VALUATION AND METHODS OF ESTIMATING GDP Leo Hiemstra Statistics Netherlands, National accounts in practice

Basic identities (1) P + M = IC + C + I + E (2) Y = P - IC (3) Y = C + I + E - M (4) Y = W + OS/MI

Basic identities P + M IC + C + I + E P – IC C + I + E – M W + OS/MI ≠ = ≠ = = ≠ Reason: differences in valuation

Valuation 1) Of domestic production: Basic prices = Producer prices + Taxes on products - Subsidies on products = Producer prices + Trade margins + Transport margins = Purchasers prices excluding VAT + VAT = Purchasers prices including VAT Statistics Netherlands, National accounts in practice

Valuation 2) Of imports: CIF + import duties + Taxes on products - Subsidies on products = CIF + import duties + T-S + Trade margins + Transport margins = Purchasers prices excluding VAT + VAT = Purchasers prices including VAT Statistics Netherlands, National accounts in practice

Valuation Statistics Netherlands, National accounts in practice

Basic identities Pbp + Mcif <> ICpp + Cpp + Ipp + Efob Pbp + Mcif + T/S = ICpp + Cpp + Ipp + Efob or: Pbp + Mcif = ICpp + Cpp + Ipp + Efob - T/S

Valuation

A. Taxes and subsidies on products fixed amount per quantity or percentage of value e.g. import duties, excise duties, value added tax B. Other taxes on production taxes on the use of commodities e.g. vehicles taxes on the ownership of commodities e.g. buildings Statistics Netherlands, National accounts in practice

Statistics Netherlands, National accounts in practice

Statistics Netherlands, National accounts in practice

TREATMENT AND CALCULATION OF VALUE ADDED TAX (VAT) In the Use table: valuation at purchasers price Two possible ways of presenting the data: Excl. VAT Incl. VAT To make a choice it is important to know what VAT represents and the consequences of the choice. Statistics Netherlands, National accounts in practice

Value added tax VAT is a tax on the sale of commodities Most countries have different rates low tariff food high tariff durables zero tariff health services Low = 6.0% High = 17.5% Zero = 0.0% (EXPORT) future :Intrastat trade normal tariff Outside EU 0% Statistics Netherlands, National accounts in practice

Characteristic Before producers/sellers pay off their VAT to the tax authorities they may deduct the VAT they paid themselves on their purchases intermediate consumption capital formation tax burden is on the final user Some producers are exempted from VAT: health care, banking, insurance companies. The consequence of being exempt of VAT ( 0%) is that they do’nt pay VAT to the authoroty. But are also not permitted to deduct VAT on their purchases. So VAT is a cost for them In most cases it means that VAT is a burden for households and the exempted units. NON-DEDUCTABLE VAT Statistics Netherlands, National accounts in practice

Vat recording net Uniform valuation of the use table: all entries exclude VAT Non-deductible VAT as a separate row in the use table Balancing transparent Netherland prefers NET recording Lets have a look at both systems and judge afterwards Statistics Netherlands, National accounts in practice

Statistics Netherlands, National accounts in practice

Statistics Netherlands, National accounts in practice

Statistics Netherlands, National accounts in practice

Statistics Netherlands, National accounts in practice

Supply use tables: the framework Statistics Netherlands, National accounts in practice

SUPPLY Commodities Dairy ind. Other ind. Import Tax-Sub on products T&T margins Total (pp) Milk Dairy prod. Other goods+serv. T+T margins 0,0 13,6 0,2 13,8 8,0 0,5 899,2 105,6 1013,3 0,0 4,6 261,9 266,5 0,0 -1,9 13,2 11,3 0,0 2,5 103,1 -105,6 8,0 19,3 1277,6 0,0 1304,9

USE Commodities Dairy ind Other ind. Export Cons. Invest. Total use = Tot. supply Milk Dairy prod Other g+s T+T margins VAT Other tax on prod Comp. empl. Op. surplus Total 7,9 1,4 2,5 0,0 0,2 0,0 3,4 489,6 8,0 4,1 298,8 0,0 7,9 289,9 297,8 0,1 6,6 384,6 23,4 414,7 0,0 111,0 9,0 120,0 8,0 19,3 1277,6 0,0 40,4 4,3 300,2 209,8 0,4 209,4 13,8 1013,3

EXERCISE Calculate GDP in three different ways

Three methods for computing GDP and National income A. Production method -> based on value added by industry Y = P - IC B. Expenditure method -> based on expenses consumption capital formation exports - imports Y = C + I + E - M C. Income method -> based on information on income by sector Statistics Netherlands, National accounts in practice

Production method Output 1027,1 Intermediate consumption 512,8 - Value added 514,3

Expenditure method Final consumption 414,7 Fixed capital formation 120,0 Export 297,8 + 832,5 Import (cif) 266,5 - GDP 566,0

Income method Compensation of employees 300,2 Operating surplus 209,8 + “Value added” 510,0

Basic identities P + M + T/S = IC + C + I + E Y = P – IC + T/S Y = C + I + E – M Y = W + OS/MI + taxes and subsidies on production and imports

GDP(mp) computed with Production method Production at basic prices - Intermediate consumption at purchasers value Value added by industry (bp) + Taxes -/- subs. on products = Gross Domestic Product (mp)

Production method Output 1027,1 Intermediate consumption 512,8 - Value added 514,3 VAT 40,4 Other taxes minus subs. on products 11,3 + GDP 566,0

GDP computed with income method + Compensation of employees + Operating surplus and mixed income Gross domestic product at factor costs + Taxes -/- subsidies on production Gross domestic product at basic prices + Taxes -/- subsidies on products Gross domestic product at market prices Statistics Netherlands, National accounts in practice

Income method Compensation of employees 300,2 Operating surplus 209,8 + Value added at factor costs 510,0 Other taxes on production 4,3 + Value added at basic prices 514,3 VAT 40,4 Other taxes minus subs. on products 11,3 + GDP 566,0

VALUATION AND METHODS OF ESTIMATING GDP Statistics Netherlands, National accounts in practice