1 1 Task Force on Harmonisation of Public Sector Accounting Progress Report OECD Working Party on National Accounts (Paris, 12 October 2005)

2 2 TFHPSA: raison d’être, objectives October 2003: creation in Paris (several international organisations: OECD, IMF, Eurostat, ECB, IPSASBoard ex-IFAC–Public sector committe) Harmonisation and convergence between: - Accounting standards (IAS and IPSAS) and statistical manuals (SNA and GFS): WG1 - Statistical frameworks and guidelines, in the context of SNA review for 2008 (SNA and GFS, ESA manual on deficit and debt -EMGDD): WG2 Output: a chapter on General Government and public sector accounts in the SNA

3 3 TFHPSA: brief history February 2004: 1st meeting, in Paris (28 participants) - Working group 1: Matrix of comparison of standards (IPSAS, GFS, ESA, EMGDD) - Working group 2: 5 priority issues and 5 working teams:. Tax revenue and tax credits. Public/private/government sector delineation. Transactions with public corporations. Privatisation, restructuring agencies, SPVs. Contingent assets / government guarantees

4 4 TFHPSA: brief history September 2004: 2nd meeting, in Washington DC (40 participants) 2-4 March 2005: 3rd meeting, in Paris - enlargement of the TFHPSA basis: more countries and international organisations (WB, UNSD) - modifying the time frame for discussions due to:. some issues may require conceptual changes. consider other inputs: other bodies and recent set-up of the Eurostat task force (for ESA review) July 2005: AEG in Bangkok discusses the substance of 3 issues

5 5 TFHPSA: to-day 3-6 Oct. 2005: 4th meeting in Washington - Main last issues (to be submitted to AEG): 1. Privatisations, restructuring agencies, SPEs, reorganisation of debt, 2. Earnings from equity, capital injections - First draft of the Chapter on the government and the public sector (J.Pitzer) 30 January – 3 February 2006: final AEG in Frankfurt

6 6 Public accounting standards: WG1 The PSC, a body of IFAC, has produced 20 IPSAS (standard setting activity): now the IPSAS Board Main focus of IPSAS on the consolidated public sector, based on the notion of control Working group 1 has released the matrix of comparison of standards (accounting and statistics) Convergence: IPSASB now recommends disclosure of statistics on the General Government (including sub-sectors), and takes on board the distinction between transactions and other flows…

7 7 WG2: Tax revenue and tax credits Definition of tax revenue: minor changes to the core definition. Implementation of accruals: more guidance on the time of recording and amounts to be recorded Tax credits: nothing at present in the SNA. Need to borrow guidance from OECD, GFS, on the difficult case of payable tax credits. Task Force recommendation for a « split » recording: actual payments recorded as expenditure, except in the case of certain social benefits (income substitutes) paid through the tax system (to be fully expensed)

8 8 The AEG on tax issues: Tax definition and accrual recording: - Broad agreement on the principles (time of recording:accruals, amounts of tax revenue not including uncollectible taxes) - No precise recommendations in the SNA, no changes Tax credits: the AEG majority expressed disagreement with the TF recommendation to « split », and recommended to gross up the tax revenue for all payable tax credits

9 9 Government / public / private sector A decision tree (to classify units in the public sector) is proposed Notion of control for the public sector: « the ability to determine the general corporate policy of an entity ». Eight indicators of control are defined. Cases of NPIs to be classified in GG: five indicators of control are defined Economically significant prices (market/non-market distinction): reference is made to the relationship between the value of output and production costs, but no numerical prescription (50%). Indicators proposed.

10 The AEG on delineation issues: Broad agreement on the principles (decision tree, control, ESP) Some reluctance on too prescriptive criteria or indicators The paper needs some redrafting, for clarification Members of the AEG were asked to provide written proposals. None has been provided yet (new deadline:30 November)

11 Government guarantees Changes in the international context: IPSAS19, and increasing consensus that most of guarantees produce economic and financial effects, and should be recorded as transactions Three types of guarantees: 1. Standardised guarantees (export insurance type), to be recorded like insurance technical reserves 2. Tradable or offsettable guarantees, to be recorded as financial derivatives 3. One-off guarantees (to public corporations), to be recorded in supplementary accounts

12 The AEG on the guarantee issue: Large agreement with the proposals Requirement for limited improvements, clarifying the recording when guarantee is granted and when it is activated New draft of the paper expected rapidly

13 Transactions between government and public corporations In order to solve the problems due to lack of guidance on the recording of these transactions (capital injections and superdividends for instance), two approaches were proposed and opposed: 1. For an improved / amended SNA, to take on board some recommendations from the EMGDD and GFSM2001 (no fundamental change to the present conceptual framework, only more precise definitions) 2. To apply the treatment recommended for foreign direct investment using reinvested earnings (D.43); to accrue the profit or loss of the public corporation in the GG account.

14 Transactions between government and public corporations The opinion of the task force members was shared between the two main options: no overwhelming majority in favour of one approach It appeared during the discussion that some uncertainties were affecting the D.43 recording (only 100% owned corporations?, scope of financial transactions…); situation not mature Orientation of TFHPSA: preference for the improved / amended SNA approach; the paper presented to the task force developing the D.43 proposal will be put on the « Research agenda »

15 Privatisation, restructuring agencies and SPVs Non-controversial issue of privatisation and nationalisation: for clarification of SNA only More complicated cases and issues: securitisation and SPEs, restructuring agencies (defeasance etc.), Public Private Partnerships Case of SPEs, often created for the purpose of securitisation of assets: - mostly financial institutions, classified in sub-sector S.123 (if institutional units) - but may be ancillary units, or consolidated with the government

16 TFHPSA: the next steps January-February 2006 AEG (Frankfurt): a few issues will be submitted for approval, related to privatisation and restructuring agencies, SPEs, debt reorganisation, and the recording of transactions between government and public coprporations March 2006: last TFHPSA meeting, in Paris To be discussed: the new draft chapter in SNA for the Government and public sector