11th%20OECD-NBS%20Workshop%20on%20National%20Accounts%2025-28%20September%202007%20Beijing

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11th OECD-NBS Workshop on National Accounts25-28
September 2007Beijing

• Update of the 1993 SNA Progress Report and Main
  Issues
• Paul Schreyer, OECD

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Contents

• Background
• Three issues with potential implication for China
• Next steps

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Background

• 2003 United Nations Statistical Commission
  (UNSC) calls for update of the 1993 System of
  National Accounts
• Reason bring SNA into line with the new economic
  environment, advances in methodological research
  and the needs of users.
• In principle, no fundamental changes to the 1993
  SNA that would impede its implementation

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Background

• Intersecretariat Working Group on National
  Accounts (ISWGNA) (Eurostat, IMF, OECD, UNSD,
  World Bank) to organize and coordinate the update
  project, assisted by a project manager and
  editor.
• SNA, Rev.1 to have two deliverables
• core chapters, in 2008
• remainder, in 2009.

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Background

• 2007 consolidated list of recommendations
  presented to UNSC to which it gave its assent
• 44 issues in total
• UNSC emphasized need for the broadest possible
  involvement of the global statistical community
• Advisory Expert Group (AEG) on National Accounts

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Background

• Project website, http//unstats.un.org/unsd/nation
  alaccount/snarev1.asp, which promotes
  transparency and wide involvement of national
  accounts experts
• Well-defined process
• Several sub-groups to deal with specific areas
  such as Canberra II Group on Non-financial assets

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Issue 1 Pension schemes

• 1993 SNA distinction
• Employer pension schemes a means of
  redistributing income over time for a single
  individual.
• Social security schemes redistribution of income
  among a set of individuals at a single point in
  time.

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Private pension schemes

• 1993 SNA social contributions by an employer and
  employee in a period should be the amount
  actually paid into a pension fund.
• For a defined contribution scheme, this is
  correct and complete since the eventual payment
  depends only on the amounts set aside in a
  pension fund.
• For a defined benefit plan, there is no guarantee
  that the amounts set aside will exactly match the
  liability of the employer to the employee.

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Private pension schemes

• New calculation for defined benefits
• employers contribution in period t increase in
  the net present value of the pension entitlement
  the employee has earned in the period in
  question, costs by pension fund for operating
  the scheme - contribution by employee
• Calculation should take not take into account
  impact of any future pay increases on the
  ultimate pension benefit.

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Private pension schemes

• NPV of future pension payments rises as
  retirement gets closer, even if there are no
  contributions in a given period
• This is treated as imputed flow of property
  income payable to the employee and returned to
  the pension fund as a social insurance
  contribution supplement.
• Liability of the pension fund to the employee is
  to be shown in the financial account and balance
  sheet.

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Private pension schemes

• The assets of the fund are then to be regarded as
  belonging to the fund and not (as stated in the
  1993 SNA) as belonging to the employee.
• Any excess of the liabilities over the available
  assets may represent a claim of the pension fund
  on the employer and vice versa.

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Government employer schemes

• How should pension entitlements of schemes for
  government employees be recorded, given the
  diversity of funding arrangements across
  countries?
• A standard table should be prepared
• pension entitlements accruing to households for
  all pension schemes, regardless of the means of
  funding or the category of the unit bearing the
  responsibility to meet the obligations of the
  pension scheme.

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Government employer schemes

• Flexibility about whether the full increase in
  the entitlements will be shown as income and
  saving of households
• In cases where particular schemes are not carried
  forward, a reasoned explanation for why this is
  not done will be required. Internationally agreed
  criteria for when a scheme might not be carried
  forward should be developed

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Quantitative impact of change to treatment of
pension schemes

• Likely to vary considerably between countries
• Compensation of employees, GOS and household
  saving could change
• If government liabilities are recognised for
  unfunded employer defined benefits scheme for
  government employees then the ratio of the SNA
  public debt to GDP could rise substantially,
  maybe by between 20 and 80.

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Issue 2 RD capitalisation

• In the 1993 SNA, research and experimental
  development are current expenditure
• Proposal to capitalise RD already in the 1993
  SNA, but no agreement on how to do it.
• Problems of implementation also recognised in
  current Revision
• Rev. 1 In principle, RD should be recognized as
  part of capital formation. However, before the
  objective can be reached, satellite accounts will
  provide a useful way of working towards
  solutions.

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RD capitalisation

• RD definition as in OECD Frascati Manual
  creative work undertaken on a systematic basis
  in order to increase the stock of knowledge,
  including the knowledge of man, culture and
  society and use of this stock of knowledge to
  devise new applications.
• This excludes, however, human capital formation
• By convention, since much RD is carried out on
  own account, it should be valued at cost.

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RD capitalisation

• In practice, the information collected in
  accordance with the Frascati Manual will provide
  estimates of RD expenditure discussion is
  ongoing to make adjustments to the Frascati
  framework to meet the needs of the SNA more
  closely.
• A detailed guide to implementation is being
  worked out by the OECD.

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RD capitalisation

• All RD expenditure that is sold or is expected
  to bring a benefit in the future to its owner
  (including for the provision of public services
  in the case of RD undertaken by government) is
  included within the asset boundary.
• Only RD that brings no economic benefit
  discernable at the time of its completion is
  excluded.
• With the inclusion of RD in the asset boundary,
  patented entities will no longer be separately
  identified as such in the system, but they will
  be subsumed into RD assets.

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RD capitalisation some difficulties

• The technical difficulties fall into three
  groups
• scope of RD capital formation,
• methods for compiling RD price indices and
  capital measures,
• collecting the raw data to derive estimates of
  RD capital formation.

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RD capitalisation some difficulties

• Scope of RD capital formation,
• Treatment of freely available RD
• Does not belong to anyone, so can it be an asset
• But then again, very hard to determine
• Price indices and capital measures
• Most RD is own account ? no market prices
• Input price indices ? ignore productivity change
  in the production of knowledge

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RD capitalisation some difficulties

• Pseudo price indices (eg price change of RD
  intensive industries etc.)
• Rate of depreciation
• Raw data
• From Frascati Manual but adjustments needed to
  RD surveys
• Capturing international flows is difficult

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Issue 3 Goods for processing

• The situation
• The 1993 SNA and the Balance of Payments Manual
  (BPM) treat goods that are sent abroad for
  processing and then returned to the country from
  where they were dispatched as undergoing an
  effective change of ownership.
• Exports when goods leave the first country
• Imports when goods return to the first country.

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Issue 3 Goods for processing

• The situation (2)
• Full value of goods is shown in country that
  processes, even though the processor never has to
  pay for the value of the goods on entry.
• Increasing importance of offshore processing,
  such treatment is increasingly questionable.
• Also, different recommendation for goods being
  processed in one country for a second, which
  instead of being returned to the second country,
  are sold (on behalf of the owner in the second
  country) to a third country.

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Issue 3 Goods for processing

• The recommended change
• Imports and exports should be recorded on a
  change of ownership basis
• ? goods being processed in one country on behalf
  of another would no longer be part of imports and
  exports in the balance of payments and SNA. That
  would be a change from the 1993 SNA.
• ownership principle? no transactions will be
  recorded for intra-enterprise (inter-establishment
  ) deliveries when goods are passed from one
  establishment to another for processing and then
  returned.

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Issue 3 Goods for processing

• Input-output tables they would reflect what
  each unit contributes to the production process
  rather than the physical technology, as
  previously was the case.
• Implications for reconciliation of data on
  physical movement of goods (merchandise trade
  statistics) and the national accounts.
• Import and export flows measured on an ownership
  basis are difficult to capture with customs-based
  trade statistics. It may be necessary to
  increasingly rely on business survey information
  as a statistical source.

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Issue 3 Goods for processing

• Quantitative impact
• Lower estimates of output and intermediate
  consumption, but the reduction will be the same
  and so there will be no change to industry gross
  value added.
• Exports and imports will also be reduced by the
  same amount, and for some countries the
  reductions could be relatively large.

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Other important issues

• Cost of capital services (see new Manual on
  Capital Measurement)
• Treatment of military expenditure

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Implementation

• European countries
• Revision of ESA by 2011
• Implementation by 2014
• Australia 2009
• Canada 2010
• United States progressive introduction of
  changes with likely completion by 2012/13
• Korea 2014
• Japan no concrete plans yet