Item 5: Intermediate and Final Consumption ESTP course on National Accounts ESA 2010 Luxembourg, 15 - 19 May 2017 Eurostat

Intermediate Consumption (IC) & Final Consumption (FC) What is consumption? Consumption = goods or services are used up - by institutional units - in an accounting period What is IC? What is FC?

IC (P.2) Definition (ESA 2010 para 3.88): Intermediate consumption consists of goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services are either transformed or used up by the production process. E.g. grain – flour – bred car engine, wheels, seats … electricity, services, …

The Production Process Inputs Production Process Output Goods (in 2015) Output (g&s) IC Services CFC Fixed Assets Labour

Define the boundaries FC Inputs Production Process Output IC Goods & Services IC CFC - GFCF - Inventories - Valuables Labour

Boundaries Define the boundaries FC Inputs Production Process Output IC Goods & Services Boundaries IC CFC - GFCF - Inventories - Valuables Labour

IC includes All goods and services used as inputs to the production process (in one local KAU, in one accounting period) Rentals paid for fixed assets, e.g. the operational leasing of machines, cars, software and entertainment originals Fees, commissions, royalties (for production) Also for ancillary activities (marketing, accounting, transportation, storage, maintenance, security, etc.) Also received from another local KAU of the same institutional unit

IC includes (II) inexpensive tools (such as saws, hammers, screwdrivers, and other hand tools; pocket calculators) (not GFCF) regular maintenance and repair of fixed assets (not GFCF) services of staff training, market research and similar activities expenditure by employees, reimbursed by the employer, on items necessary for the employers' production expenditure by employers such as reimbursement of employees for travelling, separation, removal and entertainment expenses; providing amenities at work FISIM purchased by resident producers

IC excludes Valuables Changes to inventories GFCF mineral exploration (= GFCF) major improvements, e.g. renovation, reconstruction or enlargement (= GFCF) software purchased outright or produced on own-account wages and salaries in kind payments for licences for using natural resources (e.g. land) that are treated as rents, i.e. as a payment of property income

IC excludes (II) military weapons and the equipment to deliver them (= GFCF) Research & Development (= GFCF)

IC IC IC IC and the unit Institutional Unit Inputs Local KAU 2 Main Act. 2 Main Act. 1 IC Secd.Act. 1 Inputs IC Ancillary Act. 1 Local KAU 2 Local KAU 1 Internal flows within one local KAU are not being accounted for

IC – Time of Recording and Valuation Recorded and valued at the time the goods and services enter the process of production valued at the purchasers' prices for similar goods or services at the time of use = replacement costs NB: Also when taken from inventories

IC and input inventories Bookkeeping at replacement costs: IC(t1) = purchases(t1) − Changes in invent.(t1) Bookkeeping at historic prices: IC(t1) = purchases(t1) − Changes in invent.(t1) + holding gains of withdrawals from invent. in t1 NB: Changes in input inventories = value of entries into invent. − value of withdrawals from invent. − value of recurrent losses on goods held in invent.

Data sources for IC Business surveys Company and government accounts Structural imputation

Final Consumption (FC) Two concepts: Final consumption expenditure (P.3) Actual final consumption (P.4)

FC – Classification and Breakdowns Classifications: COICOP, CPA, COFOG, COPNI Breakdown by consuming institutional sector: Households, General Government, NPISH By characteristic of the consumption: Individual vs. Collective Consumption

Final Consumption Expenditure (P.3) Definition (ESA 2010 para 3.94): Final consumption expenditure consists of expenditure incurred by resident institutional units on goods or services that are used for the direct satisfaction of individual needs or wants or the collective needs of members of the community. National Concept, i.e. + direct purchases abroad by residents, ./. purchases on the domestic territory by non-resident units.

Final Consumption Expenditure (P.3) Consuming Sectors: Household Final Consumption Expenditure (HFCE) Government FCE NPISH FCE

HFCE includes services of owner-occupied dwellings income in kind (for employees, retained by owners) items not treated as intermediate consumption (materials for small repairs and interior decoration of dwellings, repairs and maintenance of cons. durables) items not treated as capital formation (in particular consumer durables) part of FISIM used for final consumption purposes implicit service charge (insurance, pension funds) unincorporated enterprises are difficult

Government FCE includes goods and services produced by general government itself other than own-account capital formation, and other than sales (market output, payments for non-market output) social transfers in kind, which are purchased from market producers and supplied – without any transformation – to households

NPISH FCE includes goods and services produced by NPISHs, other than own-account capital formation and other than sales to households and other units social transfers in kind, which are purchased from market producers and supplied – without any transformation – to households

Time of Recording and Valuation of FCE Expenditure on a good is recorded at the time of change of ownership; expenditure on a service is recorded when the delivery of the service is completed hire-purchase or financial lease: when delivered output retained for own final consumption: when produced, valued at basic prices HFCE: recorded at purchaser's prices Employees compensation in kind: at basic prices (produced) or at employers' purchasers' prices (purchased)

Time of Recording and Valuation FCE(II) For Government and NPISH FCE the following equation holds: Govt FCE = output (P.1) - minus own-account capital formation (P.12) – sales of market output (P.11) – sales of non-market output (P.131) + social transfers in kind purchased from market producers (D.632)

Individual vs. Collective Consumption Individual goods and services  exclusion criterion Collective services  no exclusion All HH and NPISH FCE is individual Government FCE is individual or collective, borderline defined on basis of COFOG or COICOP - Individual: education, health, social security, sports and recreation, culture - Collective: All other, e.g. gen. administration, defence, police, legal system

Actual final consumption (P.4) = goods or services that are acquired by resident institutional units for the direct satisfaction of human needs, whether individual or collective Social transfers in kind, transferred from Government or NPISH to households make the difference.

Different Consumption Concepts Sector making expenditure   Government NPISHs Households Total acquisitions Individual consumption X (= Social transfers in kind) X Households actual individual final consumption Collective consumption n.a. Government's actual collective final consumption Total Government's final consumption expenditure NPISHs final consumption expenditure Households final consumption expenditure Actual final consumption = Total final consumption expenditure

Thank you for your attention! Contact: andreas.dollt@ec.europa.eu