Item 5: Intermediate and Final Consumption

1. Item 5:Intermediate and Final Consumption ESTP course on National Accounts ESA 2010 Luxembourg, 30 May – 03 June 2016Eurostat

2. Intermediate Consumption (IC) & Final Consumption (FC) • What is consumption? Consumption = goods or services are used up - by institutional units - in an accounting period • What is IC? • What is FC?

3. IC (P.2) • Definition (ESA 2010 para 3.88): Intermediate consumption consists of goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services are either transformed or used up by the productionprocess. • E.g. grain – flour – bred car engine, wheels, seats … electricity, services, …

4. The Production Process Inputs Production Process Output (in 2015) Output (g&s) Goods IC Services CFC Fixed Assets Labour

5. Define the boundaries FC Inputs Production Process Output (in 2015) Goods & Services IC IC CFC - GFCF - Inventories - Valuables Labour

6. Define the boundaries FC Inputs Production Process Output (in 2013) Goods & Services IC Boundaries IC CFC - GFCF - Inventories - Valuables Labour

7. IC includes • All goods and services used as inputs to the production process (in one local KAU, in one accounting period) • Rentals paid for fixed assets, e.g. the operational leasing of machines, cars, software and entertainment originals • Fees, commissions, royalties (for production) • Also for ancillary activities (marketing, accounting, transportation, storage, maintenance, security, etc.) • Also received from another local KAU of the same institutional unit

8. IC includes (II) • inexpensive tools (such as saws, hammers, screwdrivers, and other hand tools; pocket calculators) (not GFCF) • regular maintenance and repair of fixed assets (not GFCF) • services of staff training, market research and similar activities • expenditure by employees, reimbursed by the employer, on items necessary for the employers' production • expenditure by employers such as reimbursement of employees for travelling, separation, removal and entertainment expenses; providing amenities at work • FISIM purchased by resident producers

9. IC excludes • Valuables • Changes to inventories • GFCF • mineral exploration (= GFCF) • major improvements, e.g. renovation, reconstruction or enlargement (= GFCF) • software purchased outright or produced on own-account • wages and salaries in kind • payments for licences for using natural resources (e.g. land) that are treated as rents, i.e. as a payment of property income

10. IC excludes (II) • military weapons and the equipment to deliver them (= GFCF) • Research & Development (= GFCF)

11. IC and the unit Institutional Unit IC Main Act. 2 Main Act. 1 IC Secd.Act. 1 Inputs IC Ancillary Act. 1 Local KAU 2 Local KAU 1 Internal flows within one local KAU are not being accounted for

12. IC – Time of Recording and Valuation • Recorded and valued at the time the goods and services enter the process of production • valued at the purchasers' prices for similar goods or services at the time of use = replacement costs • NB: Also when taken from inventories

13. IC and input inventories • Bookkeeping at replacement costs: IC(t1) = purchases(t1) − Changes in invent.(t1) • Bookkeeping at historic prices: IC(t1) = purchases(t1) − Changes in invent.(t1) + holding gains of withdrawals from invent. in t1 NB: Changes in input inventories = value of entries into invent. − value of withdrawals from invent. − value of recurrent losses on goods held in invent.

14. Data sources for IC • Business surveys • Company and government accounts • Structural imputation

15. Final Consumption (FC) • Two concepts: • Final consumption expenditure (P.3) • Actual final consumption (P.4)

16. FC – Classification and Breakdowns • Classifications: COICOP, CPA, COFOG, COPNI • Breakdown by consuming institutional sector: Households, General Government, NPISH • By characteristic of the consumption: Individual vs. Collective Consumption

17. Final Consumption Expenditure (P.3) • Definition (ESA 2010 para 3.94): Final consumption expenditure consists of expenditureincurred by resident institutional units on goods or services that are used for the direct satisfaction of individual needs or wants or the collective needs of members of the community. • National Concept, i.e. + direct purchases abroad by residents, ./. purchases on the domestic territory by non-resident units.

18. Final Consumption Expenditure (P.3) • Consuming Sectors: • Household Final Consumption Expenditure (HFCE) • Government FCE • NPISH FCE

19. HFCE includes • services of owner-occupied dwellings • income in kind (for employees, retained by owners) • items not treated as intermediate consumption (materials for small repairs and interior decoration of dwellings, repairs and maintenance of cons. durables) • items not treated as capital formation (in particular consumer durables) • part of FISIM used for final consumption purposes • implicit service charge (insurance, pension funds) • unincorporated enterprises are difficult

20. Government FCE includes • goods and services produced by general government itself other than own-account capital formation, and other than sales (market output, payments for non-market output) • social transfers in kind, which are purchased from market producers and supplied – without any transformation – to households

21. NPISH FCE includes • goods and services produced by NPISHs, other than own-account capital formation and other than sales to households and other units • social transfers in kind, which are purchased from market producers and supplied – without any transformation – to households

22. Time of Recording and Valuation of FCE • Expenditure on a good is recorded at the time of change of ownership; expenditure on a service is recorded when the delivery of the service is completed • hire-purchase or financial lease: when delivered • output retained for own final consumption: when produced, valued at basic prices • HFCE: recorded at purchaser's prices • Employees compensation in kind: at basic prices (produced) or at employers' purchasers' prices (purchased)

23. Time of Recording and Valuation FCE(II) • For Government and NPISH FCE the following equation holds: Govt FCE = output (P.1) - minus own-account capital formation (P.12) – sales of market output (P.11) – sales of non-market output (P.131) + social transfers in kind purchased from market producers (D.632)

24. Individual vs. Collective Consumption • Individual goods and services  exclusion criterion • Collective services  no exclusion • All HH and NPISH FCE is individual • Government FCE is individual or collective, borderline defined on basis of COFOG or COICOP - Individual: education, health, social security, sports and recreation, culture - Collective: All other, e.g. gen. administration, defence, police, legal system

25. Actual final consumption (P.4) • = goods or services that are acquired by resident institutional units for the direct satisfaction of human needs, whether individual or collective • Social transfers in kind, transferred from Government or NPISH to households make the difference.

26. Different Consumption Concepts

27. Thank you for your attention! Contact: andreas.dollt@ec.europa.eu