1. METAC Workshop March 14-17, 2016 Beirut, Lebanon National Accounts Compilation Issues Session 7: General Government

2. General Government - topics Principal function General government units Sectors and sub- sectors Output Government final consumption expenditure Taxes less subsidies on production

3. Principal function to assume responsibility for the provision of goods and services to the community or to individual households to redistribute income and wealth by means of transfers, and to engage in non-market production.

4. General Government institutional units … make three different kinds of final outlays: free provision to the community of collective services such as public administration, defense, law enforcement, etc.; provision of goods or services free, or at prices that are not economically significant, to individual households; transfers paid to other institutional units, mostly households, in order to redistribute income or wealth.

5. General Government units as producers Three options for government unit to intervene in the sphere of production: It may create a public corporation whose corporate policy, including pricing and investment, it is able to control; – General Government units vs Public corporations It may create an NPI that it controls; It may produce goods or services itself in an establishment that it owns but that does not exist as a separate legal entity.

6. Government quasi- corporations Three criteria to consider government establishments as quasi- corporations, outside the General Government: – the unit charges prices for its outputs that are economically significant; – the unit is operated and managed in a similar way to a corporation; and – the unit has a complete set of accounts that enable its operating surpluses, savings, assets and liabilities to be separately identified and measured.

7. General government sectors and sub- sectors General Government sector consists of the following resident institutional units: all units of central, state or local government all non-market NPIs that are controlled by government units social security funds (SSF), either as separate institutional units or as part of any or all of central, state or local government. Unincorporated enterprises owned by government units that are not quasi-corporations must be included in the general government sector.

8. General government sectors and sub- sectors all SSFs showed together as one subsector Central government – Of which NPIs State government – Of which NPIs Local government – Of which NPIs SSF SSFs allocated to other sub- sectors Central government, incl. SSF – Of which NPIs State government, incl. SSF – Of which NPIs Local government, incl. SSF – Of which NPIs

9. Central Government … consists of the institutional unit or units making up the central government plus those non-market NPIs that are controlled by central government The political authority of central government extends over the entire territory of the country. Its political responsibilities include: – national defense, – maintenance of law and order, and – relations with foreign governments

10. The composition of Central Government central group of departments or ministries that make up a single institutional unit plus, other institutional units – Often the departments / ministries are not separate institutional units capable of owning assets, incurring liabilities, engaging in transactions, etc., independently of central government as a whole. – Departments of central government are often deliberately dispersed geographically and located in different parts of the country, but they nevertheless remain parts of a single institutional unit such as branch offices or agencies in different parts of the country, including military bases or installations that serve national defense purposes, these must also be counted as parts of a single institutional unit for central government

11. The composition of Central Government In addition to government departments and ministries, there may be agencies of central government with separate legal identity and substantial autonomy – often established to carry out specific functions such as road construction or the non-market production of health or education services if the services they produce are non-market and if they are controlled by central government.

12. State government … consists of state governments that are separate institutional units plus those non-market NPIs that are controlled by state governments … exercising some of the functions of government at a level below that of central government and above that of the governmental institutional units existing at a local level – whose fiscal, legislative and executive authority extends only over the individual “states”, those that have federal constitutions, into which the country as a whole may be divided.

13. Local government … consists of local governments that are separate institutional units plus those non- market NPIs that are controlled by local governments – … whose fiscal, legislative and executive authority extends over the smallest geographical areas distinguished for administrative and political purposes They are often heavily dependent on grants or transfers from higher levels of government, and they may also act as agents of central or regional governments … but they also may carry out activities financed by their own resources: museums, schools, health care…

14. Social security funds … consists of the social security funds operating at all levels of the government; – managing social insurance schemes that cover the community as a whole or large sections of the community and are imposed and controlled by government units They should be organized separately from the other activities of government units and hold their assets and liabilities separately from the latter and engage in financial transactions on their own account

15. Government output As non-market producers, the output of government units is estimated as the sum of costs, including: – Intermediate consumption; – Compensation of employees; – Consumption of fixed capital – Other taxes (less subsidies) on production Even though a non-market establishment may have sales receipts, its total output covering both its market and its non-market output is still valued by the production costs. The residual between the total output and the sales receipts and charged fees is other non- market output of the government representing government final consumption expenditures for individual and collective services

16. Output, Final Consumption Expenditure Production Account Intermediate consumptionOutput Value added Sales of goods and services Own-account capital formation Non-market output Generation of Income Account Compensation of employeesValue added Consumption of fixed capital Other taxes on production Use of Disposable Income Account Government FCE = Non-market output + Social transfers in kind (purchased production)

17. Classification … classified in several ways: according to whether the goods or services have been produced by market or non-market producers; according to whether the expenditures are on collective services or individual goods or services; by function or purpose according to the classification of the functions of government (COFOG); or by type of good or service according to the CPC (the case with SUT).

18. Expenditures on goods and services provided by market producers … purchases of goods and services produced by market producers that are supplied directly to households… … as social transfers in kind; The expenditures are treated as final consumption expenditure and not intermediate consumption of the government. Examples: – purchase of food to be distributed to the victims of flood; – purchase of blankets to be distributed to the homeless; – purchases of certain medicines and payment for certain health services provided by private clinics to households.

19. Individual or Collective services

20. Data sources and procedures Source data Government Finance Statistics Statement of Revenue and Expenditure of national and local government National Budget Statement Budget documents (Demand for Grants) of Central Government (all Ministries), all Province and all Local bodies Compilation procedures: cost approach 2008 SNA requirement on the treatment of military weapons reduce the value of government output and collective services provided by the government

21. Government – volume measures The current value of the output of non-market goods and services produced by government units or NPISHs is estimated as a sum of costs incurred in their production. The change in the volume of output can be different from the change in the volume of inputs. Changes in productivity may occur in all fields of production, including the production of non-market services.

22. Government – volume measures 2 1.Pseudo output price index, adapting a suitable aggregate input price index to reflect the productivity growth 2.Output volume method, recommended for individual services, in particular, health and education. A volume indicator of output using adequately weighted measures of output of the various categories of non-market goods and services produced; these measures of output should fully reflect changes in both quantity and quality

23. Government – volume measures 3 3.Input method may be used for collective services for which the “output volume method” can’t be used – Consists of measuring changes in output by changes in the weighted sum of volume measures of all the inputs – The volume measures of inputs should fully reflect both changes in quantity and quality: best derived by deflating the various input costs by corresponding constant-quality price indices; or using volume indicators that reflect input volume change (for example, number of hours worked by employees)

24. Taxes and Subsidies - topics Definition Classification Recording Taxes on production and imports – Taxes vs Service fees – Taxes on products/VAT

25. Definition … compulsory, unrequited payments, in cash or in kind, made by institutional units to government units. – … unrequited because the government provides nothing in return to the individual unit making the payment, transfers; taxes vs fees: 2008 SNA, 8.54 … used by the Government to provide goods or services to other units, either individually or collectively

26. Classification... part of (D)istributive transaction: Taxes on production and imports (D2) – Taxes on products (D21) Value added type taxes (VAT) (D211) Taxes and duties on imports excluding VAT (D212) – Import duties (D2121) – Taxes on imports excluding VAT and duties (D2122) Export taxes (D213) Taxes on products except VAT, import and export taxes (D214) – Other taxes on production (D29) Current taxes on income, wealth, etc. (D5) – Taxes on income (D51) – Other current taxes (D59)

27. Recording Taxes on production and import – on accrual basis, when the activities, transactions or other events occur that create the liabilities to pay taxes not to include taxes unlikely ever to be collected – under uses in the generation of income account and under resources in the allocation of primary income account. Product taxes: – … depends on the valuation used for the recording of output: basic prices/producer price* Other taxes on production: – … whatever the valuation of output used, other taxes on production are always recorded as a charge on value added in the generation of income account Current taxes on income and wealth – on accrual basis; – under Secondary distribution of income account: Resources for the Government; Uses for other institutional sectors

28. Taxes on production and imports Taxes on products – payable per unit of some good or service; – depend on the value or quantity of products – excluded from basic price but included in the producer price and purchaser price Other taxes on production – all taxes except taxes on products that enterprises incur as a result of engaging in production – not related to the value or quantity of products – Included in basic price and also included in purchaser price

29. Service fee, product taxes and taxes on production

30. VAT … collected at each stage of the process of production, – … but ultimately charged in full to the final purchasers Terminology, 2008 SNA, 6.58: Invoiced VAT : payable on the sales of a producer; it is shown separately on the invoice that the producer presents to the purchaser. Deductible VAT: payable on purchases of goods or services intended for intermediate consumption, gross fixed capital formation or for resale that a producer is permitted to deduct from his own VAT liability to the government in respect of VAT invoiced to his customers. Non-deductible VAT: payable by a purchaser that is not deductible from his own VAT liability, if any.

31. VAT 2008 SNA requirements: net system of recording VAT: – Output of goods and services are valued excluding invoiced VAT; – Imports are similarly valued excluding invoiced VAT; – Purchases of goods and services are recorded including non-deductible VAT; – Under the net system, VAT is recorded as being payable by purchasers, not sellers, and then only by those purchasers who are not able to deduct it. Almost all VAT is therefore recorded in the SNA as being paid on final uses, mainly on household consumption, but also including exempted activities.

32. Valuation of GDP GDP = the sum of the gross value added at basic prices, plus all taxes on products, less all subsidies on products

33. Taxes on products – volume measure Ad valorem taxes, e.g., VAT – Estimate by the volume change of the underlying products (as for distribution services) – VAT mostly paid by households => HFCE indicator Specific taxes, e.g., excise duties – Estimate by volume change in the products (change in tax rate = price change), for individual products – Estimate at most detailed level possible

34. References General Government – 2008 SNA, Chapter 4: F; Chapter 6: E,4 – GFSM 2014, Appendix 4 Taxes and Subsidies – 2008 SNA, Chapters 6-7 – paragraphs 14.148-152, 15.175

35. Thank you