Government Finance Statistics in National Accounts

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Government Finance Statistics in National Accounts

• John Verrinder
• Unit C5 Validation of public accounts

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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 gtgt National Accounts

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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)

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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)

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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

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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

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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

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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

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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

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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

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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

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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