MGDD Revision Denis Besnard (D1) GFS/EDP course 2014 GFS/EDP course 2012 2/26/2019 MGDD Revision Denis Besnard (D1) GFS course ch. 13.5.15 GFS course ch. 13.5.15

Content A few words on the MGDD Government control: general provisions GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 Content A few words on the MGDD Government control: general provisions Qualitative aspects market/non-market Classification of NPISHs (schools) Classification of hospitals Public holdings and Head Offices Supervisory units and protection funds Captive financial institutions Specific issues on taxes Standardised guarantees Treatment of swaps Other works (not yet in MGDD) GFS course ch. 13.5.15

GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 A few words on the MGDD "Manual of Government Deficit and Debt", start at the end of the 90's Aim: to provide more clarity on ESA provisions (first ESA95) and to deal with issues not at all covered by ESA (for instance securitisation) An important input: simplified "T accounts" examples MGDD as rather a "gentlemen's agreement (ESA2010 = Regulation) From 2010 onwards, regular updates (possibly annual) In 2013 (November) a new MGDD for ESA2010 A new (ESA2010) edition in August 2014 for "fine tuning" on some issues GFS course ch. 13.5.15

GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 Government control Important for delimitating public sector from the non-public sector because some rules applied to transactions between government and other units in public sector In a second step, distinction market producers / non-market producers (= within government sector) ESA2010 (chapter 20) with a battery of criteria Some rather straightforward (voting rights, appointments) although possibly specific cases (under 50% thresholds) Foe others, needed "case-by-case" analysis, such as "special shares/options"), contractual agreements, control of borrowing, "excessive regulation" An example: veto rights GFS course ch. 13.5.15

GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 Market / non-market Before implementing the quantitative 50% test (including interest), checks to do (not for all cases!) Based upon the notion of "economically significant price" (influence on supply and demand) Crucial: a "real" institutional unit (= possibly entity treated as an "ancillary unit" – for services) Analysis of the purchasers of the products sold by public units. Distinction: one producer / several produsers Special case: all output sold to governemtn? Key: selection of the supplier? Competitive procedure? GFS course ch. 13.5.15

GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 NPISHs Different criteria (from for enterprises) for assessing the sector classification of NPISH Applied to non-market NPI (entities not "profit-oriented" for market producers under S.11 or S.12) One criterion: degree of financing, another the "risk exposure" (by government) Application to the case of schools (public, NPI, private) receiving funds form government Financing as such not sufficient in order to classify as government unit Government: last say in important decisions (such as GFCF, nature of educational activity, etc.) GFS course ch. 13.5.15

Hospitals Crucial issue as sector classification different between MS GFS/EDP course 2012 GFS/EDP course 2013 2/26/2019 26/02/2019 Hospitals Crucial issue as sector classification different between MS But need to take into account "national specificities" First, degree of control by government in order to recognise a "public" hospital? Second, existence of a real market competition between public and non-public hospitals? In some cases, public hospitals obliged to carry out some activities (and not the others) while possibly (almost) permanent and/or automatic support from government Third, pricing system? GFS course ch. 13.5.15

Holdings and Head Offices GFS/EDP course 2012 GFS/EDP course 2013 2/26/2019 26/02/2019 Holdings and Head Offices New in ESA2010 Public holding "passive" as regards its group of entities Rather as an "accounting tool for recording participations of government in corporates Possibly underestimation of the "real" government debt An Head office = evident (management and even other) services provided to the entities of the group In the context of the implementation of ESA2020 (September 2014), significant number of reclassification in government sector in some MS GFS course ch. 13.5.15

Supervisory bodies and protection funds GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 Supervisory bodies and protection funds Supervisory bodies (for banks, financial markets, insurance) normally classified as "financial auxiliaries" (S.126) according to EDSA2010 but only if "separate institutional units" Service to supervised entities Deposits guarantee funds: compensation to depositors in case of failure (up to a given amounts), but some for insurance policy holders or securities holders Resolution funds: financing "resolution measures" (see the recent "Bank Resolution and Recovery Directive" A crucial question: acting as "auto-pilot" ? For Eurostat, fundamental: decision on the resources imposed to some agents In Euro Area, new provisions on supervision and resolution GFS course ch. 13.5.15

Captive financial institutions GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 Captive financial institutions New in ESA2010 (and SNA 2008) But no expectations that such units linked to government (nothing in chapter 20) and not only to other financial institutions To avoid confusion, Eurostat focusing on "entities having the features of captive financial institutions" To be classified within the government sector, liabilities mostly provided by government (or under its control, e.g. through explicit guarantees) But also "constraints in the asset side"', so that management has only a narrow independence of action As a result, no government controlled "cfi" in the sub-sector S.127 GFS course ch. 13.5.15

Taxes Accrual rules specific for taxes GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 Taxes Accrual rules specific for taxes In 2014 a few "new" added (or further developed) in MGDD II.2 Tax refunds: more a problem of availability of "solid data"; therefore some flexibility but in most cases time of recording when the tax refund is determined Tax amnesties: rather no estimated amounts to be collected; pure cash possibly best option. "Non-payable" and "payable" tax credits Deferred tax Assets" when converted into payable tax credits (notably for banks in link with Basel III new provisions) GFS course ch. 13.5.15

Standardised guarantees GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 Standardised guarantees This is new in SNA2008 and ESA2010 Mainly treated in MGDD 2013 (November) Large number for rather small amounts under a scheme (e.g.; students loans, mortgage loans for some households, loans/equity for SMEs, etc.) Basically treated as "non-life insurance" but government not acting as a "normal" insurer In SNA2008 and ESA2010, a new financial instrument "provisions for calls under standardised guarantees" (AF.66) Capital transfer (expenditure) in government accounts when increasing the level of the provisions (= call as a financial transaction) A practical issue: how to determine the level of the ^provisions? GFS course ch. 13.5.15

GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 Treatment of swaps Interest on swaps no longer treated as "normal" interest for EDP purpose. So, out EDPB9 and EDPD41! As a result, swap cancellation treated as financial transaction with no (direct) impact at all on B9 In 2014, more specified rules for the treatment of swap renegotiations / restructurings GFS course ch. 13.5.15

Ongoing issues Treatment of Energy Performance Contracts GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 Ongoing issues Treatment of Energy Performance Contracts Nature of government financing to PPP partner Claw-back clauses in sale contracts Units under liquidation Limits to net interest burden New instruments for financing EU infrastructures and firms' GFCF Government "Sukuk" instruments List not exhaustive: methodological work as permanent task and challenge… GFS course ch. 13.5.15

Thanks for your attention! GFS/EDP course 2012 GFS/EDP course 2014 2/26/2019 26/02/2019 Thanks for your attention! Any question? denis.besnard@ec.europa.eu GFS course ch. 13.5.15