1. WORKING PARTY ON NATIONAL ACCOUNTS (WPNA) OCTOBER 2004
THE TREATMENT OF LAND IMPROVEMENTS

2. THE TREATMENT OF LAND IMPROVEMENTS Outline
The current SNA treatment of land improvements and its rationale
Concerns with it
Proposals for change

3. THE TREATMENT OF LAND IMPROVEMENTS Current SNA
Land improvements are GFCF
On the balance sheet, land improvements are included with land as non-produced assets
The decline in value of land improvements is recorded as CFC
COTL is treated likewise until land is sold, then written off

4. THE TREATMENT OF LAND IMPROVEMENTS Current SNA – para 10.51
Acquisitions that lead to major improvements in the quantity, quality or productivity of land, or prevent its deterioration, are treated as GFCF. They consist of acquisitions related to the following kinds of activities:

5. THE TREATMENT OF LAND IMPROVEMENTS Current SNA – para 10.51
Reclamation of land: dykes, sea walls, dams
Clearance of forests, rocks, etc.
Draining marshes, irrigation of deserts by dykes, ditches, irrigation channels
Prevention of flooding or erosion by sea or rivers: breakwaters, sea walls, flood barriers

6. THE TREATMENT OF LAND IMPROVEMENTS Current SNA – para 10.52
Land improvements …..are not in themselves used directly to produce other goods and services in a way that most structures are. Their construction is undertaken to obtain more or better land, and it is the land, a non-produced asset, that is needed for production. For example, a dam built to produce electricity serves quite a different purpose from a dam built to keep out the sea.

7. THE TREATMENT OF LAND IMPROVEMENTS Current SNA – para 10.53
Acquisitions of tunnels and other structures associated with the mining of mineral deposits, etc., are classified as GFCF and not as improvements to land.

8. The current SNA treatment seems odd.
THE TREATMENT OF LAND IMPROVEMENTS - CONCERNS WITH THE CURRENT TREATMENT
The current SNA treatment seems odd.
Land improvements are recorded as GFCF but are also recorded as non-produced assets on the balance sheet
CFC is recorded in respect of a non-produced asset.

9. THE TREATMENT OF LAND IMPROVEMENTS - CONCERNS WITH THE CURRENT TREATMENT
Much of the value of rural land in long-settled countries has been so greatly changed that it is felt that land improvements account for the bulk of the total composite value of land in many cases.
Some countries are unable to obtain estimates of the total value of land, and they can only estimate land improvements.

10. THE TREATMENT OF LAND IMPROVEMENTS - CONCERNS WITH THE CURRENT TREATMENT
It is difficult to draw a line between land improvements and structures. Are dams to provide water for animals and access roads to farms land improvements? Is a wind-driven water pump for irrigation a land improvement? The pipes that carry the water from the pump?
Once a line is drawn, it is difficult to get accurate estimates by survey.

11. THE TREATMENT OF LAND IMPROVEMENTS OPTIONS CONSIDERED BY CII
Leave the SNA as it is
Classify land as either produced or non-produced according to how much land improvements contributed to total value
Identify land improvements as produced assets and unimproved land values as non-produced
Treat land improvements in the same way as buildings and structures. This means adopting option 3 where possible and option 2 where not.

12. THE TREATMENT OF LAND IMPROVEMENTS OPTIONS CONSIDERED BY CII
The majority of Canberra II members favour option 4.

13. THE TREATMENT OF LAND IMPROVEMENTS CANBERRA II PROPOSALS
GFCF of land improvements should be treated like other GFCF and should result in a produced asset.
Land should be valued at its present unimproved value.
Where land cannot be separated adopt recommendations for land/structures – para for balance sheet and para for rentals/rent.
COTL be treated as COT on other types of non-financial asset and be recorded as a fixed asset. Allocate it to land improvements.