GOVERNMENT FINANCE STATISTICS

1. GOVERNMENT FINANCE STATISTICS EXPENSE Part 1 This lecture presents the detailed categories of the GFS expense classification

2. THIS LECTURE The previous lecture, on Revenue, described the principles and classification categories used to record and present GFS revenue statistics. This lecture discusses the principles and classification categories used to record and present GFS expense statistics according to the economic classification

3. GOVERNMENT FINANCE STATISTICS DEFINITION OF EXPENSE • In GFS expense is defined as a decrease in net worth resulting from a transaction. • Governments have two broad economic responsibilities: to provide selected nonmarket goods and services to the community and to redistribute income and wealth by means of transfer payments. These responsibilities are largely fulfilled through expense transactions.

4. DUAL CLASSIFICATION OF EXPENSE • In the GFS system expense transactions are recorded using two different classifications: an economic classification and a functional classification. • The economic classification identifies the types of expense incurred in supplying nonmarket goods and services to the community. • The Classification of Functions of Government (COFOG), is a detailed classification of the functions, or socioeconomic objectives, that general government units aim to achieve through various kinds of outlays.

5. GOVERNMENT FINANCE STATISTICS ECONOMIC CLASSIFICATION OF EXPENSE • The economic classification has six main categories of expense transactions: compensation of employees, use of goods and services, • consumption of fixed capital, subsidies, grants, social benefits, and miscellaneous other expense. • Compensation of employees is the total remuneration, in cash or in kind, payable to a government employee in return for work done during the accounting period, except for work connected with own account capital formation. • Social contributions are payments, actual or imputed, made by general government units to social insurance schemes to obtain entitlement to social benefits for their employees, including pensions and other retirement benefits.

6. GOVERNMENT FINANCE STATISTICS ECONOMIC CLASSIFICATION OF EXPENSE (cont’d) • Use of goods and services consists of goods and services used for the production of market and nonmarket goods and services, except for own-account capital formation, plus goods purchased for resale less the net change in inventories of work in progress, finished goods, and goods held for resale1. • Consumption of fixed capital is the decline during the course of an accounting period in the value of fixed assets owned and used by a general government unit as a result of physical deterioration, normal obsolescence, or normal accidental damage. • Interest is payable by units that incur certain kinds of liabilities, namely deposits, securities other than shares, loans, and accounts payable. • Subsidies are current unrequited payments that government units make to enterprises on the basis of the levels of their production activities or the quantities or values of the goods or services they produce, sell, export, or import.

7. GOVERNMENT FINANCE STATISTICS ECONOMIC CLASSIFICATION OF EXPENSE (cont’d) • Grants are noncompulsory current or capital transfers from one government unit to another government unit or an international organization. • Social benefits are transfers in cash or in kind to protect the entire population or specific segments of it against certain social risks. • Other expense is a residual group of exchange and transfer transactions.

8. GOVERNMENT FINANCE STATISTICS EXPENSE CHARACTERISTICS Expense is grouped into categories that have similar characteristics, as shown in the table:

9. GFS CLASSIFICATION OF COMPENSATION OF EMPLOYEES 21 Compensation of employees [GFS]1 211 Wages and salaries [GFS] 2111 Wages and salaries in cash [GFS] 2112 Wages and salaries in kind [GFS] 212 Social contributions [GFS] 2121 Actual social contributions [GFS] 2122 Imputed social contributions [GFS] 1 [GFS] indicates that this item has the same name but different coverage in the 1993 SNA.

10. GOVERNMENT FINANCE STATISTICS USE OF GOODS AND SERVICES • Use of goods and services • Detailed description of the classification principles for GFS use of goods and services is provided in Chapter 6, Page 64 of the GFS Manual: • http://www.imf.org/external/pubs/ft/gfs/manual/pdf/ch6.pdf

11. GOVERNMENT FINANCE STATISTICS CONSUMPTION OF FIXED CAPITAL • 23 Consumption of fixed capital • This expense item is the aggregated debit entry of the internal transactions that have individual credit entries against each nonfinancial asset in the balance sheet.

12. GOVERNMENT FINANCE STATISTICS INTEREST • 24 Interest • 241 To nonresidents • 242 To residents other than general government • To other general government units • Interest payable to other general government units is required only when statistics are compiled for a subsector of the general government sector. Otherwise all such transactions are eliminated in consolidation.

13. GOVERNMENT FINANCE STATISTICS SUBSIDIES • 25 Subsidies • To public corporations • 2511 To nonfinancial public corporations • 2512 To financial public corporations • To private enterprises • To nonfinancial private enterprises • To financial private enterprises

14. GOVERNMENT FINANCE STATISTICS GRANTS • 26 Grants • To foreign governments • 2611 Current • 2612 Capital • To international organizations • 2621 Current • 2622 Capital • To other general government units • 2631 Current • Capital • The category of grants To other general government units is required only when statistics are compiled for a subsector of the general government sector. Otherwise these transactions are eliminated in • consolidation.

15. GOVERNMENT FINANCE STATISTICS SOCIAL BENEFITS • 27 Social benefits [GFS] • Social security benefits • 2711 In cash • 2712 In kind • Social assistance benefits • 2721 In cash • 2722 In kind [GFS] • Employer social benefits • 2731 In cash • 2732 In kind

16. GOVERNMENT FINANCE STATISTICS OTHER EXPENSE • 28 Other expense • Property expense other than interest • 2811 Dividends (public corporations only) • 2812 Withdrawals from income of quasi-corporations (public corporations only) • 2813 Property expense attributed to insurance policy holders [GFS] • 2814 Rent • Miscellaneous other expenses • 2821 Current • Capital

17. GOVERNMENT FINANCE STATISTICS RECORDING OF USE OF GOODS AND SERVICES • The value of Use of goods and services for the accounting period is calculated as: purchases of materials and supplies minus change in inventories. • The purchase of goods that are not immediately used is an addition to inventories rather than an expense. • Use of goods and services includes: • reimbursements for goods and services used by employees in performing their work, • expense on inexpensive durable goods, • expense on repair and maintenance of fixed assets, • purchases of weapons of destruction, • goods and services used by government to produce nonmarket goods and services that are distributed to households, • rental of produced assets

18. GOVERNMENT FINANCE STATISTICS RECORDING OF USE OF GOODS AND SERVICES • Use of goods and services excludes: • goods acquired as fixed assets or valuables, • goods and services used in own account capital formation, • major renovation and reconstruction, • military facilities that can be used for civilian purposes, • goods and services transferred to other governments or international institutions, • goods and services distributed to households but not produced by donor governments, • goods and services used as compensation of employees in kind, • consumption of fixed capital

19. GOVERNMENT FINANCE STATISTICS RECORDING OF SOCIAL BENEFITS • Not allSocial benefits are treated as expense: • - Payments of pensions and other retirement benefits through employer social insurance schemes are treated as reductions in liabilities, • - Social benefits produced by a general government unit and transferred to households are treated as compensation of employees and use of goods and services, • - Transfers to households outside the circumstances covered by social insurance, such as relief from natural disasters, are treated as Other expense.

20. GOVERNMENT FINANCE STATISTICS RECORDING OF CONSUMPTION OF FIXED CAPITAL • The concept of consumption of fixed capital (CFC) is identical to the concept used in the 1993 SNA. However, the GFS coverage of consumption of fixed capital expense may differ from the amount recorded in the production account of the 1993 SNA because of the GFS treatment of own account capital formation. • Conceptually, for purposes of CFC calculation, consumption of fixed capital is the decrease in the present value of the remaining sequence of • rentals that units expect to derive from using the asset, with the rentals valued at the average prices of the period. • Changes in the price of the asset must be excluded from consumption of fixed capital. Price changes are recorded as holding gains under the classification of Other flows.