Item 25b: Government finance statistics ESTP course on National Accounts ESA 2010 Luxembourg, 30 May - 3 June 2016 Eurostat (D.1, D.4)

What is so special about government? Major 'actor' in the economy Policy maker Redistribution of income Non-market output Major employer Potentially major borrower/lender Economic impact on.. Demand in the economy Balance of saving and investment

The Excessive Deficit Procedure Need for fiscal discipline in a single currency Article 126 of the Treaty on the Functioning of the European Union and Treaty on European Union, Protocol 12 on the Excessive Deficit Procedure (Maastricht Treaty) define the reference values for public deficit and public debt: 'EDP' and the reporting arrangements. Council Regulation 479/2009, as amended (and Commission Regulation 220/2014 amending 479/2009 as regards references to ESA 2010) defines deficit and debt and operational arrangements. Deficit/ surplus = net lending(+)/ net borrowing (-) (B.9) of general government (S.13). Gross debt = liabilities of S.13 in currency and deposits (AF.2), debt securities (AF.3) and loans (AF.4). at nominal (face) value; consolidated.

Maastricht Treaty: EDP Deficit - 3% of GDP Debt - 60% of GDP

Maastricht Treaty: recent statistics EU-28 - 2015 Deficit - -2.4 % of GDP Debt - 85.2 % of GDP

Fiscal monitoring DG-ECFIN in charge of fiscal monitoring Commission and Economic and Financial Committee (EFC) gives an opinion to the Council if there is an excessive deficit Council decides if there is an excessive deficit within 3 months; recommends to Member States corrective actions: Stability Programme for euro area members (possible financial penalties) Convergence Programme for EU Member States (no euro area entry)

So government is important – how do statisticians react? General Government is a part of integrated system under ESA 2010 and European system of GFS presentation ensures duality of approaches Sequence of accounts Total revenue and total expenditure … but: Need for more data (ESA transmission programme, dialogue for underlying government sector accounts in 479/2009) Need for more precise methodological rules … to prevent accounting to minimise deficit/ debt by governments (MGDD) Need for EDP-specific data collection system

GFS - Transmissions Gradual extension of general government data: ANNUAL GFS DATA Table 2 – Main aggregates Table 9 – Taxes and social contributions + NTL Table 11 – Expenditure by function - COFOG QUARTERLY GFS DATA Table 25 – Non-financial accounts (STPFS) Table 27 – Financial accounts (QFAGG) Table 28 – Maastricht debt Table 2899 – Intergovernmental lending RELATED DATA (SECTOR ACCOUNTS) Tables 6/7 – Annual Financial accounts/BS Table 8 – Sector accounts, annual Table 801 – Sector accounts, quarterly Table 26 – Non-financial balance sheets Table 29 - Pensions

Timing of data transmission Annual data Quarterly data T+3 – ESA table 2 T+9 – ESA table 2 – ESA tables 6/7 – ESA table 8 – ESA table 9 + NTL T+12 – ESA table 11 T+24 – ESA table 26 T+24 – ESA table 29 T+3 – ESA table 25 – ESA table 27 – ESA table 28 – ESA table 801 provisional data: T+85 – EA – ESA table 801

Total expenditure and total revenue ESA95 did not include initially a definition of government expenditure and revenue: Commission regulation 1500/2000. In ESA2010 included in chapter 8 and 20. Simple rearrangements of ESA transactions (sequence of accounts) Duality of approaches is retained in ESA table 2, but some items are not shown explicitly. P.132 (output provided free of charge) and corresponding parts of P.3 (final consumption expenditure do not form part of total revenue and total expenditure respectively. Helpful: P.32=P.4, D.63=D.631+D.632=P.31, P.3=P.132+D.632. Imputed flows in GFS presentation: imputed social contributions, capital transfers in kind, imputations related to social insurance. Rearrangement described in chapter 20. Difference between total expenditure and total revenue is deficit/surplus (B.9 – net borrowing (-)/ net lending (+)).

Expenditure EU - 2014 Largest share of expenditure: social transfers (D.62, D.632) ~44% Average government expenditure per inhabitant: € 13 154

Revenue EU - 2014 Taxes (59%) and social contributions (30%) together make up 89 % of government revenue. Average government revenue per inhabitant €12 365

More deficit

Debt: Currency and deposits, Debt securities, Loans

Integrated GFS system Need to integrate diverse ESA transmission tables and test consistency Clearer presentation for users Structure: Expenditure and Revenue Balances (Deficit/surplus, EDP Deficit) Financial transactions and balance sheets Maastricht debt – levels and changes See GFS summary tables

EDP data Treaty 'Commission provides fiscal data to the Council' Member States notify the data to the Commission / Eurostat – twice per year (before 1 April, before 1 October) Eurostat: Validates Or: expresses reservations; or changes the data (amendment) Eurostat News Release t+3 weeks Eurostat must notify + justify 3 days in advance the intention to express reservations or amendments of data

Format of EDP data Special 'EDP Notification Tables' (Excel spreadsheets) 4 historic years and one forecast (current year) Data should be consistent with GFS data transmitted at same time (underlying government account Reg 479/2009) EDP questionnaire tables (confidential) EDP supplementary tables on government interventions to support financial institutions

EDP Notification Tables part I General Government and its subsectors Table 1 – summary data (deficit, debt, interest, GFCF, GDP) Table 2 – Reconciliation of working balance with B.9

EDP Notification tables part II Reconciles deficit with change in debt (“stock-flow adjustments”) Financial assets Financial liabilities Other adjustments Statistical discrepancies Table 4

Questionnaire relating to EDP tables Accompany twice-yearly EDP tables: Revision of general government net lending (+)/ net borrowing (-) and revision of general government consolidated gross debt Breakdown of financial transactions included in the working balance Adjustments for sector delimitation in EDP tables Breakdown of other accounts receivable/payable (F.8) reported in EDP tables Taxes and social contributions: other accounts receivable/payable (F.8) of general government Recording of EU flows in EDP tables Military equipment expenditure (weapons and supporting equipment) Central government claims, debt cancellation Guarantees recording Capital injections, superdividends and privatisations Public-Private Partnerships (PPPs) Sale and leaseback operations

Methodological issues Pyramid of methodological basis: ESA 2010 (+ SNA 2008 if doubts)  specific chapter on government accounts Eurostat Decisions, guidance and Manual on Government Deficit and Debt (MGDD) Discussions at EDPS WG Bilateral discussions between Eurostat and the Member States (usually based on above)

Dealing with specific cases Council Regulation 2103/2005 (before: Code of Best Practice – ECOFIN, 18 February 2003) Resolution of methodological issues: MS advised to organise consultations at national level If doubts prevail, NSIs ask informally or formally to Eurostat to rule on the matter Formal opinion via bilateral letter to be provided (informal advice may be provided) Opinion published on the Eurostat website (since 2006) A formal European consultation may be needed; a Eurostat decision may be asked with possible consultation of the CMFB

General Government vs Public Sector Focus at European level on General Government (excludes Public Corporations) IMF (and some countries) focus on Public Sector Two major implications: Classification of units Transactions between government and public corporations

Δ Classification of units Concept of control (is it public?) Non-market / 50% rule Quasi-corporations, holding companies Specific cases: Hospitals Railways

Δ Relations between government and public corporations Capital injections Government provides funds to a PC Is government investing for a return, or Is government providing funds to cover losses? Dividends 'Super-dividends' Privatisation Holding companies and 'indirect' privatisation

Time of recording ESA 2010 on an accruals basis… Taxes Interest when the interest accrues EU flows eliminate timing effects for EU funds to 3rd parties Military equipment expenditure when the equipment is delivered Court Decisions

Public-private partnerships Government signs contract to: Obtain services for itself (e.g. building) Obtain services for third parties (shadow tolls) Involves a (significant) asset Special purposes vehicles! Concept of risk and rewards Construction risk Demand risk Availability risk

Securitisation Government can “sell” claims it holds, usually to SPE, in return for large lump sum payment Securitisation of fiscal claims = government borrowing Securitisation with “Deferred Purchase Price” = government borrowing Securitisation with significant substitution clause = government borrowing

GFS Website Transparency initiative by Eurostat: EDP material (incl. notifications) News Releases on Eurostat methodological decisions and on government debt and deficit (and related GFS releases) ESA2010 MGDD, decisions and guidance notes Minutes of visits, letters exchanged, etc. GFS data