as independent legal entities;

5. agencies of general government;

(b) units which have a complete set of accounts and which are deemed to have autonomy of decision:

quasi-corporations (see paragraph 2.13. f);

(c) units which do not necessarily keep a complete set of accounts, but which by convention are deemed to have autonomy of decision:

1. households;

2. notional resident units (see paragraph 2.15.).

2.17.

The need for aggregation means that it is impossible to consider individual institutional units separately; they must be combined into groups called institutional sectors or simply 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

 
 
 

Central Bank

S.121

 
 
 

Other monetary financial institutions

S.122

S.12201

S.12202

S.12203

Other financial intermediaries,

except insurance corporations and pension funds

S.123

S.12301

S.12302

S.12303

Financial auxiliaries

S.124

S.12401

S.12402

S.12403

Insurance corporations and pension funds

S.125

S.12501

S.12502

S.12503

General government

S.13

 
 
 

Central government

S.1311

 
 
 

State government

S.1312

 
 
 

Local government

S.1313

 
 
 

Social security funds

S.1314

 
 
 

Households

S.14

 
 
 

Employers (including own-account workers)

S.141 + S.142

 
 
 

Employees

S.143

 
 
 

Recipients of property incomes

S.1441

 
 
 

Recipients of pensions

S.1442

 
 
 

Recipients of other transfer incomes

S.1443

 
 
 

Others

S.145

 
 
 

Non-profit institutions serving households

S.15

 
 
 

Rest of the world

S.2

 
 
 

The European Union

S.21

 
 
 

The member countries of the EU

S.211

 
 
 

The institutions of the EU

S.212

 
 
 

Third countries and international organizations

S.22

 
 
 

2.18.

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

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.

A sector is divided into subsectors according to the criteria relevant to that sector; 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.

Each institutional unit belongs to only one sector or subsector.

2.19.

When the principal function of the institutional unit is to produce goods and services, it is necessary in deciding the sector to which it should be allocated — to distinguish first of all the type of producer it is belonging to.

Three types of producers are distinguished in the ESA:

(a) private and public market producers (see paragraph 3.24 and table 3.1 of chapter 3);

(b) private producers for own final use (see paragraph 3.25 and table 3.1 of chapter 3);

(c) private and public other non-market producers (see paragraph 3.26 and table 3.1 of chapter 3).

Institutional units which are market producers are classified in the sectors non-financial corporations (S.11), financial corporations (S.12) or households (S.14).

Institutional units which are private producers for own final use are classified in the households sector (S.14) together with the unincorporated enterprises owned by households (see paragraph 3.30).

Institutional units which are other non-market producers are classified in the sector general government (S.13) or non-profit institutions serving households (S.15).

2.20.

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



Table 2.2 — The type of producer, the principal activities and functions classified by sector

Sector

Type of producer

Principal activity and function

Non-financial corporations (S.11)

(see paragraph 2.21)

Market producer

Production of market goods and non-financial services

Financial corporations (S.12)

(see paragraph 2.32)

Market producer

Financial intermediation including insurance

Auxiliary financial activities

General government (S.13)

(see paragraph 2.68)

Public other non-market producer

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

Households (S.14)

— as consumers

 

Consumption

— as entrepreneurs

(see paragraph 2.75)

Market producer or private producer for own final use

Production of market output and output for own final use

Non-profit institutions serving households (S.15)

(see paragraph 2.87)

Private other non-market producer

Production and supply of other non-market output for individual consumption

The rest of the world (S.2) is a grouping of institutional units (see paragraph 2.89) which is not characterized by similar objectives and types of behaviour; it groups together non-resident institutional units insofar as they carry out transactions with resident institutional units.

2.21.

Definition : The sector non-financial corporations (S.11) consists of institutional units whose distributive and financial transactions are distinct from those of their owners and which are market producers (see paragraphs 3.31, 3.32 and 3.37), whose principal activity is the production of goods and non-financial services ( 38 )

2.22.

The sector non-financial corporations also includes non-financial quasi-corporations.

2.23.

The term ‘non-financial corporations’ denotes all bodies recognized as independent legal entities which are market producers and whose principal activity is the production of goods and non-financial services.

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

(c) public producers which by virtue of special legislation are recognized 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 recognized as independent legal entities and which are market producers principally engaged in the production of goods and non-financial services ( 39 );

(e) holding corporations controlling (see paragraph 2.26) a group of corporations which are market producers, if 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) private and public quasi-corporations which are market producers principally engaged in the production of goods and non-financial services.

2.24.

The term ‘non-financial quasi-corporations’ denotes all bodies without independent legal status which are market producers principally engaged in the production of goods and non-financial services and meet the conditions qualifying them as quasi-corporations (see paragraph 2.13. f).

Quasi-corporations must keep a complete set of accounts and are operated as if they were corporations. The de facto relationship to their owner is that of a corporation to their shareholders.

Thus 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.

The existence of a complete set of accounts, including balance sheets, is not a sufficient condition for market producers to be treated as quasi-corporations. Therefore, partnerships and public producers, other than those included under 2.23. a, b, c and f 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.

2.25.

The sector non-financial corporations also includes all notional resident units (see paragraph 2.15) which, by convention, are treated as if they were quasi-corporations.

2.26.

Control over a corporation is defined as the ability to determine general corporate policy by choosing appropriate directors, if necessary.

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

In addition, government secures control over a corporation as a result of special legislation decree or regulation which empowers the government to determine corporate policy or to appoint the directors.

In order to control more than half the shareholders' voting power, an institutional unit need not own any of the voting shares itself. A 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.

2.27.

The sector non-financial corporations 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).

2.28.



Definition:

The sub-sector public non-financial corporations consists of all non-financial corporations and quasi-corporations that are subject to control (see paragraph 2.26) by government units.

2.29.

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

2.30.



Definition:

The subsector national private non-financial corporations consists of all non-financial corporations and quasi-corporations that are not controlled by government or by non-resident institutional units. This subsector includes all the non-profit institutions which are included in the non-financial corporate sector (see paragraph 2.23. d).

This subsector includes corporate and quasi-corporate direct foreign investment enterprises (see paragraph 4.65) not classified in the subsector foreign controlled non-financial corporations (S.11003).

2.31.



Definition:

The subsector foreign controlled non-financial corporations consists of all non-financial corporations and quasi-corporations that are controlled (see paragraph 2.26) 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 to be treated as non-financial quasi-corporations (see paragraph 2.25).

2.32.

Definition

:

The sector financial corporations (S.12) consists of all corporations and quasi-corporations which are principally engaged in financial intermediation (financial intermediaries) and/or in auxiliary financial activities (financial auxiliaries) ( 40 )

Financial intermediation is the activity in which an institutional unit acquires financial assets and at the same time incurs liabilites (see paragraph 2.34) on its own account (see paragraph 2.33) by engaging in financial transactions on the market (see paragraphs 2.37 to 2.38). The assets and liabilities of the financial intermediaries have different characteristics, involving that the funds are transformed or repackaged with respect to maturity, scale, risk and the like in the financial intermediation process.

Auxiliary financial activities are activities closely related to financial intermediation but which are not financial intermediation themselves (see paragraph 2.39).

2.33.

Through the financial intermediation process, funds are channelled between third parties with a surplus on one side and those with a lack of funds on the other. A financial intermediary does not simply act as an agent for these other institutional units but places itself at risk by acquiring financial assets and incurring liabilities on its own account.

2.34.

In the financial intermediation process, all categories of liabilities may be involved with the exception of the category other accounts payable (AF.7).

The financial assets involved in the financial intermediation process may be classified in any category with the exception of the category insurance technical reserves (AF.6) but including the category other accounts receivable (factoring). In addition, financial intermediaries may invest their funds in non-financial assets including real estate. However, in order to be considered as a financial intermediary, a corporation should, in addition, incur liabilities on the market and transform funds. Therefore, real estate corporations ( ►M11  NACE Rev. 2 ◄ ►M11  division 68 ◄ ) are excluded.

2.35.

The primary function of insurance corporations and pension funds consists of the pooling of risks. The main liabilities of these institutions are insurance technical reserves (AF.6). The counterparts of the reserves are investments by the insurance corporations and pension funds, which, therefore, act as financial intermediaries.

2.36.

Mutual funds primarily incur liabilities through the issue of shares (AF.52). They transform these funds by acquiring financial assets and/or real estate. Therefore, mutual funds are classified as financial intermediaries. As with other corporations, any change in the value of their assets and liabilities other than their own shares is reflected in their own funds (see paragraph 7.05). Because the amount of own funds normally equals the value of the mutual fund's shares, any change in the value of the fund's assets and liabilities will be reflected in the market value of these shares.

Mutual funds investing solely in real estate are also regarded as financial intermediaries.

2.37.

Financial intermediation, generally, is limited to financial transactions on the market. In other words, acquiring assets and incurring liabilities should be with the general public or specified and relatively large sub-groups thereof. Where the activity is limited to small groups of persons or families, generally, no financial intermediation takes place. In particular, financial intermediation does not include institutional units providing treasury services to a company group. These institutional units are allocated to a sector according to the predominant function of the company group within the economic territory. However, in cases where the institutional unit providing the treasury services is subject to financial supervision, it is classified in the financial corporations sector by convention.

2.38.

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 heavily on the municipality involved, or financial lease corporations depending on a parent group of companies in acquiring funds or in investing funds. However, their lending or their acceptance of savings should be independent of the municipality involved or the parent group, respectively, in classifying them as financial intermediaries.

2.39.

Auxiliary financial activities comprise auxiliary activities for realizing transactions in financial assets and liabilities or the transformation or repackaging of funds. Financial auxiliaries do not set themselves at risk by acquiring financial assets or incurring liabilities. They only facilitate financial intermediation.

2.40.

The institutional units included in the sector financial corporations (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 recognized as independent legal entities which are principally engaged in financial intermediation and/or in auxiliary financial activities;

c) public producers, which by virtue of special legislation are recognized as independent legal entities, which are principally engaged in financial intermediation and/or in auxiliary financial activities;

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

e) holding corporations (see paragraph 2.14) if the group of subsidiaries within the economic territory as a whole is principally engaged in financial intermediation and/or in auxiliary financial activities;

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

g) financial quasi-corporations:

1. unincorporated units principally engaged in financial intermediation and subject to regulation and supervision (in most cases classified in the other monetary financial institutions subsector or the insurance corporations and pension funds subsector) 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. Therefore, they are treated as separate institutional units. Examples are branches of non-resident financial corporations;

2. other unincorporated units principally engaged in financial intermediation but not subject to regulation and supervision are only considered as financial quasi-corporations if they meet the conditions qualifying them as quasi-corporations (see paragraph 2.13. f);

3. unincorporated units principally engaged in auxiliary financial activities are only considered as financial quasi-corporations if they meet the conditions qualifying them as quasi-corporations (see paragraph 2.13. f).

2.41.

The financial corporations sector is subdivided into five subsectors:

(a) the central bank (S.121);

(b) other monetary financial institutions (S.122);

(c) other financial intermediaries, except insurance corporations and pension funds (S.123);

(d) financial auxiliaries (S.124);

(e) insurance corporations and pension funds (S.125).

The other monetary financial institutions subsector is regarded as equivalent to the other depository corporations subsector as defined in the 1993 SNA 4.88—4.94. While the definition of the other monetary financial institutions subsector (see paragraph 2.48) is intended to cover those financial intermediaries through which the effects of the monetary policy of the central bank are transmitted to the other entities of the economy, the other depository corporations subsector is defined in the 1993 SNA with reference to measures of broad money. The combined subsectors S.121 and S.122 coincide with the monetary financial institutions for statistical purposes as defined by the EMI (see paragraph 2.49).

2.42.

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

(a) public financial corporations;

(b) national private financial corporations;

(c) foreign controlled financial corporations.

The criteria for this subdivision are the same as for non-financial corporations (see paragraphs 2.26 to 2.31).

2.43.

Holding corporations which only control and direct a group of subsidiaries principally engaged in financial intermediation and/or in auxiliary financial activities are classified in the subsector other financial intermediaries except insurance corporations and pension funds (S.123) ( 41 ). However, holding corporations which are financial corporations themselves are to be allocated to the subsectors according to the main type of financial activity.

2.44.

Non-profit institutions recognized as independent legal entities serving financial corporations, but not engaged in financial intermediation or auxiliary financial activities, are classified in the subsector financial auxiliaries (S.124).

2.45.



Definition:

The subsector the central bank (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.

2.46.

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

(a) the national central bank, also in the case where 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. Mostly these activities are performed either within central government or within the central bank. In these cases no separate institutional units exist.

2.47.

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.124 (see paragraph 2.58 (g) ( 42 ).

2.48.



Definition:

The subsector other monetary financial institutions (S.122) consists of all financial corporations and quasi-corporations, except those classified in the central bank subsector, which are principally engaged in financial intermediation and whose business is to receive deposits and/or close substitutes for deposits from institutional units other than monetary financial institutions, and, for their own account, to grant loans and/or to make investments in securities.

2.49.

The monetary financial institutions (MFIs) comprise the subsector the central bank (S.121) and the subsector other monetary financial institutions (S.122), and coincide with the monetary financial institutions for statistical purposes as defined by the EMI (see paragraph 2.41).

2.50.

MFIs cannot be described simply as ‘banks’, because they may possibly include some financial corporations which may not call themselves banks, and some which may not be permitted to do so in some countries, while some other financial corporations describing themselves as banks may not in fact be MFIs. In general, the following financial intermediaries are classified in subsector 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) specialized banks (e.g. merchant banks, issuing houses, private banks).

2.51.

The following financial intermediaries may also be 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 bonds and other comparable securities. Otherwise, they should be classified in subsector S.123:

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

(b) mutual funds (including investment trusts, unit trusts and other collective investment schemes, e.g. undertakings for collective investment in transferable securities-UCITS);

(c) municipal credit institutions.

2.52.

Subsector S.122 does not include:

(a) holding corporations which only control and direct a group consisting predominantly of other monetary financial institutions, but which are not other monetary financial institutions themselves. They are classified in subsector S.123 (see paragraph 2.43);

(b) non-profit institutions recognized as independent legal entities serving other monetary financial institutions, but not engaged in financial intermediation. They are classified in subsector S.124 (see paragraph 2.44).

2.53.



Definition:

The subsector other financial intermediaries except insurance corporations and pension funds (S.123) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation by incurring liabilities in forms other than currency, deposits and/or close substitutes for deposits from institutional units other than monetary financial institutions, or insurance technical reserves.

2.54.

Subsector S.123 includes various types of financial intermediaries especially those which are predominantly engaged in long-term financing. In most cases this predominant maturity forms the basis of a distinction from the other monetary financial institutions subsector. Based on the non-existence of liabilities in the form of insurance technical reserves, the borderline with the insurance corporations and pension funds subsector can be determined.

2.55.

In particular, the following financial corporations and quasi-corporations are classified in subsector S.123 unless they are MFIs:

(a) corporations engaged in financial leasing;

(b) corporations engaged in hire purchase and the provision of personal or commercial finance;

(c) corporations engaged in factoring;

(d) security and derivative dealers (on own account);

(e) specialized financial corporations such as venture and development capital companies, export/import financing companies;

(f) financial vehicle corporations, created to be holders of securitized assets;

(g) financial intermediaries which receive deposits and/or close substitutes for deposits from MFIs only;

(h) holding corporations which only control and direct a group of subsidiaries principally engaged in financial intermediation and/or in auxiliary financial activities, but which are not financial corporations themselves (see paragraph 2.43).

2.56.

Subsector S.123 does not include non-profit institutions recognized as independent legal entities serving other financial intermediaries except insurance corporations and pension funds, but not engaged in financial intermediation. They are classified in subsector S.124 (see paragraph 2.44).

2.57.



Definition:

The subsector financial auxiliaries (S.124) consists of all financial corporations and quasi-corporations which are principally engaged in auxiliary financial activities, that is to say activities closely related to financial intermediation but which are not financial intermediation themselves (see paragraph 2.39).

2.58.

In particular, the following financial corporations and quasi-corporations are classified in subsector S.124:

(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 recognized as independent legal entities serving financial corporations, but not engaged in financial intermediation or auxiliary financial activities (see paragraph 2.44).

2.59.

Subsector S.124 does not include holding corporations which only control and direct a group of subsidiaries principally engaged in auxiliary financial activities, but which are not financial auxiliaries themselves. They are classified in subsector S.123 (see paragraph 2.43).

2.60.



Definition:

The subsector insurance corporations and pension funds (S.125) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation as the consequence of the pooling of risks (see paragraph 2.35).

2.61.

The insurance contracts administered might relate to individuals and/or groups, whether or not participation results from a general obligation imposed by government. Furthermore, social insurance contracts (see paragraphs 4.83 to 4.91) are sometimes a considerable part of the contracts administered.

2.62.

Subsector S.125 includes both captive insurance corporations and reinsurance corporations.

2.63.

Subsector S.125 does not include:

(a) institutional units which fulfil each of the two criteria listed in paragraph 2.74. They are classified in subsector S.1314;

(b) holding corporations which only control and direct a group consisting predominantly of insurance corporations and pension funds, but which are not insurance corporations and pension funds themselves. They are classified in subsector S.123 (see paragraph 2.43);

(c) non-profit institutions recognized as independent legal entities serving insurance corporations and pension funds, but not engaged in financial intermediation. They are classified in subsector S.124 (see paragraph 2.44).

2.64.

The subsector insurance corporations and pension funds may be subdivided into:

(a) insurance corporations;

(b) (autonomous) pension funds.

Autonomous pension funds are pension funds which have autonomy of decision and keep a complete set of accounts. They are therefore institutional units. Non-autonomous pension funds are not institutional units and remain part of the institutional unit that sets them up.

2.65.

Risks concerning individuals or groups could both be included in the activities of life and non-life insurance corporations. Some insurance corporations might limit their activities to group contracts only. These corporations are allowed to insure every group.

2.66.

Pension funds can be described as institutions which insure group risks relating to social risks and needs (see paragraph 4.84) of the insured persons. The typical groups of participants in such policies 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 might encompass benefits which are paid after death of the insured to the widow(er) and children (mainly death in service), benefits which are paid after retirement and benefits which are paid after the insured became disabled.

2.67.

In some countries all these types of risks could be insured equally well by life insurance corporations as by pension funds. In other countries some of these classes of risks have to be 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.

2.68.



Definition:

The sector general government (S.13) includes all institutional units which are other non-market producers (see paragraph 3.26) whose output is intended for individual and collective consumption, and mainly financed by compulsory payments made by units belonging to other sectors, and/or all institutional units principally engaged in the redistribution of national income and wealth.

2.69.

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

(a) general government entities (excluding public producers organized as public corporations or, by virtue of special legislation, recognized as independent legal entities, or quasi-corporations, when any of these are classified in the non-financial or financial sectors) which administer and finance a group of activities, principally providing non-market goods and services, intended for the benefit of the community ( 43 );

(b) non-profit institutions recognized as independent legal entities which are other non-market producers and which are controlled and mainly financed by general government;

(c) autonomous pension funds if the two requirements of paragraph 2.74 are met.

2.70.

The general government sector is divided into four subsectors:

(a) central government (S.1311);

(b) State government (S.1312);

(c) local government (S.1313);

(d) social security funds (S.1314).

2.71.



Definition:

The subsector central government 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 and mainly financed by central government and whose competence extends over the whole economic territory.

2.72.



Definition:

The State government subsector consists of state governments which are separate institutional units exercising some of the functions of government at a level below that of central government and above that of the governmental institutional units existing at local level, except for the administration of social security funds.

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

2.73.



Definition:

The subsector local government 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 and mainly financed by local governments and whose competence is restricted to the economic territories of the local governments.

2.74.



Definition:

The subsector social security funds includes all 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;

(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 (see paragraph 4.89).

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.

2.75.



Definition:

The households sector (S.14) covers individuals or groups of individuals as consumers and possibly also as entrepreneurs producing market goods and non-financial and financial services (market producers) provided that, in the latter case, the corresponding activities are not those of 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 (see paragraphs 3.20, 3.25 and 3.30).

Households as consumers may be defined as small groups of persons who share the same living accommodation, who pool some, or all, of their income and wealth and who consume certain types of goods and services collectively, mainly housing and food. The criteria of the existence of family or emotional ties may be added.

The principal resources of these units are derived from the compensation of employees, property income, transfers from other sectors or the receipts from disposal of market products or the imputed receipts from output of products for own final consumption.

2.76.

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 comprising, together, a single institutional unit, that is, 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 independent legal status — other than those treated as quasi-corporations — which are market producers;

(e) non-profit institutions serving households, which do not have independent legal status or those which do but are of only minor importance (see paragraph 2.88).

2.77.

The households sector is subdivided into six subsectors:

(a) employers (including own-account workers) (S.141 + S.142);

(b) employees (S.143);

(c) recipients of property incomes (S.1441);

(d) recipients of pensions (S.1442);

(e) recipients of other transfer incomes (S.1443);

(f) others (S.145).

2.78.

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 must be based on the total household income within each category.

2.79.



Definition:

The subsector employers (including own-account workers) 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 always account for more than a half of total household income.

2.80.



Definition:

The subsector employees 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.

2.81.



Definition:

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

2.82.



Definition:

The subsector recipients of pensions 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 income consists of retirement or other pensions, including pensions from previous employers.

2.83.



Definition:

The subsector recipients of other transfer incomes 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.

2.84.



Definition:

The subsector others consists of persons living permanently in institutions.

Persons living permanently in institutions are classified separately because the criterion of the largest source of income does not allow a meaningful classification of these persons in one of the foregoing subsectors.

2.85.

If the main income source of the household as a whole is not available for sectoring purposes, the income of the reference person constitutes the second-best characteristic to be used for classifying purposes. The reference person of a household is normally the person with the largest income. If the latter information is not available, the income of the person who states the he/she is the reference person may be used for subsectoring households.

2.86.

However, other criteria may be appropriate and needed for different kinds of analysis or as the basis for policy-making, e.g. breakdown of households as entrepreneurs by activity: agricultural households; non-agricultural households (industry; services).

2.87.

Definition : The sector non-profit institutions serving households (NPISHs) (S.15) consists of non-profit institutions which are separate legal entities, which serve households and which are private other non-market producers (see paragraph 3.32). Their principal resources, apart from those derived from occasional sales, are derived from voluntary contributions in cash or in kind from households in their capacity as consumers, from payments made by general governments ( 44 ) and from property income.

2.88.

Where these institutions are not very important, they are not included in this sector, their transactions being mixed up with those of households (S.14).

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;

(b) charities, relief and aid organizations 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 right to a predetermined set of goods and services.

2.89.

Definition : The rest of the world (S.2) is a grouping of units without any characteristic functions and resources; it consists of non-resident units ( 45 ) 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.

2.90.

The rest of the world is not a sector for which complete sets of accounts have to be kept, although it is often convenient to describe the rest of the world as if it were 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, their objectives and functions. This is not the case for the sector rest of the world: 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.

2.91.

It should be noted that the rule whereby the accounts for the rest of the world include only transactions carried out between resident institutional units and non-resident units is 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 (see paragraph 3.144);

(b) transactions in foreign assets between residents belonging to different sectors are shown in the detailed financial accounts for the rest of the world; although they 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.

2.92.

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

(a) the European Union (S.21):

1. the member countries of the European Union (S.211);

2. the institutions of the European Union (S.212);

(b) third countries and international organizations (S.22).

2.93.

The following overview and paragraphs 2.94 to 2.101 summarize the principles underlying the classification of producer units into sectors, using the standard terminology for describing the main types of institutions.

2.94.

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 (see paragraph 2.23.a);

(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12, financial corporations (see paragraphs 2.40. a and 2.40. f).

2.95.

Cooperatives and partnerships recognized 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 (see paragraph 2.23. b);

(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12, financial corporations (see paragraph 2.40. b).



Table 2.3. — Sector classification of producer units for main standard legal forms of ownership

Type of producerStandard legal description

Market producers principally engaged in the production of goods and non-financial services

Market producers principally engaged in financial intermediation

Other non-market producers

Public producers

(see paragraph 3.28)

Private producers

(see paragraph 3.29)

Private and public corporations

S.11 non-financial corporations

(see paragraph 2.23. a)

S.12 financial corporations

(see paragraph 2.40. a and f)

 
 

Cooperatives and partnerships recognized as independent legal entities

S.11 non-financial corporations

(see paragraph 2.23. b)

S.12 financial corporations

(see paragraph 2.40. b)

 
 

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

S.11 non-financial corporations

(see paragraph 2.23. c)

S.12 financial corporations

(see paragraph 2.40. c)

 
 

Public producers not recognized as independent legal entities

those with the characteristics of quasi-corporations

S.11 non-financial corporations

(see paragraph 2.23. f)

S.12 financial corporations

(see paragraph 2.40. g)

 
 

the rest

 
 

S.13 general government

(see paragraph 2.69. a)

 

Non-profit institutions recognized as independent legal entities

S.11 non-financial corporations

(see paragraph 2.23. d)

S.12 financial corporations

(see paragraph 2.40. d)

S.13 general government

(see paragraph 2.69. b)

S.15 non-profit institutions serving households (1)

(see paragraph 2.87)

Partnerships not recognized as independent legal entities

Sole proprietorships

those with the characteristics of quasi-corporations

S.11 non-financial corporations

(see paragraph 2.23. f)

S.12 financial corporations

(see paragraph 2.40. g)

 
 

the rest

S.14 households

(see paragraph 2.75)

S.14 households

(see paragraph 2.75)

 
 

Holding corporations 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

(see 2.23. e)

 
 
 

financial services

 

S.12 financial corporations

(see paragraph 2.40. e)

 
 

(1)   With the exception of non-profit institutions of minor importance (see paragraph 2.88).

2.96.

Public producers which by virtue of special legislation are recognized 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 (see paragraph 2.23. c);

(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12, financial corporations (see paragraph 2.40. c).

2.97.

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

(a) if they are quasi-corporations (see paragraph 2.13. f):

1. those principally engaged in the production of goods and non-financial services: in sector S.11, non-financial corporations (see paragraph 2.23. f);

2. those principally engaged in financial intermediation and financial auxiliary activities: in sector S.12, financial corporations (see paragraph 2.40. g).

(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 (see paragraph 2.69. a).

2.98.

Non-profit institutions (associations, foundations) recognized 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 (see paragraph 2.23. d);

(b) those principally engaged in financial intermediation and auxiliary financial activities: in sector S.12, financial corporations (see paragraph 2.40. d);

(c) those which are non-market producers:

1. in sector S.13, general government, if they are public producers controlled and mainly financed by general government (see paragraph 2.69. b);

2. in sector S.15, non-profit institutions serving households, if they are private producers (see paragraph 2.87).

2.99.

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

(a) if they are quasi-corporations (see paragraph 2.13. f):

1. those principally engaged in the production of goods and non-financial services: in sector S.11, non-financial corporations (see paragraph 2.23. f);

2. those principally engaged in financial intermediation and financial auxiliary activities in sector S.12 financial corporations (see paragraph 2.40. g).

(b) If they are not quasi-corporations, they are classified in sector S.14, households (see paragraph 2.75).

2.100.

Holding corporations (i.e. corporations which direct a group of companies) 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 paragraph 2.23. e);

(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 paragraph 2.40. e).

2.101.

Table 2.3 illustrates in schematic form the various cases which are enumerated above.

2.102.

In practice, 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 activites and some ancillary activities (see paragraphs 3.10 to 3.13).

2.103.

An activity can be said to take place 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 characterized by an input of products (goods and services), a production process and an output of products.

Activities can be determined by reference to a specific level of ►M11  NACE Rev. 2 ◄  ( 46 ).

2.104.

If a unit carries out more than one activity, all the activites which are not ancillary activities 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. Ancillary activities are not isolated to form distinct entities or separated from the principal or secondary activities of entities they serve.

2.105.

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 emphasize relationships of a technico-economic kind. This requirement means that as a rule 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 a first but practice-oriented operational approach.

2.106.

Definition : The local kind-of-activity unit (local KAU) is the part of a KAU which corresponds to a local unit ( 47 ). The 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 ►M11  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 producing goods and services or a part thereof situated in a geographically identified place.

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

2.107.

If an institutional unit producing goods and services contains a principal activity and also one or several secondary activities, it should be subdivided into the same number of KAUs, and the secondary activities should be classified under different headings from the principal activity. On the other hand, 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.

2.108.



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 ►M11  NACE Rev. 2 ◄ and which are therefore engaged in the same activity as defined in the ►M11  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.

2.109.

Industries may be classified in three categories:

(a) industries producing market goods and services (market industries) and goods and services for own final use ( 48 );

(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.

2.110.

The classification used for grouping local KAUs into industries is the ►M11  NACE Rev. 2 ◄ .

2.111.

The local KAU meets the requirements of production process analysis only approximately (see paragraphs 2.105 and 2.107). The unit which is optimal for this kind of analysis, i.e. input-output analysis, is the unit of homogeneous production.

2.112.



Definition:

The distinguishing feature of a unit of homogeneous production is a unique activity which is identified by its inputs, a particular process of production and its outputs. The products which constitute the inputs and outputs are themselves distinguished not only by their physical characteristics and the extent to which they are processed but also by the technique of production used: they can be identified by reference to a classification of products (see paragraph 2.118).

2.113.

If a goods and services producing institutional unit carries out a principal activity and also one or more secondary activities, it will be partitioned into the same number of units of homogeneous production. Ancillary activities are not separated from the principal or secondary activities. Just like the local KAU, the unit of homogeneous production may correspond to an institutional unit or a part thereof; on the other hand, it can never belong to two different institutional units.

2.114.



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.

2.115.

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 rearranged to. form homogeneous branches.

2.116.

Homogeneous branches may be classified in three categories:

(a) homogeneous branches producing market goods and services (market branches) and goods and services for own final use ( 49 );

(b) homogeneous branches producing non-market goods and services of general government: non-market branches of general government;

(c) homogeneous branches producing non-market goods and services of non-profit institutions serving households: non-market branches of non-profit institutions serving households.

2.117.

The homogeneous branches producing market goods and services and goods and services for own final use consist of all units of homogeneous production of whatever institutional sector which are exclusively engaged in the production of market goods and services or of goods and services for own final use. The production of market goods and services within the general government or non-profit institutions sectors (including those intended for themselves) are treated as units of homogeneous production and classified in an appropriate market branch.

The non-market homogeneous branches of general government producing non-market goods and services consist of all units of homogeneous production in the general government sector which produce non-market goods and services.

The non-market homogeneous branches of non-profit institutions serving households consist of all units of homogeneous production in the non-profit institutions serving households sector which produce non-market goods and services.

2.118.

The classification of homogeneous branches used in the input-output tables is based on the Classification of Products by Activity (CPA) ( 50 ). The CPA is a product classification whose elements are structured according to the industrial origin criterion, industrial origin being defined by ►M11  NACE Rev. 2 ◄ .

CHAPTER 3

TRANSACTIONS IN PRODUCTS

3.01.



Definition:

Products are all goods and services that are created within the production boundary. The latter 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

Intermediante 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 in the following accounts:

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

(b) in the production account, output is recorded as a resource and intermediate consumption is recorded as a use;

(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 registered as a use (a change in assets);

(f) in the external account of goods and services, imports of goods and services are recorded as a resource, while exports of goods and services are registered as uses.

3.04.

In the supply table, 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 3.48). Uses of products are valued at purchasers' prices (see paragraph 3.06). For some types of supplies and uses, more specific valuation principles are used, e.g. for imports and exports of goods.

3.06.



Definition:

At the time of purchase, the purchaser's price is the price the purchaser actually pays for the products; including any taxes less subsidies on the products (but excluding deductible taxes like VAT on the products); including any transport charges paid separately by the purchaser to take delivery at the required time and place; after deductions for any discounts for bulk or off-peak-purchases from standard prices or charges; excluding interest or services charges added under credit arrangements; excluding any extra charges incurred as a result of 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 should be made in such a way 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 especially important if the prices of the products involved change drastically within a year.

3.07.



Definition:

Production is an activity carried out under the control and responsibility of an institutional unit that uses inputs of labour, capital and goods and services to produce goods and services. Production does not cover purely natural processes without any human involvement or direction, like the unmanaged growth of fish stocks in international waters (but fish farming is production).

3.08.

Production includes:

(a) the production of all individual or collective goods or services that are supplied to units other than their producers (or intended to be so supplied);

(b) the own-account production of all goods that are retained by their producers for their own final consumption or gross fixed capital formation. Own account production for gross fixed capital formation includes the production of fixed assets such as construction, the development of software and mineral exploration for own gross fixed capital formation (for the concept of gross fixed capital formation, see paragraphs 3.100 to 3.127).

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.

Own-account production of a good by households should be recorded if this type of production is significant, i.e. if it is believed to be quantitatively important in relation to the total supply of that good in a country.

By convention, in the ESA, only own-account construction of dwellings and the production, storage and processing of agricultural products is included; all other own-account production of goods by households are deemed to be insignificant for European Union countries;

(c) the own-account production of housing services by owner-occupiers;

(d) domestic and personal services produced by employing paid domestic staff;

(e) volunteer activities that result in goods, e.g. the construction of a dwelling, church or other building are to be recorded as production. Volunteer activities that do not result in goods, e.g. caretaking and cleaning without payment, are excluded.

All such activities are included even if they are illegal or not-registered with tax, social security, statistical and other public authorities.

3.09.

Production excludes the production of domestic and personal services that are produced and consumed within the same household (with the exception of employing paid domestic staff and the services of owner-occupied dwellings). Cases in point 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;

(f) transportation of members of the household or their goods.

3.10.



Definition:

The principal activity of a local KAU is the activitiy whose value added exceeds that of any other activity carried out within the same unit. The classification of the principal activity is determined by reference to ►M11  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:

The output of an ancillary activity is not intended for use outside the enterprise. An ancillary activity is a supporting activity undertaken within an enterprise in order to create the conditions within which the principal or secondary activities of local KAUs can be carried out. Ancillary activities typically produce outputs that are commonly found as inputs into almost any kind of productive activity, small as well as large.

Ancillary activities may be, e.g. purchasing, sales, marketing, accounting, data processing, transportation, storage, maintenance, cleaning and security services. Enterprises may have a choice between engaging in ancillary activities or purchasing such services on the market from specialist service producers.

Own-account capital formation is not considered to be an ancillary activity.

3.13.

Ancillary activities are treated as integral parts of the principal or secondary activities with which they are associated. As a result:

(a) the output of an ancillary activity is not explicitly recognized and recorded separately. It follows that the use of this output is also not recorded;

(b) all the 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.

3.14.



Definition:

Output consists of the products created during the accounting period.

Particular cases included are:

(a) the goods and services which one local KAU provides to a different local KAU belonging to the same institutional unit;

(b) the goods which are produced by a local KAU and remain in inventories at the end of the period in which they are produced, whatever their subsequent use.

However, goods or services produced and consumed within the same accounting period and within the same local KAU are not separately identified. They are therefore 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:

(a) market output (P.11);

(b) output produced for own final use (P.12);

(c) other 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) other non-market producers.

The distinction, between market, for own final use and other non-market is fundamental, because it determines the valuation principles to be applied to output: market output, output produced for own final use and total output of market producers and producers for own final use are valued at basic prices, while the total output of other non-market producers (local KAUs) is valued from the costs side. The total output of an institutional unit is valued as the sum of the total outputs of its local KAUs and depends thus also on the distinction between market, for own final use and other non-market (see paragraphs 3.54 to 3.56). Furthermore, the distinction is also used to classify institutional units by sector (see paragraphs 3.27 to 3.37).

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. As a consequence, the exact meaning of the distinction on the product level (i.e. the definition of the concepts of market output, output for own final use and other non-market output) can only be understood by looking also at features of the institutional unit and the local KAU that produce that output.

After the general definitions of the three types of output and of the three types of producers (see paragraphs 3.17 to 3.26), the distinction between market, for own final use and other non-market is presented in a top-down way.

3.17.



Definition:

Market output consists of output that is disposed of on the market (see paragraph 3.18) 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:

In the ESA, the economically significant price of a product is defined partly in relation to the institutional unit and local KAU that has produced the output (see paragraphs 3.27 to 3.40). For example, by convention all the output of unincorporated enterprises owned by households sold to other institutional units is sold at economically significant prices, i.e. is to be regarded as market output. For the output of some other institutional units, output is only sold at economically significant prices when more than 50 % of the production costs is covered by sales.

3.20.



Definition:

Output produced for own final use consists of goods or services that are retained either for final consumption by the same institutional unit or for gross fixed capital formation by the same institutional unit.

3.21.

Products retained for own final consumption can only be produced by the household sector. Typical examples are:

(a) agricultural products retained by farmers;

(b) housing services produced by owner-occupiers;

(c) household services produced by employing paid staff.

3.22.

Products used for own gross fixed capital formation can be produced by any sector. Examples are:

(a) special 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.

3.23.



Definition:

Other non-market output covers output that is provided free, or at prices that are not economically significant, to other units.

▼M2

Other non-market output (P.13) can be subdivided into two items: ‘Payments for the other non-market output’ (P.131 ), which consist of various fees and charges, and ‘Other non-market output, other’ (P.132), covering output that is provided free.

▼B

3.24.



Definition:

Market producers are local KAUs or institutional units the major part of whose output is market output.

It should be noted that 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 other non-market 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 whose output is for own final use within the same institutional unit.

3.26.



Definition:

Other non-market producers are local KAUs or institutional units whose major part of output is provided free or at not economically significant prices.

3.27.

For the institutional units as producers, the distinction between market, for own final use and other non market is summarized in table 3.1. The implications for the classification by sectors are also shown.



Table 3.1 — The distinction between market producers, producers for own final use and other non-market producers for institutional units

Type of institutional unit

Classification

Private or public?

 

NPI or not?

Sales cover more than 50 % of production costs?

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. = Other non-market

NPISH

 
 

1.2.2.  Other private producers that are not NPI

 

1.2.2. = Market

Corporations

2.  Public producers

 
 

2.1.  Yes

2.1. = Market

Corporations

 
 

2.2.  No

2.2. = Other non-market

General Government

The table shows that in order to determine whether an institutional unit should be classified as a market producer, a producer for own-final use or another non-market producer several distinctions should be applied subsequently.

3.28.

The first distinction is that between private and public producers. A public producer is a producer that is controlled by the general government. In case of NPIs, a public producer is an NPI that is controlled and mainly financed by the general government. All other producers are private producers. Control is defined as the ability to determine the general (corporate) policy or programme of an institutional unit by appointing appropriate directors or managers, if necessary. Owning more than half the shares of a corporation is a sufficient, but not a necessary, condition for control (see paragraph 2.26).

3.29.

As table 3.1 shows, private producers are found in all sectors except the sector general government. In contrast, public producers are only found in the corporations sectors (non-financial corporations and financial corporations) and in the general government sector.

3.30.

A specific category of private producers are the unincorporated enterprises owned by households. These are always 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 household sector. An exception should only be made for quasi-corporate enterprises owned by households. These are market producers and classified to the non-financial and financial corporations sectors.

3.31.

For the other private producers, a distinction should be made between private non-profit institutions and other private producers.



Definition:

A NPI is defined as a legal or social entity created 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. In practice, their productive activities are bound to generate either surpluses or deficits but any surpluses they happen to make cannot be appropriated by other institutional units.

All the other private producers that are not NPIs are market producers. They are classified to the non-financial and financial corporations sectors.

3.32.

In order to determine the type of producer and the sector for the private NPIs, a 50 % criterion should be applied:

(a) if more than 50 % of the production costs are covered by sales, the institutional unit is a market producer and classified to the non-financial and financial corporations sectors;

(b) if less than 50 % of the production costs are covered by sales, the institutional unit is another non-market producer and classified to the sector NPISH. But other non-market NPIs that are controlled and mainly financed by general government are classified to the general government sector.

3.33.

In distinguishing market and other non-market producers by means of the 50 % criterion, sales and production costs are defined as follows:

(a) sales cover the sales excluding taxes on products but including all payments made by general government or the institutions of the European 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 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 other non-market: sales are only used in valuing market output; other 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 are part or other subsidies on products as defined in paragraph 4.35. c. As a consequence, market output at basic prices includes also the payments made by general government to cover an overall deficit;

(b) production costs are the sum of intermediate consumption, compensation of employees, consumption of fixed capital and other taxes on production. For this criterion other subsidies on production are not deducted. To ensure consistency of the concepts sales and production costs when applying the 50 % criterion, the production costs should exclude all costs made for own-account capital formation.

The 50 % criterion should be applied by looking over a range of years: only if the criterion holds for several years or holds for the present year and is expected to hold for the near future, it should be applied strictly. Minor fluctuations in the size of sales from one year to another do not necessitate a reclassification of institutional units (and their local KAUs and output).

3.34.

Sales may consist of various elements. For example, in case of the 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, 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 and financial corporations sectors.

3.36.

In applying the 50 % criterion to the 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 apply e.g. to the financing of the output of private and public schools: the payments by the general government can be linked to the number of pupils but be the subject of negotiation with the general government. In such a case, these payments need not be regarded as sales though they have an explicit link with the volume of output, e.g. with the number of pupils. This implies that a school mainly financed by such payments is another non-market producer. When the school is a public producer, i.e. when it is mainly financed and controlled by the government, it should be classified in the sector general government. When the school is a private other non-market producer, it should be classified in the sector NPISHs.

3.37.

Public producers can be market producers or other non-market producers. If the 50 % criterion decides that the institutional unit should be regarded as a market producer, it is classified in the non-financial and financial corporations sectors. The 50 % criterion decides also when a government unit should be treated as a quasi-corporation owned by the government: only when it meets the 50 % criterion, a quasi-corporation should be created. If the institutional unit is another non-market producer, it is classified in the sector general government. The distinction between NPIs and other producers is thus irrelevant for classifying public producers.

3.38.

After having applied the distinction market, for own final use and other non-market to institutional units as producers, the distinction can be applied to local KAU and their outputs. This relation is shown in table 3.2.



Table 3.2 — Institutional units, local KAUs and output and the distinction between market, for own final use and other non-market

Institutional unit

Principal local

Secondary local KAU(s)

Principal output of principal local KAU

Secondary output of principal local KAU

Principal output of secondary local KAU

Secondary output of secondary local KAU

Market producer

Market producer

 

Market output

Market output

 
 
 
 
 
 

Output for own final use

 
 
 
 

Market producer

 
 

Market output

Market output

 
 
 
 
 
 

Output for own final use

 
 

Producer for own final use

 
 

Output for own final use

Market output

Producer for own final use

Producer for own final use

 

Output for own final use

Market output

 
 

Other non-market producer

Other non-market producer

 

Other non-market output

Market output

 
 
 
 
 
 

Output for own final use

 
 
 
 
 
 

Other non-market output

 
 
 
 

Market producer

 
 

Market output

Market output

 
 
 
 
 
 

Output for own final use

 
 

Other non-market producer

 
 

Other non-market output

Market output

 
 
 
 
 
 

Output for own final use

 
 
 
 
 
 

Other non-market output

3.39.

For institutional units qualifying as market producers, the principal local KAU is of course also a market producer. The secondary local KAU can be a market producer, but also a producer for own final use. However, the secondary local KAU can by convention not be another non-market producer. This implies that the (secondary) local KAUs in the sectors non-financial corporations and financial corporations are all market producers or producers for own final use.

3.40.

For institutional units that are other non-market producers, the principal local KAU will also be another non-market producer. The secondary local KAUs can be market producers or other non-market producers. This implies that the sectors general government and NPISH can contain some (secondary) local KAUs that are market producers (although all the institutional units in these sectors are other non-market producers). In order to determine whether the secondary local KAUs are market or other non-market producers the 50 % criterion should be applied.

3.41.

After having applied the distinction market, for own final use and other non-market to institutional units and their local KAUs, the distinction can be applied to the outputs of local KAUs. This relation is shown in table 3.3.



Table 3.3 — The distinction market, for own final use and other non-market for local KAUs and their output

 

Market producers

Producers for own final use

Other non-market producers

Total

Market output

X

x

x

Total market output

Output for own final use

x

X

x

Total output for own final use

Other non-market output

0

0

X

Total other non-market output

Total

Total output by market producers

Total output by producers for own final use

Total output by other non-market producers

Total output

X = large output; x = small output; 0 = no output (by convention).

3.42.

By convention, local KAUs as market producers and as producers for own final use cannot supply other non-market output. Their output can thus only be recorded as market output or output for own final use and valued correspondingly (see paragraphs 3.46 to 3.52).

3.43.

Local KAUs as other 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 50 % criterion to individual products: market output is output that is soldat at least 50 % of its production costs. This might be the case for instance when government hospitals charge economically significant prices for some of their services. Other examples are sales of reproductions by government museums and sales of weather forecasts by meteorological institutes.

3.44.

In statistical practice, it may be difficult to make a clear distinction between the different products of local KAUs of government institutions and NPISHs. Even more, this is true for the production costs in relation to the different products. In that case, a simple solution is to treat all revenues of other non-market producers from their secondary activity (activities) as the revenues for one type of market output. This applies for example to a museum's revenues from the sale of posters and cards ( 51 ).

3.45.

Other non-market producers may also have revenues from the sale of their other non-market output at not economically significant prices, e.g. the museum's revenues from tickets for entrance. These revenues pertain to other 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 other 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).

3.46.

Output is to be recorded and valued when it is generated by the production process.

3.47.

All output is to be valued at basic prices, but specific conventions hold for:

(a) the valuation of other non-market output;

(b) the valuation of total output of another non-market producer (local KAU);

(c) the valuation of the total output of an institutional unit of which a local KAU is another non-market producer. (See paragraphs 3.53 to 3.56).

3.48.



Definition:

►M4  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 payable (see point 4.27) on that unit as a consequence of its production or sale (i.e. taxes on products), plus any subsidy receivable on that unit as a consequence of its production or sale (i.e. subsidies on products). ◄ It excludes any transport charges invoiced separately by the producer. It includes any transport margins charged by the producer on the same invoice, even when they are included as a separate item on the invoice.

3.49.

Output for own final use (P.12) is to be valued at the basic prices of similar products sold on the market; as a consequence, net operating surplus or mixed income can occur for such output. This also applies to services of owner-occupied dwellings (see paragraph 3.64.). However, it will usually be necessary to value output of own-account construction by costs of production.

3.50.

Additions to work-in-progress are valued in proportion to the estimated current basic price of the finished product.

3.51.

If the value of output treated as work-in-progress is to be estimated in advance, it should be based on the actual costs incurred, plus a mark-up for the estimated operating surplus or an estimate of mixed income. The provisional estimates should subsequently be replaced by those obtained by distributing the actual value (when it becomes known) of the finished products. The latter 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.

3.52.

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 structure. 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).

If the own-account construction of a structure is not yet completed within a single accounting period, the value of the output and the corresponding gross fixed capital formation should be estimated by applying the fraction of the total costs of production incurred during the relevant period to the estimated current basic price. If it is not possible to estimate the basic price of the finished structure, it must be valued by its total costs of production. 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 included in the estimated total production costs using wage rates for similar kinds of labour in the vicinity or region.

3.53.

The total output of an other non-market producer (a local KAU) is to be 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 (K.1);

(d) other taxes on production (D.29) less other subsidies on production (D.39).

Other subsidies on production should be deducted. However, it should be realized that other subsidies on production to other non-market producers will often be absent in practice or only involve very small amounts (see paragraph 4.36).

By convention, interest payments are not included as costs of other non-market production (though they could be regarded as major costs of production in some cases, e.g. in the case of housing corporations). The costs of other non-market production also do not include an imputation for the rental value of the non-residential buildings owned and used in other non-market production.

3.54.

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 other non-market producers.

3.55.

In the absence of secondary market output by other non-market producers (local KAUs), other non-market output is to be valued at the costs of production. In the case of secondary market output by other non-market producers, other non-market output is valued as a residual item i.e. as the difference between the total costs of production of other non-market producer minus their revenues from market output.

3.56.

In principle, market output by other non-market producers is to be valued at basic prices. However, even though another non-market local KAU may have sales receipts, its total output covering both its market and its other non-market output (and possibly also output for own final use), is still valued by the production costs. The value of its market output is given by its receipts from sales of market products, the value of its other non-market output being obtained residually as the differences between on the one hand the values of its total output and, on the other hand, its market output and output for own final use. The value of its receipts from the sale of other non-market goods or services at prices that are not economically significant remain as part of the value of its other non-market output.

3.57.

For some specific types of output, the times of recording and the valuation of output are subject to the following clarifications and exceptions, given in order of CPA sections.

3.58

A. Products of agriculture, hunting and forestry;

The output of agricultural products should be recorded as being produced continuously over the entire period of production (and not simply when the crops are harvested or animals slaughtered).

Growing crops, standing timber and stocks of fish or animals reared for purposes of food should be treated as inventories of work-in-progress during the process, and transformed into inventories of finished products when the process is completed.

3.59.

D. Manufactured products;

When a contract of sale is agreed in advance for 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. in the purchaser's fixed capital formation rather than work-in-progress in the construction industry. In effect, the output produced is treated as being sold to the purchaser in stages as the latter takes legal possession of the output. When the contract calls for stage payments, the value of the output may often be approximated by the value of stage payments made each period. In the absence of a contract of sale, however, the incomplete output produced each period is recorded as work-in-progress.

3.60.

G. Wholesale and retail trade services; repair services of motor vehicles, motorcycles and personal and household goods

The output of wholesale and retail services is measured by the trade margins realized on the goods they purchase for resale.



Definition:

A trade margin is the difference between the actual or imputed price realized 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.

By convention, holding gains and losses are not included in the trade margin. However, in practice, data sources may not allow for separating out all the holding gains and losses.

3.61.

H. Hotel and restaurant services

The value of the output of the services of hotels, restaurants and cafes includes the value of the food, beverages, etc. consumed.

3.62.

I. Transport, storage and communication services

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.

The output of storage services is measured as the value of an addition to work-in-progress, either additional output in the sense of transportation over time (e.g. storage on behalf of other local KAUs) or a physical change (e.g. in the case of the maturing of wine).

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. The latter may e.g. also include charges for transport by third parties.

The output of tour operator services is measured by the full expenditure made by travellers to the tour operator.

The distinction between travel agency services and tour operator services is that travel agency services amount only to intermediation on behalf of the traveller, while tour operator services create a new product, i.e. a tour is arranged of which the prices of its various components (e.g. travel, accommodation and entertainment) are not recognizable as such for the traveller.

3.63.

J. Financial intermediation services (this includes insurance services and pension funding services)

The output of financial intermediation for which no explicit charges are made is measured, by convention, as the total property income received by the units providing the services minus their total interest payments, excluding the value of any income received from the investment of their own funds (as such income does not arise from financial intermediation), and, in the case of secondary insurance activities by a financial intermediary, excluding the income from investment of insurance technical reserves. Holding gains and losses should be ignored in measuring this output, because throughout the system holding gains are not recorded in the production account but in a separate account (other changes in assets account). This applies also to holding gains on foreign exchange and securities by professional dealers (though their holding gains may be generally positive and be regarded by the dealers themselves as part of their normal revenues). However, the trade margins on foreign exchange and securities (i.e. the common differences between the purchasers' prices for the dealer and the purchasers' price for the buyer) are to be included in output, like for wholesale and retail traders. Analogously, there may also be data problems in distinguishing such trade margins from the holding gains; these should be overcome as best as possible.

The output of services of financial intermediation provided by central banks should be measured in the same way as those provided by other financial intermediaries.

The activity of money lenders who lend only their own funds is not treated as the production of services.

Financial intermediaries may also provide various financial services and business services for which fees or commissions are explicitly charged. Cases in point can be e.g. currency exchange and advice about investments, the purchase of real estate or advice on taxation. The output of such services is valued on the basis of the fees or commissions charged.

Output of insurance services (service charge) is measured as:



 

total actual premiums earned

plus

total premium supplements (equal to the income from the investment of the insurance technical reserves)

minus

the total claims due

minus

the change in the actuarial reserves and reserves for with-profits insurance.

Holding gains and losses are to be ignored in the measurement of the output of insurance services: they are not to be regarded as income from investment of the insurance technical reserves and they are not to be considerd as changes in the actuarial reserves and reserves for with-profits insurance.

Notice that insurance technical reserves may be invested in secondary activities of the insurance company, e.g. the letting of dwellings or offices. In that case, the net operating surplus on these secondary activities is income from the investment of insurance technical reserves.

Similarly, the output of pension funding services is measured as:



 

total actual pension contributions

plus

total supplementary contributions (equal to the income from investment of the pension funds technical reserves)

minus

the benefits due

minus

the change in the actuarial reserves.

3.64.

K. Real estate, renting and business services

The output of services of owner-occupied dwellings should be valued at the estimated value of rental that a tenant would pay for the same accommodation, taking into account factors such as location, neighbourhoud 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. No imputation is to be made for garages used by their private owner only for the purpose of parking near the workplace. The rental value of owner-occupied dwellings abroad, e.g. holiday homes, should not be recorded as part of domestic production, but 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 should be made. In case of time-sharing apartments, a proportion of the service charge should be recorded as such.

The output of real estate services of non-residential buildings is measured by the value of the rentals due.

The output of operating leasing services (renting out machinery or equipment, etc.) is measured by the value of rental which the lessee pays to the lessor. It is clearly distinguished from financial leasing which is a method of financing the acquisition of fixed assets, i.e. by making a loan from the lessor to the lessee. In the case of financial leasing rentals consist (mainly) of repayments and interest payments, and the value of services is very small compared with the total rentals paid (see Annex II ‘Leasing and hire purchase of durable goods’).

When possible, a separate local KAU should be distinguished for research and development activities (R&D). When this is not possible, all R&D of a significant size (compared to the principal activity) should be recorded as a secondary activity of the local KAU.

The output of R&D services is measured as follows:

(a) R&D by specialised commercial research laboratories or institutes is valued at the revenues from sales, contracts, commissions, fees, etc. in the usual way;

(b) the output of R&D for use within the same enterprise should, in principle, be valued on the basis of the estimated basic prices that would be paid if the research were sub-contracted commercially. However, in practice, it is likely to have to be valued on the basis of the total production costs;

(c) R&D by government units, universities, non-profit research institutes, etc. is usually other non-market production and is thus valued on the basis of the costs of production. Revenues from the sale of R&D by other non-market producers of R&D are to be recorded as revenues from secondary market output.

Expenditure on R&D should be distinguished from that on education and training. Expenditure on R&D does not include the costs of developing software as a principal or secondary activity. However, their accounting treatment is nearly the same; the only difference is that software is regarded as a produced intangible asset and is not patented.

3.65.

L. Public administration and defence services, compulsory social security services

Public administration, defence services and compulsory social security services are always provided as other non-market services and should thus be valued accordingly.

3.66.

M. Education services;

For education services and health services it may often be necessary to draw precise borderlines between market and other non-market producers and between their market and other non-market output. For example, for some types of education and medical treatment nominal fees can be levied by government institutions (or by other institutions due to specific subsidies), but for other education and special medical treatments they may charge commercial tariffs. Another common case in point is that the same type of service (e.g. higher education) is provided by, on the one hand, the government (or its intermediation) and, on the other hand, commercial institutes. Then, often large differences exist between the prices charged and the quality of the services.

Education and health services exclude R&D activities; health services exclude education in health care, e.g. by academic hospitals.

3.67.

O. Other community, social and personal services

The production of books, recordings, films, software, tapes, disks, etc. a two-stage process and measured accordingly:

1. the output from the production of originals (an intangible fixed asset) is measured by the price paid if sold, or, if not sold, by the basic price paid for similar originals, its production costs or the discounted value of the future receipts expected from using it in production;

2. the owner of this asset may use it directly or to produce copies in subsequent periods. If the owner has licensed other producers to make use of the original in production, the fees, commissions, royalties, etc. he receives from the licenses are his output of his services. However, the sale of the intangible asset is negative fixed capital formation.

3.68.

P. Private housholds with employed persons

The output of household services produced by employing paid staff is by convention valued by the compensation of employees paid; this includes any compensation in kind such as food or accommodation.

3.69.



Definition:

Intermediate consumption consists of the value of the goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services may be either transformed or used up by the production process.

3.70.

Intermediate consumption includes the following borderline cases:

(a) the value of all the goods or services used as inputs into ancillary activities. Common examples are purchasing, sales, marketing, accounting, data processing, transportation, storage, maintenance, security, etc. These goods and services are not distinguished from those consumed by the principal (or secondary) activities of a local KAU;

(b) the value of goods and services which are received from another local KAU of the same institutional unit (only if they comply to the general definition in paragraph 3.69);

(c) the costs of using rented fixed assets, e.g. the operational leasing of machines or cars;

(d) the subscriptions, contributions or dues paid to non-profit business associations;

(e) items not treated as gross capital formation, like:

1. small tools which are inexpensive and used for relatively simple operations, such as saws, hammers, screwdrivers and other hand tools; small devices, such as pocket calculators. By convention, in the ESA, all expenditure on such durables which does not exceed 500 ECU (at 1995 prices) per item (or, when bought in quantities, for the total amount bought), should be recorded as intermediate consumption;

2. the ordinary, regular maintenance and repair of fixed assets used in production;

3. military weapons of destruction and the equipment needed to deliver them (but not light weapons or armoured vehicles acquired by police and security forces, which are treated as gross fixed capital formation);

4. services of research and development, staff training, market research and similar activities, purchased from an outside agency or provided by a separate local KAU of the same institutional unit;

(f) payments for the use of intangible non-produced assets like patented assets, trademarks, etc. (excluding payments for the purchase of such property rights: these are treated as acquisitions of intangible non-produced assets);

(g) expenditure by employees, reimbursed by the employer, on items necessary for the employers' production, like contractual obligations to purchase on own-account tools or safety-wear;

(h) expenditure by employers which is to their own benefit as well as to that of their employees, because it is necessary for the employers' production. Cases in point are:

1. reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties;

2. providing amenities at the place of work;

(a more extensive list is presented in the paragraphs on compensation of employees (D.1));

(i) non-life insurance service charges paid by local KAUs (see also Annex III ‘Insurance’): in order to record only the service charge as intermediate consumption the premiums paid should be discounted for, e.g. claims paid out and the net change in actuarial reserves. The latter can be allocated to local KAUs as a proportion of the premiums paid;

(j) only for the total economy: all financial intermediation services indirectly measured (Fisim) provided by resident producers.

3.71.

Intermediate consumption excludes:

(a) items treated as gross capital formation, like:

1. valuables;

2. mineral exploration;

3. major improvements which go considerably beyond what is required simply to keep the fixed assets in good working order, e.g. renovation, reconstruction or enlargement;

4. software purchased or produced on own account;

(b) expenditure by employers treated as wages and salaries in kind (see paragraph 4.05);

(c) use by market or own-account producer units of collective services provided by government units (treated as collective consumption expenditure by government);

(d) goods or services produced and consumed within the same accounting period and within the same local KAU (they are also not recorded as output);

(e) payments for government licences and fees that are treated as taxes on production (see paragraphs 4.79 to 4.80).

3.72.

Products used for intermediate consumption should be recorded and valued at the time they enter the process of production. They are to be valued at the purchasers' prices for similar goods or services at that time.

3.73.

In practice, producer units do not usually record the actual use of goods in production directly. They record the purchases intended to be used as inputs and the changes in the amounts of such goods held in inventory. Intermediate consumption has therefore to be estimated by subtracting from the purchases the changes in inventories of inputs (see paragraphs 3.120 to 3.124 for the correct valuation of the latter).

3.74.

Two concepts of final consumption are used:

(a) final consumption expenditure (P.3);

(b) actual final consumption (P.4)

Final consumption expenditure is a concept that refers to a sector's expenditure on consumption goods and services. In contrast, actual final consumption refers to its acquisition of consumption goods and services. The difference between these concepts lies in the treatment of certain goods and services financed by the government or NPISHs but supplied to households as social transfers in kind.

3.75.



Definition:

Final consumption expenditure consists of expenditure incurred by resident institutional units on goods or services that are used for the direct satisfaction of individual needs or wants or the collective needs of members of the community. Final consumption expenditure may take place on the domestic territory or abroad.

3.76.

Household final consumption expenditure includes the following borderline cases:

(a) services of owner-occupied dwellings;

(b) income in kind, like:

1. goods and services received as income in kind by employees;

2. goods or services produced as outputs of unincorporated enterprises owned by households that are retained for consumption by members of the household. Cases in point are food and other agricultural goods, housing services by owner-occupiers and household services produced by employing paid staff (servants, cooks, gardeners, chauffeurs, etc.);

(c) items not treated as intermediate consumption, like:

1. materials for small repairs to and interior decoration of dwellings of a kind typically carried out by tenants as well as owners;

2. materials for repairs and maintenance to consumer durables, including vehicles;

(d) items not treated as capital formation, in particular consumer durables, that continue to perform their function in several accounting periods; this includes the transfer of ownership of some durables from an enterprise to a household (see transactions in existing goods, paragraph 3.148);

(e) financial services directly charged;

(f) insurance services by the amount of the implicit service charge (see paragraph 3.63);

(g) pension funding services by the amount of the implicit service charge (see paragraph 3.63);

(h) payments by households for licences, permits, etc. which are regarded as purchases of services (see paragraphs 4.79 and 4.80);

(i) the purchase of output at not economically significant prices, e.g. entrance fees for a museum (see paragraph 3.45).

3.77.

Household final consumption expenditure excludes:

(a) social transfers in kind, like expenditures initially incurred by households but subsequently reimbursed by social security, e.g. some medical expenses;

(b) items treated as intermediate consumption or gross capital formation, like:

1. expenditures by households owning unincorporated enterprises when incurred for business purposes — e.g. on durable goods such as vehicles, furniture or electrical equipment (gross fixed capital formation), and also on non-durables such as fuel (intermediate consumption);

2. expenditure that an owner-occupier incurs on the decoration, maintenance and repair of the dwelling not typically carried out by tenants (treated as intermediate consumption in producing housing services);

3. the purchase of dwellings (treated as gross fixed capital formation);

4. expenditure on valuables (treated as gross capital formation);

(c) items treated as acquisitions of a non-produced assets, in particular the purchase of land;

(d) all those payments by households which are to be regarded as taxes, such as licences to own vehicles, boats or aircraft and also licences to hunt, shoot or fish (see paragraphs 4.79 to 4.80);

(e) subscriptions, contributions and dues paid by households to NPISHs, like trade unions, professional societies, consumers' associations, churches and social, cultural, recreational and sports clubs;

(f) voluntary transfers in cash or in kind by households to charities, relief and aid organizations.

3.78.

Final consumption expenditure of NPISHs includes two separate categories:

(a) the value of the goods and services produced by NPISHs other than own-account capital formation and other than expenditure made by households and other units;

(b) expenditures by NPISHs on goods or services produced by market producers that are supplied — without any transformation — to households for their consumption as social transfers in kind.

▼M2

3.79.

Final consumption expenditure (P.3) by government includes two categories of expenditures, similar to those by NPISHs:

(a) the value of the goods and services produced by general government itself (P.1) other than own-account capital formation (corresponding to P.12) and sales. Market output (P.11) and payments for the other non-market output (P.131);

(b) purchases by general government of goods and services produced by market producers that are supplied to households, without any transformation, as social transfers in kind (D.6311 + D.63121 + D.63131). This implies that general government just pays for goods and services that the sellers provide to households.

▼B

3.80.

Corporations do not make final consumption expenditures. Their purchases of the same kind of goods or services as used by households for final consumption are either used for intermediate consumption or provided to employees as compensation of employees in kind, i.e. imputed household final consumption expenditure. Even where, for example through advertising, they finance individual consumption, this expenditure is treated as intermediate.

3.81.



Definition:

Actual final consumption consists of the goods or services that are acquired by resident institutional units for the direct satisfaction of human needs, whether individual or collective.

3.82.



Definition:

Goods and services for individual consumption (‘individual goods and services’) are acquired by a household and used to satisfy the needs and wants of members of that household. Individual goods and services have the following characteristics:

(a)  it must be possible to observe and record the acquisition of the good or services by an individual household or member thereof and also the time at which it took place;

(b)  the household must have agreed to the provision of the good or service and take whatever action is necessary to make it possible, for example by attending a school or clinic;

(c)  the good or service must be such that its acquisition by one household or person, or possibly by a small, restricted group of persons, precludes its acquisition by other households or persons.

3.83.



Definition:

Services for collective consumption (‘collective services’) are provided simultaneously to all members of the community or all members of a particular section of the community, such as all households living in a particular region. Collective services have the following characteristics:

(a)  they can be delivered simultaneously to every member of the community or to particular sections of the community, such as those in a particular region or locality;

(b)  the use of such services is usually passive and does not require the explicit agreement or active participation of all the individuals concerned;

(c)  the provision of a collective service to one individual does not reduce the amount available to others in the same community or section of the community. There is no rivalry in acquisition.

3.84.

All household final consumption expenditure is individual. By convention, all goods and services provided by NPISHs are treated as individual.

▼M6

3.85.

For the goods and services provided by government units, the borderline between individual and collective goods and services is drawn on the basis of the Classification of the Functions of Government (COFOG).

By convention, all government final consumption expenditure under each of the following headings should be treated as expenditures on individual consumption:

(a) 

7.1 Medical products, appliances and equipment

7.2 Outpatient services

7.3 Hospital services

7.4 Public health services

(b) 

8.1 Recreational and sporting services

8.2 Cultural services

(c) 

9.1 Pre-primary and primary education

9.2 Secondary education

9.3 Post-secondary non-tertiary education

9.4 Tertiary education

9.5 Education