PUBLIC/PRIVATE SECTOR DELINEATION and GOVERNMENT TRANSACTIONS WITH PUBLIC CORPORATIONS UNSD/NA/MR1 UN STATISTICS DIVISION Economic Statistics Branch National Accounts Section

Principles No fundamental change is proposed in the delineation between government and private controlled units. Guidelines are developed to help clarify the meaning of “control” and “economically significant prices”. The recommendation: To use a decision tree Additional guidance on the criterion of control Additional guidance on economically significant prices

Decision tree Answer 3 questions: 1. Is the entity an institutional unit? 2. Is the institutional unit part of the public sector? 3. Is the public institutional unit market or non-market?

Control Government control on corporations Definition: control is the ability to determine the general corporate policy of an entity; 8 major indicators: 1. Ownership of the majority of the voting interest 2. Control of the board or other governiong body 3. Control of the appointment and removal of key personnel 4. Control of key committes of the entity 5. Golden shares and options 6. Regulation and control 7. Control by a dominant customer 8. Control attached to borrowing from the government

Control Government control on non-market NPIs 5 major indicators: 1. Appointment of officers 2. Other provisions of enabling instrument 3. Existence of contractual agreements 4. Degree of financing by government 5. Level of risk exposure

Economically significant prices (ESP) ESP is the criterion that is used to classify output and producers as market (a public corporation) or non-market (a government unit) For a public unit whose production is sold primarily to corporations and households: To qualify as market producer, the general rule is that the majority of the production costs are expected to be covered by the value of the sales (over a sustained multi-year period). However, no numerical rule is agreed on at international level. In principle, this assessment is to be made for each institutional unit individually. For public units whose production is sold only to government, 2 cases may be considered: The public entity provides ancillary services: the accounts will be consolidated The public entity is an institutional unit that can be: - the only supplier: it is always treated as a non-market unit (unless it competes in tendering for contract on commercial terms) - One of several producers: it is treated as a market producer if prices are ESP and if it competes with other producers.

Definition of sales (ESP) Based on the business notion of sales Excludes taxes on products and subsidies on products (except subsidies granted to all producers including private ones for this type of activity) Excludes own-account production

Definition of production costs Production costs are the sum of: Intermediate consumption Compensation of employees Costs of capital services (or CFC) Other taxes on production (other subsidies on production are not deducted)

Government transactions with public corporations: earnings from equity investment and capital injections Background: The government tends to manipulate transactions with public corporations in order to show Either higher revenues (lower budget deficit) or Reduce losses to public corporations. The 1993 SNA specifies that regular payments from public corporations to government are recorded as dividends and payments from public quasi-corporations as withdrawals from entrepreneurial income. Exceptional large payments are treated the same way as regular payments.

Government transactions with public corporations: earnings from equity investment and capital injections The AEG recommends that: Exceptional payments from government to public corporations (capital injections) should be recorded as capital transfers when they are used to cover accumulated losses. Exceptional payments from government to public corporations should be recorded as additions to equity when the intention is to increase its investment with a valid expectation of a return in the form of property income. Exceptional payments from public corporations (earnings from equity investment) to the government should be recorded as withdrawals from equity, which is not income, and cannot be used to reduce budget deficits. Regular payments From public corporations to the government should continue to be treated as dividends From public-quasi corporations to the government should continue to be treated as withdrawals of from entrepreneurial income.

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