General Government – methodological treatment of selected cases from the EU

John VerrinderEurostat

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The European System of Accounts (ESA 2010)

The methodological basis for government finance statistics

Based on SNA 2008 (as is the IMF GFS Manual 2014)

Chapter 20 - government

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What happens if ESA not specific?

Discussion amongst Member State experts

Eurostat decision

Manual on Government Deficit and Debt

(=interpretation…)

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ESA 2010 defines general government

"…the general government sector (S.13) consists of institutional units which are non-market producers whose output is intended for individual and collective consumption, and are financed by compulsory payments made by units belonging to other sectors, and institutional units principally engaged in the redistribution of national income and wealth." [Para 2.111]

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Public control

• "General government secures control over a corporation as a result of special legislation, decree or regulation which empowers the government to determine corporate policy. The following indicators are the main factors to consider in deciding whether a corporation is controlled by government.." [Para 2.38]

• >> voting interest, Board/key committees, key personnel, golden share, special regulations, dominant customer, borrowing.

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Non-market producers

Qualitative criteriaA public unit sells more than 50% of its output to government (no open/fair tendering); other details

Quantitative criteriaThe "50% test"Market sales > 50% of production costs

Over several years…

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Special cases for units

Educational unitsPublic hospitalsFinancial activitiesSpecial purpose entitiesDebt management officesHead offices and holding companiesPrivatisation agencies

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Educational units

Necessary to determine the extent of government control

Funding is not the issue in itself, but rather influence over what the funds are used for…

Just standards imposed on all schools = no control

Direct involvement of government in significant decisions = control (e.g. appointments, investment)

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Public hospitals

Control established through usual indicators

Establish if public hospitals really compete in practice with private hospitals in different fields

Common price system with private hospitalsPrices set in a way to allow de facto market

competitionPublic hospitals not forced to continue with unprofitable activities

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Financial activities

Financial supervisory authoritiesClassified outside government if able to take independent decisions (incl. autonomous budget)

Protection fundsClassified outside government if able to take independent decisions

Financial intermediariesClassified outside government if placing itself at risk

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Special purpose entities

May be created by government for single or very narrow purpose (usually legal contract/contracts)

Treated as an integral part of government when resident (re-routed through government if not)

May be specific cases of independent entities (strong evidence) but likely to be rare

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Debt management offices

Usually part of a government ministry.

When they are separate institutional units, to be classified in general government.

They act fully on behalf of government (auxiliary function)

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Head offices and holding companies

• Head Offices: Control and direct subsidiaries, providing services (unrestricted)

• >>> Corporations sectors

• Holding Companies: Do not perform management and effective direction, and are used for typical government activities (e.g. subsidies)

• >>> General Government

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Privatisation agencies

• Also includes "restructuring agencies".

• Classified in the general government sector as acting on behalf of government.

• Re-routing possible when a non-government unit undertakes this activity under government instruction.

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Government production – impact of classification

Classification into or outside general government has an impact on measured level of government output (and GDP).

General Government units: Output as sum of costs.

Corporate units: Output as market sales.