Use of national accounts: European unification Frits Bos CPB Netherlands Bureau for Economic Policy Analysis

Yesterday: Use of national accounts: – Historical overview – The Dutch case – See presentation and paper on website conference (in general: google “frits bos national accounts”)

Now: focus on European unification, a major case of administrative use of national accounts

EU-uses of national accounts Member States contribution: percentage of GNI Maximum total expenditure by EC: percentage of GNI (about 1%) Agricultural policy: agricultural accounts showing also the development of farmer income

Regional policy: Low regional domestic product is yardstick for granting regional funds Development aid: Low domestic product per capita is yardstick for granting aid Monetary policy and public finance: government deficit and debt as a percentage of GDP; various other statistics, e.g. Financial accounts, economic growth figures and harmonized CPI

Productivity and growth policy (Lisbon agenda): economic growth figures, expenditure on R&D and education as a percentage of GDP, EU-KLEMS Social policy: European social protection statistics closely linked to national accounts concepts (includes now also info on pensions) Defence policy: Expenditure on defence as a percentage of GDP

EU good user of national accounts: – Use for the right purposes (not better alternatives exist for such administrative uses) – Did not accept current state of European statistics but took a lot of measures to fit European national accounts statistics better to these data uses

Measures taken: – Extra money for many specific projects – Special committees on GNP and CMFB – Regulations for extra/better inputs, e.g. Business registers, surveys on industries, more surveys on services, harmonised labour force survey, also abolition of intra-EU customs borders, so deterioration of Foreign trade statistics – New guidelines: ESA95, handbook on price and volume measures, handbook on government deficit and debt

GNP Committee: – Jurisprudence on interpretation of ESA concepts, e.g. What are taxes on products and do the imputed services of owner-occupied dwelling include also holiday homes abroad and free standing garages? Input for ESA95, so in this respect more specific than SNA93 – Unique documentation of data sources and compilation methods for GNP by country, plus discussions on their merits and limitations

– Sometimes drastic revisions of Member States GNP figures, e.g. Greece, Portugal 10-20% up!

ESA95: more specific than SNA93: – Input from GNP committee – Important issues not resolved in SNA, should be resolved in EU, e.g. Market-non-market. SNA93 so vague and misleading (economically significant prices) that non-market output was actually not defined and that therefore also sector government was not defined

Contribution to EU linked to GNP: – Capital intensive countries pay more – Countries with small unpaid household services pay more – Countries with relatively a lot of indirect taxes pay more

European norms on government deficit and debt linked to national accounts (Treaty of Maastricht): – Deficit should not exceed 3% GDP – Debt should not exceed 60% GDP or decline in a satisfactory rate

So, national concepts on public finance replaced by European concepts fully linked to national accounts. Consequences: – Change in concepts used nationally, e.g. No financial transactions included, government includes now also local government – Concepts can not be changed any more by the national government over time – More limited role of ministries of finance, much more important and new role for statistical offices: they should translate European concepts into national operational concepts and provide the figures

Bad incentives for government behaviour, e.g. – Government deficit: Lease buildings, planes, cars Sell all kinds of property, e.g. Land, buildings Substitute income transfers and investment grants into loans at non-market interest rates Decrease interest payments only in nominal terms: Italian approach initiated by Modigliani

Government debt: – Sell equity of public corporations – Reduce outstanding loans – Sell natural resources (e.g. Gas) or other property

Solution: – Generational accounts – Complete balance sheets for the government

Figures for the Netherlands since 1994: – Gross debt decreased with 27% GDP – But no improvement in terms of net worth: it decreased wit 14% GDP (selling equity, less loans to housing corporations and less natural gas reserves)

So, gross debt does not suffice, also generation accounts do not suffice, also net worth is needed: – Gives a different picture of past performance (much better than gross debt) – Is important for the link to generational accounts: how can gross debt go down while CPB claims there still remain problems with the substainability of Dutch public finance? Data users and politicians do not understand that