Working Party on National Accounts, 11-14 October 2005 Progress report of Canberra II Group

Progress of CII Group Canberra II Group has almost completed consideration of all the issues for the update of the 1993 SNA on its agenda. Just a few loose ends remain to be tied. Following table lists all the issues that have been completed, as far as meeting all the requirements of the AEG.

Progress with CII issues- Completed issues 9 R&D (CII now working on implementation) 10 Patented entities 11 Originals and copies 12 Databases 14 COT 16 Assets used in non-market production 19 Military expenditure 20 Land 22 Goodwill and other non-produced assets 23 Obsolescence & depreciation

Outstanding issues 13* Other intangible fixed assets 15 Cost of capital services 17 Mineral exploration 18 Use of natural resources by non-residents 21* Leases and licences 24* PPPs (BOOT schemes) 27* Classification and terminology 28* Amortisation of non-produced assets 29* Asset boundary of non-prod. intang. assets 30* Definition of economic assets 31 Water as an asset

15. Cost of capital services: production account An outstanding issue is whether all inventories provide capital services Group agreed that they all do. Security of supply for both outputs and inputs Owning inventories carries an opportunity cost The argument that involuntarily held inventories are not contributing to production also applies to underutilised labour and fixed capital.

17. Mineral exploration How should the ownership of a natural resource which is being run down be shown: entirely in the balance sheet of the legal owner/licensor? entirely in the balance sheet of the extractor/licensee? Split between the two? If so, on which basis? No agreement was reached and it was decided to conduct an electronic consultation.

17. Mineral exploration – cont. The AEG has agreed in principle that payments by the extractor to the owner of a deposit are property income. However, when the owner is government and the payments are described as taxes, adhering to this principle introduces a discrepancy between taxes in the SNA and in government accounts. Canberra II Group has agreed that payments to exploit natural resources should be recorded as rent, irrespective of how they are labelled in practice. This was to be discussed at the TFHPSA meeting last week.

18. Right to use/exploit non-produced resources between residents and nonresidents Except for land, transactions of the right to use or exploit non-produced resources between residents and non-residents have not been fully elaborated by the 1993 SNA. For land a notional resident unit is created which is deemed to purchase the land while the non-resident is deemed to purchase a financial asset (equity) of the notional unit. Should the treatment of land be extended to other non-produced resources such as water, fish, etc. or should there be alternative treatments?

18. Right to use/exploit non-produced resources between residents and nonresidents – cont. It was agreed if a non-resident unit takes out a lease on land (including land improvements) or other immobile assets (such as buildings) for more than one year then it should be treated as a notional resident unit. The same applies to mineral deposits and mobile phone licences, but there could be instances where a non-resident unit provides mobile phone services from outside the territory of the country concerned. Non-resident units engaged in logging natural forests or fishing in domestic waters, whether via a lease or operating illegally, should be treated as notional resident units if operating for more than a year.

31. Water as an asset – Discharge How should charges to discharge (dirty) water into a body of water be treated? (This has a parallel with emission permits (e.g. venting dirty air into the atmosphere) and with landfill charges.) Three cases were considered. Case 1 Charges may represent a fine or a disincentive intended to inhibit discharge, and it may happen after the event. The Group agreed that they should be treated as fines.

31. Water as an asset – Discharge cont. Case 2 Charges may be linked to remedial action. The Group’s discussion was inconclusive, and the matter was referred to the TFHPSA.

31. Water as an asset – Discharge cont. Case 3 By issuing a limited number of permits, the intent is to restrict total discharges. Each permit restricts the amount of discharge and/or number of units to discharge. Two options were considered: Option 1 –treat as tax Option 2 – treat in the same way as mobile phone licences. The Group agreed that if there was no underlying asset then it is a tax. Otherwise, it is property income.