NEW DEFINITION OF GENERAL GOVERNMENT TOTAL …



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New definition of general government total expenditures

1. While not referred to in the SNA, the concept of “total expenditures of general government”, and, its twin concept “total receipts of general government”, are widely used[1]. They appear in Tables 26 and 27 of the OECD Economic Outlook, which is the OECD’s main macro-economic publication. Many analysts use them (in points of GDP) as representative of the size of government in the economy[2].

2. The current definition of general government total expenditures in the OECD is the following. It is the sum of the final consumption expenditures of the general government (coded P3 in the SNA), plus property income paid[3] (D4), plus Subsidies paid (D3), plus Social benefits other than in kind paid (D62), plus other current transfers paid (D7), plus net capital transfers paid (D9), plus Gross capital formation (P5) and net acquisitions of non-produced non financial assets (K2), minus consumption of fixed capital (K1).

3. Definition (1): Total GG expenditures = P3 + D4 + D3 + D62 + D7 + D9 + P5 + K2 – K1.

4. The subtraction of K1 corresponds to the idea that the concept of total expenditures should only reflect effective monetary flows and should not include imputed flows[4]. P3 is estimated as the sum of non market output (P13) and other elements. Non market output is itself estimated as the sum of costs, including K1. Thus P3 contains K1, which must therefore be subtracted.

5. Table 26 of the OECD Economic Outlook uses figures using this “old” definition. It corresponds to the second column of the table shown in Annex 1 of the present paper[5].

6. This old definition of total government has several shortcomings. The main one is that the use of the concept of P3, final consumption expenditure, leads to an underestimation of total expenditures. Indeed, the value of sales made by government units to other economic agents are subtracted from P3 (and included either as intermediate consumption of enterprises or final consumption of households). Thus, those parts of expenditures that are financed by sales are excluded from the concept of total expenditures. This is understandable in the context of the national accounts, in which there should be no double counting between expenditures of government, enterprises and households. However, it is not adapted to the concept of total expenditures of GG, which should reflect all expenditures, whatever their mode of financing. Moreover, this treatment of revenues (sales) as negative expenditures is confusing: if the government increases its sales, it reduces its expenditures. It is more appropriate to show an increase in its revenues.

7. As a result, the OECD (in coordination with Eurostat[6]) proposes a new definition of total expenditures that would reflect all expenditures, including those financed by sales. This new definition is embodied in Table 0200 (Main aggregates of General Government) of the SNA93/ESA95 questionnaire, which is shown in Annex 2[7].

8. Definition (2): Total GG expenditures = Intermediate consumption (P2) + Compensation of employees (D1) + Other taxes on production payable (D29) + Subsidies payable (D3) + Property income payable (D4) + Current taxes on income and wealth, payable (D5) + Social benefits other than social transfers in kind (D62) + Social transfers in kind related to expenditure on products supplied by households via market producers (D6311 + D63121 + D63131) + Other current transfers, payable (D7) + Adjustment for the change in net equity of households in pension funds reserve (D8) + Capital transfers, payable (D9) + Gross capital formation (P5) + Acquisition less disposal of non-produced non-financial assets (K2).

9. Transactions D3, D4, D62, D7, P5 and K2 are common to both definitions. But, in the second definition, P3 is replaced by the sum of P2 (Intermediate consumption), D1 (compensation of employees), D29 (other taxes on production) and D6311 + D63121 + D63131 (Social benefits). This is the main difference between the two definitions[8].

10. The last element (D6311 + D63121 + D63131) of this sum needs some clarification, because, while the first term (D6311, “Social security benefits, reimbursements”) is a standard SNA 93 entry, the two last terms (D63121, D63131) are not. The standard SNA93 entries are D6312 (Other social security benefits in kind) and D6313 (Social assistance benefits in kind). The two last terms are thus only a part of these flows, the one that is supplied to households via market producers. It excludes social benefits in kind made via non-market producers. The reason of this exclusion is that costs linked to social benefits in kind via non-market producers have been already taken into account. Indeed, the value of total non-market production is already included in the sum of P2, D1, and D29.

11. As P3 = P2 + D1 + D29 + K1 + D63121 + D63131 – Sales, the new definition is thus higher than the old one by the value of Sales.

12. The result of this new definition is given in the first column of Annex 1, under the heading “new”. The amount corresponding to sales (also called “User fees and charges”, or “market output (P11) + payments for other non-market output (P131)”) is also shown. As explained, the new definition results in an increase of between +1.2% (UK) to +5.2%(Sweden) of total government expenditures. The bulk of this increase is due to the change of the treament of sales.

Corresponding change on the receipt side

13. To the exclusion of sales as negative expenditures corresponds an inclusion of sales as an effective receipt. Thus the change in the treatment of sales on the expenditure side leaves unchanged the balancing item (B9, Net lending/borrowing).

14. Annex 1 contains the figures for Total receipts and Net lending/borrowing. One can verify that “Total receipts” is updated by the same exact amount as Total expenditures, and that Net lending/borrowing is left unchanged.

Adaptation to countries that are not compiling full GG accounts

15. The change in this definition stresses the importance of the timely transmission to the OECD of a fully updated Table 0200. In particular, all lines permitting the compilation of total expenditures and receipts should be included.

16. However, some countries (such as Australia) are embarassed by this Table as they do not compile a full set of general government accounts. Specifically, Australia was not able to update the entries P2 (Intermediate consumption) and D1 (Compensation of employees), as the ABS does not publish a production account and a generation of income account for the general government.

17. However, a successful cooperation between OECD and the ABS showed that Table 0200 could be easily adapted to such situations.

18. In fact, as explained above, the difference between the two definitions essentially corresponds to the value of Sales. It is therefore possible to keep the old definition, which uses P3 (Final consumption expenditures) and add to this figure an estimate of Sales. The definition of Total expenditures can therefore be adapted to this new definition in Table 0200, as shown in Annex 3.

19. Rather than using definition (2) as the new definition, the adapted Table is now based on the use of the old definition (1) plus the estimate of Sales.

Conclusion

20. The new definition will enter in use at the OECD in the forthcoming Economic Outlook rounds (November 2002 or June 2003, depending on the degree of preparation).

21. Countries that have not yet transmitted this table should do it as soon as possible, in the standard format or in the adapted format.

ANNEX 1: Comparaison of new and old definition

|Comparaison of new and old | | | | |

|definition | | | | |

|As a percentage of nominal GDP | | | | |

| | |NEW |OLD |Difference |

| | | | | |

|Australia ( 2000) |General government current receipts |36.4 |32.9 |3.4 |

| |General government total outlays |37.2 |33.7 |3.4 |

| |Market output and sales |3.3 | | |

| |Net lending |-0.8 |-0.8 |0 |

| | | | | |

|Austria ( 2001) |General government current receipts |52.4 |49.5 |2.8 |

| |General government total outlays |52.5 |49.6 |2.8 |

| |Market output and sales |2.6 | | |

| |Net lending |-0.1 |-0.1 |0 |

| | | | | |

|Belgium ( 2001) |General government current receipts |49.3 |47.5 |1.8 |

| |General government total outlays |49 |47.1 |1.8 |

| |Market output and sales |1.3 | | |

| |Net lending |0.4 |0.4 |0 |

| | | | | |

|Czech Republic ( 1999) |General government current receipts |43.5 |39.5 |4 |

| |General government total outlays |46.6 |42.7 |4 |

| |Market output and sales |3 | | |

| |Net lending |-3.2 |-3.2 |0 |

| | | | | |

|Denmark ( 2001) |General government current receipts |57 |53.6 |3.5 |

| |General government total outlays |54.2 |50.7 |3.5 |

| |Market output and sales |3 | | |

| |Net lending |2.8 |2.8 |0 |

| | | | | |

|Finland ( 2001) |General government current receipts |54.2 |49.4 |4.8 |

| |General government total outlays |49.4 |44.6 |4.8 |

| |Market output and sales |4.4 | | |

| |Net lending |4.9 |4.9 |0 |

| | | | | |

|France ( 2001) |General government current receipts |51.3 |47.5 |3.9 |

| |General government total outlays |52.7 |48.9 |3.9 |

| |Market output and sales |3.7 | | |

| |Net lending |-1.4 |-1.4 |0 |

| | | | | |

|Germany ( 2001) |General government current receipts |45.7 |43.1 |2.6 |

| |General government total outlays |48.5 |45.9 |2.6 |

| |Market output and sales |2.2 | | |

| |Net lending |-2.7 |-2.7 |0 |

| | | | | |

|Greece ( 2000) |General government current receipts |48.6 |43.9 |4.7 |

| |General government total outlays |49.7 |45 |4.7 |

| |Market output and sales |1.4 | | |

| |Net lending |-1.1 |-1.1 |0 |

| | | | | |

|Ireland ( 2001) |General government current receipts |34.6 |31.7 |2.9 |

| |General government total outlays |32.8 |30 |2.9 |

| |Market output and sales |1.4 | | |

| |Net lending |1.7 |1.7 |0 |

| | | | | |

|Italy ( 2001) |General government current receipts |46.2 |44.3 |1.9 |

| |General government total outlays |47.7 |45.7 |1.9 |

| |Market output and sales |1.6 | | |

| |Net lending |-1.5 |-1.5 |0 |

| | | | | |

|Japan ( 2000) |General government current receipts |31.2 |29.4 |1.7 |

| |General government total outlays |38.5 |36.8 |1.7 |

| |Market output and sales |1.1 | | |

| |Net lending |-7.4 |-7.4 |0 |

| | | | | |

|Luxembourg ( 2001) |General government current receipts |47.1 |45.3 |1.8 |

| |General government total outlays |41.9 |40.1 |1.8 |

| |Market output and sales |1.7 | | |

| |Net lending |5.2 |5.2 |0 |

| | | | | |

|Netherlands ( 2000) |General government current receipts |47.5 |43.8 |3.8 |

| |General government total outlays |45.4 |41.6 |3.8 |

| |Market output and sales |3.3 | | |

| |Net lending |2.2 |2.2 |0 |

| | | | | |

|Portugal ( 2001) |General government current receipts |43.3 |38.5 |4.8 |

| |General government total outlays |45.9 |41 |4.8 |

| |Market output and sales |2.5 | | |

| |Net lending |-2.5 |-2.5 |0 |

| | | | | |

|Spain ( 1999) |General government current receipts |39.7 |37.1 |2.6 |

| |General government total outlays |40.8 |38.2 |2.6 |

| |Market output and sales |1.1 | | |

| |Net lending |-1.1 |-1.1 |0 |

| | | | | |

|Sweden ( 2001) |General government current receipts |62.3 |57 |5.2 |

| |General government total outlays |57.1 |51.9 |5.2 |

| |Market output and sales |5 | | |

| |Net lending |5.1 |5.1 |0 |

| | | | | |

|United Kingdom ( 2001) |General government current receipts |41.3 |40.1 |1.2 |

| |General government total outlays |40.3 |39.1 |1.2 |

| |Market output and sales |0.9 | | |

| |Net lending |1 |1 |0 |

| | | | | |

ANNEX 2: Table 0200: official

|Transaction Code |Transaction Label |Relation | |

|TRP1 |Output |1=2+3 | |

|TRP11+TRP12 |-Market output and output for own final use |2 | |

|TRP13 |-Other non-market output |3=4+5 | |

|TRP131 |. Payments for other non-market output |4 | |

|TRP132 |. Other non-market output, other |5 | |

|TRP11+TRP12+TRP131 |Market output, output for own final use and payments for |6=2+4 | |

| |other non-market output | | |

|TRP2 |Intermediate consumption |7 | |

|TRB1G |Value added, gross |8=1-7 | |

|TRK1 |Consumption of fixed capital |9 | |

|TRB1N |Value added, net |10=8-9 | |

|TRD1PAY |Compensation of employees, payable |11 | |

|TRD29PAY |Other taxes on production, payable |12 | |

|TRD39REC |Other subsidies on production, receivable |13 | |

|TRB2N |Operating surplus, net |14=10-11-12+13 | |

|TRD2REC |Taxes on production and imports, receivable |15 | |

|TRD4REC |Property income, receivable |16 | |

|TRD3PAY |Subsidies, payable |17 | |

|TRD4PAY |Property income, payable |18=19+20 | |

|TRD41PAY |-Interest |19 | |

|TRD42PAY_TRD45PAY |-Other property income, payable |20 | |

|TRB5N |Balance of primary incomes, net |21=14+15+16-17-18 |

|TRD5REC |Current taxes on income, wealth etc., receivable |22 | |

|TRD61REC |Social contributions, receivable |23=24+25 | |

|TRD611REC |-Actual social contributions |24 | |

|TRD612REC |-Imputed social contributions |25 | |

|TRD7REC |Other current transfers, receivable |26 | |

|TRD5PAY |Current taxes on income, wealth etc., payable |27 | |

|TRD62PAY |Social benefits other than social transfers in kind, |28 | |

| |payable | | |

|TRD6311PAY+TRD63121PAY+ |Social transfers in kind related to expenditure on |29 | |

|TRD63131PAY |products supplied to households via market producers, | | |

| |payable | | |

|TRD62PAY+TRD6311PAY+TRD63121PAY+TRD|Social benefits other than social transfers in kind and |30=28+29 | |

|63131PAY |social transfers in kind related to expenditure on | | |

| |products supplied to households via market producers, | | |

| |payable | | |

|TRD7PAY |Other current transfers, payable |31 | |

|TRB6N |Disposable income, net |32=21+22+23+26-27-28-31 |

|TRP3 |Final consumption expenditure |33=34+35 | |

|TRP31 |-Individual consumption expenditure |34 | |

|TRP32 |-Collective consumption expenditure |35 | |

|TRD8 |Adjustment for the change in net equity of households in |36 | |

| |pension funds reserve | | |

|TRB8G |Saving, gross |37=38+9 | |

|TRB8N |Saving, net |38=32-33+36 | |

|TRD9REC |Capital transfers, receivable |39 | |

|TRD91REC |-Capital taxes |40 | |

|TRD92REC+TRD99REC |-Other capital transfers and investment grants, receivable|41 | |

|TRD9PAY |Capital transfers, payable |42 | |

|TRP5 |Gross capital formation |43=44+45 | |

|TRP51 |-Gross fixed capital formation |44 | |

|TRP52+TRP53 |-Changes in inventories and acquisitions less disposals of|45 | |

| |valuables | | |

|TRK2 |Acquisitions less disposals of non-produced non-financial |46 | |

| |assets | | |

|TRP5+TRK2 |Gross capital formation and Acquisitions less disposals of|47=43+46 | |

| |non-financial non-produced assets | | |

|TRB9 |Net lending (+)/Net borrowing (-) |48=37+39-42-47 | |

|TRTE |Total General government expenditure |49=7+11+12+17+18+27+30+31+36+42+47 |

| | |50=6+13+15+16+22+23+26+39 |

|TRTR |Total General government revenue | |

Transactions D41, D7, D92, D99 (in italics) are consolidated of intran GG flows. Other transactions are not consolidated.

ANNEX 3: Table 0200: adapted

The table is identical except for the definition of total expenditure: it uses definition (1) plus line 6 (“sales”, in bold). Also to be noted is the addition of line 13 (subsidies receivable).

|Code of transactions |data | |year |

|TRP1 |Output |1=2+3 | |

|TRP11+TRP12 |-Market output and output for own final use |2 | |

|TRP13 |-Other non-market output |3-4+5 | |

|TRP131 |. Payments for other non-market output |4 | |

|TRP132 |. Other non-market output, other |5 | |

|TRP11+TRP12+TRP131 |Market output, output for own final use and payments for other|6=2+4 | |

| |non-market output | | |

|TRP2 |Intermediate consumption |7 | |

|TRB1G |Value added, gross |8=1-7 | |

|TRK1 |Consumption of fixed capital |9 | |

|TRB1N |Value added, net |10=8-9 | |

|TRD1PAY |Compensation of employees, payable |11 | |

|TRD29PAY |Other taxes on production, payable |12 | |

|TRD39REC |Other subsidies on production, receivable |13 | |

|TRB2N |Operating surplus, net |14=10-11-12+13 | |

|TRD2REC |Taxes on production and imports, receivable |15 | |

|TRD4REC |Property income, receivable |16 | |

|TRD3PAY |Subsidies, payable |17 | |

|TRD4PAY |Property income, payable |18=19+20 | |

|TRD41PAY |-Interest |19 | |

|TRD42PAY_TRD45PAY |-Other property income, payable |20 | |

|TRB5N |Balance of primary incomes, net |21=14+15+16-17-18 | |

|TRD5REC |Current taxes on income, wealth etc., receivable |22 | |

|TRD61REC |Social contributions, receivable |23=24+25 | |

|TRD611REC |-Actual social contributions |24 | |

|TRD612REC |-Imputed social contributions |25 | |

|TRD7REC |Other current transfers, receivable |26 | |

|TRD5PAY |Current taxes on income, wealth etc., payable |27 | |

|TRD62PAY |Social benefits other than social transfers in kind, payable |28 | |

|TRD6311PAY+TRD63121PAY+TRD6|Social transfers in kind related to expenditure on products |29 | |

|3131PAY |supplied to households via market producers, payable | | |

|TRD62PAY+TRD6311PAY+TRD6312|Social benefits other than social transfers in kind and social|30=28+29 | |

|1PAY+TRD63131PAY |transfers in kind related to expenditure on products supplied | | |

| |to households via market producers, payable | | |

|TRD7PAY |Other current transfers, payable |31 | |

|TRB6N |Disposable income, net |32=21+22+23+26-27-28-31 | |

|TRP3 |Final consumption expenditure |33=34+35 | |

|TRP31 |-Individual consumption expenditure |34 | |

|TRP32 |-Collective consumption expenditure |35 | |

|TRD8 |Adjustment for the change in net equity of households in |36 | |

| |pension funds reserve | | |

|TRB8G |Saving, gross |37=38+9 | |

|TRB8N |Saving, net |38=32-33+36 | |

|TRD9REC |Capital transfers, receivable |39=40+41 | |

|TRD91REC |-Capital taxes |40 | |

|TRD92REC+TRD99REC |-Other capital transfers and investment grants, receivable |41 | |

|TRD9PAY |Capital transfers, payable |42 | |

|TRP5 |Gross capital formation |43=44+45 | |

|TRP51 |-Gross fixed capital formation |44 | |

|TRP52+TRP53 |-Changes in inventories and acquisitions less disposals of |45 | |

| |valuables | | |

|TRK2 |Acquisitions less disposals of non-produced non-financial |46 | |

| |assets | | |

|TRP5+TRK2 |Gross capital formation and Acquisitions less disposals of |47=43+46 | |

| |non-produced non-financial assets | | |

|TRB9 |Net lending (+)/Net borrowing (-) |48=37+39-42-47 | |

|TRTE |Total General government expenditure |49=33+6+13+17+18+27+28+31+ | |

| | |36+42+47-9 | |

|TRTR |Total General government revenue |50=6+13+15+16+22+23+26+39 | |

|The transactions D.41, D.7,| | |

|D.92 and D.99 are | | |

|consolidated. The other | | |

|transactions are not | | |

|consolidated. | | |

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[1] They are also called “total outlays” and “total revenues”.

[2] Which may seem a heresy to many national accountants: total expenditures (or receipts) is a gross concept, GDP is a net concept.

[3] Essentially interest.

[4] In fact, this statement is not fully verified: the current (and the new) definition still includes imputed social contributions and imputed gross domestic formation corresponding to own-account production (in particular software). Yet, the difference between total expenditures and total receipts remains exactly equal to net lending/borrowing (which contains no imputed flows) because these imputations (which could be dubbed as “double-counting” in this context) are made both on the expenditure and the receipt sides.

[5] Figures shown in Annex 1 differ slightly from those published in the Economic Outlook No 71, of June 2002. These small differences reflect data updates since the publication cut-off date of EO71.

[6] The new definition is covered by a Commission regulation (1500/2000 of 10/7/2000).

[7] An important feature of the Table 0200, which is not referred elsewhere in this paper, is that transactions D41 (Interest), D7 (other current transfers) and D9 (capital transfers) are consolidated of intra-general government flows. Other transactions are not consolidated.

[8] The two definitions also differ by other more minor differences, such as the netting or not of capital transfers and of taxes on income.

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