Item 24a: Government finance statistics ESTP course on National Accounts ESA 2010 Luxembourg, 15 May - 19 May 2017 Eurostat (D.1, D.4)

What is so special about government? Major 'actor' in the economy Policy maker Redistribution of income Collects our taxes 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 concept and reference values for public deficit and public debt: 'EDP' and the reporting 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. Council Regulation 479/2009, as amended (and Commission Regulation 220/2014 amending it as regards references to ESA 2010) defines deficit and debt reporting and operational arrangements.

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 Preventive arm ‘Medium term budgetary objectives (MTO)’ – target in structural terms ‘structural balances’ and ‘expenditure benchmark’ Corrective arm Commission and Economic and Financial Committee (EFC) give 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 European system of GFS presentation builds total revenue and total expenditure from the sequence of accounts … but: ESA transmission programme: underlying government sector accounts in 479/2009 Need for more precise methodological rules … to prevent accounting to minimise deficit/ debt by governments (interpretation to ESA = MGDD) Need for EDP-specific data collection system

GFS - Transmissions Gradual extension of general government data: ANNUAL GFS DATA Table 2 – Main aggregates (expenditure and revenue) 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) Described in the (new) chapter 20. Difference between total expenditure and total revenue is deficit/surplus (B.9 – net borrowing (-)/ net lending (+)). Investment (GCF – P5) is an expenditure CFC is an expense Imputed flows in GFS presentation: imputed social contributions, capital transfers in kind, imputations related to social insurance. '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.

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

ESA transmission programme and GFS

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

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 Transition between budget to B9

EDP Notification tables part II Table 3 Reconciles deficit with change in debt (“stock-flow adjustments”) Financial assets Financial liabilities not in debt Other adjustments Statistical discrepancies Table 4

Questionnaire relating to EDP tables Accompany twice-yearly EDP tables: Revision of general government deficit and debt Breakdown of financial transactions included in the 'working balance' Adjustments for sector delimitation in EDP tables (list of B9 of main other central government bodies, etc.) Breakdown of other accounts receivable/payable (F.8) reported in EDP tables Taxes and social contributions other accounts receivable/payable (F.8) 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 Rerouting transactions

Methodological issues Pyramid of methodological basis: ESA 2010 = law specific chapter on government accounts + SNA 2008 if doubts Eurostat Decisions, guidance notes, and Manual on Government Deficit and Debt (MGDD) Interpreting ESA 2010, where needed Discussions at EDPS WG (and TF) 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

EDP organisation of Eurostat – Member states contacts EDP desk at Eurostat During 2 weeks April and October: 'request for clarification' Every 2 years EDP dialogue visit Action points Minutes published Bilateral contacts 'Advice' : official letter Tasks force or working group discussions EDPS WG (Methodological TF, GFS TF) CMFB consultation

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

Δ Classification of units Is it an institutional unit? Concept of government unit Concept of control: is it public or private? Non-market / 50% rule Institutional unit level Economically significant prices: product level Quasi-corporations Borderline with financial corporation financial intermediation Captives, SPE, holding companies Specific cases of units "subsidized" (circularity) Hospitals; Railways

Δ Relations between government and public corporations Capital injections: D9 (capital transfer) or F5 (equity injection)? Government provides funds to a PC Is government investing for a return, or Is government providing funds to cover losses (past or future)? Privatisation: obvious… 'indirect' privatisation; holding companies Dividends 'Super-dividends'

Time of recording ESA 2010 on an accruals basis… Taxes Interest when the interest accrues EU flows Neutrality of EU funds 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 risks and rewards Construction risk Demand risk Availability risk Other issues: financing, guarantees etc.. Tree approach or multi-criteria?

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 of 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