Government Finance Statistics in National Accounts

1. Government Finance Statistics in National Accounts John Verrinder Unit C5 – Validation of public accounts

2. Diverse ‘government finance statistics’ • Cash-based reporting (often monthly) • Public Finance reports (national definitions) • Accounts based on international reporting standards (IFRS/IPSAS) • Government Finance Statistics • National Accounts • IMF (GFS Manual 2001) • Choice of policy indicators… • In European Union >> National Accounts

3. National Accounts • Complete and systematic picture of the national economy • Economic basis, thus: • Accruals-based (for example, interest) • Focuses on economic actors • International standards • System of National Accounts (SNA 93) • European System of Accounts (ESA 95)

4. Applying national accounts to “government” • Government just one “sector” in national accounts (others: corporations, households, non-profit bodies, rest of world) • Complete consistency required (e.g. taxes collected by government must be matched by taxes paid by other sectors) • Few “specific” rules for government in current standards. • Government a major part of value added in economy (GDP)

5. Boundary of “General Government” • General Government includes: • “Non-market” producers • Bodies re-distributing wealth • Contains Central Government, State Government, Local Government, Social Security Funds • Includes “off-budget” funds and bodies • Does not cover public corporations

6. Market / Non-market • Once “autonomy of decision” is determined… • Once public control is determined… • Market units (public corporations) cover more than 50% of their costs from sales • Sales must be at “economically significant prices” … not government transfers or deficit financing

7. Non-financial and financial transactions • Non-financial transactions (“above the line”)…direct deficit impact • e.g. wages and salaries, tax receipts… • Financial transactions (below the line”) involve settling non-financial transactions, or exchanging financial instruments (currency, bonds, shares, etc) with no deficit impact • e.g. privatisation - selling shares for cash

8. The government deficit/surplus • equals Expenditure – Revenue (special NA definitions) • Determined by the balance of non-financial transactions… • …which is conceptually equal to the balance of financial transactions (but usually not in practice) • Includes impact of capital expenditure and capital taxes

9. The Excessive Deficit Procedure • Maastricht Treaty (1992) sets convergence criteria thresholds as… • General government deficit 3% of GDP (same as national accounts except interest on swaps / FRAs treated differently) • General government debt 60% of GDP (measured gross and consolidated, at nominal value, only selected instruments) • European Commission (Eurostat) responsible for providing the data • In practice countries compile and Eurostat “validates”

10. Filling in the gaps… • National accounts are a broad framework • Specific cases not always covered – interpretation required • ‘Case law’ built up by Eurostat decisions over time in “ESA95 Manual on government deficit and debt”, for example: • Capital injections • PPPs • Securitisation • Privatisation • Military expenditure

11. Presentation of data • GFS based on national accounts go beyond deficit and debt… cover: • Expenditure (economic transaction, function) • Revenue (breakdown of taxes, social contributions) • Financing (stocks and flows by financial instrument) • Eurostat dedicated website on GFS: www.ec.europa.eu/eurostat

12. Where do the data come from? • National accounts usually compiled by National Statistical Institute … • Financial Accounts often compiled by Central Bank • Main sources of data • Ministry of Finance / Budget Office / Debt Office • Other Ministries (tax, investment …) • Individual accounts (local government, health, social security…) • Surveys (government units, banks …) • National accountants integrate source data at correct timing, valuation and classification