Chapter

6. Expense

Author(s):
International Monetary Fund
Published Date:
December 2001
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This chapter defines the concept of expense and describes the manner in which expense is classified.

A. Classifications of expense

6.1Expense is a decrease in net worth resulting from a transaction. Governments have two broad economic responsibilities: to assume responsibility for the provision of selected goods and services to the community on a nonmarket basis and to redistribute income and wealth by means of transfer payments. These responsibilities are largely fulfilled through expense transactions, which are classified in two ways in the GFS system: an economic classification and a functional classification.

6.2 When supplying nonmarket goods and services to the community, a government unit may produce the goods and services itself and distribute them, purchase them from a third party and distribute them, or transfer cash to households so they can purchase the goods and services directly. The economic classification identifies the types of expense incurred for these activities. Compensation of employees, use of goods and services, and consumption of fixed capital all relate to the costs of production undertaken by government itself. Subsidies, grants, social benefits, and miscellaneous other expense relate to transfers in cash or in kind and purchases from third parties of goods and services for delivery to other units. The functional classification provides information on the purpose for which an expense was incurred. Examples of functions are education and environmental protection.

6.3 The functional classification described in this chapter is not limited to expense transactions. Acquisitions of nonfinancial assets can also be classified using the functional classification. The term “outlays” is used in connection with the functional classification to include these acquisitions of assets as well as expense. In addition, the economic and functional classifications can be cross-classified to show the types of transactions engaged in to carry out a given function.

6.4 Two types of transactions are treated as expense despite a surface impression that they may increase net worth. First, refunds, recoveries of overpayments and erroneous payments, and similar transactions appear to increase net worth. More accurately, they are adjustments that correct the excessive decrease in net worth previously recorded. As such, these transactions are treated as negative expense. Second, the costs incurred in the production of goods and services are recorded as expense despite the fact that the goods and services may have been sold for a price that exceeded the cost of production, thereby increasing net worth.

6.5 The acquisition of a nonfinancial asset by purchase or barter does not affect net worth, and the transaction is not an expense. It is a transaction in nonfinancial assets as described in Chapter 8. When ownership of an asset is given up without receiving anything of value in return, the net worth of the unit has decreased and the expense is recorded as a type of capital transfer, such as a capital grant.

6.6 The time at which expense transactions should be recorded is determined according to the accrual basis, which is when the activities, transactions, or other events occur that create the unconditional obligation of general government units to make payments or otherwise give up resources. Complications arise, however, in regard to the acquisition and subsequent use of goods. In concept, the purchase of goods that are not immediately used in some manner is an addition to inventories rather than an expense. When the goods are consumed in production or otherwise utilized, a transaction must be recorded to reduce inventories and increase an expense or other category depending on the use made of the goods. Other applications of the accrual basis to expense transactions are indicated in each section of the economic classification as necessary.

B. The economic classification of expense

6.7Table 6.1 shows the economic classification of expense, and the following paragraphs describe each category in detail.

Table 6.1:Economic Classification of Expense
2Expense
21Compensation of employees [GFS]
211Wages and salaries [GFS]
2111Wages and salaries in cash [GFS]
2112Wages and salaries in kind [GFS]
212Social contributions [GFS]
2121Actual social contributions [GFS]
2122Imputed social contributions [GFS]
22Use of goods and services
23Consumption of fixed capital [GFS]
24Interest [GFS]
241To nonresidents
242To residents other than general government
243To other general government units
25Subsidies
251To public corporations
2511To nonfinancial public corporations
2512To financial public corporations
252To private enterprises
2521To nonfinancial private enterprises
2522To financial private enterprises
26Grants
261To foreign governments
2611Current
2612Capital
262To international organizations
2621Current
2622Capital
263To other general government units
2631Current
2632Capital
27Social benefits [GFS]
271Social security benefits
2711Social security benefits in cash
2712Social security benefits in kind
272Social assistance benefits
2721Social assistance benefits in cash
2722Social assistance benefits in kind [GFS]
273Employer social benefits
2731Employer social benefits in cash
2732Employer social benefits in kind
28Other expense
281Property expense other than interest
2811Dividends (public corporations only)
2812Withdrawals from income of quasi-corporations (public corporations only)
2813Property expense attributed to insurance policyholders [GFS]
2814Rent
282Miscellaneous other expense
2821Current
2822Capital

1. Compensation of employees [GFS]1 (21)2

6.8 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. (The same exception applies to each subcategory of compensation of employees.) It includes both wages and salaries (211) and social contributions (212) made on behalf of employees to social insurance schemes. Excluded are amounts payable to contractors, self-employed outworkers, and other workers who are not employees of general government units. Any such amounts are recorded under use of goods and services (22). Compensation of employees engaged in own-account capital formation, which is the production of nonfinancial assets for own use, is recorded as the acquisition of nonfinancial assets (see Chapter 8).

6.9 Compensation of employees is measured by the value of the remuneration in cash or in kind an employee becomes entitled to receive from an employer for work done during the relevant period, whether paid in advance, simultaneously, or in arrears of the work itself. To the extent that payment has not been made for work performed, the general government unit must record an entry in accounts payable (see Chapter 7).

a. Wages and salaries [GFS] (211)

6.10 Wages and salaries consist of all compensation of government employees except for social contributions (212) by employers. It includes pay in cash or in kind. Social contributions paid by deduction from employees’ wages and salaries are included in this category.

6.11 Wages and salaries exclude the reimbursement of expenditures made by employees in order to enable them to take up their jobs or to carry out their work. For example, the reimbursement of travel, removal, or related expenses incurred by employees when they take up new jobs or are required by their employers to move their homes are classified as use of goods and services (22) rather than wages and salaries. Also excluded are reimbursements of expenditures by employees on tools, equipment, special clothing, or other items that are needed exclusively or primarily to enable them to carry out their work. The amounts reimbursed are treated as use of goods and services (22).

6.12 Wages and salaries also exclude social benefits paid by employers in the form of children’s, spouse’s, family, education, or other allowances in respect of dependents; payments made at full or reduced wage or salary rates to workers absent from work because of illness, accidental injury, or maternity leave: and severance payments to workers, or their survivors, who lose their jobs because of redundancy, incapacity, or accidental death. These social benefits are included in employer social benefits (273).

6.13Wages and salaries in cash [GFS] (2111). This category consists of payments in cash to employees in return for services rendered, before deduction of withholding taxes and employees’ contributions to social insurance schemes. Included are basic wages and salaries; extra pay for overtime, night work, and weekend work; cost of living allowances, local allowances, and expatriation allowances; bonuses; annual supplementary pay, such as “13th month” pay; allowances for transportation to and from work; holiday pay for official holidays or annual holidays; and housing allowances.

6.14Wages and salaries in Kind [GFS] (2112). This category consists of payments in kind to employees in return for services rendered. Examples are meals and drinks, including those consumed when traveling on business; housing services or accommodation of a type that can be used by all members of the household to which the employee belongs; uniforms or other forms of special clothing that employees choose to wear frequently outside of the workplace as well as at work; the services of vehicles or other durables provided for the personal use of employees; goods and services produced by the employer, such as free travel on government airplanes; sports, recreation, or holiday facilities for employees and their families; transportation to and from work; car parking; and day care for the children of employees. Also included is the value of interest foregone when loans are provided to employees at reduced or zero rates of interest. If goods and services are provided to employees at reduced cost, then only the net cost to the employer is recorded in this category.

b. Social contributions [GFS] (212)

6.15 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. Social benefits are described in the annex to Chapter 2.

6.16 Some social contributions are paid directly by the general government unit that is the employer to a second general government unit, usually a social security fund. These transactions are not eliminated in consolidation because they are rerouted, as described in paragraph 3.20 of Chapter 3, first to the employees and then from the employees to the social insurance schemes.

6.17Actual social contributions [GFS] (2121). This category consists of contributions payable to insurance enterprises, social security funds, or other institutional units responsible for the administration and management of social insurance schemes, including general government units operating nonautonomous pension funds.

6.18Imputed social contributions [GFS] (2122). Some governments provide social benefits directly to their employees, former employees, or dependents out of their own resources without involving an insurance enterprise or an autonomous or nonautonomous pension fund. In this situation, social contributions equal in value to the amount of social contributions that would be needed to secure the de facto entitlements should be imputed.

2. Use of goods and services (22)

6.19 This category 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 resale.3 General government units may engage in a number of transactions in goods and services that are not classified as use of goods and services. In particular:

  • Goods acquired for use as fixed assets or valuables or for use in own-account capital formation are classified as acquisitions of fixed assets or valuables. Expenditures on inexpensive durable goods, such as hand tools, are treated as use of goods and services when such expenditures are made regularly and are small compared with expenditures on machinery and equipment.

  • Goods and services acquired to increase inventories of strategic stocks or of materials and supplies are classified as changes in inventories, a type of acquisition of nonfinancial assets (see Chapter 8).

  • Goods and services used as compensation of employees in kind are classified as compensation of employees (21).

  • Goods and services acquired and transferred in kind without being used by the general government unit in a production process are classified as transfer payments, such as subsidies (25), grants (26), social benefits (27), or other expense (28), depending on the reason for the transfer.

  • Reimbursements by a general government unit for purchases of goods and services by households in connection with social assistance or social insurance schemes are classified as social benefits (27).

6.20 Fees and charges collected for goods and services provided by general government units, such as for certain types of social benefits or grants, should be shown as revenue rather than deducted from expense.

6.21 The value of goods and services used in production is recorded when the goods or services are actually used rather than when they were acquired. In practice, the two times coincide for inputs of services but not for goods, which may be acquired some time in advance of their use. The value of goods purchased and held for resale is recorded as use of goods and services when they are sold. Sales of goods acquired and held as strategic stocks are recorded as disposals of nonfinancial assets rather than as sales revenue. Therefore, the transaction has no effect on use of goods and services.

6.22 In practice, units do not usually record the actual use of goods in production directly. Instead, they keep records of purchases of materials and supplies intended to be used as inputs and also of any changes in the amounts of such goods held in inventory. An estimate of use of goods and services during a given accounting period can then be derived by subtracting the value of changes in inventories of materials and supplies from the value of purchases made.

6.23 Goods and services consumed for the maintenance and repair of fixed assets constitute use of goods and services. Major renovations, reconstructions, or enlargements of existing fixed assets are treated as acquisitions of fixed assets. Maintenance and repairs are distinguished by two features: (a) they are activities that owners or users of fixed assets are obliged to undertake periodically in order to be able to utilize such assets over their expected service lives and (b) they do not change the fixed asset or its performance, but simply maintain it in good working order or restore it to its previous condition in the event of a breakdown. In contrast, major improvements to fixed assets are distinguished by the following features: (a) the decision to renovate, reconstruct, or enlarge a fixed asset is a deliberate investment decision that may be undertaken at any time and is not dictated by the condition of the asset and (b) renovations or enlargements increase the performance or capacity of existing fixed assets or significantly extend their previously expected service lives.

6.24 Goods and services used for research and development, staff training, market research, and similar activities are treated as use of goods and services rather than acquisitions of intangible fixed assets even though some of them may bring benefits for more than one year.

6.25 Materials to produce coins or notes of the national currency or amounts payable to contractors to produce the currency are included as use of goods and services. The issuance of the coins or notes is a financial transaction that does not involve revenue or expense.

6.26 Use of goods and services includes purchases of weapons (for example, rockets, missiles, and the associated warheads) and equipment used to deliver those weapons (for example, rocket launchers, warships, submarines, and tanks). Purchases of items that can be used for civilian purposes in the same way as they are used for military purposes, such as military airfields, docks, colleges, hospitals, and office machinery, are treated as acquisitions of fixed assets. Weapons or armored vehicles acquired by police and internal security services, however, are treated as acquisitions of fixed assets even though expenditures on the same kind of equipment by the military would be treated as use of goods and services.

6.27 Depending on the purpose made of them, goods and services purchased by government units and consumed by their employees could be use of goods and services or compensation of employees in kind. In general, when employees are obliged to use the goods or services in order to enable them to carry out their work, that constitutes use of goods and services. On the other hand, when the goods or services are used by employees in their own time and at their own discretion for the direct satisfaction of their needs or wants, that constitutes compensation of employees. The following types of goods and services provided to employees are treated as use of goods and services: (a) tools or equipment used exclusively or mainly at work; (b) clothing or footwear worn exclusively or mainly at work, such as protective clothing, overalls, or uniforms; (c) accommodation services at the place of work that cannot be used by the households to which the employees belong, such as barracks, cabins, dormitories, and huts; (d) special meals or drinks necessitated by exceptional working conditions, and meals or drinks provided to servicemen or others while on active duty; (e) transportation and hotel services provided while the employee is traveling on business; (f) changing facilities, washrooms, showers, and baths necessitated by the nature of the work; and (g) first aid facilities, medical examinations, or other health checks required because of the nature of the work. Employees may sometimes be responsible for purchasing the kinds of goods or services listed above and are subsequently reimbursed by the employer. Such reimbursements are treated as use of goods and services rather than as wages and salaries.

6.28 All transfers of goods and services to other governments or international organizations other than goods and services produced by the donor government unit are treated as grants (26). Such grants may entail the transfer of government-owned fixed assets, the transfer of goods held in inventory, the construction of fixed assets, or the purchase and simultaneous transfer of either fixed assets or goods and services for current consumption. Examples are transfers of food, clothing, blankets, and medicines as emergency aid after natural disasters; transfers of machinery and other equipment: the direct provision of the construction of buildings or other structures; and transfers of military equipment of all types. Goods and services used to produce nonmarket goods and services consumed by other governments and international organizations are included in use of goods and services. An example would be the goods and services acquired so that government employees can conduct relief operations in a foreign country after a natural disaster.

6.29 Use of goods and services includes all goods and services consumed by a general government unit to produce nonmarket goods and services that are distributed either as social benefits in kind or distributed to households in particular circumstances, such as following a natural disaster. Such social benefits can be distributed through social security schemes; social insurance schemes operated for the benefit of government employees, their dependents, or survivors; or social assistance schemes. A common type of social benefit likely to be produced by general government units and distributed in kind is related to health care, such as medical or dental treatments, surgery, hospital accommodation, home care, and similar services. Benefits for government employees and dependents typically include general medical services not related to the employee’s work, convalescent and retirement homes, education services, and access to recreation or holiday facilities. Any nominal payments made by the households should be deducted from use of goods and services expense.

6.30 Goods and services that were not produced by the donor government unit, but are distributed as social benefits in kind or distributed to households in particular circumstances, are classified as social benefits (27) rather than use of goods and services. Such distributions include transfers of goods held in inventory, the purchase and simultaneous transfer of goods and services from market producers, and the reimbursement of expenditures by households on specified goods or services, such as expenditures on medicines, medical or dental treatments, hospital bills, and optometrists’ bills.

6.31 Use of goods and services includes payments for the rental of produced assets, especially buildings, transport equipment, and machinery. Payment for the rent of nonproduced naturally occurring assets, such as land, is classified as rent (2814). The difference in treatment arises because lessors of produced assets are engaged in a production process whereby they provide services to the lessees, such as maintaining inventories of fixed assets available for lease at short notice and repairing and maintaining the leased assets. Owners of land and other nonproduced assets, however, merely place these assets at the disposal of other units. Hence, they are not considered to be engaged in productive activity.

6.32 On occasion, government units engage in transfer payments by purchasing goods and services for prices that greatly exceed their market value. As described in paragraph 3.9 of Chapter 3, when such transactions can be detected, they should be partitioned into a purchase of goods and services at their true market value and a transfer payment of the appropriate category.

3. Consumption of fixed capital [GFS] (23)

6.33 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.4 It is valued in the average prices of the period. Consumption of fixed capital may deviate considerably from depreciation as recorded in government financial records, which is normally calculated using the original costs of fixed assets.

6.34 Consumption of fixed capital is a forward-looking measure because its value is based on future events rather than past events. The value of a fixed asset is the present discounted value of the stream of rentals that the owner of a fixed asset could expect if it were rented out over the remainder of its service life. The rentals, in turn, depend upon the benefits that units expect to derive from using the asset. Thus, consumption of fixed capital is the decrease in the present value of the remaining sequence of rentals, with the rentals valued at the average prices of the period. The extent of the decrease will be influenced not only by the decrease in the benefits derived from the asset, or its efficiency, during the current period, but also by the shortening of its service life and the rate at which its efficiency is expected to decline over its remaining service life. Furthermore, changes in the price of the asset must be excluded from consumption of fixed capital. Price changes are recorded as holding gains, as described in Chapter 10.

6.35 Consumption of fixed capital is estimated with respect to all tangible and intangible fixed assets, including infrastructure assets, major improvements to land, and the costs of ownership transfer incurred on the acquisition of valuables and nonproduced assets. Although some fixed assets, such as roads or railway tracks, may appear to have infinite service lives if properly maintained, their value may nevertheless decline because of a decrease in the demand for their services as a result of technical progress and the appearance of substitutes. Many fixed assets are scrapped or demolished only because they have become obsolete. Consequently, consumption of fixed capital must include an allowance for anticipated obsolescence.

6.36 If a general government unit engages in own-account capital formation, then this category of expense does not include the consumption of fixed capital related to the fixed assets used in that production process. As described in the previous sections on compensation of employees and use of goods and services, the costs incurred in own-account capital formation, including consumption of fixed capital, are classified as acquisitions of fixed assets.

6.37 Consumption of fixed capital also excludes the loss of value when fixed assets are destroyed by acts of war, natural disasters, and other exceptional events. Similarly, it excludes losses due to unexpected technological developments that may significantly shorten the service life of an existing fixed asset and the depletion or degradation of nonproduced assets such as land and subsoil assets. These events are treated as other economic flows, as described in Chapter 10.

6.38 To compute consumption of fixed capital, the fixed assets purchased in the past and still in use have to be revalued at the average prices of the current period and assumptions have to be made regarding the remaining service lives of each asset and the rate at which their efficiency is expected to diminish. Linear or geometric patterns of decline, or some combination of them, are the patterns most commonly assumed.5 In limited cases, it may be possible to estimate consumption of fixed capital from observations of used asset prices in markets.

4. Interest [GFS] (24)

6.39 Interest is payable by units that incur certain kinds of liabilities, namely deposits, securities other than shares, loans, and accounts payable.6 These liabilities are created when a general government unit borrows funds from another unit. Interest is the expense that the general government unit (the debtor) incurs for the use of the principal outstanding, which is the economic value that has been provided by the creditor.

6.40 Interest expense accrues continuously over the period that the liability exists. The rate at which interest accrues may be stated as a percentage of the outstanding principal per time period, a predetermined sum of money, a variable sum of money dependent on a defined indicator, or some combination of these methods. Interest normally is not paid until the expense has accrued. That is, if interest on a loan is paid monthly, the amount paid is usually the expense that has accrued during the previous month. Until a payment takes place, the debtor’s total liability to the creditor has increased by the amount of interest expense incurred but not paid. What are commonly referred to as interest payments, therefore, are reductions of the debtor’s existing liability, part of which was created by the already incurred interest expense.

6.41 This manual recommends that accrued but unpaid interest be added to the principal of the underlying instrument. That is, as interest accrues on a government bond, the principal of the bond would increase. It is recognized, however, that interest accruing on deposits and loans may have to follow national practices and be classified under accounts payable.

6.42 With the exception of index-linked securities, including floating-rate notes, the rate at which interest expense accrues is determined when the contract is established and the funds have been borrowed.7 In the simplest case, a sum of money is borrowed, periodic payments are made equal to the interest expense incurred during the previous period, and at the end of the contract a final interest payment is made together with the original amount borrowed. The amount of interest expense incurred each period is equal to the interest rate stated in the contract multiplied by the amount borrowed. As each period passes, the amount of principal outstanding increases as interest expense is incurred. At the end of the period, the payment reduces the principal to the amount originally borrowed. Unless the end of the accounting period coincides with a periodic payment, the total liability at the end of the period will include some amount of interest incurred but not yet paid.

6.43 Certain financial instruments, such as bills and zero-coupon bonds, are such that the debtor is under no obligation to make any payments to the creditor until the liability matures. In effect, no interest is due for payment until the liability matures, at which point the debtor’s liability is discharged by a single payment covering both the amount of the funds originally borrowed and the interest accrued and accumulated over the entire life of the liability. Instruments of this type are said to be discounted because the amount initially borrowed is less than the amount to be repaid. The difference between the amount repaid at the end of the contract and the amount originally borrowed is interest that must be allocated over the accounting periods between the beginning and end of the contract. The interest accruing each period is treated as being paid by the debtor and then borrowed as an additional amount of the same liability. Thus, interest expense and an increase in the liability are recorded each period. When more than one accounting period is involved, there is a number of ways to allocate the total amount of interest among the periods involved. The most common and among the simplest is to assume that the interest rate is constant throughout the contract period.

6.44 A slightly more complicated case consists of a discounted instrument that also requires periodic payments. In such cases, the interest expense is the amount of the money income payable periodically plus the amount of interest accruing each period attributable to the difference between the redemption price and the issue price. Again, the most common assumption is that the interest rate is constant over the entire period of the contract. This interest rate is the one that makes the sum of all future payments equal to the amount initially borrowed when the future payments are discounted by the interest rate.

6.45 In some cases, securities other than shares are issued at a premium rather than a discount. The method of determining the interest expense is identical to the case of a discounted instrument except that the premium (the difference between the redemption price and the issue price) is treated as negative interest expense.

6.46 Loans are often structured with periodic payments that incorporate both interest and principal payments. The excess of the periodic payment over the interest accrued reduces the original principal. Over time, the share of the payment allocated to the payment of accrued interest decreases and the share allocated to reducing the original principal increases.

6.47 Index-linked securities are financial instruments for which the amounts of the periodic payments and/or the principal outstanding are linked to a price index or an exchange rate index. When the periodic payments are index linked, as with floating-rate notes, the full amounts of such payments are treated as interest. When the value of the principal is index linked, the difference between the eventual redemption price and the issue price is treated as interest accruing over the life of the asset in the same way as for a discounted security whose redemption price is fixed in advance. In practice, the change in the value of the principal outstanding between the beginning and end of a particular accounting period due to the movement in the relevant index may be treated as interest accruing in that period in addition to any interest due for payment in that period. As with discounted instruments, the interest accruing as a result of the indexation is treated as being paid by the debtor and then borrowed as an additional amount of the same liability.

6.48 In some cases the value of a liability and the current market interest rate are interrelated. When the future cash flows associated with a financial instrument are fixed, then the market value of the instrument is the sum of the future flows discounted by the current market interest rate. An example is a bond that calls for fixed periodic monetary payments and a final repayment of principal when the bond matures. If the market interest rate increases, then the market value of the bond decreases because the future cash flows are discounted by a larger amount. When the current market interest changes, therefore, a holding gain or loss occurs with respect to many financial assets and liabilities. The change in interest rates also raises the question of how to determine interest expense from that point forward.

6.49 There are three general possibilities, which are referred to as the debtor, creditor, and acquisition approaches. The debtor approach assumes that interest expense is determined for the entire life of a financial instrument when it is created, except for changes in index-linked securities. If interest rates change, for example increase, then the market value of the instrument will change, in this case decrease. The decrease in the debtor’s liability is treated as a holding gain. If there are no further changes in the interest rate, then over the remaining period of the contract, the market value of the instrument will increase gradually until at maturity it equals the amount the debtor is obligated to pay. These increases in the market value are treated as holding losses. The debtor approach is the one that is generally understood to be embedded in the 1993 SNA and is the approach followed in this manual.

6.50 With the creditor approach, it is assumed that future interest expense is recalculated each time there is a change in the interest rate. To use the same example, an increase in the interest rate leads to a decrease in the market value of the instrument and there has been a holding gain for the debtor. At this point, the instrument is treated as a new instrument that was issued at a discount. If there are no further changes in the interest rate, then the gradual increases in the market value of the instrument over the remaining period will be treated as interest expense. The acquisition approach is the same as the debtor approach except that changes in the interest rate are acknowledged when there is a change in the ownership of the instrument, usually from trading in a secondary market.

6.51 The interest expense payable to financial intermediaries recorded in this manual differs from the amount recorded in 1993 SNA. A financial intermediary sets its interest rates for depositors and borrowers at levels that will provide a margin large enough to defray the costs of providing its services to its depositors and borrowers without explicit fees. In concept, the value of the services provided by financial intermediaries to a borrowing general government unit should be treated as a use of goods and services expense. To accomplish this treatment, the actual interest expense payable to financial intermediaries would need to be decreased by the value of the services. The value of the financial services, however, can be estimated only indirectly by compilers of the national accounts because data for all depositors and borrowers of financial intermediaries are required. Thus, in this manual, no adjustment is made for financial services indirectly measured.

6.52 Government units may make interest payments on loans and other interest-bearing liabilities of other units for which they act as guarantors. These payments should not be classified as interest until the government unit has assumed the debt. If the government unit has not assumed the debt, then two transactions are possible. First, if the government unit does not receive a financial claim on the other unit or receives a financial claim that is not likely to be paid, then the transaction should be recorded as a subsidy (25) if the other unit is a corporation, as a grant (26) if the other unit is another general government unit, or as other expense (28) if the other unit is a household or a nonprofit institution serving households. If the government unit receives a financial claim on the other unit for the amount paid and the claim is likely to be paid, then the transaction should be recorded by the government unit as an acquisition of a financial asset.8

6.53 In the 1993 SNA as originally published, payments related to certain derivatives were treated as interest expense. Subsequently, the 1993 SNA was amended so that no payments related to derivatives are considered to be interest. This manual follows that amendment.9

6.54 As noted in Chapter 5, interest assessed on the late payment of taxes or that is otherwise related to an infringement of tax regulations is treated as tax revenue by the receiving government unit. If this interest is paid by a general government unit, then it is classified as a tax payment, a component of miscellaneous other expense (282).

6.55 Total interest payable is subdivided into interest payable to nonresidents (241), interest payable to residents other than general government (242), and interest payable to other general government units (243). Interest payable to other general government units is required only when statistics are compiled for a sub-sector of the general government sector. Otherwise all such transactions are eliminated in consolidation.

5. Subsidies (25)

6.56 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. Subsidies may be designed to influence levels of production, the prices at which outputs are sold, or the remuneration of the enterprises.

6.57 Subsidies are payable to producers only, not to final consumers, and are current transfers only, not capital transfers. Transfers that government units make directly to households as consumers and most transfers to nonprofit institutions serving households are treated as either social benefits (27) or miscellaneous other expense (282) depending on the reason for the payment. Most transfers made to general government units are included in grants (26).10 Payments to enterprises to finance their capital formation, to compensate them for damage to nonfinancial assets, or to cover large operating deficits accumulated over two or more years are miscellaneous other capital expense (2822).

6.58 Subsidies can be payable on specific products or on production in general. A subsidy on a product is a subsidy payable per unit of a good or service. The subsidy may be a specific amount of money per unit of quantity of a good or service, or it may be calculated ad valorem as a specified percentage of the price per unit. A subsidy may also be calculated as the difference between a specified target price and the market price actually paid by a buyer. A subsidy on a product usually becomes payable when the good or service is produced, sold, exported, or imported, but it may also be payable in other circumstances, such as when a good is transferred, leased, delivered, or used for own consumption or own capital formation.

6.59 Subsidies on production consist of subsidies that enterprises receive as a consequence of engaging in production but that are not related to specific products. Included are subsidies on payroll or workforce, which are payable on the total wage or salary bill, the size of the total workforce, or the employment of particular types of persons; subsidies to reduce pollution; and payments of interest on behalf of corporations.

6.60 Subsidies also include transfers to public corporations and quasi-corporations to compensate for losses they incur on their productive activities as a result of charging prices that are lower than their average costs of production as a matter of deliberate government economic and social policy. If such losses have been accumulated over two or more years, the payments are classified as miscellaneous other capital expense (2822).

6.61 Subsidies are classified first by whether the recipient is a public or private producer and then by whether the producer is a nonfinancial or financial enterprise. The four possibilities are public nonfinancial corporations (2511), public financial corporations (2512), private nonfinancial enterprises (2521), and private financial enterprises (2522).

6. Grants (26)

6.62 Grants are noncompulsory current or capital transfers from one government unit to another government unit or an international organization.11 Grants are classified first by the type of unit receiving the grant and then by whether the grant is current or capital.

6.63 Three types of recipients of grants are recognized in the GFS system: grants to foreign governments (261), grants to international organizations (262), and grants to other general government units (263). 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.

6.64 Current grants are those made for purposes of current expense and are not linked to or conditional on the acquisition of an asset by the recipient. Capital grants involve the acquisition of assets by the recipient and may consist of a transfer of cash that the recipient is expected or required to use to acquire an asset or assets (other than inventories), the transfer of an asset (other than inventories and cash), the cancellation of a liability by mutual agreement between the creditor and debtor, or the assumption of another unit’s debt.12 If doubt exists regarding the character of a grant, it should be classified as current.13

6.65 Grants in kind should be valued at current market prices. If market prices are not available, then the value should be the explicit costs incurred in providing the resources or the amounts that would be received if the resources were sold.

6.66 Grants are recorded when all requirements and conditions for receiving them are satisfied and the donor unit has an unconditional obligation. Determining this time can be complex because there is a wide variety of eligibility conditions that have varying legal powers. In some cases, a potential grant recipient has a legal claim when it has satisfied certain conditions, such as the prior incurrence of expenses for a specific purpose or the passage of legislation. In many cases, the grant recipient never has a claim on the donor and the grant should be attributed to the time at which the payment is made.

7. Social benefits [GFS] (27)

6.67 Social benefits are defined in the annex to Chapter 2 as transfers in cash or in kind to protect the entire population or specific segments of it against certain social risks. A social risk is an event or circumstance that may adversely affect the welfare of the households concerned either by imposing additional demands on their resources or by reducing their incomes. Examples of social benefits are the provision of medical services, unemployment compensation, and social security pensions. They are classified according to the type of scheme governing their payment, which are social security, social assistance, and employer social insurance schemes.

6.68 Not all social benefits as defined in the annex to Chapter 2 are treated as expense. The payment of pensions and other retirement benefits through employer social insurance schemes are treated as reductions in liabilities.14 Social benefits produced by a general government unit and transferred to households are expense transactions but are not classified as social benefits. Instead, the expenses of producing them are part of compensation of employees, use of goods and services, and consumption of fixed capital.15 All social benefits are current transfers; none are capital transfers.

6.69Social security benefits (271) are social benefits payable in cash or in kind to households by social security schemes. Typical social security benefits in cash include sickness and invalidity benefits, maternity allowances, children’s or family allowances, unemployment benefits, retirement and survivors’ pensions, and death benefits.

6.70 Social security benefits in kind consist of goods and services purchased from a market producer on behalf of households and reimbursements of benefits purchased by households in accordance with the rules of the scheme. These benefits are likely to consist of medical or dental treatments, surgery, hospital accommodation, spectacles or contact lenses, pharmaceutical products, home care, and similar goods or services.

6.71Social assistance benefits (272) are transfers payable to households to meet the same needs as social insurance benefits but which are not made under a social insurance scheme. Social assistance benefits may be payable when no social insurance scheme exists to cover the circumstances in question, certain households do not participate in existing social insurance schemes, or social insurance benefits are deemed inadequate to meet particular needs. Social assistance benefits do not include transfers made in response to events or circumstances that are not normally covered by social insurance schemes, such as natural disasters. Such transfers are recorded under miscellaneous other expense (282). Social assistance benefits in kind consist of transfers to households similar in nature to social security benefits in kind and provided under the same circumstances as social assistance benefits.

6.72Employer social benefits (273) are social benefits payable in cash or in kind by government units to their employees or employees of other government units participating in the scheme (or to survivors and dependents of the employees who are eligible for such payments). The kinds of benefits provided are similar to those listed for social security schemes, such as the continued payment of wages during periods of absence from work as a result of ill health, accidents, maternity, etc.; family, education, or other allowances; severance allowances in the event of redundancy, incapacity, or accidental death; general medical expenses not related to the employees’ work; and charges for convalescent and retirement homes. Outlays on pensions and other retirement benefits are reductions in liabilities, not social benefits expense.

8. Other expense (28)

a. Property expense other than interest (281)

6.73 Property expense is the expense payable by a general government unit to the owner of a financial asset or a tangible nonproduced asset when the general government unit makes use of such an asset. One type of property expense is interest, which is classified in category 24. Property expense other than interest may take the form of dividends, withdrawals from income of quasi-corporations, property expense attributed to insurance policyholders, or rent.16 Dividends and withdrawals from income of quasi-corporations apply only to public corporations.

6.74Dividends (2811). Because public corporations receive equity funds from general government units and possibly other units, they may pay dividends to those units. Such payments are not required; the board of directors or other managers of the corporation must declare a dividend payable on their own volition. Distributions of profits by public corporations may take place irregularly and may not be explicitly labeled as dividends. Nevertheless, except for distributions by fiscal, export, or import monopolies, dividends include all distributions of profits by public corporations to their shareholders or owners.17 Dividends are recorded either on the date they are declared payable or, if no prior declaration occurs, on the date the payment is made. Large and exceptional one-off payments based on accumulated reserves, privatization receipts and other sales of assets, or holding gains are withdrawals of equity rather than dividends. See paragraphs 5.85 to 5.87 of Chapter 5.

6.75Withdrawals from income of quasi-corporations (2812). By definition, quasi-corporations cannot distribute income in the form of dividends, but the owner may choose to withdraw some or all of the income. Conceptually, the withdrawal of such income is equivalent to the distribution of corporate income through dividends and is treated in the same way. The amount of income that the owner of a quasi-corporation chooses to withdraw will depend largely on the size of its net income. All such withdrawals are recorded on the date the payment actually occurs. As with dividends, withdrawals from income of quasi-corporations do not include withdrawals of funds realized by the sale or other disposal of assets. See paragraphs 5.88 and 5.89 of Chapter 5.

6.76Property expense attributed to insurance policyholders [GFS] (2813). Public corporations can be insurance enterprises, in which case they will hold technical reserves in the form of reserves against outstanding risks in respect of life insurance policies, including reserves for with-profit policies that add to the value on maturity of with-profit endowments or similar policies; prepayments of premiums; and reserves against outstanding claims. The reserves are considered to be assets of the policyholders or beneficiaries and liabilities of the insurance enterprises. In general, any income received from the investment of insurance technical reserves is also considered to belong to the policyholders or beneficiaries and therefore a property expense is recorded to reflect the increase in liabilities.

6.77 General government units are less likely to operate an insurance scheme, but if they do and if they maintain separate reserves, the property expense attributed to insurance policyholders would be recorded in the same manner as for a public corporation. If the general government unit does not maintain separate reserves, then no property expense is recorded. A change in the amount of the liability would be recorded as a revaluation.

6.78 Retirement schemes for government employees and their dependents and other beneficiaries are treated differently.18 There are three types of employer retirement schemes: autonomous pension funds, nonautonomous pension funds, and unfunded retirement schemes. Autonomous and nonautonomous pension funds hold reserves dedicated to the payment of pensions and other retirement benefits to the employees of general government units and their dependents or other beneficiaries. Both types of funds have liabilities equal to the present value of the promised benefits. An unfunded retirement scheme does not hold reserves dedicated to the payment of benefits, but the general government unit operating the scheme does have a liability equal to the present value of the promised benefits, just as with autonomous and nonautonomous pension funds. The property expense attributed to insurance policyholders for all three types of schemes is a component of the change in the scheme’s liability.

6.79 There are two basic types of retirement schemes: defined benefit and defined contribution.19 With a defined-benefit scheme, the future retirement benefits are defined by some formula normally related to participants’ length of service and salary. The nominal values of the retirement benefits to be paid in the future are determined actuarially based on estimates of variables such as expected retirement ages, mortality rates, expected inflation, and expected salary increases. The nominal values can then be converted to present values using an appropriate discount rate. Over time, the total liability of the pension scheme will change because of the receipt of additional contributions, the payment of benefits, changes in the actuarial assumptions, and the passage of time. The property expense attributed to insurance policyholders is equal to the increase in the liability resulting from the passage of time, which occurs because the future benefits are discounted over fewer accounting periods.

6.80 With defined-contribution schemes, the level of contributions to the fund, rather than the level of benefits, is guaranteed by the employer. All defined-contribution schemes are funded, and the liability of a defined-contribution scheme is equal to the current market value of the fund’s assets. Therefore, the property expense attributed to insurance policyholders is just the property income received from the investment of the fund’s assets. Any holding gains received on the fund’s assets are recorded as equal-valued holding losses for the unit’s liability to the beneficiaries.

6.81Rent (2814). Rent is the expense incurred in connection with certain leases of land, subsoil assets, and other naturally occurring assets. Other leases of these types of assets, notably leases of the electromagnetic spectrum, may be considered to be intangible nonproduced assets. The terms and conditions governing the classification of leases of naturally occurring assets were still under discussion at the time of publication of this manual. The remainder of this section concerns only those leases classified as rent.

6.82 Rent accrues continuously to the asset’s owner throughout the period of the contract. The rent recorded for a particular accounting period is, therefore, equal to the value of the accumulated rent that becomes payable over the accounting period and may differ from the amount of rent that becomes due for payment or is actually paid during the period.

6.83 Payments for the extraction of minerals or fossil fuels are often described as royalties but are actually rents that accrue to owners of assets in return for putting the assets at the disposal of general government units for specified periods of time. The rents may take the form of periodic payments of fixed amounts, irrespective of the rate of extraction, or, more usually, will be derived according to the quantity, volume, or value of the asset extracted. Payments in exchange for the right to undertake test drilling or otherwise investigate the existence and location of subsoil assets are also treated as rents even though no extraction may take place. The actual outlays on drilling and other exploration are treated as the acquisition of a nonfinancial asset, as described in Chapter 8.

6.84 Other types of rent include payments for the right to cut timber on noncultivated land, to exploit bodies of unmanaged water for recreational or commercial purposes, including fishing, to use water for irrigation, and to graze animals on land owned by other units.

6.85 Rent should not be confused with the rental of produced assets, which is treated as use of goods and services (22). The difference in treatment arises because lessors of produced assets are engaged in a production process whereby they provide services to the lessees, such as maintaining inventories of fixed assets available for lease at short notice and repairing and maintaining the leased assets. In particular, the rentals paid by general government units as tenants are treated as payments for the provision of building or housing services. Units that own land or subsoil assets and merely place these assets at the disposal of general government units are not considered to be engaged in productive activity.

6.86 A single transaction may comprise both rent and use of goods and services. Such an event can occur, for instance, when a general government unit, in a single contract, leases land and buildings situated on the land, and the contract does not separately identify the rent of the land from rental of the buildings. If there is no objective basis on which to apportion the payment between rent on land and rental on the buildings, the whole amount is recorded as a rental if the value of the building is greater than the value of the land and vice versa.

b. Miscellaneous other expense (282)

6.87 Miscellaneous other expense includes a number of transfers serving quite different purposes and any other expense transaction not elsewhere classified. The most important types of transfers in this category follow:

  • Current transfers to nonprofit institutions serving households. These transfers usually consist of cash in the form of membership dues, subscriptions, and voluntary donations, whether made on a regular or occasional basis. Such transfers are intended to cover the costs of the production of nonprofit institutions serving households or to provide the funds out of which current transfers may be made to households in the form of social assistance benefits. This category also covers transfers in kind in the form of food, clothing, blankets, and medicines to charities for distribution to households.

  • Current and capital taxes, compulsory fees, and fines imposed by one level of government on another level. These transfers are subject to elimination by consolidation.

  • Net tax credits. When the amount of a tax credit exceeds the amount of tax otherwise receivable from a taxpayer and the excess is paid to the taxpayer, the net payment is treated as expense rather than negative tax.

  • Fines and penalties imposed by courts of law or quasi-judicial bodies. These transfers can be payable to any sector.

  • Payments of compensation for injuries or damages caused by natural disasters.

  • Payments of compensation for injury to persons or damage to property caused by general government units, excluding payments of non-life insurance claims. These payments can be either compulsory payments awarded by courts of law or ex gratia payments agreed out of court.

  • Scholarships and other educational benefits.

  • Capital transfers to market enterprises and nonprofit institutions serving households in cash or in kind to finance all or part of the costs of acquiring nonfinancial assets, to cover large operating deficits accumulated over two or more years, to cancel a debt by mutual agreement with the debtor, or to assume a debt.

  • Non-life insurance premiums payable to insurance corporations to obtain cover against various events or accidents. Such payments are always treated as current transfers.20

  • Non-life insurance claims payable by insurance schemes operated by a general government unit in settlement of claims that become due during the current accounting period. Claims become due when the eventuality occurs that gives rise to a valid claim. Such payments are always treated as current transfers, even when large sums are involved.

  • Purchases of goods and services from market producers that are distributed directly to households for final consumption other than social benefits.

6.88 Other expense is subdivided into miscellaneous other current expense (2821) and miscellaneous other capital expense (2822). It may be of analytic interest to classify this group of transactions according to their recipients, such as residents and nonresidents. Among residents, it may also be of interest to classify them according to whether they are households, nonprofit institutions serving households, public nonfinancial corporations, public financial corporations, or private corporations.

C. The functional classification of expense

6.89 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. It is one of a family of four classifications referred to as classifications of expenditure according to purpose.21

6.90 COFOG provides a classification pertaining to outlays by governments on functions that experience has shown to be of general interest and amenable to a wide variety of analytic applications. Statistics on health, education, social protection, and environmental protection, for example, can be used to study the effectiveness of government programs in those areas.

6.91 The classification codes of COFOG are somewhat different from the structure of other GFS classification codes. The functions are classified using a three-level scheme. There are 10 first-level, or two-digit, categories, referred to as divisions. Examples are health (Division 07) and social protection (Division 10). Within each division, there are several groups, or three-digit categories, such as hospital services (073) and sickness and disability (101). Within each group, there are one or more classes, or four-digit categories, such as nursing and convalescent home services (0734) and disability (1012). All three classification levels and detailed descriptions of the contents of each class are reproduced in the annex to this chapter. Table 6.2 lists the divisions and groups. In this manual, the prefix “7” has been added to align the COFOG codes with other GFS classification codes.

Table 6.2:Classification of Expense by Function of Government
7Total outlays706Housing and community amenities
701General public services7061Housing development
7011Executive and legislative organs, financial and fiscal affairs, external affairs7062Community development
7063Water supply
7012Foreign economic aid7064Street lighting
7013General services7065R&D Housing and community amenities
7014Basic research7066Housing and community amenities n.e.c.
7015R&D1 General public services707Health
7016General public services n.e.c.27071Medical products, appliances, and equipment
7017Public debt transactions7072Outpatient services
7018Transfers of a general character between different levels of government7073Hospital services
7074Public health services
702Defense7075R&D Health
7021Military defense7076Health n.e.c.
7022Civil defense708Recreation, culture, and religion
7023Foreign military aid7081Recreational and sporting services
7024R&D Defense7082Cultural services
7025Defense n.e.c.7083Broadcasting and publishing services
703Public order and safety7084Religious and other community services
7031Police services7085R&D Recreation, culture, and religion
7032Fire protection services7086Recreation, culture, and religion n.e.c.
7033Law courts709Education
7034Prisons7091Pre-primary and primary education
7035R&D Public order and safety7092Secondary education
7036Public order and safety n.e.c.7093Postsecondary nontertiary education
704Economic affairs7094Tertiary education
7041General economic, commercial, and labor affairs7095Education not definable by level
7042Agriculture, forestry, fishing, and hunting7096Subsidiary services to education
7043Fuel and energy7097R&D Education
7044Mining, manufacturing, and construction7098Education n.e.c.
7045Transport710Social protection
7046Communication7101Sickness and disability
7047Other industries7102Old age
7048R&D Economic affairs7103Survivors
7049Economic affairs n.e.c.7104Family and children
705Environmental protection7105Unemployment
7051Waste management7106Housing
7052Waste water management7107Social exclusion n.e.c.
7053Pollution abatement7108R&D Social protection
7054Protection of biodiversity and landscape7109Social protection n.e.c.
7055R&D Environmental protection
7056Environmental protection n.e.c.

6.92 All outlays for a particular function are collected in one category of COFOG regardless of how the outlays are implemented. That is, cash transfer payments designed to be used for a particular function, the purchase of goods and services from a market producer that are transferred to households for the same function, the production of goods and services by a general government unit, or the acquisition of an asset for that same function are all in the same category.

6.93 COFOG permits trends in government outlays on particular functions or purposes to be examined over time. Conventional government accounts are not usually suitable for this purpose because they reflect the organizational structures of governments. Not only might time series be distorted by organizational changes, but at a specific time some organizations may be responsible for more than one function, and responsibility for one function might be divided among several organizations. For example, if a government establishes a new department that brings together some of the functions previously administered by several departments or at several levels of government, it will not usually be possible to use conventional government accounts to compare outlays on these purposes over time.

6.94 COFOG is also used for making international comparisons of the extent to which governments are involved in economic and social functions. Just as COFOG avoids the problems of organizational changes in a single government, so too does it avoid the problems of organizational differences among countries. In one country, for example, all functions connected with water supply may be undertaken by a single government agency, while in another country they may be distributed among departments dealing with the environment, housing, and industrial development.

6.95 Government services can benefit the community either individually or collectively. COFOG is used to distinguish between the individual and collective services provided by general government. The COFOG functions are defined so that they represent individual or collective consumption, but not both. In the annex, each class is marked “CS” or “IS” to designate it as collective services or individual services, respectively. Purchases of goods and services that are transferred to individual households or persons are treated as social transfers in kind in the 1993 SNA so that the actual final consumption of government and households, in addition to their final consumption expenditure, can be computed. Thus statistics compiled by function will be useful for compiling national accounts according to the 1993 SNA.

6.96 The items classified should be, in principle, individual transactions. Each purchase of goods and services, wage payment, transfer, or other outlay should be assigned a COFOG code according to the function that the transaction serves. For most outlays, however, it will generally not be possible to use transactions as the classification items. Instead, COFOG codes may have to be assigned to all transactions of agencies, offices, program units, bureaus, and similar units within government departments or ministries.

6.97 When government bodies rather than transactions are used for classification, it may happen that the smallest bodies that can be identified in the government accounts may perform more than one COFOG function. If possible, the outlays of multifunction bodies should be allocated among COFOG functions using a relevant physical indicator, such as hours worked by employees. It may be possible only to assign all outlays by multifunction units to whichever purpose appears to account for the largest part of total outlays.

6.98 A single classification cannot serve all analytic purposes. The selection of functions in COFOG is not unique. The scope of each function could be broader or narrower, and completely different functions could have been included. For example, outlays for medical schools are classified in COFOG as education rather than health. Also, research and development could be a function of its own, but in COFOG research and development outlays are classified according to the function the goal of the research and development most closely serves. Thus, COFOG statistics must be used with care to be sure that the desired coverage is obtained for a specific analytic purpose.

6.99 Government ministries generally are responsible for the formulation, administration, coordination, and monitoring of overall policies, plans, programs, and budgets; for the preparation and enforcement of legislation; and for the production and dissemination of general information, technical documentation, and statistics. Consequently, the outlays of these ministries have to be shared across the classes for which they are responsible. For example, the outlays of a ministry of transport should be divided between road transport (70451), water transport (70452), railway transport (70453), air transport (70454), and pipeline and other transport (70455).

6.100 Administrative outlays on general services, such as personnel services, supply and purchasing services, accounting and auditing services, and computer and data processing services, undertaken by ministries or units within ministries should be classified at the most detailed level possible. If administrative outlays overlap two or more classes, an attempt should be made to apportion outlays between the classes concerned. If this approach is not feasible, the total should be allocated to that class that accounts for the largest part of the total outlay.

6.101 Particular difficulties may arise with regard to subsidies. The main objective behind such government support may be, for example, to assure capacity to build naval vessels considered vital to national defense, to maintain living standards of important groups such as farmers or miners, or to provide employment for workers in underutilized hospitals. These political objectives are not to be confused with functions as the term is used in COFOG. Hence a government subsidy to shipyards is classified under manufacturing (70442); and grants to hospitals are classified under hospital services (7073) regardless of the ultimate purposes. Subsidies and grants designed chiefly to increase employment opportunities in general are an exception to this rule. As such programs do not focus on any single industry, they are classified under general labor affairs (70412).

6.102 It is likely that consumption of fixed capital will be difficult to allocate by function, especially if only aggregated figures for total government capital stock and consumption of fixed capital are compiled. In these circumstances, approximations will have to be used. One possibility may be to distribute consumption of fixed capital according to book value depreciation, if it is available for detailed organizational units within government. Another approach would be to distribute consumption of fixed capital among functions in proportion to gross fixed capital formation over a number of earlier years.

6.103 A final caution regarding the use of COFOG statistics relates to outlays for nonfinancial assets. Because expense transactions classified by COFOG include consumption of fixed capital, which represents part of the resource cost of using previously acquired fixed assets, there is an overlap between the COFOG statistics for the current period and COFOG statistics for the periods in which the assets were acquired. Thus, COFOG statistics should be cross-classified at least with total expense and acquisitions of nonfinancial assets. A cross-classification of COFOG with all categories of the economic classification of expense would be even more beneficial (see Table 6.3).

Table 6.3:Cross-Classification of Functional and Economic Classifications of Expense
Compensation of employees [GFS]Use of goods and servicesConsumption of fixed capital [GFS]Interest [GFS]SubsidiesGrantsSocial benefits [GFS]Other expenseAcquisition of nonfinancial assets
General public services
Defense
Public order and safety
Economic affairs
Environmental protection
Housing and community amenities
Health
Recreation, culture, and religion
Education
Social protection

D. Cross-classification of expense

6.104 The economic and functional classifications of expense can be cross-classified as illustrated in Table 6.3. The table includes a column for acquisitions of nonfinancial assets in addition to columns for each type of expense.

Annex to Chapter 6: Classification of the Functions of Government

The Classification of the Functions of Government (COFOG) was developed by the Organization for Economic Co-operation and Development and published by the United Nations Statistical Division. It can be applied to government expense and the net acquisition of nonfinancial assets. COFOG has three levels of detail: Divisions, Groups, and Classes. The Divisions could be seen as the broad objectives of government, while the Groups and Classes detail the means by which these broad objectives are achieved. For further information on COFOG, see Classifications of Expenditure According to Purpose (United Nations, Department of Economic and Social Affairs, Statistics Division, Statistical Papers, Series M, No. 84, New York, 2000). The initials “CS” or “IS” follow the title of each Class in parentheses to indicate whether the services produced by general government units and included in this Class are collective or individual services. This distinction is used for the computation of final consumption expenditure and actual final consumption in the national accounts, as described in Appendix 3. The classification numbers have been modified slightly to conform with the coding system of this manual. The numeral “7” is prefixed to all codes and the punctuation separating Divisions, Groups, and Classes are deleted.

701 GENERAL PUBLIC SERVICES

7011 EXECUTIVE AND LEGISLATIVE ORGANS, FINANCIAL AND FISCAL AFFAIRS, EXTERNAL AFFAIRS

70111 Executive and legislative organs (CS)

  • – Administration, operation or support of executive and legislative organs.

  • Includes: office of the chief executive at all levels of government - office of the monarch, governor-general, president, prime minister, governor, mayor, etc.: legislative bodies at all levels of government - parliaments, chambers of deputies, senates, assemblies, town councils, etc.; advisory, administrative and political staffs attached to chief executive offices and legislatures; libraries and other reference services serving mainly executive and legislative organs; physical amenities provided to the chief executive, the legislature and their aides; permanent or ad hoc commissions and committees created by or acting on behalf of the chief executive or legislature.

  • Excludes: ministerial offices, offices of heads of departments of local governments, interdepartmental committees, etc. concerned with a specific function (classified according to function).

70112 Financial and fiscal affairs (CS)

  • – Administration of financial and fiscal affairs and services; management of public funds and public debt; operation of taxation schemes;

  • – operation of the treasury or ministry of finance, the budget office, the inland revenue agency, the customs authorities, the accounting and auditing services;

  • – production and dissemination of general information, technical documentation and statistics on financial and fiscal affairs and services.

  • Includes: financial and fiscal affairs and services at all levels of government.

  • Excludes: underwriting or flotation charges and interest payments on government loans (70170); supervision of the banking industry (70411).

70113 External affairs (CS)

  • – Administration of external affairs and services;

  • – operation of the ministry of external affairs and diplomatic and consular missions stationed abroad or at offices of international organizations; operation or support of information and cultural services for distribution beyond national boundaries; operation or support of libraries, reading rooms and reference services located abroad;

  • – regular subscriptions and special contributions to meet general operating expenses of international organizations.

  • Excludes: economic aid to developing countries and countries in transition (70121); economic aid missions accredited to foreign governments (70121); contributions to aid programs administered by international or regional organizations (70122); military units stationed abroad (70210); military aid to foreign countries (70230); general foreign economic and commercial affairs (70411); tourism affairs and services (70473).

7012 FOREIGN ECONOMIC AID

70121 Economic aid to developing countries and countries in transition (CS)

  • – Administration of economic cooperation with developing countries and countries in transition;

  • – operation of economic aid missions accredited to foreign governments; operation or support of technical assistance programs, training programs and fellowship and scholarship schemes;

  • – economic aid in the form of grants (in cash or in kind) or loans (regardless of interest charged).

  • Excludes: contributions to economic development funds administered by international or regional organizations (70122); military aid to foreign countries (70230).

70122 Economic aid routed through international organizations (CS)

  • – Administration of economic aid routed through international organizations;

  • – contributions in cash or in kind to economic development funds administered by international, regional or other multinational organizations.

  • Excludes: aid to international peacekeeping operations (70230).

7013 GENERAL SERVICES

This group covers services that are not connected with a specific function and which are usually undertaken by central offices at the various levels of government. It also covers those services connected with a particular function that are undertaken by such central offices. For example, the compilation of industry, environment, health or education statistics by a central statistical agency is included here.

70131 General personnel services (CS)

  • – Administration and operation of general personnel services, including development and implementation of general personnel policies and procedures covering selection, promotion, rating methods, the description, evaluation and classification of jobs, the administration of civil service regulations and similar matters.

  • Excludes: personnel administration and services connected with a specific function (classified according to function).

70132 Overall planning and statistical services (CS)

  • – Administration and operation of overall economic and social planning services and of overall statistical services, including formulation, coordination and monitoring of overall economic and social plans and programs and of overall statistical plans and programs.

  • Excludes: economic and social planning services and statistical services connected with a specific function (classified according to function).

70133 Other general services (CS)

  • – Administration and operation of other general services such as centralized supply and purchasing services, maintenance and storage of government records and archives, operation of government owned or occupied buildings, central motor vehicle pools, government operated printing offices, centralized computer and data processing services, etc.

  • Excludes: other general services connected with a specific function (classified according to function).

7014 BASIC RESEARCH

Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any particular application or use in view.

70140 Basic research (CS)

  • – Administration and operation of government agencies engaged in basic research;

  • – grants, loans or subsidies to support basic research undertaken by non-government bodies such as research institutes and universities.

  • Excludes: applied research and experimental development (classified by function).

7015 R&D GENERAL PUBLIC SERVICES

Applied research is original investigation undertaken in order to acquire new knowledge, but directed primarily towards a specific practical aim or objective.

Experimental development is systematic work, drawing on existing knowledge gained from research and practical experience, that is directed to producing new materials, products and devices; to installing new processes, systems and services; or to improving substantially those already produced or installed.

70150 R&D General public services (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to general public services;

  • – grants, loans or subsidies to support applied research and experimental development related to general public services undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

7016 GENERAL PUBLIC SERVICES N.E.C.

70160 General public services n.e.c. (CS)

  • – Administration, operation or support of general public services such as registration of voters, holding of elections and referendums, administration of non-self-governing and trust territories, etc.

  • Includes: general public services that cannot be assigned to (7011), (7012), (7013), (7014) or (7015).

    Excludes: public debt transactions (7017); transfers of a general character between different levels of government (7018).

7017 PUBLIC DEBT TRANSACTIONS

70170 Public debt transactions (CS)

  • – Interest payments and outlays for underwriting and floating government loans.

  • Excludes: administrative costs of public debt management (70112).

7018 TRANSFERS OF A GENERAL CHARACTER BETWEEN DIFFERENT LEVELS OF GOVERNMENT

70180 Transfers of a general character between different levels of government (CS)

  • – Transfers between different levels of government that are of a general character and not allocated to a particular function.

702 DEFENSE

7021 MILITARY DEFENSE

70210 Military defense (CS)

  • – Administration of military defense affairs and services;

  • – operation of land, sea, air and space defense forces; operation of engineering, transport, communication, intelligence, personnel and other non-combat defense forces; operation or support of reserve and auxiliary forces of the defense establishment.

  • Includes: offices of military attachés stationed abroad; field hospitals.

    Excludes: military aid missions (70230); base hospitals (7073); military schools and colleges where curricula resemble those of civilian institutions even though attendance may be limited to military personnel and their families (7091), (7092), (7093) or (7094); pension schemes for military personnel (7102).

7022 CIVIL DEFENSE

70220 Civil defense (CS)

  • – Administration of civil defense affairs and services; formulation of contingency plans; organization of exercises involving civilian institutions and populations;

  • – operation or support of civil defense forces.

  • Excludes: civil protection services (70320); purchase and storage of food, equipment and other supplies for emergency use in the case of peacetime disasters (71090).

7023 FOREIGN MILITARY AID

70230 Foreign military aid (CS)

  • – Administration of military aid and operation of military aid missions accredited to foreign governments or attached to international military organizations or alliances;

  • – military aid in the form of grants (in cash or in kind), loans (regardless of interest charged) or loans of equipment; contributions to international peacekeeping forces including the assignment of manpower.

7024 R&D DEFENSE

Definitions of basic research, applied research and experimental development are given under (7014) and (7015).

70240 R&D Defense (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to defense;

  • – grants, loans or subsidies to support applied research and experimental development related to defense undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

7025 DEFENSE N.E.C.

70250 Defense n.e.c. (CS)

  • – Administration, operation or support of activities such as formulation, administration, coordination and monitoring of overall policies, plans, programs and budgets relating to defense; preparation and enforcement of legislation relating to defense; production and dissemination of general information, technical documentation and statistics on defense; etc.

  • Includes: defense affairs and services that cannot be assigned to (7021), (7022), (7023) or (7024).

    Excludes: administration of war veterans’ affairs (7102).

703 PUBLIC ORDER AND SAFETY

7031 POLICE SERVICES

70310 Police services (CS)

  • – Administration of police affairs and services, including alien registration, issuing work and travel documents to immigrants, maintenance of arrest records and statistics related to police work, road traffic regulation and control, prevention of smuggling and control of offshore and ocean fishing;

  • – operation of regular and auxiliary police forces, of port, border and coast guards, and of other special police forces maintained by public authorities; operation of police laboratories; operation or support of police training programs.

  • Includes: traffic wardens.

    Excludes: police colleges offering general education in addition to police training (7091), (7092), (7093) or (7094).

7032 FIRE PROTECTION SERVICES

70320 Fire protection services (CS)

  • – Administration of fire prevention and fire fighting affairs and services;

  • – operation of regular and auxiliary fire brigades and of other fire prevention and fire fighting services maintained by public authorities; operation or support of fire prevention and fire fighting training programs.

  • Includes: civil protection services such as mountain rescue, beach surveillance, evacuation of flooded areas, etc.

    Excludes: civil defense (70220); forces especially trained and equipped for fighting or preventing forest fires (70422).

7033 LAW COURTS

70330 Law courts (CS)

  • – Administration, operation or support of civil and criminal law courts and the judicial system, including enforcement of fines and legal settlements imposed by the courts and operation of parole and probation systems;

  • – legal representation and advice on behalf of government or on behalf of others provided by government in cash or in services.

  • Includes: administrative tribunals, ombudsmen and the like.

    Excludes: prison administration (70340).

7034 PRISONS

70340 Prisons (CS)

  • – Administration, operation or support of prisons and other places for the detention or rehabilitation of criminals such as prison farms, workhouses, reformatories, borstals, asylums for the criminally insane, etc.

7035 R&D PUBLIC ORDER AND SAFETY

Definitions of basic research, applied research and experimental development are given under (7014) and (7015).

70350 R&D Public order and safety (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to public order and safety;

  • – grants, loans or subsidies to support applied research and experimental development related to public order and safety undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

7036 PUBLIC ORDER AND SAFETY N.E.C.

70360 Public order and safety n.e.c. (CS)

  • – Administration, operation or support of activities such as formulation, administration, coordination and monitoring of overall policies, plans, programs and budgets relating to public order and safety; preparation and enforcement of legislation and standards for the provision of public order and safety; production and dissemination of general information, technical documentation and statistics on public order and safety.

  • Includes: public order and safety affairs and services that cannot be assigned to (7031), (7032), (7033), (7034) or (7035).

704 ECONOMIC AFFAIRS

7041 GENERAL ECONOMIC, COMMERCIAL, AND LABOR AFFAIRS

70411 General economic and commercial affairs (CS)

  • – Administration of general economic and commercial affairs and services, including general foreign commercial affairs: formulation and implementation of general economic and commercial policies; liaison among different branches of government and between government and business;

  • – regulation or support of general economic and commercial activities such as export and import trade as a whole, commodity and equity markets, overall income controls, general trade promotion activities, general regulation of monopolies and other restraints on trade and market entry, etc.; supervision of the banking industry;

  • – operation or support of institutions dealing with patents, trademarks, copyrights, company registration, weather forecasting, standards, hydrologic surveys, geodesic surveys, etc.;

  • – grants, loans or subsidies to promote general economic and commercial policies and programs.

  • Includes: consumer education and protection.

  • Excludes: economic and commercial affairs of a particular industry (classified to (7042) through (7047) as appropriate).

70412 General labor affairs (CS)

  • – Administration of general labor affairs and services; formulation and implementation of general labor policies; supervision and regulation of labor conditions (hours of work, wages, safety, etc.); liaison among different branches of government and between government and overall industrial, business and labor organizations;

  • – operation or support of general programs or schemes to facilitate labor mobility, to reduce sex, race, age and other discrimination, to reduce the rate of unemployment in distressed or underdeveloped regions, to promote the employment of disadvantaged or other groups characterized by high unemployment rates, etc.; operation of labor exchanges; operation or support of arbitration and mediation services;

  • – production and dissemination of general information, technical documentation and statistics on general labor affairs and services;

  • – grants, loans or subsidies to promote general labor policies and programs.

  • Excludes: labor affairs of a particular industry (classified to (7042) through (7047) as appropriate); provision of social protection in the form of cash benefits and benefits in kind to persons who are unemployed (71050).

7042 AGRICULTURE, FORESTRY, FISHING AND HUNTING

70421 Agriculture (CS)

  • – Administration of agricultural affairs and services; conservation, reclamation or expansion of arable land; agrarian reform and land settlement; supervision and regulation of the agricultural industry;

  • – construction or operation of flood control, irrigation and drainage systems, including grants, loans or subsidies for such works;

  • – operation or support of programs or schemes to stabilize or improve farm prices and farm incomes; operation or support of extension services or veterinary services to farmers, pest control services, crop inspection services and crop grading services;

  • – production and dissemination of general information, technical documentation and statistics on agricultural affairs and services;

  • – compensation, grants, loans or subsidies to farmers in connection with agricultural activities, including payments for restricting or encouraging output of a particular crop or for allowing land to remain uncultivated.

  • Excludes: multi-purpose development projects (70474).

70422 Forestry (CS)

  • – Administration of forestry affairs and services; conservation, extension and rationalized exploitation of forest reserves; supervision and regulation of forest operations and issuance of tree-felling licenses;

  • – operation or support of reforestation work, pest and disease control, forest fire-fighting and fire prevention services and extension services to forest operators;

  • – production and dissemination of general information, technical documentation and statistics on forestry affairs and services;

  • – grants, loans or subsidies to support commercial forest activities.

  • Includes: forest crops in addition to timber.

70423 Fishing and hunting (CS)

This class covers both commercial fishing and hunting, and fishing and hunting for sport. The fishing and hunting affairs and services listed below refer to activities that take place outside natural parks and reserves.

  • – Administration of fishing and hunting affairs and services; protection, propagation and rationalized exploitation of fish and wildlife stocks; supervision and regulation of freshwater fishing, coastal fishing, ocean fishing, fish farming, wildlife hunting and issuance of fishing and hunting licenses;

  • – operation or support of fish hatcheries, extension services, stocking or culling activities, etc.;

  • – production and dissemination of general information, technical documentation and statistics on fishing and hunting affairs and services;

  • – grants, loans or subsidies to support commercial fishing and hunting activities, including the construction or operation of fish hatcheries.

  • Excludes: control of offshore and ocean fishing (70310); administration, operation or support of natural parks and reserves (70540).

7043 FUEL AND ENERGY

70431 Coal and other solid mineral fuels (CS)

This class covers coal of all grades, lignite and peat irrespective of the method used in their extraction or beneficiation and the conversion of these fuels to other forms such as coke or gas.

  • – Administration of solid mineral fuel affairs and services; conservation, discovery, development and rationalized exploitation of solid mineral fuel resources; supervision and regulation of the extraction, processing, distribution and use of solid mineral fuels;

  • – production and dissemination of general information, technical documentation and statistics on solid mineral fuel affairs and services;

  • – grants, loans or subsidies to support the solid mineral fuel industry and the coke, briquette or manufactured gas industries.

  • Excludes: solid mineral fuel transportation affairs (classified to the appropriate class of group 7045).

70432 Petroleum and natural gas (CS)

This class covers natural gas, liquefied petroleum gases and refinery gases, oil from wells or other sources such as shale or tar sands and the distribution of town gas regardless of its composition.

  • – Administration of petroleum and natural gas affairs and services; conservation, discovery, development and rationalized exploitation of petroleum and natural gas resources; supervision and regulation of the extraction, processing, distribution and use of petroleum and natural gas;

  • – production and dissemination of general information, technical documentation and statistics on petroleum and natural gas affairs and services;

  • – grants, loans or subsidies to support the petroleum extraction industry and the industry refining crude petroleum and related liquid and gaseous products.

  • Excludes: petroleum or gas transportation affairs (classified to the appropriate class of group 7045).

70433 Nuclear fuel (CS)

  • – Administration of nuclear fuel affairs and services; conservation, discovery, development and rationalized exploitation of nuclear material resources; supervision and regulation of the extraction and processing of nuclear fuel materials and of the manufacture, distribution and use of nuclear fuel elements;

  • – production and dissemination of general information, technical documentation and statistics on nuclear fuel affairs and services;

  • – grants, loans or subsidies to support the nuclear materials mining industry and the industries processing such materials.

  • Excludes: nuclear fuel transportation affairs (classified to the appropriate class of group 7045); disposal of radioactive wastes (70510).

70434 Other fuels (CS)

  • – Administration of affairs and services involving fuels such as alcohol, wood and wood wastes, bagasse and other non-commercial fuels;

  • – production and dissemination of general information, technical documentation and statistics on availability, production and utilization of such fuels;

  • – grants, loans or subsidies to promote the use of such fuels for the production of energy.

  • Excludes: forest management (70422); wind and solar heat (70435) or (70436); geothermal resources (70436).

70435 Electricity (CS)

This class covers both traditional sources of electricity such as thermal or hydro supplies and newer sources such as wind or solar heat.

  • – Administration of electricity affairs and services; conservation, development and rationalized exploitation of electricity supplies; supervision and regulation of the generation, transmission and distribution of electricity;

  • – construction or operation of non-enterprise-type electricity supply systems;

  • – production and dissemination of general information, technical documentation and statistics on electricity affairs and services;

  • – grants, loans or subsidies to support the electricity supply industry, including such outlays for the construction of dams and other works designed chiefly to provide electricity.

  • Excludes: non-electric energy produced by wind or solar heat (70436).

70436 Non-electric energy (CS)

  • – Administration of non-electric energy affairs and services which chiefly concern the production, distribution and utilization of heat in the form of steam, hot water or hot air;

  • – construction or operation of non-enterprise-type systems supplying non-electric energy;

  • – production and dissemination of general information, technical documentation and statistics on availability, production and utilization of non-electric energy;

  • – grants, loans or subsidies to promote the use of non-electric energy.

  • Includes: geothermal resources; non-electric energy produced by wind or solar heat.

7044 MINING, MANUFACTURING, AND CONSTRUCTION

70441 Mining of mineral resources other than mineral fuels (CS)

This class covers metal-bearing minerals, sand, clay, stone, chemical and fertilizer minerals, salt, gem-stones, asbestos, gypsum, etc.

  • – Administration of mining and mineral resource affairs and services; conservation, discovery, development and rationalized exploitation of mineral resources; supervision and regulation of prospecting, mining, marketing and other aspects of mineral production;

  • – production and dissemination of general information, technical documentation and statistics on mining and mineral resource affairs and services;

  • – grants, loans or subsidies to support commercial mining activities.

  • Includes: issuance of licenses and leases, regulation of production rates, inspection of mines for conformity to safety regulations, etc.

    Excludes: coal and other solid fuels (70431), petroleum and natural gas (70432) and nuclear fuel materials (70433).

70442 Manufacturing (CS)

  • – Administration of manufacturing affairs and services; development, expansion or improvement of manufacturing; supervision and regulation of the establishment and operation of manufacturing plants; liaison with manufacturers’ associations and other organizations interested in manufacturing affairs and services;

  • – production and dissemination of general information, technical documentation and statistics on manufacturing activities and manufactured products;

  • – grants, loans or subsidies to support manufacturing enterprises.

  • Includes: inspection of manufacturing premises for conformity with safety regulations, protection of consumers against dangerous products, etc.

    Excludes: affairs and services concerning the coal processing industry (70431), the petroleum refinery industry (70432) or the nuclear fuel industry (70433).

70443 Construction (CS)

  • – Administration of construction affairs and services; supervision of the construction industry; development and regulation of construction standards;

  • – production and dissemination of general information, technical documentation and statistics on construction affairs and services.

  • Includes: issuance of certificates permitting occupancy, inspection of construction sites for conformity with safety regulations, etc.

    Excludes: grants, loans and subsidies for the construction of housing, industrial buildings, streets, public utilities, cultural facilities, etc. (classified according to function); development and regulation of housing standards (70610).

7045 TRANSPORT

70451 Road transport (CS)

  • – Administration of affairs and services concerning operation, use, construction and maintenance of road transport systems and facilities (roads, bridges, tunnels, parking facilities, bus terminals, etc.);

  • – supervision and regulation of road users (vehicle and driver licensing, vehicle safety inspection, size and load specifications for passenger and freight road transport, regulation of hours of work of bus, coach and lorry drivers, etc.), of road transport system operations (granting of franchises, approval of freight tariffs and passenger fares and of hours and frequency of service, etc.) and of road construction and maintenance;

  • – construction or operation of non-enterprise-type road transport systems and facilities;

  • – production and dissemination of general information, technical documentation and statistics on road transport system operations and on road construction activities;

  • – grants, loans or subsidies to support the operation, construction, maintenance or upgrading of road transport systems and facilities.

  • Includes: highways, urban roads, streets, bicycle paths and footpaths.

    Excludes: road traffic control (70310); grants, loans and subsidies to road vehicle manufacturers (70442); street cleaning (70510); construction of noise embankments, hedges and other anti-noise facilities including the resurfacing of sections of urban highways with noise reducing surfaces (70530); street lighting (70640).

70452 Water transport (CS)

  • – Administration of affairs and services concerning operation, use, construction and maintenance of inland, coastal and ocean water transport systems and facilities (harbors, docks, navigation aids and equipment, canals, bridges, tunnels, channels, breakwaters, piers, wharves, terminals, etc.);

  • – supervision and regulation of water transport users (registration, licensing and inspection of vessels and crews, regulations concerning passenger safety and freight security, etc.), of water transport system operations (granting of franchises, approval of freight tariffs and passenger fares and of hours and frequency of service, etc.) and of water transport facility construction and maintenance;

  • – construction or operation of non-enterprise-type water transport systems and facilities (such as ferries);

  • – production and dissemination of general information, technical documentation and statistics on water transport system operations and on water transport facility construction activities;

  • – grants, loans or subsidies to support the operation, construction, maintenance or upgrading of water transport systems and facilities.

  • Includes: radio and satellite navigation aids; emergency rescue and towing services.

    Excludes: grants, loans and subsidies to shipbuilders (70442).

70453 Railway transport (CS)

  • – Administration of affairs and services concerning operation, use, construction or maintenance of railway transport systems and facilities (railway roadbeds, terminals, tunnels, bridges, embankments, cuttings, etc.);

  • – supervision and regulation of railway users (rolling stock condition, roadbed stability, passenger safety, security of freight, etc.), of railway transport system operations (granting of franchises, approval of freight tariffs and passenger fares and of hours and frequency of service, etc.) and of railway construction and maintenance;

  • – construction or operation of non-enterprise-type railway transport systems and facilities;

  • – production and dissemination of general information, technical documentation and statistics on railway transport system operations and on railway construction activities;

  • – grants, loans or subsidies to support the operation, construction, maintenance or upgrading of railway transport systems and facilities.

  • Includes: long-line and interurban railway transport systems, urban rapid transit railway transport systems and street railway transport systems; acquisition and maintenance of rolling stock.

    Excludes: grants, loans and subsidies to rolling stock manufacturers (70442); construction of noise embankments, hedges and other anti-noise facilities including the resurfacing of sections of railways with noise reducing surfaces (70530).

70454 Air transport (CS)

  • – Administration of affairs and services concerning operation, use, construction and maintenance of air transport systems and facilities (airports, runways, terminals, hangars, navigation aids and equipment, air control amenities, etc.);

  • – supervision and regulation of air transport users (registration, licensing and inspection of aircraft, pilots, crews, ground crews, regulations concerning passenger safety, investigation of air transport accidents, etc.), of air transport system operations (allocation of routes, approval of freight tariffs and passenger fares and of frequency and levels of service, etc.) and of air transport facility construction and maintenance;

  • – construction or operation of non-enterprise-type public air transport services and facilities;

  • – production and dissemination of general information, technical documentation and statistics on air transport system operations and on air transport facility construction;

  • – grants, loans or subsidies to support the operation, construction, maintenance or upgrading of air transport systems and facilities.

  • Includes: radio and satellite navigation aids; emergency rescue services; scheduled and non-scheduled freight and passenger services; regulation and control of flying by private individuals.

    Excludes: grants, loans and subsidies to aircraft manufacturers (70442).

70455 Pipeline and other transport (CS)

  • – Administration of affairs and services concerning operation, use, construction and maintenance of pipeline and other transport systems (funiculars, cable cars, chairlifts, etc.);

  • – supervision and regulation of users of pipeline and other transport systems (registration, licensing, inspection of equipment, operator skills and training; safety standards, etc.); of pipeline and other transport systems operations (granting of franchises, setting tariffs, frequency and levels of service, etc.) and of pipeline and other transport systems construction and maintenance;

  • – construction or operation of non-enterprise-type pipeline and other transport systems;

  • – production and dissemination of general information, technical documentation and statistics on the operation and construction of pipeline and other transport systems;

  • – grants, loans or subsidies to support the operation, construction, maintenance or upgrading of pipeline and other transport systems.

7046 COMMUNICATION

70460 Communication (CS)

  • – Administration of affairs and services concerning construction, extension, improvement, operation and maintenance of communication systems (postal, telephone, telegraph, wireless and satellite communication systems);

  • – regulation of communication system operations (granting of franchises; assignment of frequencies, specification of markets to be served and tariffs to be charged, etc.);

  • – production and dissemination of general information, technical documentation and statistics on communication affairs and services;

  • – grants, loans or subsidies to support the construction, operation, maintenance or upgrading of communication systems.

  • Excludes: radio and satellite navigation aids for water transport (70452) and air transport (70454); radio and television broadcasting systems (70830).

7047 OTHER INDUSTRIES

70471 Distributive trades, storage, and warehousing (CS)

  • – Administration of affairs and services concerning the distributive trade and the storage and warehousing industry;

  • – supervision and regulation of wholesale and retail trade (licensing, sales practices, labeling of packaged food and other goods intended for household consumption, inspection of scales and other weighing machines, etc.) and of the storage and warehousing industry (including licensing and control of government-bonded warehouses, etc.);

  • – administration of price control and rationing schemes operating through retailers or wholesalers regardless of the type of goods involved or intended consumer; administration and provision of food and other such subsidies to the general public;

  • – production and dissemination of information to the trade and to the public on prices, on the availability of goods and on other aspects of the distributive trade and the storage and warehousing industry; compilation and publication of statistics on the distributive trade and the storage and warehousing industry;

  • – grants, loans or subsidies to support the distributive trade and to the storage and warehousing industry.

  • Excludes: administration of price and other controls applied to the producer (classified according to function); food and other such subsidies applicable to particular population groups or individuals (710).

70472 Hotels and restaurants (CS)

  • – Administration of affairs and services concerning construction, extension, improvement, operation and maintenance of hotels and restaurants;

  • – supervision and regulation of hotel and restaurant operations (regulations governing prices, cleanliness and sales practices, hotel and restaurant licensing, etc.);

  • – production and dissemination of general information, technical documentation and statistics on hotel and restaurant affairs and services;

  • – grants, loans or subsidies to support the construction, operation, maintenance or upgrading of hotels and restaurants.

70473 Tourism (CS)

  • – Administration of tourism affairs and services; promotion and development of tourism; liaison with the transport, hotel and restaurant industries and other industries benefiting from the presence of tourists;

  • – operation of tourist offices at home and abroad, etc.; organization of advertising campaigns, including the production and dissemination of promotional literature and the like;

  • – compilation and publication of statistics on tourism.

70474 Multipurpose development projects (CS)

Multipurpose development projects typically consist of integrated facilities for generation of power, flood control, irrigation, navigation and recreation.

  • – Administration of affairs and services concerning construction, extension, improvement, operation and maintenance of multi-purpose projects;

  • – production and dissemination of general information, technical documentation and statistics on multi-purpose development project affairs and services;

  • – grants, loans or subsidies to support the construction, operation, maintenance or upgrading of multi-purpose development projects;

  • Excludes: projects with one main function and other functions that are secondary (classified according to main function).

7048 R&D ECONOMIC AFFAIRS

Definitions of basic research, applied research and experimental development are given under (7014) and (7015).

70481 R&D General economic, commercial, and labor affairs (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to general economic, commercial and labor affairs;

  • – grants, loans or subsidies to support applied research and experimental development related to general economic, commercial and labor affairs undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

70482 R&D Agriculture, forestry, fishing and hunting (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to agriculture, forestry, fishing and hunting;

  • – grants, loans or subsidies to support applied research and experimental development related to agriculture, forestry, fishing and hunting undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

70483 R&D Fuel and energy (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to fuel and energy;

  • – grants, loans or subsidies to support applied research and experimental development related to fuel and energy undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

70484 R&D Mining, manufacturing, and construction (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to mining, manufacturing and construction;

  • – grants, loans or subsidies to support applied research and experimental development related to mining, manufacturing and construction undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

70485 R&D Transport (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to transport;

  • – grants, loans or subsidies to support applied research and experimental development related to transport undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

70486 R&D Communication (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to communication;

  • – grants, loans or subsidies to support applied research and experimental development related to communication undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

70487 R&D Other industries (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to other sectors;

  • – grants, loans or subsidies to support applied research and experimental development related to other sectors undertaken by non-government bodies such as research institutes and universities.

  • Includes: distributive trades, storage and warehousing; hotels and restaurants; tourism and multi-purpose development projects.

    Excludes: basic research (70140).

7049 ECONOMIC AFFAIRS N.E.C.

70490 Economic affairs n.e.c. (CS)

  • – Administration, operation or support activities relating to general and sectoral economic affairs that cannot be assigned to (7041), (7042), (7043), (7044), (7045), (7046), (7047) or (7048).

705 ENVIRONMENTAL PROTECTION

The breakdown of environmental protection is based upon the Classification of Environmental Protection Activities (CEPA) as elaborated in the European System for the Collection of Economic Information on the Environment (SERIEE) of the Statistical Office of the European Communities (Eurostat).

7051 WASTE MANAGEMENT

This group covers collection, treatment and disposal of waste.

Waste collection includes sweeping of streets, squares, paths, markets, public gardens, parks, etc.; collection of all types of waste, whether selective by type of product or undifferentiated covering all waste, and their transport to place of treatment or discharge.

Waste treatment includes any method or process designed to change the physical, chemical or biological character or composition of any waste so as to neutralize it, to render it non-hazardous, to make it safer for transport, to make it amenable for recovery or storage or to reduce it in volume.

Waste disposal includes final placement of waste for which no further use is foreseen by landfill, containment, underground disposal, dumping at sea or any other relevant disposal method.

70510 Waste management (CS)

  • – Administration, supervision, inspection, operation or support of waste collection, treatment and disposal systems;

  • – grants, loans or subsidies to support the operation, construction, maintenance or upgrading of such systems.

  • Includes: collection, treatment and disposal of nuclear waste.

7052 WASTE WATER MANAGEMENT

This group covers sewage system operation and waste water treatment.

Sewage system operation includes management and construction of the system of collectors, pipelines, conduits and pumps to evacuate any waste water (rainwater, domestic and other available waste water) from the points of generation to either a sewage treatment plant or to a point where waste water is discharged to surface water.

Waste water treatment includes any mechanical, biological or advanced process to render waste water fit to meet applicable environment standards or other quality norms.

70520 Waste water management (CS)

  • – Administration, supervision, inspection, operation or support of sewage systems and waste water treatment;

  • – grants, loans or subsidies to support the operation, construction, maintenance or upgrading of such systems.

7053 POLLUTION ABATEMENT

This group covers activities relating to ambient air and climate protection, soil and ground-water protection, noise and vibration abatement and protection against radiation.

These activities include construction, maintenance and operation of monitoring systems and stations (other than weather stations); construction of noise embankments, hedges and other anti-noise facilities including the resurfacing of sections of urban highways or railways with noise reducing surfaces; measures to clean pollution in water bodies; measures to control or prevent the emissions of greenhouse gases and pollutants that adversely affect the quality of the air; construction, maintenance and operation of installations for the decontamination of polluted soils and for the storage of pollutant products; transportation of pollutant products.

70530 Pollution abatement (CS)

  • – Administration, supervision, inspection, operation or support of activities relating to pollution abatement and control;

  • – grants, loans or subsidies to support activities relating to pollution abatement and control.

7054 PROTECTION OF BIODIVERSITY AND LANDSCAPE

This group covers activities relating to the protection of fauna and flora species (including the reintroduction of extinct species and the recovery of species menaced by extinction), the protection of habitats (including the management of natural parks and reserves) and the protection of landscapes for their aesthetic values (including the reshaping of damaged landscapes for the purpose of strengthening their aesthetic value and the rehabilitation of abandoned mines and quarry sites).

70540 Protection of biodiversity and landscape (CS)

  • – Administration, supervision, inspection, operation or support of activities relating to the protection of biodiversity and landscape;

  • – grants, loans or subsidies to support activities relating to the protection of biodiversity and landscape.

7055 R&D ENVIRONMENTAL PROTECTION

Definitions of basic research, applied research and experimental development are given under (7014) and (7015).

70550 R&D Environmental protection (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to environmental protection;

  • – grants, loans or subsidies to support applied research and experimental development related to environmental protection undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

7056 ENVIRONMENTAL PROTECTION N.E.C.

70560 Environmental protection n.e.c. (CS)

  • – Administration, management, regulation, supervision, operation and support of activities such as formulation, administration, coordination and monitoring of overall policies, plans, programs and budgets for the promotion of environmental protection; preparation and enforcement of legislation and standards for the provision of environmental protection services; production and dissemination of general information, technical documentation and statistics on environmental protection.

  • Includes: environmental protection affairs and services that cannot be assigned to (7051), (7052), (7053), (7054) or (7055).

706 HOUSING AND COMMUNITY AMENITIES

7061 HOUSING DEVELOPMENT

70610 Housing development (CS)

  • – Administration of housing development affairs and services; promotion, monitoring and evaluation of housing development activities whether or not the activities are under the auspices of public authorities; development and regulation of housing standards;

  • – slum clearance related to provision of housing; acquisition of land needed for construction of dwellings; construction or purchase and remodeling of dwelling units for the general public or for people with special needs;

  • – production and dissemination of public information, technical documentation and statistics on housing development affairs and services;

  • – grants, loans or subsidies to support the expansion, improvement or maintenance of the housing stock.

  • Excludes: development and regulation of construction standards (70443); cash benefits and benefits in kind to help households meet the cost of housing (71060).

7062 COMMUNITY DEVELOPMENT

70620 Community development (CS)

  • – Administration of community development affairs and services; administration of zoning laws and land-use and building regulations;

  • – planning of new communities or of rehabilitated communities; planning the improvement and development of facilities such as housing, industry, public utilities, health, education, culture, recreation, etc. for communities; preparation of schemes for financing planned developments;

  • – production and dissemination of general information, technical documentation and statistics on community development affairs and services.

  • Excludes: plan implementation, that is, the actual construction of housing, industrial buildings, streets, public utilities, cultural facilities, etc. (classified according to function); agrarian reform and land resettlement (70421); administration of construction standards (70443) and housing standards (70610).

7063 WATER SUPPLY

70630 Water supply (CS)

  • – Administration of water supply affairs; assessment of future needs and determination of availability in terms of such assessment; supervision and regulation of all facets of potable water supply including water purity, price and quantity controls;

  • – construction or operation of non-enterprise-type of water supply systems;

  • – production and dissemination of general information, technical documentation and statistics on water supply affairs and services;

  • – grants, loans or subsidies to support the operation, construction, maintenance or upgrading of water supply systems.

  • Excludes: irrigation systems (70421); multi-purpose projects (70474); collection and treatment of waste water (70520).

7064 STREET LIGHTING

70640 Street lighting (CS)

  • – Administration of street lighting affairs; development and regulation of street lighting standards;

  • – installation, operation, maintenance, upgrading, etc. of street lighting.

  • Excludes: lighting affairs and services associated with the construction and operation of highways (70451).

7065 R&D HOUSING AND COMMUNITY AMENITIES

Definitions of basic research, applied research and experimental development are given under (7014) and (7015).

70650 R&D Housing and community amenities (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to housing and community amenities;

  • – grants, loans or subsidies to support applied research and experimental development related to housing and community amenities undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140); applied research and experimental development into construction methods or materials (70484).

7066 HOUSING AND COMMUNITY AMENITIES N.E.C.

70660 Housing and community amenities n.e.c. (CS)

  • – Administration, operation or support of activities such as formulation, administration, coordination and monitoring of overall policies, plans, programs and budgets relating to housing and community amenities; preparation and enforcement of legislation and standards relating to housing and community amenities; production and dissemination of general information, technical documentation and statistics relating to housing and community amenities.

  • Includes: administration, operation or support activities relating to housing and community amenities that cannot be assigned to (7061), (7062), (7063), (7064) or (7065).

707 HEALTH

Government outlays on health include expenditures on services provided to individual persons and services provided on a collective basis. Expenditures on individual services are allocated to groups (7071) through (7074); expenditures on collective services are assigned to groups (7075) and (7076).

Collective health services are concerned with matters such as formulation and administration of government policy; setting and enforcement of standards for medical and paramedical personnel and for hospitals, clinics, surgeries, etc.; regulation and licensing of providers of health services; and applied research and experimental development into medical and health-related matters. However, overhead expenses connected with administration or functioning of a group of hospitals, clinics, surgeries, etc. are considered to be individual expenditures and are classified to groups (7071) through (7074) as appropriate.

7071 MEDICAL PRODUCTS, APPLIANCES, AND EQUIPMENT

This group covers medicaments, prostheses, medical appliances and equipment and other health-related products obtained by individuals or households, either with or without a prescription, usually from dispensing chemists, pharmacists or medical equipment suppliers. They are intended for consumption or use outside a health facility or institution. Such products supplied directly to outpatients by medical, dental and paramedical practitioners or to in-patients by hospitals and the like are included in outpatient services (7072) or hospital services (7073).

70711 Pharmaceutical products (IS)

  • – Provision of pharmaceutical products such as medicinal preparations, medicinal drugs, patent medicines, serums and vaccines, vitamins and minerals, cod liver oil and halibut liver oil, oral contraceptives;

  • – administration, operation or support of the provision of pharmaceutical products.

70712 Other medical products (IS)

  • – Provision of medical products such as clinical thermometers, adhesive and non-adhesive bandages, hypodermic syringes, first-aid kits, hot-water bottles and ice bags, medical hosiery items such as elasticated stockings and knee-pads, pregnancy tests, condoms and other mechanical contraceptive devices;

  • – administration, operation or support of the provision of prescribed other medical products.

70713 Therapeutic appliances and equipment (IS)

  • – Provision of therapeutic appliances and equipment such as corrective eyeglasses and contact lenses, hearing aids, glass eyes, artificial limbs and other prosthetic devices, orthopedic braces and supports, orthopedic footwear, surgical belts, trusses and supports, neck braces, medical massage equipment and health lamps, powered and unpowered wheelchairs and invalid carriages, “special” beds, crutches, electronic and other devices for monitoring blood pressure, etc.;

  • – administration, operation or support of the provision of prescribed therapeutic appliances and equipment.

  • Includes: dentures but not fitting costs; repair of therapeutic appliances and equipment.

  • Excludes: hire of therapeutic equipment (70724).

7072 OUTPATIENT SERVICES

This group covers medical, dental and paramedical services delivered to outpatients by medical, dental and paramedical practitioners and auxiliaries. The services may be delivered at home, in individual or group consulting facilities, dispensaries or the outpatient clinics of hospitals and the like.

Outpatient services include the medicaments, prostheses, medical appliances and equipment and other health-related products supplied directly to outpatients by medical, dental and paramedical practitioners and auxiliaries.

Medical, dental and paramedical services provided to in-patients by hospitals and the like are included in hospital services (7073).

70721 General medical services (IS)

This class covers the services provided by general medical clinics and general medical practitioners.

General medical clinics are defined as institutions which chiefly provide outpatient services which are not limited to a particular medical specialty and which are chiefly delivered by qualified medical doctors. General medical practitioners do not specialize in a particular medical specialty.

  • – Provision of general medical services;

  • – administration, inspection, operation or support of general medical services delivered by general medical clinics and general medical practitioners.

  • Excludes: services of medical analysis laboratories and x-ray centers (70724).

70722 Specialized medical services (IS)

This class covers the services of specialized medical clinics and specialist medical practitioners.

Specialized medical clinics and specialist medical practitioners differ from general medical clinics and general medical practitioners in that their services are limited to treatment of a particular condition, disease, medical procedure or class of patient.

  • – Provision of specialized medical services;

  • – administration, inspection, operation or support of specialized medical services delivered by specialized medical clinics and specialist medical practitioners.

  • Includes: services of orthodontic specialists.

    Excludes: dental clinics and dentists (70723); services of medical analysis laboratories and x-ray centers (70724).

70723 Dental services (IS)

This class covers the services of general or specialist dental clinics and dentists, oral hygienists or other dental operating auxiliaries.

Dental clinics provide outpatient services. They are not necessarily supervised or staffed by dentists; they may be supervised or staffed by oral hygienists or by dental auxiliaries.

  • – Provision of dental services to outpatients;

  • – administration, inspection, operation and support of dental services delivered by general or specialist dental clinics and by dentists, oral hygienists or other dental auxiliaries.

  • Includes: fitting costs of dentures.

    Excludes: dentures (70713); services of orthodontic specialists (70722); services of medical analysis laboratories and x-ray centers (70724).

70724 Paramedical services (IS)

  • – Provision of paramedical health services to outpatients;

  • – administration, inspection, operation or support of health services delivered by clinics supervised by nurses, midwives, physiotherapists, occupational therapists, speech therapists or other paramedical personnel and of health services delivered by nurses, midwives and paramedical personnel in non-consulting rooms, in patients’ homes or other non-medical institutions.

  • Includes: acupuncturists, chiropodists, chiropractors, optometrists, practitioners of traditional medicine, etc.; medical analysis laboratories and x-ray centers; hire of therapeutic equipment; medically prescribed corrective-gymnastic therapy; outpatient thermal bath or sea-water treatments; ambulance services other than ambulance services operated by hospitals.

    Excludes: public health service laboratories (70740); laboratories engaged in determining the causes of disease (70750).

7073 HOSPITAL SERVICES

Hospitalization is defined as occurring when a patient is accommodated in a hospital for the duration of the treatment. Hospital day-care and home-based hospital treatment are included, as are hospices for terminally ill persons.

This group covers the services of general and specialist hospitals, the services of medical centers, maternity centers, nursing homes and convalescent homes which chiefly provide in-patient services, the services of military base hospitals, the services of institutions serving old people in which medical monitoring is an essential component and the services of rehabilitation centers providing in-patient health care and rehabilitative therapy where the objective is to treat the patient rather than to provide long-term support.

Hospitals are defined as institutions which offer in-patient care under direct supervision of qualified medical doctors. Medical centers, maternity centers, nursing homes and convalescent homes also provide in-patient care but their services are supervised and frequently delivered by staff of lower qualification than medical doctors.

The group does not cover facilities such as military field hospitals (7021), surgeries, clinics and dispensaries devoted exclusively to outpatient care (7072), institutions for disabled persons and rehabilitation centers providing primarily long-term support (71012), retirement homes for elderly persons (71020). Neither does it cover payments to patients for loss of income due to hospitalization (71011).

Hospital services include medicaments, prostheses, medical appliances and equipment and other health-related products supplied to hospital patients. It also includes non-medical expenditure of hospitals on administration, non-medical staff, food and drink, accommodation (including staff accommodation), etc.

70731 General hospital services (IS)

  • – Provision of general hospital services;

  • – administration, inspection, operation or support of hospitals that do not limit their services to a particular medical specialty.

  • Excludes: medical centers not under the direct supervision of a qualified medical doctor (70733).

70732 Specialized hospital services (IS)

Specialized hospitals differ from general hospitals in that their services are limited to treatment of a particular condition, disease, or class of patient, for example, diseases of the chest and tuberculosis, leprosy, cancer, otorhinolaryngology, psychiatry, obstetrics, pediatrics, and so forth.

  • – Provision of specialized hospital services;

  • – administration, inspection, operation or support of hospitals that limit their services to a particular medical specialty.

  • Excludes: maternity centers not under the direct supervision of a qualified medical doctor (70733).

70733 Medical and maternity center services (IS)

  • – Provision of medical and maternity center services;

  • – administration, inspection, operation or support of medical and maternity center services.

70734 Nursing and convalescent home services (IS)

Nursing and convalescent homes provide in-patient services to persons recovering from surgery or a debilitating disease or condition that requires chiefly monitoring and administering of medicaments, physiotherapy and training to compensate for loss of function or rest.

  • – Provision of nursing and convalescent home services;

  • – administration, inspection, operation or support of nursing and convalescent home services.

  • Includes: institutions serving old people in which medical monitoring is an essential component; rehabilitation centers providing in-patient health care and rehabilitative therapy where the objective is to treat the patient rather than to provide long-term support.

7074 PUBLIC HEALTH SERVICES

70740 Public health services (IS)

  • – Provision of public health services;

  • – administration, inspection, operation or support of public health services such as blood-bank operation (collecting, processing, storing, shipping), disease detection (cancer, tuberculosis, venereal disease), prevention (immunization, inoculation), monitoring (infant nutrition, child health), epidemiological data collection, family planning services and so forth;

  • – preparation and dissemination of information on public health matters.

  • Includes: public health services delivered by special teams to groups of clients, most of whom are in good health, at workplaces, schools or other non-medical settings; public health services not connected with a hospital, clinic or practitioner; public health services not delivered by medically qualified doctors; public health service laboratories.

    Excludes: medical analysis laboratories (70724); laboratories engaged in determining the causes of disease (70750).

7075 R&D HEALTH

Definitions of basic research, applied research and experimental development are given under (7014) and (7015).

70750 R&D Health (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to health;

  • – grants, loans and subsidies to support applied research and experimental development related to health undertaken by non-government bodies such as research institutes and universities.

  • Includes: laboratories engaged in determining the causes of disease.

    Excludes: basic research (70140).

7076 HEALTH N.E.C.

70760 Health n.e.c. (CS)

  • – Administration, operation or support of activities such as formulation, administration, coordination and monitoring of overall health policies, plans, programs and budgets; preparation and enforcement of legislation and standards for the provision of health services, including the licensing of medical establishments and medical and paramedical personnel; production and dissemination of general information, technical documentation and statistics on health.

  • Includes: health affairs and services that cannot be assigned to (7071), (7072), (7073), (7074) or (7075).

708 RECREATION, CULTURE, AND RELIGION

Government outlays on recreation, culture, and religion include expenditures on services provided to individual persons and households and expenditures on services provided on a collective basis. Individual expenditures are allocated to groups (7081) and (7082); expenditures on collective services are assigned to groups (7083) to (7086).

Collective services are provided to the community as a whole. They include activities such as formulation and administration of government policy: formulation and enforcement of legislation and standards for providing recreational and cultural services; and applied research and experimental development into recreational, cultural and religious affairs and services.

7081 RECREATIONAL AND SPORTING SERVICES

70810 Recreational and sporting services (IS)

  • – Provision of sporting and recreational services; administration of sporting and recreational affairs: supervision and regulation of sporting facilities;

  • – operation or support of facilities for active sporting pursuits or events (playing fields, tennis courts, squash courts, running tracks, golf courses, boxing rings, skating rinks, gymnasia, etc.); operation or support of facilities for passive sporting pursuits or events (chiefly specially equipped venues for playing cards, board games, etc.); operation or support of facilities for recreational pursuits (parks, beaches, camping grounds and associated lodging places furnished on a non-commercial basis, swimming pools, public baths for washing, etc.);

  • – grants, loans or subsidies to support teams or individual competitors or players.

  • Includes: facilities for spectator accommodation; national, regional or local team representation in sporting events.

    Excludes: zoological or botanical gardens, aquaria, arboreta and similar institutions (70820); sporting and recreational facilities associated with educational institutions (classified to the appropriate class of Division 709).

7082 CULTURAL SERVICES

70820 Cultural services (IS)

  • – Provision of cultural services; administration of cultural affairs; supervision and regulation of cultural facilities;

  • – operation or support of facilities for cultural pursuits (libraries, museums, art galleries, theatres, exhibition halls, monuments, historic houses and sites, zoological and botanical gardens, aquaria, arboreta, etc.); production, operation or support of cultural events (concerts, stage and film productions, art shows, etc.);

  • – grants, loans or subsidies to support individual artists, writers, designers, composers and others working in the arts or to organizations engaged in promoting cultural activities.

  • Includes: national, regional or local celebrations provided they are not intended chiefly to attract tourists.

    Excludes: cultural events intended for presentation beyond national boundaries (70113); national, regional or local celebrations intended chiefly to attract tourists (70473); production of cultural material intended for distribution by broadcasting (70830).

7083 BROADCASTING AND PUBLISHING SERVICES

70830 Broadcasting and publishing services (CS)

  • – Administration of broadcasting and publishing affairs; supervision and regulation of broadcasting and publishing services;

  • – operation or support of broadcasting and publishing services;

  • – grants, loans or subsidies to support: the construction or acquisition of facilities for television or radio broadcasting; the construction or acquisition of plant, equipment or materials for newspaper, magazine or book publishing; the production of material for, and its presentation by, broadcasting; the gathering of news or other information; the distribution of published works.

  • Excludes: government printing offices and plants (70133); provision of education by radio or television broadcasting (709).

7084 RELIGIOUS AND OTHER COMMUNITY SERVICES

70840 Religious and other community services (CS)

  • – Administration of religious and other community affairs;

  • – provision of facilities for religious and other community services, including support for their operation, maintenance and repair;

  • – payment of clergy or other officers of religious institutions; support for the holding of religious services; grants, loans or subsidies to support fraternal, civic, youth and social organizations or labor unions and political parties.

7085 R&D RECREATION, CULTURE, AND RELIGION

Definitions of basic research, applied research and experimental development are given under (7014) and (7015).

70850 R&D Recreation, culture, and religion (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to recreation, culture and religion;

  • – grants, loans and subsidies to support applied research and experimental development related to recreation, culture and religion undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

7086 RECREATION, CULTURE, AND RELIGION N.E.C.

70860 Recreation, culture, and religion n.e.c. (CS)

  • – Administration, operation or support of activities such as formulation, administration, coordination and monitoring of overall policies, plans, programs and budgets for the promotion of sport, recreation, culture and religion; preparation and enforcement of legislation and standards for the provision of recreational and cultural services; production and dissemination of general information, technical documentation and statistics on recreation, cultural and religion.

  • Includes: affairs and services relating to recreation, culture and religion that cannot be assigned to (7081), (7082), (7083), (7084) or (7085).

709 EDUCATION

Government outlays on education include expenditures on services provided to individual pupils and students and expenditures on services provided on a collective basis. Expenditures on individual services are allocated to groups (7091) through (7096); expenditures on collective services are assigned to groups (7097) and (7098).

Collective educational services are concerned with matters such as formulation and administration of government policy; setting and enforcement of standards; regulation, licensing and supervision of educational establishments; and applied research and experimental development into education affairs and services. However, overhead expenses connected with administration or functioning of a group of schools, colleges, etc. are considered to be individual expenditures and are classified to groups (7091) through (7096) as appropriate.

The breakdown of education is based upon the level categories of the 1997 International Standard Classification of Education (ISCED-97) of the United Nations Educational, Scientific and Cultural Organization (UNESCO).

This division includes military schools and colleges where curricula resemble those of civilian institutions, police colleges offering general education in addition to police training and the provision of education by radio or television broadcasting. Expenditures so incurred are classified to groups (7091) to (7095) as appropriate.

7091 PRE-PRIMARY AND PRIMARY EDUCATION

70911 Pre-primary education (IS)

  • – Provision of pre-primary education at ISCED-97 level 0;

  • – administration, inspection, operation or support of schools and other institutions providing pre-primary education at ISCED-97 level 0.

  • Excludes: subsidiary services to education (70960).

70912 Primary education (IS)

  • – Provision of primary education at ISCED-97 level 1;

  • – administration, inspection, operation or support of schools and other institutions providing primary education at ISCED-97 level 1.

  • Includes: literacy programs for students too old for primary school.

    Excludes: subsidiary services to education (70960).

7092 SECONDARY EDUCATION

70921 Lower-secondary education (IS)

  • – Provision of lower-secondary education at ISCED-97 level 2;

  • – administration, inspection, operation or support of schools and other institutions providing lower-secondary education at ISCED-97 level 2;

  • – scholarships, grants, loans and allowances to support pupils pursuing lower-secondary education at ISCED-97 level 2.

  • Includes: out-of-school lower-secondary education for adults and young people.

    Excludes: subsidiary services to education (70960).

70922 Upper-secondary education (IS)

  • – Provision of upper-secondary education at ISCED-97 level 3;

  • – administration, inspection, operation or support of schools and other institutions providing upper-secondary education at ISCED-97 level 3;

  • – scholarships, grants, loans and allowances to support pupils pursuing upper-secondary education at ISCED-97 level 3.

  • Includes: out-of-school upper-secondary education for adults and young people.

    Excludes: subsidiary services to education (70960).

7093 POST-SECONDARY NON-TERTIARY EDUCATION

70930 Post-secondary non-tertiary education (IS)

  • – Provision of post-secondary non-tertiary education at ISCED-97 level 4;

  • – administration, inspection, operation or support of institutions providing post-secondary non-tertiary education at ISCED-97 level 4;

  • – scholarships, grants, loans and allowances to support students pursuing post-secondary non-tertiary education at ISCED-97 level 4.

  • Includes: out-of-school post-secondary non-tertiary education for adults and young people.

    Excludes: subsidiary services to education (70960).

7094 TERTIARY EDUCATION

70941 First stage of tertiary education (IS)

  • – Provision of tertiary education at ISCED-97 level 5;

  • – administration, inspection, operation or support of universities and other institutions providing tertiary education at ISCED-97 level 5;

  • – scholarships, grants, loans and allowances to support students pursuing tertiary education at ISCED-97 level 5.

  • Excludes: subsidiary services to education (70960).

70942 Second stage of tertiary education (IS)

  • – Provision of tertiary education at ISCED-97 level 6;

  • – administration, inspection, operation or support of universities and other institutions providing tertiary education at ISCED-97 level 6;

  • – scholarships, grants, loans and allowances to support students pursuing tertiary education at ISCED-97 level 6.

  • Excludes: subsidiary services to education (70960).

7095 EDUCATION NOT DEFINABLE BY LEVEL

70950 Education not definable by level (IS)

  • – Provision of education not definable by level (that is, educational programs, generally for adults, which do not require any special prior instruction, in particular vocational training and cultural development);

  • – administration, inspection, operation or support of institutions providing education not definable by level;

  • – scholarships, grants, loans and allowances to support students pursuing education programs not definable by level.

7096 SUBSIDIARY SERVICES TO EDUCATION

70960 Subsidiary services to education (IS)

  • – Provision of subsidiary services to education;

  • – administration, inspection, operation or support of transportation, food, lodging, medical and dental care and related subsidiary services chiefly for students regardless of level.

  • Excludes: school health monitoring and prevention services (70740); scholarships, grants, loans and allowances in cash to defray the costs of subsidiary services (7091), (7092), (7093), (7094) or (7095).

7097 R&D EDUCATION

Definitions of basic research, applied research and experimental development are given under (7014) and (7015).

70970 R&D Education (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to education;

  • – grants, loans and subsidies to support applied research and experimental development related to education undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

7098 EDUCATION N.E.C.

70980 Education n.e.c. (CS)

  • – Administration, operation or support of activities such as formulation, administration, coordination and monitoring of overall educational policies, plans, programs and budgets; preparation and enforcement of legislation and standards for the provision of education, including licensing of educational establishments; production and dissemination of general information, technical documentation and statistics on education.

  • Includes: education affairs and services that cannot be assigned to (7091), (7092), (7093), (7094), (7095), (7096) or (7097).

710 SOCIAL PROTECTION

Government outlays on social protection include expenditures on services and transfers provided to individual persons and households and expenditures on services provided on a collective basis. Expenditures on individual services and transfers are allocated to groups (7101) through (7107); expenditures on collective services are assigned to groups (7108) and (7109).

Collective social protection services are concerned with matters such as formulation and administration of government policy; formulation and enforcement of legislation and standards for providing social protection; and applied research and experimental development into social protection affairs and services.

The social protection functions and their definitions are based on the 1996 European System of integrated Social Protection Statistics (ESSPROS) of the Statistical Office of the European Communities (Eurostat).

In ESSPROS, social protection includes health care, but this division does not include health care. Health care is covered by Division 707. Hence, medical goods and services provided to persons who receive the cash benefits and benefits in kind specified in groups (7101) through (7107) are classified under (7071), (7072) or (7073) as appropriate.

7101 SICKNESS AND DISABILITY

71011 Sickness (IS)

  • – Provision of social protection in the form of cash benefits or benefits in kind that replace in whole or in part loss of earnings during a temporary inability to work due to sickness or injury;

  • – administration, operation or support of such social protection schemes;

  • – cash benefits, such as flat-rate or earnings-related sick leave payments, miscellaneous payments provided to help persons temporarily unable to work due to sickness or injury;

  • – benefits in kind, such as assistance with daily tasks provided to persons temporarily unable to work due to sickness or injury (home help, transport facilities, etc.).

71012 Disability (IS)

  • – Provision of social protection in the form of cash benefits or benefits in kind to persons who are fully or partially unable to engage in economic activity or lead a normal life due to a physical or mental impairment that is either permanent or likely to persist beyond a minimum prescribed period;

  • – administration, operation or support of such social protection schemes;

  • – cash benefits, such as disability pensions paid to persons below the standard retirement age who encounter a disability which impairs their ability to work, early retirement benefits paid to older workers who retire before reaching the standard retirement age due to reduced capacity to work, care allowances, allowances paid to disabled persons undertaking work adapted to their condition or undergoing vocational training, other periodic or lump-sum payments paid to disabled persons for social protection reasons;

  • – benefits in kind, such as lodging and possibly board provided to disabled persons in appropriate establishments, assistance provided to disabled persons to help them with daily tasks (home help, transport facilities etc.), allowances paid to the person who looks after the disabled person, vocational and other training provided to further the occupational and social rehabilitation of disabled persons, miscellaneous services and goods provided to disabled persons to enable them to participate in leisure and cultural activities or to travel or to participate in community life.

  • Excludes: cash benefits and benefits in kind paid to disabled persons on reaching the standard retirement age (71020).

7102 OLD AGE

71020 Old age (IS)

  • – Provision of social protection in the form of cash benefits and benefits in kind against the risks linked to old age (loss of income, inadequate income, lack of independence in carrying out daily tasks, reduced participation in social and community life, etc.);

  • – administration, operation or support of such social protection schemes;

  • – cash benefits, such as old-age pensions paid to persons on reaching the standard retirement age, anticipated old-age pensions paid to older workers who retire before the standard retirement age, partial retirement pensions paid either before or after the standard retirement age to older workers who continue working but reduce their working hours, care allowances, other periodic or lump-sum payments paid upon retirement or on account of old age;

  • – benefits in kind, such as lodging and sometimes board provided to elderly persons either in specialized institutions or staying with families in appropriate establishments, assistance provided to elderly persons to help them with daily tasks (home help, transport facilities etc.), allowances paid to the person who looks after an elderly person, miscellaneous services and goods provided to elderly persons to enable them to participate in leisure and cultural activities or to travel or to participate in community life.

  • Includes: pension schemes for military personnel and for government employees.

    Excludes: early retirement benefits paid to older workers who retire before reaching standard retirement age due to disability (71012) or unemployment (71050).

7103 SURVIVORS

71030 Survivors (IS)

  • – Provision of social protection in the form of cash benefits and benefits in kind to persons who are survivors of a deceased person (such as the person’s spouse, ex-spouse, children, grandchildren, parents or other relatives);

  • – administration, operation or support of such social protection schemes;

  • – cash benefits, such as survivors’ pensions, death grants, other periodic or lump-sum payments to survivors;

  • – benefits in kind, such as payments towards funeral expenses, miscellaneous services and goods provided to survivors to enable them to participate in community life.

7104 FAMILY AND CHILDREN

71040 Family and children (IS)

  • – Provision of social protection in the form of cash benefits and benefits in kind to households with dependent children;

  • – administration, operation or support of such social protection schemes;

  • – cash benefits, such as maternity allowances, birth grants, parental leave benefits, family or child allowances, other periodic or lump-sum payments to support households and help them meet the costs of specific needs (for example, those of the lone parent families or families with handicapped children);

  • – benefits in kind, such as shelter and board provided to pre-school children during the day or part of the day, financial assistance towards payment of a nurse to look after children during the day, shelter and board provided to children and families on a permanent basis (orphanages, foster families, etc.), goods and services provided at home to children or to those who care for them, miscellaneous services and goods provided to families, young people or children (holiday and leisure centers).

  • Excludes: family planning services (70740).

7105 UNEMPLOYMENT

71050 Unemployment (IS)

  • – Provision of social protection in the form of cash benefits and benefits in kind to persons who are capable of work, available for work but are unable to find suitable employment;

  • – administration, operation or support of such social protection schemes;

  • – cash benefits, such as full and partial unemployment benefits, early retirement benefits paid to older workers who retire before reaching the standard retirement age due to unemployment or job reduction caused by economic measures, allowances to targeted groups in the labor force who take part in training schemes intended to develop their potential for employment, redundancy compensation, other periodic or lump-sum payments to the unemployed, particularly the long-term unemployed;

  • – benefits in kind, such as mobility and resettlement payments, vocational training provided to persons without a job or retraining provided to persons at risk of losing their job, accommodation, food or clothes provided to unemployed persons and their families.

  • Excludes: general programs or schemes directed towards increasing labor mobility, reducing the rate of unemployment or promoting the employment of disadvantaged or other groups characterized by high unemployment (70412); cash benefits and benefits in kind paid to unemployed persons on reaching the standard retirement age (71020).

7106 HOUSING

71060 Housing (IS)

  • – Provision of social protection in the form of benefits in kind to help households meet the cost of housing (recipients of these benefits are means-tested);

  • – administration, operation or support of such social protection schemes;

  • – benefits in kind, such as payments made on a temporary or long-term basis to help tenants with rent costs, payments to alleviate the current housing costs of owner-occupiers (that is to help with paying mortgages or interest), provision of low-cost or social housing.

7107 SOCIAL EXCLUSION N.E.C.

71070 Social exclusion n.e.c. (IS)

  • – Provision of social protection in the form of cash benefits and benefits in kind to persons who are socially excluded or at risk of social exclusion (such as persons who are destitute, low-income earners, immigrants, indigenous people, refugees, alcohol and substance abusers, victims of criminal violence, etc.);

  • – administration and operation of such social protection schemes;

  • – cash benefits, such as income support and other cash payments to the destitute and vulnerable persons to help alleviate poverty or assist in difficult situations;

  • – benefits in kind, such as short-term and long-term shelter and board provided to destitute and vulnerable persons, rehabilitation of alcohol and substance abusers, services and goods to help vulnerable persons such as counseling, day shelter, help with carrying out daily tasks, food, clothing, fuel, etc.

7108 R&D SOCIAL PROTECTION

Definitions of basic research, applied research and experimental development are given under (7014) and (7015).

71080 R&D Social protection (CS)

  • – Administration and operation of government agencies engaged in applied research and experimental development related to social protection;

  • – grants, loans and subsidies to support applied research and experimental development related to social protection undertaken by non-government bodies such as research institutes and universities.

  • Excludes: basic research (70140).

7109 SOCIAL PROTECTION N.E.C.

71090 Social protection n.e.c. (CS)

  • – Administration, operation or support of activities such as formulation, administration, coordination and monitoring of overall social protection policies, plans, programs and budgets; preparation and enforcement of legislation and standards for the provision of social protection; production and dissemination of general information, technical documentation and statistics on social protection.

  • Includes: provision of social protection in the form of cash benefits and benefits in kind to victims of fires, floods, earthquakes and other peacetime disasters; purchase and storage of food, equipment and other supplies for emergency use in the case of peacetime disasters; other social protection affairs and services that cannot be assigned to (7101), (7102), (7103), (7104), (7105), (7106), (7107) or (7108).

[GFS] indicates that this item has the same name but different coverage in the 1993 SNA.

The numbers in parentheses after each classification category are the GFS classification codes. Appendix 4 provides all classification codes used in the GFS system.

Use of goods and services is closely related to intermediate consumption in the 1993 SNA. The relationship between the two concepts is explained in Appendix 3.

The concept of consumption of fixed capital is identical to the concept used in the 1993 SNA. The 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. When nonfinancial assets are produced on own account, some consumption of fixed capital is recorded in the GFS system as acquisitions of fixed assets rather than expense (see paragraph 6.36). Consumption of fixed capital is described in the 1993 SNA in paragraphs 6.179 through 6.203.

Organisation for Economic Co-operation and Development, Measuring Capital—OECD Manual: Measurement of Capital Stocks, Consumption of Fixed Capital and Capital Services (Paris, 2001) contains an extensive discussion of the methods for estimating consumption of fixed capital.

Financial assets and their classification are defined in Chapter 7.

An alternative view of the computation of interest is explained in paragraphs 6.48 to 6.50.

Additional information on debt operations is provided in Appendix 2.

International Monetary Fund, The New International Standards for the Statistical Measurement of Financial Derivatives: Changes to the Text of the 1993 SNA (Washington, 2000).

In rare cases payments to general government units and nonprofit institutions serving households can be classified as subsidies. The payments must depend on general regulations applicable to all producers, nonmarket as well as market. For example, a government may pay a subsidy to all employers that employ members of a specified profession or people with a specified disability.

See footnote 10 for an exception.

Appendix 2 provides details on debt cancellation, debt assumption, and other government debt operations.

The identification of capital grants is necessary to calculate gross and net saving.

In the 1993 SNA, payments of retirement benefits by autonomous and nonautonomous pension funds are treated as transfer payments as well as reductions in liabilities. An adjustment entry is made to remove the double counting of the payment. Payments by unfunded retirement schemes are only transfer payments.

In the 1993 SNA, when a general government unit produces goods and services that are distributed as social benefits, the costs of producing them, such as compensation of employees, are classified in the same way as in this manual. In addition, the value of the goods and services produced is included as social benefits.

In the 1993 SNA, reinvested earnings on direct foreign investment is a type of property expense that conceivably could apply to a public corporation. Briefly, a direct foreign investment enterprise is a public corporation in which at least one foreign investor owns sufficient shares to have an effective voice in its management. An increase in retained earnings of a direct foreign investment enterprise is treated as if it were remitted as a form of property expense to the foreign direct investors in proportion to their ownership of the equity of the enterprise and then reinvested in additional equity. The imputed remittance of these retained earnings is treated as property expense in the 1993 SNA but not in the GFS system. Such an increase in the value of the equity held by a direct foreign investor is accounted for as a holding gain in the same way as it is for other equities (see Chapter 10). This different treatment causes net lending/borrowing in the two systems to differ. Reinvested earnings on direct foreign investment are described in paragraphs 7.119 to 7.122 of the 1993 SNA.

Distributions of profits by fiscal, export, and import monopolies are treated as taxes, classified as miscellaneous other expense (282).

Because no liabilities are recorded for pensions paid by social security schemes, no property expense is attributed to insurance policyholders.

Defined-contribution schemes are also known as money-purchase schemes.

In the 1993 SNA, payments of non-life insurance premiums are partitioned into a purchase of a service and a transfer payment. In the GFS system, the entire premium is considered a transfer payment.

COFOG was produced by the Organisation for Economic Co-operation and Development and was published together with the other three classifications in United Nations, Classifications of Expenditure According to Purpose (New York, 2000). Material in this section is adapted from that publication.

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