Chapter

6. Expense

Author(s):
Sage De Clerck, and Tobias Wickens
Published Date:
March 2015
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This chapter defines the concept of expense and describes the manner in which expense is classified.

Defining Expense

6.1 Expense (1) is a decrease in net worth resulting from a transaction. Expense transactions as defined in GFS have counterpart entries either in a decrease in assets or an increase in liabilities—thereby decreasing net worth. The general government sector has two broad economic responsibilities: (i) to assume responsibility for the provision of selected goods and services to the community, primarily on a nonmarket basis; and (ii) to redistribute income and wealth by means of transfers (see paragraph 2.38). These responsibilities are largely fulfilled through expense transactions, which are classified in two ways in GFS: an economic classification and a functional classification.

6.2 The economic classification of expense identifies the types of expense incurred according to the economic process involved. When supplying 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. For example, compensation of employees, use of goods and services, and consumption of fixed capital all relate to the costs of producing nonmarket (and, in certain instances, market) goods and services by government. Subsidies, grants, social benefits, and transfers other than grants relate to transfers in cash or in kind, and are aimed at redistributing income and wealth.

6.3 The functional classification of expense provides information on the purpose for which an expense was incurred. Examples of functions are education, health, and environmental protection. The functional classification is described in the annex to this chapter.1 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 (see the annex to Chapter 6, paragraphs 6.126–6.148).

6.4 Refunds, recoveries of overpayments, receivables on erroneous payments, and similar transactions are transactions that increase net worth. More accurately, they are adjustments that correct the excessive decrease in net worth previously recorded. These transactions are treated as a reduction in expense, with a corresponding reduction in liabilities or an increase in financial assets.

6.5 Some transactions are exchanges in assets and/ or liabilities and should not be recorded as expense. The acquisition of a nonfinancial asset by purchase or barter does not affect net worth, and such transactions are not an expense. They are transactions in nonfinancial assets, as described in paragraph 8.3. However, when ownership of an asset is given up without receiving anything of commensurate value in return, the net worth of the unit has decreased. This reduction in assets has a counterpart entry in an increase in expense and should be recorded as a type of capital transfer payable, such as a capital grant. Amounts payable on loans extended and repayments on loans incurred are also not an expense. These are transactions in financial assets or liabilities as described in paragraph 9.3.

Time of Recording Expense

6.6 In the Statement of Operations, expense should be recorded according to the accrual basis of recording. According to the accrual basis of recording, transactions are recorded when activities, transactions, or other events occur that create the unconditional obligation to make payments or otherwise give up resources (see paragraph 3.62). In the absence of a complete inventory accounting system (see paragraph 8.46), complications arise with the recording of the acquisition and subsequent use of goods. Conceptually, 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 decrease in inventories should be recorded, as well as an expense or an increase in some other category of asset, depending on the manner in which these goods are used.2 However, in practice, as described in paragraphs 8.45–8.47, the change in inventories is often not recorded for each transaction, but rather calculated as a residual from information on stock positions and flows in inventories. Other applications of the accrual basis to specific categories of expense transactions are indicated in each section of the economic classification, as relevant.

6.7 In the Statement of Sources and Uses of Cash, expense transactions should be recorded according to the cash basis of recording, as close to the payment stage as possible (see paragraph 3.103).

The Economic Classification of Expense

6.8Table 6.1 shows the summary economic classification of expense, and the remainder of this chapter describes each category in detail.3 While the summary GFS expense classification structure provides guidance on the minimum requirements for internationally comparable classifications of expense, analytical needs may necessitate further detailed classifications to be added as subitems in national data presentations. These additional subitems may be presented either as a comprehensive breakdown of the standard item, or presented as “of which” lines. These items usually relate to the need for consolidation of the general government or public sector, input into other macroeconomic datasets, or items that will allow the calculation of supplementary aggregates or balances (see paragraph 5.22).

Table 6.1Summary Economic Classification of Expense
2Expense27Social benefits [GFS]1
21Compensation of employees [GFS] 1271Social security benefits [GFS]
211Wages and salaries [GFS]2711Social security benefits in cash [GFS]
2111Wages and salaries in cash [GFS]2712Social security benefits in kind [GFS]
2112Wages and salaries in kind [GFS]272Social assistance benefits [GFS]
212Employers’ social contributions [GFS]2721Social assistance benefits in cash [GFS]
2121Actual employers’ social contributions [GFS]2722Social assistance benefits in kind [GFS]
2122Imputed employers’ social contributions [GFS]273Employment-related social benefits [GFS]
22Use of goods and services2731Employment-related social benefits in
23Consumption of fixed capital [GFS]1cash [GFS]
24Interest [GFS]12732Employment-related social benefits in kind [GFS]
241To nonresidents [GFS]28Other expense
242To residents other than general government281Property expense other than interest
[GFS]2811Dividends1
243To other general government units [GFS]2812Withdrawals of income from
25Subsidies1quasi-corporations
251To public corporations2813Property expense for investment income disbursements
252To private enterprises2814Rent
253To other sectors2815Reinvested earnings on foreign direct
26Grants1investment
261To foreign governments282Transfers not elsewhere classified
2611Current2821Current transfers not elsewhere classified
2612Capital2822Capital transfers not elsewhere classified
262To international organizations283Premiums, fees, and claims related to
2621Currentnonlife insurance and standardized
2622Capitalguarantee schemes1
263To other general government units2831Premiums, fees, and current claims
2631Current2832Capital claims
2632Capital

Indicates that further breakdown may be analytically useful and is presented in detailed tables.

Indicates that further breakdown may be analytically useful and is presented in detailed tables.

Compensation of Employees [GFS]4 (21)5

6.9 Compensation of employees is the total remuneration, in cash or in kind, payable to an individual in an employer-employee relationship in return for work performed by the latter during the reporting period. These amounts are payable as an exchange for manual and intellectual labor services of individuals used in the production process of the institutional unit. Compensation of employees [GFS] (21)6 excludes amounts connected with own-account capital formation (see Table 6.2). In GFS, compensation of employees payable to employees engaged in own-account capital formation, which is the production of nonfinancial assets for own use, is directly recorded as a component of the cost of the acquisition of nonfinancial assets. Compensation of employees [GFS] (21) also excludes amounts payable when an employer-employee relationship does not exist, such as for contractors and self-employed outworkers. Such amounts payable are classified as use of goods and services (22). For a description of this boundary between compensation of employees and use of goods and services, see paragraph 6.33.

Table 6.2Detailed Classification of Compensation of Employees [GFS] (21)
21Compensation of employees [GFS]1
Compensation of employees [SNA]
Minus: Related to own-account capital formation
211Wages and salaries [GFS]
Wages and salaries [SNA]
Minus: Related to own-account capital formation
2111Wages and salaries in cash [GFS]
Wages and salaries in cash [SNA]
Minus: Related to own-account capital formation
2112Wages and salaries in kind [GFS]
Wages and salaries in kind [SNA]
Minus: Related to own-account capital formation
212Employers’ social contributions [GFS]
Employers’ social contributions [SNA]
Minus: Related to own-account capital formation
2121Actual employers’ social contributions [GFS]
Actual employers’ social contributions [SNA]
Minus: Related to own-account capital formation
2122Imputed employers’ social contributions [GFS]
Imputed employers’ social contributions [SNA]
Minus: Related to own-account capital formation

Further breakdown/“of which” lines could allow for the identification of the types of compensation of employees payable.

Further breakdown/“of which” lines could allow for the identification of the types of compensation of employees payable.

6.10 When using the accrual basis of recording, compensation of employees is measured by the value of the remuneration in cash and/or in kind that an employee becomes entitled to receive from an employer for work performed 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 unit should record an entry in other accounts payable (3308) (see paragraphs 7.224–7.227 and 9.83).7 On the other hand, to the extent that payment has been made in advance of the work itself, an entry in other accounts receivable (3208) must be recorded until such time as the work is completed. When using the cash basis of recording, compensation of employees is recorded at the time the cash flow occurs, irrespective of when the labor exchange takes place. Wages and salaries in kind are not recorded in the cash basis of recording since no cash flows are involved.

6.11 Compensation of employees comprises wages and salaries (211) and employers’ social contributions (212) payable by employers on behalf of employees to social insurance schemes.

Wages and salaries [GFS] (211)

6.12 Wages and salaries are compensation of employees payable in cash and/or in kind, except for social contributions payable by employers. As indicated in Table 6.2, wages and salaries [GFS] (211) exclude amounts connected with own-account capital formation. They include amounts withheld from wages and salaries by the employer for administrative convenience or other reasons, such as social contributions, income taxes, and other deductibles, payable by the employee. These deductibles are often paid directly to social insurance schemes, tax authorities, etc., on behalf of the employee. Wages and salaries may be payable in various ways, including goods or services provided to employees as remuneration in kind instead of, or in addition to, remuneration in cash. Including remuneration in kind allows GFS to measure the full cost of labor employed.

Wages and salaries in cash [GFS] (2111)

6.13 Wages and salaries in cash8 are the amounts payable in cash, or any other financial instruments used as means of payments, to employees in return for work performed. As indicated in Table 6.2, wages and salaries in cash [GFS] (2111) exclude amounts connected with own-account capital formation. Included are the following kinds of remuneration:

  • Basic wages or salaries payable at regular weekly, monthly, or other intervals, including payments by results and piecework payments; enhanced payments or special allowances for working overtime, at nights, on weekends, or other irregular hours; allowances for working away from home or in disagreeable or hazardous circumstances; expatriation allowances for working abroad, etc.

  • Supplementary allowances payable regularly, such as housing allowances or allowances to cover the costs of travel to and from work, but excluding social benefits payable by the employers (see paragraph 6.16)

  • Wages or salaries payable to employees away from work for short periods—for example, on vacation or as a result of a temporary halt to production, except during absences due to sickness, injury, etc. (see paragraph 6.16)

  • Annual supplementary pay, such as bonuses and “13th month” pay

  • Ad hoc bonuses or other exceptional payments linked to the overall performance of the enterprise made under incentive schemes

  • Commissions, gratuities, and tips received by employees: these should be included in payments for services rendered by the unit employing the worker, even when they are payable directly to the employee by a third party. They are thus regarded as being paid by the employer to the employee.9

6.14 In some instances, an employee benefit, such as a car or extra pension contributions, may not be provided to the employee for free (i.e., not provided without an opportunity cost to the employee). The benefit may be “purchased” from the employer by forgoing some salary. The attraction of such schemes often lies in the tax advantages that an employee may enjoy by restructuring salary packages. In these cases, the full salary should include the employee benefits “purchased” and be recorded as payable in cash—the cost of acquiring the benefit is regarded as an expenditure of the employee.

6.15 Wages and salaries in cash do not include the reimbursement by the government of costs incurred by its employees in order to enable them to take up their jobs or to carry out their work—for example:

  • The reimbursement of travel, relocation, or related expenses made by employees when they take up new jobs or are required by their employers to move their homes to different parts of the country or to another country

  • The reimbursement of costs incurred by employees on tools, equipment, special clothing, or other items that are needed exclusively, or primarily, to enable them to carry out their work. In these cases, the amounts reimbursed are recorded as use of goods and services (22). To the extent that employees who are required by their contract of employment to purchase tools, equipment, special clothing, etc. are not fully reimbursed, the remaining expense they incur should be deducted from the amounts receivable in wages and salaries and the government’s use of goods and services increased accordingly.

6.16 Wages and salaries also exclude social benefits payable by governments to their employees 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, maternity leave, etc.10

  • Severance payments to workers or their survivors who lose their jobs because of redundancy, incapacity, accidental death, etc.

These social benefits are recorded as an imputed employers’ social contributions (2122) payable to households, and subsequent imputed social contributions (1223) payable by these households to the employer, before including it in employment-related social benefits (273) (see paragraph 6.104).

Wages and salaries in kind [GFS] (2112)

6.17 Wages and salaries in kind are amounts payable in the form of goods, services, interest forgone, and shares issued to employees in return for work performed. As indicated in Table 6.2, wages and salaries in kind [GFS] (2111) exclude amounts connected with own-account capital formation. This category consists of goods and services provided without charge, or at reduced prices. When provided at reduced prices, the value of the wages and salaries in kind is given by the difference between the full value of the goods and services and the amount payable by the employees. These goods and services provided in kind by the government to its employees are not necessary to enable them to perform their work. They could be used by employees in their own time, and at their own discretion, for the satisfaction of their own needs or wants, or those of other members of their households. Almost any kind of good or service may be provided as wages and salaries in kind. The following are the most common types of goods and services provided without charge, or at reduced prices:

  • Meals and drinks provided on a regular basis, including any subsidy element of an office canteen (for practical reasons, it is not necessary to make estimates for meals and drinks consumed as part of official entertainment or during business travel)

  • Clothing or footwear that employees may choose to wear frequently outside of the workplace and while at work

  • Housing services or accommodation of a type that can be used by all members of the household to which the employee belongs

  • 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 or trains

  • Sports, recreation, or holiday facilities for employees and their families

  • Transportation to and from work, free or subsidized parking, when it would otherwise have to be paid for

  • Child care for the children of employees

  • The value of the interest forgone11 by employers when they provide loans to employees at reduced or even zero rates of interest for purposes of buying houses, vehicles, furniture, or other goods or services (these amounts are also recorded as interest receivable as explained in paragraph 5.108)

  • In the case of public corporations, wages and salaries in kind can also include bonus shares or stock options12 distributed to employees.

6.18 Some of these services, such as transportation to and from work, parking, and child care may have some of the characteristics of use of goods and services by the employee. However, when governments are obliged to provide these benefits to attract and retain labor, they are similar to other forms of compensation of employees and should be recorded as such. If the same types of benefits are provided because of the nature of the production process or the physical conditions under which employees have to work, they should be recorded as use of goods and services (22) expense of the employer.

Employers’ social contributions [GFS] (212)

6.19 Employers’ social contributions are social contributions payable by employers to social security funds, employment-related pension funds, or other employment-related social insurance schemes to obtain entitlement to social benefits for their employees. Employers’ social contributions are payable by employers for the benefit of their employees, and are therefore recorded as a component of compensation of employees. Employers’ social contributions [GFS] (212) exclude amounts connected with own-account capital formation (see Table 6.2). Social protection is described in Appendix 2.

6.20 Some social contributions are payable directly by the government unit that is the employer to a second public sector unit, often a social security fund or a public financial corporation. It is administratively more efficient for the employer to pay the contributions on behalf of their employees, rather than each employee making individual payments. The administrative arrangement should not obscure the underlying economic reality—namely, that the government unit incurs an expense for compensation of employees payable to households, while the employee contributes to the social insurance scheme.13 These transactions are not eliminated in consolidation because they are rerouted to better show the economic nature of the transaction, as described in paragraph 3.28, first to the employees and then from the employees to the social insurance schemes.

Actual employers’ social contributions [GFS] (2121)

6.21 Actual employers’ social contributions consist of actual contributions payable to social security funds, employment-related pension funds, and other employment-related social insurance schemes to obtain entitlement to social benefits for their employees. This category consists of actual contributions payable to insurance enterprises, social security funds, or other institutional units responsible for the administration and management of social insurance schemes, or employment-related pension schemes. As indicated in Table 6.2, actual employer’s social contributions [GFS] (2121) also exclude amounts connected with own-account capital formation.

Imputed employers’ social contributions [GFS] (2122)

6.22 Imputed employers’ social contributions are the amounts calculated and added to actual contributions, sufficient to exactly match the increases in employees’ social benefit entitlements. These imputed employers’ social contributions may relate to pension and to nonpension benefits. Imputed employers’ social contributions [GFS] (2122) exclude amounts connected with own-account capital formation (see Table 6.2).

Imputed employers’ social contributions related to nonpension benefits

6.23 Some government units provide employment-related nonpension social benefits directly to their employees, former employees, or dependents out of their own resources without involving an insurance enterprise (see paragraph 6.16 for examples of the types of benefits payable). In this situation, employees may be considered as being protected against various specified needs or circumstances, even though no reserves are built up to provide for future entitlement to benefits. Compensation of employees in the form of employers’ social contributions equal in value to the amount of social contributions that would be needed to secure the de facto entitlements should be imputed. These amounts take into account any actual contributions made by the employer or employee and depend not only on the levels of the benefits currently payable, but also on the ways in which employers’ liabilities under such schemes are likely to evolve in the future as a result of factors such as expected changes in the number, age distribution, and life expectancies of their present and previous employees. Thus, the values that should be imputed for the contributions ought, in principle, to be based on the same kind of actuarial considerations that determine the levels of premiums charged by insurance enterprises.

6.24 In practice, however, it may be difficult to decide how large such imputed contributions should be. The government sector unit may make estimates, perhaps on the basis of the contributions payable into similar funded schemes, in order to calculate its likely liabilities in the future, and such estimates may be used when available. Otherwise, the only practical alternative may be to use the unfunded nonpension benefits payable by the unit during the same reporting period as an estimate of the imputed expense that would be needed to cover the imputed contributions (see paragraph 6.104).

Imputed employers’ social contributions to employment-related pension benefits

6.25 The imputation of employers’ social contributions related to employment-related pension benefits is influenced by the type of pension scheme the government unit operates:

  • In general, in the case of social security schemes, there are no imputed contributions recognized for social insurance. However, in cases where employment-related pensions are administered by such a social security scheme, imputed contributions should be recorded for these pension obligations.

  • For a defined-contribution pension scheme, there are no imputed contributions recognized unless the employing unit operates the scheme itself. In that case, the value of the costs of operating the scheme is recorded as an imputed contribution payable to the employee as part of compensation of employees.

  • For a defined-benefit pension scheme, there is an imputed contribution recognized, equal to the increase in benefits payable due to current period employment, plus the costs of operating the scheme, minus the sum of the government’s actual contribution and the sum of any contributions by the employees.14

6.26 Some schemes may be generally described as noncontributory because no actual contributions are ever made by the employee. Nevertheless, in the case of employment-related schemes, an imputed contribution by the employer is calculated and should be imputed for GFS as just described. The fact that the value of imputed contributions for a noncontributory scheme may be set equal to the value of benefits payable does not mean that the benefits themselves are recorded as part of compensation of employees. Rather, the employee has a pension asset that is reduced when benefits are payable. When a pension manager is a unit different from the administrator, and the responsibility for any deficits, or claims on any excess rests with the pension manager, the counterpart entry for such claims is included in imputed social security contributions on a net basis (i.e., an expense to increase the liability and a reduction in the expense when the liability reduces or when government acquires an asset. See paragraph 7.199).

Use of Goods and Services (22)

6.27 Use of goods and services (22) consists of the value of goods and services used for the production of market and nonmarket goods and services.15 Excluded are:

  • Consumption of fixed capital (23)

  • The use of goods and services in own-account capital formation, which should be recorded as the acquisition of nonfinancial assets (see paragraph 8.3)

  • Goods purchased by government and distributed without transformation, which should be recorded as some type of transfer in kind; these transfers are classified as subsidies (25), grants (26), social benefits (27), or current transfers not elsewhere classified (2821).

6.28 In the Statement of Operations, the value of use of goods or services is recorded when the goods or services are actually used rather than when they were acquired or paid for. In practice, these events often 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.

6.29 In practice, government 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 inventories. An estimate of use of goods and services during a given reporting period can be derived through the indirect method by considering the purchases of goods and services and changes in inventories,16 as illustrated in Table 6.3.

Table 6.3Relationship between Inventories (612) and Use of Goods and Services (22)
612t0Opening stock position of inventories
Plus: Purchases of goods and services
Minus: Used in own-account capital formation
Minus: Goods distributed directly as transfers in kind
412Plus/Minus: Holding gains/losses
512Plus/Minus: Other volume changes
612t1Minus: Closing stock position of inventories
22Equals: Use of goods and services

6.30Use of goods and services (22) is recorded on a gross basis. Fees and charges collected for goods and services provided by general government units, such as for certain types of social benefits or administrative services, such as the issuance of licenses and passports, should be shown as revenue rather than deducted from expense.

6.31 In the Statement of Sources and Uses of Cash, the purchases of goods and services are recorded as close to the payment stage as possible. The value of these goods and services will include all cash payments made for goods and services during the reporting period, irrespective of whether the good or service was used during the reporting period. This amount will not include the value of goods paid for in prior periods, but used in the current period.

6.32 The boundaries between use of goods and services and other expenditure items, such as compensation of employees, transfers, or acquisition of nonfinancial assets, are explained in more detail in paragraphs 6.33–6.52.

The boundary between use of goods and services and compensation of employees

6.33 Compensation of employees excludes amounts payable to contractors, self-employed outworkers, and other workers who are not employees of general government or public sector units. Any such amounts should be recorded under use of goods and services (22). An employer-employee relationship exists when there is a written or oral agreement, which may be formal or informal, between an entity and an individual, normally entered into voluntarily by both parties, whereby the person works for the enterprise in return for remuneration in cash or in kind. The remuneration is normally based on either the time spent at work or another objective indicator of the amount of work performed. If an individual is contracted to produce a single specific task, it suggests that no employer-employee relationship exists, but that a service contract relationship exists between the entity and a self-employed individual.

6.34 An indication of whether an employer-employee relationship exists is that of control. The right to control or to direct work performed and how it shall be performed is a strong indication of an employer-employee relationship. The method of measuring or arranging for the payment is not important as long as the employer has effective control over both the method and the result of the work undertaken by the individual. However, certain control of the work being undertaken may also exist for the purchase of a service—for example, when subcontracts are entered into. Therefore, other criteria should also be used to define more clearly the employer-employee relationship. The fact that the individual is solely responsible for social contributions would suggest that the individual is a self-employed service provider. By contrast, payment of social contributions by the employer is an indication of employer-employee relationship. Entitlement by the individual to the same kinds of benefits (e.g., allowances, holidays, and sick leave) generally provided to an entity’s employees would also indicate an employer-employee relationship. Payment of taxes on the provision of services (such as sales tax or value-added tax) by the individual is an indication that the individual is a self-employed service provider.

6.35 Certain goods and services used by governments do not enter directly into the process of production itself but are consumed by employees working on that process. In general, when the goods or services are used by employees on their own time and at their own discretion for the direct satisfaction of their needs or wants, they constitute remuneration in kind (see paragraph 6.17). However, when such use is mandatory in order to enable employees to carry out their work, it should be recorded as use of goods and services. Examples of the latter are:

  • Tools or equipment used exclusively, or mainly, at work

  • Clothing or footwear of a kind that ordinary consumers do not choose to purchase or wear and that are worn exclusively, or mainly, at work—for example, protective clothing, overalls, or uniforms

  • Accommodation services at the place of work of a kind that cannot be used by the households to which the employees belong: barracks, cabins, dormitories, huts, etc.

  • Special meals or drinks necessitated by exceptional working conditions, while traveling for business reasons, or meals or drinks provided to employees while on active duty

  • Changing facilities, washrooms, showers, baths, etc. necessitated by the nature of the work

  • First aid facilities, medical examinations, or other health checks required because of the nature of the work.

6.36 Employees may sometimes be responsible for purchasing the kinds of goods or services just listed and are subsequently reimbursed by the employer. Such reimbursements are recorded as use of goods and services rather than as wages and salaries.

The boundary between use of goods and services and transfers

6.37 All transfers of goods and services to other institutional units other than goods and services produced by the donor government unit are recorded as grants (26) or transfers not elsewhere classified (282). Such transfers may entail the transfer of government-owned fixed assets, the transfer of goods held in inventories, the construction of fixed assets, or the purchase and subsequent 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.

6.38 Goods and services used by a donor government unit 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. The purpose of this treatment is to show in GFS the reduction in cash, or increase in other accounts payable, with an entry in the respective expense items that made up the cost of producing nonmarket goods and services provided by the government sector unit.17

6.39 Use of goods and services also 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. 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,18 convalescent and retirement homes, education services, and access to recreation or vacation facilities. Any nominal payments made by the recipients to the government unit distributing these goods and services should not be deducted from use of goods and services expense, but rather be recorded as the appropriate category of sales of goods and services (142), as relevant.

6.40 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 inventories, the purchase and simultaneous transfer of goods and services from market producers, and the reimbursement by a general government unit for purchases by households of specified goods or services, such as food, education services, medicines, medical or dental treatments, hospital bills, and optometrists’ bills.

6.41 On occasion, government units transfer economic value by purchasing goods and services for prices that greatly exceed their market value. As described in paragraph 3.29, 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 recorded under the relevant category.

6.42 Membership dues and subscription fees should be recorded as an expense in use of goods and services (22) if there is an exchange of a payment for some form of a service. These include payments by public corporations of membership dues or subscriptions to market nonprofit institutions (NPIs) serving businesses, such as chambers of commerce or trade associations, since these are payments for services rendered and are not transfers. In rare cases, market establishments included in the general government sector may have similar membership dues or subscriptions payable to market NPIs serving businesses. Some membership dues and subscription fees are different in nature and are not included in use of goods and services:

  • In some cases, membership dues and subscription fees payable to international organizations are recorded as the acquisition of equity (32051) when there is a possibility—even if unlikely—of repayment of the full amount. In these cases, the payee is also entitled to a share of the assets upon windup of the international organization.

  • Membership dues and subscription fees are recorded as transfers if the transaction is unrequited; if the recipient is an international organization, foreign government, or another general government unit, the transfer is classified as a grant (26), or otherwise as current transfers not elsewhere classified (2821).

The boundary between use of goods and services and the acquisition of nonfinancial assets

6.43 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. Costs incurred on inexpensive durable goods, such as small/hand tools, are recorded as use of goods and services (22) when such expenses are incurred regularly and are small compared with the costs incurred for the acquisition of machinery and equipment (see paragraphs 7.40 and 7.52). This exclusion of small/ hand tools is pragmatic rather than conceptual. Some goods may be used repeatedly, or continuously, in production over many years but may nevertheless be small, inexpensive, and used to perform relatively simple operations. Hand tools such as saws, spades, knives, axes, hammers, screwdrivers, and spanners or wrenches are examples. If expense on such tools takes place at a fairly steady rate and if their value is small compared with amounts payable on more complex machinery and equipment, it may be appropriate to treat the tools as materials or supplies under use of goods and services (22). Some flexibility is needed, however, depending on the relative importance of such tools. In countries in which they account for a significant part of the value of the total stock of machinery and equipment, they may be regarded as fixed assets and their acquisition and disposal by public sector units recorded under the net acquisition of nonfinancial assets.

6.44 Goods and services acquired to increase inventories of materials and supplies, work in progress, finished goods, and goods for resale are included in changes in inventories (312), a type of nonfinancial asset (see paragraph 7.75).

6.45 Goods and services consumed for the ordinary maintenance and repair of fixed assets constitute use of goods and services. However, major renovations, reconstructions, or enlargements of existing fixed assets are recorded as acquisitions of fixed assets. See paragraphs 8.25–8.27 for more information on distinguishing these activities.

6.46 Goods and services used in research and development are recorded as acquisitions of fixed assets in the category intellectual property products (31132), except in cases where it is clear that the activity does not create any future economic benefit for its owner, in which case it is recorded as use of goods and services. For a description of the recognition criteria for intellectual property products, see paragraphs 8.37–8.41.

6.47 Goods and services used in mineral exploration and evaluation are not recorded as use of goods and services. Regardless of whether successful, they are needed to acquire new reserves and so are all classified as acquisitions of fixed assets recorded as intellectual property products (31132).

6.48 Materials to produce coins or notes of the national currency or amounts payable to contractors to produce the currency are included in use of goods and services. The issuance of the coins or notes is a financial transaction that does not involve revenue or expense. Commemorative coins that are not actually in circulation as legal tender are classified as nonfinancial assets (see paragraph 7.135).

6.49 Expenditure on military equipment, including large military weapons systems and armored vehicles acquired by the police and internal security services, are recorded as acquisition of the respective categories of fixed assets, namely weapons systems (3114) or machinery and equipment (3112). Expenditure on military goods, such as single-use weapons (ammunition, missiles, rockets, bombs, torpedoes) and spare parts, should be recorded as inventories until used, when they are recorded as use of goods and services and a withdrawal from inventories (see paragraphs 7.74 and 7.86).

Other boundaries related to use of goods and services

6.50 There is a significant conceptual difference between rentals of fixed assets under an operating lease and the acquisition of an asset under a financial lease. Under an operating lease, (see paragraph A4.6) the lessor remains the economic owner of the fixed asset and payments by the lessee are recorded as payments for a service, and therefore recorded as use of goods and services. Under a financial lease (see paragraphs 8.17 and A4.10), the lessee becomes the economic owner of the fixed asset and payments are recorded as payments of interest and repayments of principal by the lessee to the lessor, and thus do not affect use of goods and services (also see paragraphs A4.6–A4.15).

6.51 Amounts payable for the use of nonproduced naturally occurring assets, such as land, are classified as rent (2814) and not as use of goods and services (22). See paragraphs 5.131–5.132 for a description of this boundary.

6.52 Explicit fees for financial services should always be classified as use of goods and services. However, some transactions include an implicit fee for financial services that is not recorded separately in GFS. These implicit fees can be calculated only in the context of an analysis of the whole of the economy or industry. As indicated in paragraph 6.81, financial intermediation services indirectly measured (FISIM) can usually be estimated only indirectly by compilers of the national accounts. Similarly, the service fee implied by nonlife insurance premiums can be estimated only by looking at all the transactions and costs of the insurance industry (see paragraph 6.125).

Consumption of Fixed Capital [GFS] (23)

6.53 Consumption of fixed capital is the decline, during the course of the reporting period, in the current value of the stock of fixed assets owned and used by a government unit as a result of physical deterioration, normal obsolescence, or normal accidental damage.19 The concept of consumption of fixed capital is identical to the concept used in the 2008 SNA. However, the amount of consumption of fixed capital [GFS] (23) expense recorded in GFS may differ from the amount recorded in the production account of the 2008 SNA because of the GFS treatment of own-account capital formation (see Table 6.4). When nonfinancial assets are produced on own-account, the consumption of fixed capital related to that production process is recorded in GFS as part of the cost of acquisitions of the fixed assets rather than expense (see paragraph A7.25).

Table 6.4Detailed Classification of Consumption of Fixed Capital [GFS] (23)
23Consumption of fixed capital [GFS]1
Consumption of fixed capital [SNA]1
Minus: Related to own-account capital formation

Further breakdown/“of which” lines could allow for the identification of the category of fixed assets that the consumption relates to. Identifying the type of assets is required for the integration of stocks and flows of each type of asset (see Table 7.2).

Further breakdown/“of which” lines could allow for the identification of the category of fixed assets that the consumption relates to. Identifying the type of assets is required for the integration of stocks and flows of each type of asset (see Table 7.2).

6.54 Consumption of fixed capital may deviate considerably from depreciation as recorded in government financial records. Consumption of fixed capital is a forward-looking measure that is determined by future rather than past events—it is determined by the benefits that institutional units expect to derive in the future from using the asset in production over the remainder of its service life. Consumption of fixed capital is therefore based on the current market value or replacement cost of the asset. Depreciation is normally an allocation of the original costs of fixed assets (historic cost) over subsequent reporting periods. Consumption of fixed capital is calculated on the basis of the estimated opportunity costs of using the assets at the time they are used, as distinct from the prices at which the assets were acquired. Even when the fixed assets used are not actually to be replaced, the amount of consumption of fixed capital charged as a cost of production should be sufficient to enable the assets to be replaced, if desired.

6.55 Consumption of fixed capital is estimated with respect to all fixed assets owned by government units, but not for valuables (precious metals, precious stones, etc.) that are acquired precisely because their value, in real terms, is not expected to decline over time. Consumption of fixed capital does not cover the depletion or degradation of natural assets, such as land, mineral or other deposits, coal, oil, or natural gas, or contracts, leases, and licenses, which are recorded as other changes in the volume of assets (see paragraph 10.52).

6.56 The calculation of the consumption of fixed capital reflects assumptions about normal rates of physical deterioration, obsolescence, and accidental damage. 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. Any difference between the normal expected rate of obsolescence and the actual rate of obsolescence within a given period should be recorded as other changes in the volume of assets (see paragraph 10.66).

6.57 Losses of fixed assets due to normal or expected levels of accidental damage (i.e., damage caused to assets used in production resulting from their exposure to the risk of fires, storms, accidents due to human error, etc.) are also included under consumption of fixed capital. When these kinds of accidents occur with predictable regularity, they are taken into account in calculating the average service lives of the goods in question. Any difference between the normal expected and the actual accidental damage within a given period should be recorded as other changes in the volume of assets (see paragraph 10.67).

6.58 Consumption of fixed capital excludes the loss of value when fixed assets are destroyed by acts of war, natural disasters, and other exceptional events that occur very infrequently. Similarly, it excludes losses due to unexpected technological developments that may significantly shorten the service life of an existing fixed asset. These events are recorded as other economic flows and recorded as an other change in the volume of assets (see paragraph 10.66). Holding gains and losses due to changes in the price of the asset must also be excluded from consumption of fixed capital. These price changes should be recorded as holding gains or losses, as described in paragraphs 10.5 and 10.15.

6.59 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 reference 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. Consumption of fixed capital should be calculated on the assumption of appropriately long service lives. Linear or geometric patterns of decline, or some combination of them, are the patterns most commonly assumed.20Box 6.1 provides a more comprehensive explanation of the calculation of consumption of fixed capital.

Box 6.1The Calculation of Consumption of Fixed Capital

Consumption of fixed capital should reflect underlying resource costs and relative demands at the time the production takes place. It should therefore be calculated using the actual or estimated prices and equivalent costs of the rentals of fixed assets prevailing at that time and not at the times the goods were originally acquired. It is recommended that independent estimates of consumption of fixed capital should be compiled in conjunction with estimates of the capital stock. These can be built up from data on the acquisition of fixed assets in the past combined with estimates of the rates at which the efficiency of fixed assets declines over their service lives.

Whenever possible, the initial value of a new fixed asset should be the value at which it was acquired. If assets of all ages and specifications were regularly traded on markets, these prices should be used to value every asset as it ages. However, there is scarce information on the prices of secondhand assets, so a more theoretical approach to determining the price of an asset as it ages must be adopted.

Conceptually, market forces should ensure that the purchaser’s price of a new fixed asset is equivalent to the present value of the future benefits that can be derived from it. Therefore, given the initial market price and knowledge of the characteristics of the asset in question, it is possible to project the stream of future benefits and continually update the remaining present value of these. This method of building up estimates of the capital stock and changes in the capital stock over time is known as the perpetual inventory method, or PIM. Estimates of consumption of fixed capital are obtained as a by-product of the PIM.

In the absence of an asset register with appropriate valuations of assets, the PIM requires an estimate to be made of the stock of fixed assets in existence and in the hands of general government or public corporations. The first step is to estimate what proportion of the fixed assets acquired in previous years has survived to the current period. Average service lives, or survival functions, based on observations or technical studies may be applied to past investments for this purpose. Fixed assets purchased at different prices in the past have then to be revalued at the prices of the current period by utilizing appropriate price indices for fixed assets. The construction of suitable price indices covering long periods of time raises difficult conceptual and practical problems, but these technical problems of price measurement must be faced in any case in developing balance sheet values of assets. The stock of fixed assets surviving from past investment and revalued at the purchasers’ prices of the current period but before deduction of consumption of fixed capital is often also described as the gross capital stock.

The benefits obtained from the use of a given fixed asset tend to diminish over time. The rate at which the efficiency declines may vary from one type of asset to another. The simplest case to consider is one where the efficiency of the asset remains constant until it disintegrates, like a lightbulb. Other simple cases include the case where the efficiency declines linearly or exponentially over its life. Other methods employ a hyperbolic rate of efficiency loss with relatively little decline in the initial years but increasingly steeper decline as time progresses. However, in practice, calculations are usually not undertaken asset by asset, but for cohorts of assets of similar ages and characteristics. Individual assets within the cohort will retire at different moments, but the age-efficiency profile for the cohort as a whole is typically convex to the origin.

The efficiency profiles of fixed assets determine the profiles of the benefits they command over their service lives. Once the profiles of the benefits over the service lives of the fixed asset have been determined, it becomes possible to calculate the consumption of fixed capital, period by period. Consumption of fixed capital is derived as the reduction in the present value of the remaining benefits, as explained earlier. This reduction, and the rate at which it takes place over time, must be clearly distinguished from the decline in the efficiency of the capital assets themselves. Although the efficiency, and hence the benefit, of an asset may remain constant from period to period until it disintegrates, the value of the asset declines over time. It also follows that the consumption of fixed capital is not constant.

Consumption of fixed capital should not be estimated in isolation from the derivation of a set of data on stock positions of fixed assets. Such data are needed for the balance sheet, as shown in Chapter 7.

6.60 Conceptually, costs of ownership transfer on the acquisition of nonfinancial assets should be written off as consumption of fixed capital over the period the asset is expected to be held by the purchaser rather than over the whole life of the asset. This approach reflects the assumption that the benefits provided by the asset must be sufficient to cover both the cost of the asset and the costs of ownership transfer. Cost of ownership transfer on the disposal of an asset is recorded similarly because it is assumed that the benefit that the asset produced during the time the asset is used in production should cover such costs. Cost of ownership transfer on the disposal of a nonfinancial asset is estimated at the time of the acquisition of the asset and is written off over the period that the owner expects to hold the asset), except for the terminal costs, which should be written off over the whole life of the asset. If an asset is disposed of before the costs of ownership transfer are completely written off, the remainder of these costs should be recorded as an other change in the volume of assets (see paragraph 10.68).

6.61 In the Statement of Sources and Uses of Cash, expense transactions are recorded only when cash flows occurred. Since no cash flows are associated with consumption of fixed capital, no entry for this accrual concept is made in this statement (see paragraph 3.67).

Interest [GFS] (24)

6.62 Interest is a form of investment income that is receivable by the owners of certain kinds of financial assets (SDRs, deposits, debt securities, loans, and other accounts receivable)21 for putting these financial and other resources at the disposal of another institutional unit. Interest [GFS] (24) is not adjusted for the service charge related to FISIM (see paragraph 6.81). The liabilities giving rise to interest expense are all claims of creditors upon debtors. The liabilities generating the interest may have arisen from the supply of financial or nonfinancial resources (as in the case of financial leases). As indicated in Table 6.5, interest should be recorded according to the subsector of the counterparty to allow for consolidation of the general government and public sectors. The amount of the liability due to the creditor declines as payments are made on the debt by the debtor and increases as interest accrues.

Table 6.5Detailed Classification of Interest (24)
24Interest [GFS]1
Interest [SNA]
Plus: FISIM
241To nonresidents
242To residents other than general government1
243To other general government units1

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

6.63 Interest is payable by units that incur liabilities by borrowing funds from another unit. Interest is the expense that the debtor unit incurs for the use of the principal outstanding, which represents the economic value that has been provided by the creditor. Interest may be payable in various ways and may not always explicitly be described as interest (see paragraph 6.71). On the other hand, net settlement payments under a swap or forward rate agreement contract (possibly described as “interest” in the contract) are not considered as interest and are to be recorded as transactions in financial derivatives (see paragraphs 6.79 and 9.71).

6.64 Interest is recorded as accruing continuously over time to the creditor on the amount outstanding. Depending on the contractual arrangements, the rate at which interest accrues can be a percentage of the amount outstanding, a predetermined sum of money, a variable sum of money dependent on a defined indicator, or some combination of these. Interest normally is not payable until the expense has accrued. That is, if interest on a loan is payable monthly, the amount paid is usually the expense that has accrued during the previous month. Under the accrual basis of recording, as interest accrues, the debtor’s total liability to the creditor has increased by the amount of interest expense accrued but not yet paid. That is, as interest accrues on a government bond, the value of the bond increases. What are commonly referred to as interest payments, therefore, from an accrual recording perspective, are reductions of the debtor’s existing liability, part of which was created by the accrued interest expense.

6.65 From a cash recording perspective, periodic debt service payments, recorded in the Statement of Source and Uses of Cash, can be distinguished as interest payments (“coupons” or “coupon payments”) or principal payments. When using the cash basis of recording, interest payments are recorded as an expense transaction when such cash flows occur. In this case, only principal repayments will reduce the debtor’s liability. The amount initially advanced or borrowed is also known as initial principal.

6.66 In macroeconomic statistics, interest is calculated according to the debtor approach.22 According to this approach, interest is equal to the amounts the debtors will have to pay to their creditors over and above the repayments of the amounts advanced by the creditor. For fixed rate instruments, this approach assumes that interest expense is determined for the entire life of a financial instrument by the conditions set at inception of the instrument. Interest accrual is therefore determined by using the original yield-to-maturity. A single effective yield, established at the time of security issuance, is used to calculate the amount of accrued interest in each period to maturity. The accrual of interest should be calculated by the compound interest method.23

6.67 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 payment of interest is made together with a repayment of 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.

6.68 When the end of the reporting period does not coincide with a periodic payment, the total liability at the end of the period will include some amount of interest incurred but not yet paid. As each period passes, the amount of principal outstanding increases as interest expense is incurred. Any periodic payment of the accrued interest reduces the principal to the amount originally borrowed.

6.69 Some debt instruments may have a grace period24 during which no interest payments are to be made. For those debt instruments for which the contract requires the accrual of interest during the grace period (i.e., the relevant interest rate that applies during the grace period is greater than zero), the accrual of interest should be recorded as specified in the contract, increasing the value of the principal. On the other hand, if the debtor can repay the same amount of principal at the end of the grace period as at the beginning (i.e., the relevant interest rate applied to the grace period is zero), no interest costs accrue during the grace period.25 This remains true even if the rate of interest applied in a second and/or subsequent time period is adjusted (e.g., there is a step up), so that the final yield is roughly similar to what it would have been under normal conditions over the total life of the instrument. This treatment applies to loans and deposits but not to debt securities.

6.70 Loans with step-up interest should accrue at the contractual rate of interest for any period and not at the internal rate of return26 of the loan. On the other hand, interest on debt securities with step-up interest should accrue at the original yield-to-maturity rate over the life of the security.27

6.71 Certain financial instruments, such as short-term bills and zero-coupon bonds, do not require the debtor to make payments to the creditor until the liability matures. In effect, 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 to be repaid at the end of the contract and the amount originally borrowed is interest, which on the accrual basis of recording must be allocated over the reporting periods between the beginning and end of the contract. The interest accruing in each period is recorded as if 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 in each period. When more than one reporting period is involved, there are a number of ways to allocate the total amount of interest among the periods involved. The most common and simple method is to assume that the interest rate is constant throughout the contract period. On the cash basis of recording, the full amount of the difference between the amount to be repaid at the end of the contract and the amount originally borrowed is recorded as interest when the payment is made—that is, at the end of the contract when the liability matures.

6.72 A slightly more complicated case is a deep-discount bond, which is a discounted instrument that also requires periodic payments. In such cases, the accrued interest expense is the amount of the coupon 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.

6.73 In some cases, debt securities are issued at a premium rather than at a discount. The method of determining the accrued 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—see paragraph 9.40) is amortized over the life of the instrument and reduces (rather than increases) the amount of interest accruing in each period. These premiums are therefore recorded as an increase in cash receipts with a corresponding entry in other accounts payable for the unearned portion of the premium. A reduction in interest expense, with a corresponding reduction in the other accounts payable, is subsequently recorded over the period of the contract. On the cash basis of recording, the full amount of premiums will be recognized as a reduction in interest expense at the time the debt instrument is issued.

6.74 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.

6.75 Index-linked securities are instruments for which either the coupon payments (interest) or the principal or both are linked to another item, such as a price index, an interest rate, or the price of a commodity (see paragraph 7.153). The item is one that normally changes over time in response to market pressures. The values of the indicators are not known in advance. For debt securities with indexation of the amount to be paid at maturity, these amounts may be known only at the time of redemption. As a result, total interest flows before redemption cannot be determined with certainty. To estimate interest accrued before the values of the reference indicators are known, it is useful to distinguish various arrangements.

Indexation of the coupon payments only

6.76 When only coupon payments are index-linked, as with floating-rate notes, the full amount resulting from indexation is recorded as interest accruing during the period covered by the coupon. To the extent that data are compiled after the coupon payment date, the value of the index is known and can be used to estimate that payment. If the data are compiled before the date for the coupon payment, the movement in the index during that part of the reporting period covered by the coupon can be used to calculate the interest accrued.

Indexation of the amount to be paid at maturity

6.77 When the amount to be paid at maturity is also index-linked, the amount of interest accrued becomes uncertain because the redemption value is unknown; in some cases, the maturity time may be several years in the future. There are two approaches, depending on whether the index is based on a broad or narrow reference item.28

  • When the amount to be paid at maturity and coupon payments are indexed to a broad-based index (e.g., the consumer price index), interest accruing in a reporting period may be calculated by summing two elements:

    • The amount resulting from the indexation of the coupon payment (as described in paragraph 6.76) that is attributable to the reporting period

    • The change in the value of the amount outstanding between the end and beginning of the reporting period due to the movement in the relevant index.

    This approach works well when a broad-based index is used, as such indexation is expected to change relatively smoothly over time.

  • When the amount to be paid at maturity or the coupon payments and the amount to be paid at maturity are indexed to a narrow index (e.g., a gold index) that includes a holding gain motive, interest accruing may be determined by fixing the yield-to-maturity (rate of accrual) at the time of issue. Accordingly, interest accrues over the life of the instrument at a rate that reconciles the difference between the issue price and the market expectation, at inception, of all payments that the debtor will have to make over the life of the instrument. Any deviation of the underlying index from the originally expected path leads to holding gains or losses that will not necessarily cancel out over the life of the instrument.

    This approach works well when the indexation of the amount to be paid at maturity combines motives for both interest income and holding gains (e.g., a commodity price, stock prices, or gold prices). The treatment of indexation of securities is also discussed in paragraph 9.41.

6.78 Debt instruments with both the amount to be paid at maturity and coupon payments indexed to foreign currency are recorded as though they are denominated in that foreign currency. Interest, other economic flows, and stock positions for these instruments should be calculated using the same principles that apply to foreign-currency-denominated instruments (see paragraph 9.11).

6.79 For debt securities with embedded derivatives, the recording for accrued interest on the financial instrument is the same as for securities that do not have such features. No interest accrues on the derivative itself (see paragraph 9.43).

6.80 For arrears arising from a debt contract, interest should accrue at the same interest rate as on the original debt, unless a different interest rate for arrears was stipulated in the original debt contract, in which case this stipulated interest rate should be used. The stipulated rate may include a penalty rate in addition to the interest rate on the original debt. If an item is purchased on credit and the debtor fails to pay within the period stated at the time the purchase was made, any extra charges incurred should be regarded as interest and accrue until the debt is extinguished.

6.81 The interest expense payable to financial intermediaries recorded in GFS differs from the amount recorded in the 2008 SNA. Interest [GFS] (24) does not partition interest to separately record a service fee. A financial intermediary sets its interest rates for depositors and borrowers at levels that will provide a margin large enough to at least defray the costs of providing its services to its depositors and borrowers without explicit fees. Interest could be partitioned to separately record the component payable in return for the resources that were put at the disposal of the borrower, as well as an implicit service charge. In concept, the value of the services provided by financial intermediaries to a borrowing unit should be recorded as a use of goods and services expense. To accomplish this treatment, the actual interest expense payable to financial intermediaries would need to be reduced by the value of the fee for the services.29 These fees, known as FISIM, can be estimated only indirectly by compilers of the national accounts because data for all depositors and borrowers of financial intermediaries are required.

6.82 In principle, interest payable on overdue taxes should be recorded as interest (24). However, it may not be possible to separate payments of interest, fines, or other penalties from the taxes to which they relate, so that in practice they are usually grouped with the relevant tax payable (see also paragraph 5.24). If this tax that includes the interest on late payment of taxes is payable by a general government or public sector unit, then it is classified as a tax payable from one government unit to another and classified as a component of transfers not elsewhere classified (282) (see paragraph 6.122). For purposes of consolidation, the relevant government units should be identified as counterparty to the transaction.

6.83 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 will have a nonzero value when statistics are compiled for a subsector of the general government sector or public corporations. For the general government sector, all such transactions are eliminated in consolidation. To allow for consolidation of the general government and public sectors, data could further identify a breakdown according to the recipient of the interest.

Subsidies (25)30

6.84 Subsidies (25) are current unrequited transfers that government units make to enterprises on the basis of the level of their production activities or the quantities or values of the goods or services they produce, sell, export, or import. Subsidies are receivable by resident producers or importers, and in exceptional cases, nonresident producers of goods and services. Subsidies may be designed to influence levels of production, the prices at which outputs are sold, or the profits of the enterprises. Subsidies include payable tax credits receivable by enterprises for these purposes (see paragraph 5.31). By the nature of subsidies, only government units incur an expense in this form. When an institutional unit, other than a government unit, incurs subsidy expense on behalf of a government unit, the subsidy should be attributed in accordance with attribution guidelines, similar to those for tax attribution (see paragraphs 5.32–5.39). When an institutional unit acts on behalf of another unit to distribute subsidies, these should be reported as financial transactions by the distributing agency. Subsidies payable should be recorded only in the account of the entity that has the control over the subsidy scheme.

6.85 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 recorded as either social benefits (27) or transfers not elsewhere classified (282), depending on the reason for the payment. Most transfers made to other general government units are included in grants (26).

6.86 In some cases, general government units, nonprofit institutions serving households, and households can receive subsidies in their capacity as producers. To be classified as subsidies, such payments must depend on general regulations of the subsidy scheme applicable to all producers, market and nonmarket. For example, a general government unit may pay a subsidy to all employers (including general government units and/or nonprofit institutions) that employ members of a specified profession or people with a specified disability. Subsidies payable to households include only amounts payable to households as producers—therefore, they will include only amounts payable to those unincorporated household enterprises that do not qualify as a quasi-corporation. In practice, many schemes called “subsidies” provide social benefits to households.

6.87 As indicated in Table 6.6, subsidies may be classified according to the institutional sector of the recipients. Subsidies to public corporations (251) and to private enterprises (252) are further subdivided into nonfinancial or financial corporations and enterprises. Subsidies to other sectors (253) include subsidies payable to other general government units, to nonprofit institutions serving households, and to households, in their capacity as producers. To allow for consolidation of the general government and public sectors, identifying the subsectors of the counterparties is needed.

Table 6.6Detailed Classification of Subsidies (25)
25Subsidies1
251To public corporations
2511Public nonfinancial corporations
2512Public financial corporations
252To private enterprises
2521Private nonfinancial enterprises
2522Private financial enterprises
253To other sectors2

Further breakdown/“of which” lines could identify whether these subsidies are subsidies on products or production.

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

Further breakdown/“of which” lines could identify whether these subsidies are subsidies on products or production.

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

6.88 Although not specifically used in the GFS classification structure, the 2008 SNA further identifies subsidies according to whether they are payable on specific products or on production in general, depending on how the value of the subsidy is calculated. Further breakdown of GFS codes could allow for this distinction.

6.89 A subsidy on products 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-account capital formation. These subsidies include:

  • Direct foreign trade subsidies, such as subsidies on imported or exported goods and services that become payable when the goods cross the frontier of the economic territory or when the services are delivered to resident institutional units (e.g., import subsidies) or to nonresident units (e.g., export subsidies)31

  • Implicit subsidies resulting from the operation of an official system of multiple exchange rates (see paragraph 5.89), or resulting from payable tax credits (see paragraph 5.31)

  • Losses of government trading organizations whose function is to buy products and then sell them at lower prices to residents or nonresidents, when they are incurred as a matter of deliberate government economic or social policy32

  • Subsidies payable to resident producers in respect of their production that is used or consumed within the economic territory

  • Regular transfers payable to corporations and quasi-corporations that are intended to compensate for recurrent losses (i.e., negative operating surpluses) incurred 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 policy33

  • Subsidies resulting from the central bank accepting interest rates lower than the prevailing market rates (see Box 6.2).

Box 6.2Implicit Subsidies of Central Banks

The central bank’s main responsibility is to formulate and carry out monetary aspects of economic policy. It therefore often acts differently from other financial corporations and generally has the authority from government to enforce its mandate. In cases where the central bank makes payments that are clearly for policy rather than commercial purposes—for example, when it pays above-market rates in a situation where the external value of the currency is under pressure or when it acts as a development bank offering loans at below-market rates to priority industries—it may be argued that implicit subsidies are being provided. This procedure is analogous to and consistent with the practice of treating the difference between the market exchange rate and an alternative exchange rate imposed by the central bank as an implicit subsidy (discussed in paragraph 5.89).

If the central bank interest rates are out of line with those of commercial banks, then the difference between flows calculated using the reference rate and the actual rate set by the central bank should be recorded as implicit taxes receivable (see paragraph 5.70) and subsidies payable by government. These transactions are recorded as follows:

  • Below market rates on reserve deposits—Suppose the central bank pays only 3 percent to a commercial bank on reserve deposits when the market rate is 5 percent. The following is recorded in GFS:

    • Although the commercial bank actually receives only 3 percent as interest, it is recorded as receiving 5 percent as interest from the central bank and paying 2 percent to government as taxes on specific services (1144) (see paragraph 5.69).

    • Government records a subsidy (25) to the central bank.

  • Above market rates for currency support—Suppose the central bank pays 7 percent to a commercial bank for a limited period when the currency is under pressure at a time when the market rate is 5 percent. The following is recorded:

    • Although the commercial bank actually receives 7 percent as interest, it is recorded as receiving 5 percent as interest and receiving another 2 percent from government as a subsidy (25).

    • Government records a tax of 2 percent receivable from the central bank classified as taxes on specific services (1144) (see paragraph 5.69).

  • Below market rates to priority industries—Suppose the central bank charges only 3 percent to a priority industry when the market rate is 5 percent. The following is recorded:

    • Although the priority industry actually pays only 3 percent as interest, it is recorded as paying 5 percent as interest but receiving 2 percent from government as a subsidy (25).

    • Government records a tax of 2 percent receivable from the central bank classified as taxes on specific services (1144) (see paragraph 5.69).

6.90 Other subsidies on production are 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 such as physically handicapped persons or persons who have been unemployed for long periods; the subsidies may also be intended to cover some or all of the costs of training schemes organized or financed by enterprises.

  • Subsidies to reduce pollution, which are transfers intended to cover some or all of the costs of additional processing undertaken to reduce or eliminate the discharge of pollutants into the environment.

6.91 Subsidies do not include:

  • Payment of interest or other debt service cost on behalf of other producer units without acquiring an effective claim on the original debtor—these payments are recorded as capital transfers, and according to the nature of the recipient, are recorded either as capital grants (26) or capital transfers not elsewhere classified (2822).

  • Transfers made by governments to other resident or nonresident units to finance all or part of the costs of their acquiring nonfinancial assets other than inventories—these payments are recorded either as capital grants (26) or as capital transfers not elsewhere classified (2822).

  • Extraordinary payments into social insurance funds, in so far as these payments are designed to increase the actuarial reserves of these funds: These payments are recorded either as capital grants to other general government units (2632) or as capital transfers not elsewhere classified (2822).

  • Transfers made by general government units to corporations and quasi-corporations to cover large operating deficits accumulated over two or more years, or exceptional losses due to factors outside the control of the enterprise: These payments are recorded as capital transfers not elsewhere classified (2822) (see Box 6.3).

Box 6.3Transactions with Public Corporations

Owners may inject significant financial support to capitalize or recapitalize a corporation. Such financial support may take various legal forms and its economic substance may also vary (see Figure A3.2). These payments from a government unit, often referred to as “capital injections,” could be recorded as:

  • An expense, either as a subsidy or capital transfer, or

  • A transaction in financial assets/liabilities, either as an addition to equity or an issuance of a loan or securities other than shares.

Recorded as an expense

If the enterprise is publicly controlled and runs a recurrent deficit each year as a matter of government economic or social policy objectives, and the deficit is covered by a regular transfer receivable from government to match this deficit, the payment is regarded as a subsidy (see paragraph 6.89). If the payment from government is to cover large operating deficits accumulated over two or more years or exceptional losses due to factors outside the control of the enterprise, it is recorded as a capital transfer (see paragraph 6.124). Similarly, if government makes an investment in a public corporation without a reasonable expectation of a realistic rate of return on the investment, or without receiving anything of equal value in exchange, this is also recorded as a capital transfer. The latter includes investments in quasi-corporations with negative imputed equity (see paragraph A3.53).

Recorded as transactions in financial assets/liabilities

There may be cases where the owners agree to make new financing available to permit expansion, and where such financing establishes an effective claim on the public corporation. Such financing could consist of funds for use by the enterprise according to its need, including purchasing fixed assets, accumulating inventories, acquiring financial assets, or redeeming liabilities. Where evidence of a contractual financing agreement exists, these could constitute the issuance of a specific financial asset, such as loans, for government and the incurrence of a corresponding debt instrument by the public corporations. Without evidence of a specific financing agreement, such payments are to be included as the acquisition of equity in the public corporation even if no new shares are issued in response to the financial contribution. In such a case, government, acting in the same capacity as a private shareholder, provides funds while receiving contractually something of equal value in exchange (i.e., increased value of its equity) and expecting to earn a sufficient rate of return on its investment, in the form of dividends (as a return on equity). Treatment of these payments as the increase in equity depends on evidence of the corporation’s profitability and its ability to pay dividends in future.

  • The cancellation of debts that institutional units have incurred to government units (resulting, for example, from loans advanced by a government unit to a nonfinancial enterprise that does not have the ability to make repayments due to trading losses accumulated over several financial years): These transactions are recorded as capital grants to other general government units (2632) or as capital transfers not elsewhere classified (2822) if the beneficiary is a unit other than general government.

  • Payments made by general government for damage to, or losses of, capital goods as a result of acts of war, other political events or natural disasters: These payments are recorded as capital grants to other general government units (2632) or as capital transfers not elsewhere classified (2822).

  • Transfers to households (often called “subsidies”) but intended to supplement household income or defray household expense: These do not relate to production activities and should therefore be included in the relevant category of social benefits (27).

  • Increases in equity in corporate enterprises of general government: These are recorded as transactions in the financial instrument equity and investment fund shares (3205) if an effective financial claim is acquired (see Box 6.3).

  • Transfers made by a general government unit that has assumed responsibility for pension claims on public enterprises: These payments are recorded as capital transfers not elsewhere classified (2822).

  • Payments made by general government to market producers to pay entirely, or in part, for goods and services that those market producers provide directly and individually to households in the context of social risks or needs and to which the households have a right: These payments are recorded as social benefits (27).

Grants (26)

6.92 Grants (26) are transfers payable by government units to other resident or nonresident government units or international organizations and that do not meet the definition of a tax, subsidy, or social contribution (see paragraph 3.10). Grants are normally payable in cash, but may also take the form of provision of goods or services (in kind). Grants payable are classified first by the type of unit receiving the grant and then by whether the grant is current or capital.

6.93 Three types of recipients of grants are recognized in GFS: grants to foreign governments (261), grants to international organizations (262), and grants to other general government units (263). The category of grants payable by government units to other general government units has a nonzero value only in the case of statistics compiled for a subsector of the general government sector. For the general government sector, these transactions are eliminated in consolidation. To allow for consolidation, grants payable to other general government units should be identified according to the subsector of the counterparty (see Table 6.7).

Table 6.7Detailed Classification of Grants (26)
26Grants
261To foreign governments
2611Current
2612Capital
262To international organizations
2621Current
2622Capital
263To other general government units
2631Current1
2632Capital1

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

6.94 Grants payable distinguish current grants (2611/2621/2631) and capital grants (2612/2622/ 2632). The distinction between current and capital grants is described in paragraph 5.103. If doubt exists regarding the character of a grant, it should be classified as current. The nature of grants in kind, the time at which a grant is recorded, and the valuation are discussed in paragraphs 5.104–5.105.

6.95 In the Statement of Sources and Uses of Cash, the value of grants will be limited to grants paid in cash. Grants in kind will not be recognized in this statement since no cash flows related to the in-kind transaction are recorded. However, any cash payments incurred in the own production of the goods or services provided in kind will be included in the respective expense items (i.e., compensation of employees and purchases of goods and services).

Social Benefits [GFS] (27)34

6.96 Social benefits are current transfers receivable by households intended to provide for the needs that arise from social risks—for example, sickness, unemployment, retirement, housing, education, or family circumstances. These benefits are payable in cash or in kind to protect the entire population or specific segments of it against certain social risks. Social risks are events or circumstances that may adversely affect the welfare of the households concerned either by imposing additional demands on their resources or by reducing their income. Examples of social benefits are the provision of medical services, unemployment compensation, and social security pensions. For a complete discussion on social protection, see Appendix 2.

6.97 Not all social benefits as defined in the 2008 SNA are classified in this GFS expense item (see Table 6.8). Social benefits [GFS] (27) exclude:

Table 6.8Detailed Classification of Social Benefits (27)
27Social benefits [GFS]1
Social benefits [SNA]1
Minus: Social benefits related to reductions in
liabilities
Minus: Cost associated with the own
production of goods and services
transferred to households
271Social security benefits [GFS]
2711Social security benefits in cash [GFS]
2712Social security benefits in kind [GFS]
272Social assistance benefits [GFS]
2721Social assistance benefits in cash [GFS]
2722Social assistance benefits in kind [GFS]
273Employment-related social benefits [GFS]
2731Employment-related social benefits in cash [GFS]
2732Employment-related social benefits in kind [GFS]

A similar breakdown could be applied to other subcategories of social benefits, as relevant.

A similar breakdown could be applied to other subcategories of social benefits, as relevant.

  • The payment of pensions and other retirement benefits through employment-related social schemes, which are recorded in GFS as reductions in liabilities.35

  • Goods and services produced by government and transferred to households are expense transactions not classified as social benefits. Instead, the expense transactions are recorded as production expenses as part of compensation of employees, use of goods and services, and consumption of fixed capital, as appropriate.36

6.98 Social benefits are classified first according to the type of social protection arrangement governing their payment: social security, social assistance, or employment-related social insurance schemes, and then by whether the payment was made in cash or in kind. These benefits are divided between pensions and nonpension benefits.

6.99 Social security benefits[GFS] (271) are social benefits expense payable in cash or in kind to households by social security schemes (see paragraph A2.33). Typical social security benefits in cash [GFS] (2711) include extended sickness and invalidity benefits, maternity allowances, children’s or family allowances, unemployment benefits, retirement and survivors’ pensions, and death benefits.

6.100Social security benefits in kind [GFS] (2712) typically consist of goods and services purchased from a market producer on behalf of households and benefits related to the reimbursements of costs of goods and services purchased by households in accordance with the rules of the scheme.37 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.

6.101 Social assistance benefits [GFS] (272) are transfers payable in cash or in kind to households to meet the same needs as social insurance benefits but that are not made under a social insurance scheme. Eligibility to receive such benefits is not dependent on having elected to participate as demonstrated by the payment of contributions. Social assistance benefits therefore exclude all benefits payable by social security funds.

6.102 Social assistance benefits may include those benefits payable under any one of the following circumstances:

  • No social insurance scheme exists to cover the circumstances in question.

  • Although a social insurance scheme, or schemes, may exist, the households in question do not participate and are not eligible for social insurance benefits.

  • Contributions to social insurance schemes were made on behalf of households who cannot otherwise afford to participate in the scheme, in order to secure entitlement to the benefits of the scheme for them.

  • Social insurance benefits are deemed to be inadequate to cover the needs in question, so the social assistance benefits are being paid in addition.

  • Implicit social assistance benefits were paid resulting from payable tax credits (see paragraph 5.31).

  • As a matter of general social policy.

6.103 Social assistance benefits do not include transfers made in response to events or circumstances, such as natural disasters, which are not normally covered by social insurance schemes. Such transfers are recorded under transfers not elsewhere classified (282).

6.104 Employment-related social benefits [GFS] (273) are social benefits payable in cash or in kind by government or public sector units to their employees or employees of other government or public sector units participating in the scheme (or to survivors and dependents of the employees who are eligible for such payments). The kinds of benefits provided relate to nonpension benefits, and 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.

6.105 The payment of employer social benefits is often made out of the government’s own resources without involving an insurance enterprise or an autonomous or nonautonomous pension fund. To reflect the true economic nature of the operation and to ensure comparability with similar payments made through social security schemes, an imputation of employers’ social contributions [GFS] (2122) (see paragraph 6.22) is made in expense, recorded as compensation of employees (21), and in revenue, recorded as imputed social contributions (1223). These imputed values are equal to the value of the employment-related social benefits payable in this item.

6.106 When using the accrual basis of recording, the payment of pensions and other retirement benefits through these employment-related pension schemes is recorded as reductions in liabilities (see paragraph 7.189). However, when using the cash basis of recording, the liability did not accumulate through imputed contributions recorded in the past, and all payment of these employment-related pensions should be recorded as employment-related social benefits [GFS] (2731).

Other Expense (28)

6.107 Other expense comprises property expense other than interest (281), transfers not elsewhere classified (282), and amounts payable in respect of premiums, fees, and claims payable related to nonlife insurance and standardized guarantees (283).

Property expense other than interest (281)

6.108 Property expense (281) is the expense payable to the owners of financial assets or natural resources when they put them at the disposal of another unit. Property expense is the sum of investment expense and rent. One type of investment expense is interest [GFS] (24), which is classified separately in GFS. Property expense other than interest may take the form of dividends (2811); withdrawals of income from quasi-corporations (2812); property expense for investment income disbursements (2813); rent (2814); and reinvested earnings on direct foreign investments (2815). Dividends and withdrawals of income from quasi-corporations as an expense will primarily apply to public corporations and foreign direct investment of the public sector.

Dividends (2811)

6.109 Dividends (2811) are the distributed earnings allocated to government or public sector units, as the owners of equity, for placing funds at the disposal of corporations. As shown in Table 6.9, identifying the recipient of dividends from public corporations would allow for consolidation of statistics of the public sector. Dividend 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.38 The time of recording of dividends is the point at which the share price starts to be quoted on an “ex-dividend” basis. Dividends are described in more detail in paragraphs 5.111–5.117.

Table 6.9Detailed Classification of Dividends (2811)
2811Dividends
28111To nonresidents
28112To residents1

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

6.110 Dividends are notionally payable out of the current period’s operating surplus, although corporations often smooth the payments of dividends, sometimes paying out less than the operating surplus but sometimes paying out more, especially when the operating surplus itself is very low. Dividends that are disproportionately large relative to the recent level of dividends and earnings, often referred to as “superdividends,” require special consideration. See paragraphs 5.115–5.116 for a description of the treatment of these “super-dividends” in the context of the corresponding revenue item.

Withdrawals of income from quasi-corporations (2812)

6.111 Withdrawals of income from quasi-corporations (2812) consists of that part of distributable income that the owner withdraws from the quasi-corporation. 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 recorded 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. See paragraphs 5.118–5.119 for a description of the recording of the corresponding revenue item.

6.112 As with dividends, withdrawals of income from quasi-corporations do not include withdrawals of funds realized by the sale or other disposal of the quasi-corporation’s assets. Funds withdrawn by liquidating large amounts of accumulated retained earnings or other reserves of the quasi-corporation are recorded as withdrawals from equity. The sale of inventories, fixed assets, land, or other nonproduced assets to withdraw funds would be recorded in the accounts of the quasi-corporation as disposals in the appropriate category of assets (see paragraphs 7.34–7.117), with government recording a withdrawal from equity.

Property expense for investment income disbursements (2813)

6.113 Property expense for investment income disbursements (2813) includes property income attributed to insurance policyholders, pension entitlements, and holders of investment fund shares (see paragraphs 7.174 and 7.178). Public corporations can be insurance enterprises or may operate pension schemes, in which case they will hold technical reserves in the form of reserves against outstanding risks in respect of nonlife and life insurance policies, as well as reserves to provide for the entitlement on pension and nonpension benefits and calls under standardized guarantee schemes. The reserves are liabilities toward the policyholders or beneficiaries. Any income receivable from the investment of the corresponding assets should be attributed as the property income of the policyholders or beneficiaries, and therefore a property expense is recorded to reflect the increase in liabilities.

6.114 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 investment income is generated and so no property expense is attributed to the policyholders.39

6.115 For government units operating a standardized guarantee scheme against fees, there may also be investment income earned on the reserves of the scheme and this should be shown as a property expense being distributed to the units paying the fees (which may not be the same units that stand to benefit from the guarantees). Appendix 4 describes the recording of transactions related to standardized guarantee schemes.

6.116 As described in Appendix 2, pension entitlements arise from one of two types of pension schemes: defined-contribution schemes and defined-benefit schemes. Under both schemes, the operator of the scheme records a property expense attributed to policyholders to reflect changes in the liability outstanding for the pension entitlements. These changes may arise from investment income and the change in value due to the passage of time.

6.117 With a defined-benefit scheme, the future pension benefits are defined by some formula normally related to participants’ length of service and salary. The nominal values of the pension benefits payable 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 and property income, the payment of benefits, changes in the actuarial assumptions, and the passage of time. The property expense attributed to a pension fund’s policyholders is equal to the increase in the liability resulting from the property income accruing on the pension fund’s assets held on behalf of the beneficiaries and the passage of time, which occurs because the future benefits are discounted over fewer reporting periods.

6.118 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 (see paragraph A2.55), 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 equal to the property income receivable from the investment of the scheme’s assets. Any holding gains on the scheme’s assets are equally reflected in holding losses on the scheme’s unit’s liability to the beneficiaries.

6.119 The increase/decrease in the value of investment fund shares (or units), other than from other economic flows, is recorded as property income, either distributed to the share- (or unit) holders or reinvested by the holders in the shares (or units).

Rent (2814)

6.120 Rent (2814) is the expense payable to the owners of a natural resource (the lessor or landlord) for putting the natural resource at the disposal of another institutional unit (a lessee or tenant) for use of the natural resource in production. Rent payable is typically related to a resource lease on land, subsoil resources, and on other natural resources. Rent accrues continuously to the asset’s owner throughout the period of the contract and may be payable in cash or in kind. The types of resource rent and the boundary between resource rent, rental of produced assets, and taxes are described in detail in paragraphs 5.124–5.132 in the context of the corresponding revenue item.

Reinvested earnings on foreign direct investment (2815)

6.121 Reinvested earnings are the direct investor’s share of the retained earnings of the direct investment enterprise. Public corporations may have foreign direct investors. Actual distributions to such nonresident foreign direct investors may be made out of their distributable income in the form of dividends or withdrawals of income from quasi-corporations. However, macroeconomic statistics also require the retained earnings of a foreign direct investment enterprise to be recorded as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity in the enterprise and then reinvested by them by means of additions to equity. The imputed remittance of these retained earnings is classified as a form of distributed income that is separate from, and additional to, any actual payments of dividends or withdrawals of income from quasi-corporations. This treatment assumes that the decision to retain some earnings within the enterprise must represent a deliberate investment decision on the part of the foreign direct investor. Reinvested earnings are described in detail in paragraphs 5.134–5.135 in the context of the corresponding revenue item.

Transfers not elsewhere classified (282)

6.122 Transfers not elsewhere classified (282) payable include a number of gifts and transfers to individuals, private nonprofit institutions, nongovernmental foundations, corporations, or government units that are not included in other categories of transfers and serve quite different purposes. Transfers not elsewhere classified (282) are subdivided into current transfers not elsewhere classified (2821) and capital transfers not elsewhere classified (2822). It may be of analytic interest to classify this group of transactions according to the recipients, such as residents and nonresidents. Among residents, it may also be of interest to classify them according to whether these are households, nonprofit institutions serving households, public nonfinancial corporations, public financial corporations, or private corporations (see Table 6.10).

Table 6.10Detailed Classification of Transfers Not Elsewhere Classified (282)
282Transfers not elsewhere classified1
2821Current transfers not elsewhere classified
2822Capital transfers not elsewhere classified

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

Current transfers not elsewhere classified (2821)

6.123 The most important types of current transfers included here are:

  • 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.40 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 taxes, compulsory fees, and fines imposed by one unit of general government or public corporations on another government unit or public corporation: These transfers are subject to elimination by consolidation.

  • Net nonpayable tax credits: When, due to timing differences, the amount of a nonpayable tax credit exceeds the amount of tax otherwise receivable from taxpayers in the reporting period, and the excess is paid to the taxpayer, the net payment should be recorded as expense rather than negative tax.

  • Gross payable tax credits other than those classified as subsidies or social benefits: These amounts arise from tax credits payable irrespective of whether taxes are payable, and are recorded on a gross basis so that the total amount payable is recorded as expense (see paragraphs 5.29–5.32).

  • Fines and penalties imposed by courts of law or quasi-judicial bodies.

  • Payments of compensation for injury to persons or damage to property caused by general government or public sector units, excluding payments of nonlife 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 payable for households that are not related to social risks.

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

Capital transfers not elsewhere classified (2822)

6.124 The most important types of capital transfers included here are:

  • Capital taxes (see paragraph 5.51) imposed by one unit of general government on another government unit or public corporation: These transfers are subject to elimination by consolidation.

  • Major, nonrecurrent, exceptional payments in compensation for extensive damages or serious injuries such as those arising from catastrophes not covered by insurance policies are included as a capital transfer.

  • Capital transfers to corporations, quasi-corporations, nonprofit institutions serving households, households, and nonresidents in cash or in kind, to finance all or part of the costs of acquiring nonfinancial assets, to cancel or assume a debt by mutual agreement with the debtor without acquiring an effective financial claim on the original debtor (see Box 6.3).41

  • Transfers payable to corporations and quasi-corporations to cover large operating deficits accumulated over two or more years.42

  • Payment of interest or other debt service cost on behalf of other producer units without acquiring an effective claim on the original debtor.

  • Amounts payable in excess of the value of liabilities for the provision of pension entitlements assumed by other units.43

Premiums, fees, and claims payable related to nonlife insurance and standardized guarantee schemes (283)

6.125 Premiums, fees, and claims payable related to nonlife insurance and standardized guarantee schemes (283) include nonlife insurance premiums payable to insurance schemes/corporations to secure entitlement to insurance against risks, claims payable by insurance schemes to beneficiaries, and fees payable to obtain standardized guarantees. To allow for consolidation of the general government and public sectors, this expense should also be classified according to the subsector of the counterparty (see Table 6.11). A distinction is made between premiums, fees, and current claims payable (2831) and capital claims payable (2832):

Table 6.11Detailed Classification of Premiums, Fees, and Claims Payable Related to Nonlife Insurance and Standardized Guarantee Schemes (283)
283Premiums, fees, and claims payable related to nonlife insurance and standardized guarantee schemes
2831Premiums, fees, and current claims payable
28311Premiums payable1
28312Fees payable for standardized guarantee schemes
28313Current claims payable1
2832Capital claims payable1

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

Further breakdown/“of which” lines could allow for the identification of subsectors and individual units (see Table 3.1).

  • Premiums, fees, and current claims payable (2831) comprise nonlife insurance premiums expense and fees payable for the issuance of standardized guarantees, as well as insurance settlement expense that are not exceptional. The premiums and fees are payable to insurance schemes and corporations to obtain coverage against various events or accidents. Such amounts are always recorded as current transfers.44 Also included are nonlife insurance claims payable by insurance schemes operated by a general government unit or public insurance corporation in settlement of claims that become due during the current reporting period. Claims become payable when the eventuality occurs that gives rise to a valid claim, regardless of whether paid, settled, or reported during the reporting period. Such insurance claims that are not exceptional are recorded as current transfers (see also paragraph A4.79 for the recording of standardized guarantee schemes).

  • Capital claims payable (2832) comprise exceptionally large insurance settlements payable in the wake of a catastrophic event or disaster. For these exceptional large claims payable, such as those following a catastrophe, some part of the claims may be recorded as capital transfers rather than as current transfers. It may be difficult for the parties to identify these events consistently, so as a simplifying convention, all nonlife insurance claims are classified as current transfers, unless it is necessary to record a capital transfer to be consistent with the national accounts.

Annex: Classification of the Functions of Government

This annex describes the classification of expenditure according to the functions of government.

Introduction

6.126 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 expenditure. COFOG is integral to the GFS presentation. It is one of a family of four classifications referred to as classifications of expenditure according to purpose.45 COFOG provides a classification of government outlays by functions that experiences have shown to be of general interest and useful to a wider 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. In contrast, the Classification of Environmental Activities (CEA) is a functional classification that covers a more limited but specialized activity.46

6.127 While the COFOG as used in this Manual fully agrees with the OECD/UN classification, the concept is applied slightly differently in GFS. Final outlays are referred to in a general sense by the OECD/ UN, and therefore include grants, loans, and/or subsidies. In GFS, COFOG is applied only to expenditure, comprising expense and the net investment in non-financial assets. Transactions in financial assets and liabilities, such as loans, are excluded when compiling COFOG data for GFS reporting purposes. For the general government sector, transactions in financial assets and liabilities are usually fungible, to such an extent that a functional classification of these financing activities may be less useful.

Structure of COFOG Classifications

6.128 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 (Group 073) and sickness and disability (Group 101). Within each group, there are one or more classes, or four-digit categories, such as nursing and convalescent home services (Class 0734) and disability (Class 1012). All three classification levels and detailed descriptions of the contents of each class are reproduced in this annex. Table 6A.1 lists the divisions and groups. In the GFS framework, the prefix “7” has been added to align the COFOG codes with other GFS classification codes.

Table 6A.1Classification of Expenditure by Functions of Government According to Divisions and Groups
7Total expenditure
701General public services706Housing and community amenities
7011Executive and legislative organs, financial and7061Housing development
fiscal affairs, external affairs7062Community development
7012Foreign economic aid7063Water supply
7013General services7064Street lighting
7014Basic research7065R&D Housing and community amenities
7015R&D General public services7066Housing and community amenities n.e.c.
7016

7017
General public services n.e.c.

Public debt transactions
707Health
7018Transfers of a general character between7071Medical products, appliances, and equipment
different levels of government7072Outpatient services
702Defense7073Hospital services
7021Military defense7074Public health services
7022Civil defense7075R&D Health
7023Foreign military aid7076Health n.e.c.
7024R&D Defense708Recreation, culture, and religion
7025Defense n.e.c.7081Recreational and sporting services
703Public order and safety7082Cultural services
7031Police services7083Broadcasting and publishing services
7032 7033Fire protection services Law courts7084Religious and other community services
7034Prisons7085R&D Recreation, culture, and religion
7035R&D Public order and safety7086Recreation, culture, and religion n.e.c.
7036Public order and safety n.e.c.709Education
704Economic affairs7091Pre-primary and primary education
7041General economic, commercial, and labor7092Secondary education
affairs7093Postsecondary nontertiary education
7042Agriculture, forestry, fishing, and hunting7094Tertiary education
7043Fuel and energy7095Education not definable by level
7044Mining, manufacturing, and construction7096Subsidiary services to education
7045 7046Transport Communication7097R&D Education
7047Other industries7098Education n.e.c.
7048R&D Economic affairs710Social protection
7049Economic affairs n.e.c.7101Sickness and disability
705Environmental protection7102Old age
7051Waste management7103Survivors
7052Waste water management7104Family and children
7053Pollution abatement7105Unemployment
7054Protection of biodiversity and landscape7106Housing
7055R&D Environmental protection7107Social exclusion n.e.c.
7056Environmental protection n.e.c.7108R&D Social protection
7109Social protection n.e.c.
Note: R&D = research and development; n.e.c. = not elsewhere classified.
Note: R&D = research and development; n.e.c. = not elsewhere classified.

6.129 All expenditure on a particular function is aggregated in one category of COFOG regardless of the economic nature of the expenditure. That is, transfers payable in cash 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, and/or the net investment in a nonfinancial asset for that same function are all reported under the same function.

Uses of COFOG

6.130 COFOG permits trends in government expenditure on particular functions or policy 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 expenditure on these purposes over time.

6.131 COFOG is also used for making international comparisons of the extent to which governments are involved in particular 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, or industrial development.

6.132 For particular kinds of analyses, COFOG provides key aggregates that could be used as indicators or measures of results. For example, in studies of social assistance, information on past expenditure on the social protection function could give an indication of changes in the support provided by government for the welfare of the population. Similarly, analyzing the impact of economic growth on the environment may require information on the expenditure on environmental protection.

Individual versus Collective Goods and Services

6.133 Government services can benefit the community either individually or collectively. COFOG is used to distinguish between individual and collective goods and services provided by general government units. The COFOG functions are defined so that they represent individual or collective consumption, but not both.

6.134 A collective service is a service provided simultaneously to all members of the community or to all members of a particular section of the community, such as all households living in a particular region. Other characteristics of these collective services may be summarized as follows:

  • The use of such services is usually passive and does not require the explicit agreement or active participation of all the individuals concerned.

  • The provision of a collective service to one individual does not reduce the amount available to others in the same community or section of the community. There is no rivalry in consuming these services.

6.135 An individual consumption good or service is one that is acquired by a household and used to satisfy the needs or wants of members of that household. Individual goods and services are essentially “private” as distinct from “public” goods and services. They have the following characteristics:

  • It must be possible to observe and record the acquisition of the good or service by an individual household or member thereof as well as the time at which it took place.

  • The household must have agreed to accept the provision of the good or service and to take whatever action is necessary to make it possible—for example, by attending a school or clinic.

  • The good or service must be such that its acquisition by one household or person, or possibly by a small, restricted group of persons, precludes its acquisition by other households or persons.

6.136 An important characteristic of an individual good or service is that its acquisition by one household, person, or group of persons brings no (or very little) benefit to the rest of the community. The borderline between individual goods and services and collective services is not always clear. While the provision of certain individual health or education services (e.g., vaccination or immunization) may bring some external benefits to the rest of the community, in general, the individuals concerned derive the main benefit. When a government unit incurs expenditure on the provision of individual goods or services, it must decide not only how much to spend in total but how to allocate, or distribute, the goods or services among individual members of the community. In contrast, in the case of collective services, all members of the community benefit from such services.

6.137 Expenditure incurred by governments in connection with individual services such as health and education are to be treated as collective services when they are concerned with the formulation and administration of government policy, the setting and enforcement of public standards, the regulation, licensing, or supervision of producers, etc. For example, the expenditure incurred by ministries of health or education at a national level are to be included in collective consumption expenditure as they are concerned with general matters of policy, standards, and regulation. On the other hand, any overhead expenses connected with the administration or functioning of a group of hospitals, schools, colleges, or similar institutions are to be included in individual expenditure. For example, if a group of private hospitals has a central unit that provides certain common services such as purchasing, laboratories, ambulances, or other facilities, the costs of these common services would be taken into account in the prices charged to patients. The same principle must be followed when the hospitals are nonmarket producers: all the costs that are associated with the provision of services to particular individuals, including those of any central units providing common services, should be included in the value of expenditure on individual services.

6.138 All of classes 701 to 706 are collective services, as are sections 7075 and 7076 of health; sections 7083 to 7086 of recreation, culture, and religion; sections 7097 and 7098 of education; and sections 7108 and 7109 of social protection. These sections cover expenditure on general administration, regulation, research that is not recorded as investment in non-financial assets, and so on. The remaining sections of health, recreation, culture and religion, education, and social protection (which dominate each of the classes) are considered to be individual services.

6.139 In this annex, each class is marked “CS” or “IS” to designate it as collective services or individual services, respectively. This distinction is used for the computation of final consumption expenditure and actual final consumption of the general government and household sectors in the national accounts, as described in paragraphs A7.53–A7.62. Purchases of goods and services that are provided to individual households or persons are treated as social transfers in kind in the 2008 SNA so that the actual final consumption of government and households, in addition to their final consumption expenditure, can be computed. Therefore, statistics compiled for each economic type of expenditure by function are needed for compiling national accounts according to the 2008 SNA.

Units of Classification

6.140 The units of classification are, in principle, individual transactions. Each purchase of goods and services, wages payable, transfer, or other expenditure should be assigned a COFOG code according to the function that the transaction serves. For most expenditure, however, it will generally not be possible to use transactions as the unit of classification and institutional units may also not necessarily be performing a single function. Instead, COFOG codes may best be done at the smallest level of entities, regardless of their status as institutional units. Functions often have to be assigned to all transactions of agencies, offices, programs, bureaus, and similar smaller entities within government departments or ministries.

6.141 When these smaller government entities rather than transactions are used for classification, it may happen that the smallest entity that can be identified in the government accounts may perform more than one COFOG function. If possible, the expenditure of multifunction entities 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 expenditure by multifunction entities to whichever purpose appears to account for the largest part of expenditure.

6.142 A single classification cannot serve all analytic purposes. The selection of functions in COFOG is based on judgment. The scope of each function could be broader or narrower, and completely different functions could have been included. For example, expenditure for medical schools is 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 expenditure is shown separately, 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.

Problems in Identifying Functions of Government

Shared Expenditure

6.143 Government ministries generally are responsible for the formulation, administration, coordination, and monitoring of overall policies, plans, programs, and budgets; for the preparation (in some countries) and enforcement of legislation; and for the production and dissemination of general information, technical documentation, and statistics. Consequently, the expenditure of these ministries has to be shared across the classes for which they are responsible. For example, the expenditure 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).

Administrative Expenditure

6.144 Administrative expenditure 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 expenditure overlaps two or more classes, an attempt should be made to apportion expenditure 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 expenditure.

Subsidies

6.145 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. Because such programs do not focus on any single industry, they are classified under general labor affairs (70412).

Consumption of Fixed Capital

6.146 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 the net acquisition of fixed assets over a number of earlier years.

6.147 Another caution regarding the use of COFOG statistics relates to net investment in non-financial assets. Because expenditure classified by COFOG includes consumption of fixed capital as an expense, and includes it in the calculation of net investment in nonfinancial assets (deducted from acquisition minus disposals), the consumption of fixed capital will net out in COFOG data. However, if a functional classification is compiled for expense items only, this will include consumption of fixed capital representing part of the resource cost of using previously acquired fixed assets.

Cross-Classification of Expenditure

6.148 The economic and functional classifications of expenditure can be cross-classified as illustrated in Table 6A.2. A cross-classification of COFOG with each of the categories of the economic classification of expense is analytically useful. The cross-classification allows an analysis of:

Table 6A.2Cross-Classification of Expenditure by Functional and Economic Classifications
Compensation

of employees

[GFS]
Use of

goods

and

services
Consumption

of fixed

capital [GFS]
Interest

[GFS]
SubsidiesGrantsSocial

benefits

[GFS]
Other

expense
Net

Investment in

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

Consumption of fixed capital is a cost (expense) for a general government unit and reduces the value of nonfinancial assets. The net effect of consumption of fixed capital on total expenditure is thus zero.

Consumption of fixed capital is a cost (expense) for a general government unit and reduces the value of nonfinancial assets. The net effect of consumption of fixed capital on total expenditure is thus zero.

  • The inputs, which show how governments perform their functions, and the outputs, which show what governments are doing

  • How governments carry out their public expenditure policy functions to meet social objectives

  • The changes in the composition of expenditure over time to serve specific policy objectives

  • Comparison of how specific functions are carried out by different governments.

6.149Table 6A.2 includes a column for each major economic type of expense and for net investment in nonfinancial assets. As indicated earlier, this classification is needed to compile data on the actual final consumption of the general government and households (see paragraph 6.139).

Detailed Classification of the Functions of Government

6.150 As outlined earlier, the complete Classification of the Functions of Government (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. 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. In addition, where appropriate, reference has been made to expenditure rather than outlays. Otherwise, these descriptions are the same as those of the United Nations Statistical Division.47

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 that 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 nongovernment 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 toward 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 nongovernment 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 nonself-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 expense 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 noncombat 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 nongovernment 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 firefighting affairs and services

  • Operation of regular and auxiliary fire brigades and of other fire prevention and firefighting services maintained by public authorities; operation or support of fire prevention and firefighting 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 nongovernment 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 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 noncultivated.

Excludes: multipurpose 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 firefighting 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 here 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 noncommercial 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 nonenterprise-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 expenditure for the construction of dams and other works, designed chiefly to provide electricity.

Excludes: nonelectric energy produced by wind or solar heat (70436).

70436 Nonelectric energy (CS)

  • Administration of nonelectric energy affairs and services that chiefly concern the production, distribution, and utilization of heat in the form of steam, hot water, or hot air

  • Construction or operation of nonenterprise-type systems supplying nonelectric energy

  • Production and dissemination of general information, technical documentation, and statistics on availability, production, and utilization of nonelectric energy

  • Grants, loans, or subsidies to promote the use of nonelectric energy.

Includes: geothermal resources; nonelectric 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, gemstones, 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.), road transport system operations (granting of franchises, approval of freight tariffs and passenger fares, and of hours and frequency of service, etc.), and road construction and maintenance

  • Construction or operation of nonenterprise-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.), water transport system operations (granting of franchises, approval of freight tariffs and passenger fares, and of hours and frequency of service, etc.), and water transport facility construction and maintenance

  • Construction or operation of nonenterprise-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 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.), railway transport system operations (granting of franchises, approval of freight tariffs and passenger fares, and of hours and frequency of service, etc.), and railway construction and maintenance

  • Construction or operation of nonenterprise-type railway transport systems and facilities

  • Production and dissemination of general information, technical documentation, and statistics on railway transport system operations and 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.), air transport system operations (allocation of routes, approval of freight tariffs and passenger fares, and of frequency and levels of service, etc.), and air transport facility construction and maintenance

  • Construction or operation of nonenterprise-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 nonscheduled 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.); pipeline and other transport systems operations (granting of franchises, setting tariffs, frequency, and levels of service, etc.), and pipeline and other transport systems construction and maintenance

  • Construction or operation of nonenterprise-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 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, the availability of goods, and 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 multipurpose projects

  • Production and dissemination of general information, technical documentation, and statistics on multipurpose development project affairs and services

  • Grants, loans, or subsidies to support the construction, operation, maintenance, or upgrading of multipurpose 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 nongovernment 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 nongovernment 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 nongovernment 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 nongovernment 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 nongovernment 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 nongovernment 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 nongovernment bodies, such as research institutes and universities.

Includes: distributive trades, storage, and warehousing; hotels and restaurants; tourism and multipurpose 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 nonhazardous, 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 groundwater 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 nongovernment 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 regardless of whether 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 nonenterprise-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); multipurpose 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 nongovernment 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 expenditure on health includes expenditure on services provided to individual persons and services provided on a collective basis. Expenditure on individual services is allocated to groups (7071) through (7074); expenditure on collective services is 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 expenditure connected with administration or functioning of a group of hospitals, clinics, surgeries, etc. is considered to be individual expenditure and is 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 nonadhesive bandages, hypodermic syringes, first-aid kits, hot-water bottles and ice bags, medical hosiery items such as elasticized 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 that chiefly provide outpatient services that are not limited to a particular medical specialty and that 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 nonconsulting rooms, patients’ homes, or other nonmedical 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 that 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 that offer inpatient 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), or 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 nonmedical expenditure of hospitals on administration, nonmedical 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 nongovernment 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 expenditure on recreation, culture, and religion includes expenditure on services provided to individual persons and households and expenditure on services provided on a collective basis. Individual expenditure is allocated to groups (7081) and (7082); expenditure on collective services is 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 noncommercial 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 nongovernment 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, culture, 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 expenditure on education includes expenditure on services provided to individual pupils and students and expenditure on services provided on a collective basis. Expenditure on individual services is allocated to groups (7091) through (7096); expenditure on collective services is 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 expenditure connected with administration or functioning of a group of schools, colleges, etc. is considered to be individual expenditure and is 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. Expenditure so incurred is 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 Nontertiary Education

70930 Post-secondary nontertiary education (IS)

  • Provision of post-secondary nontertiary education at ISCED-97 level 4

  • Administration, inspection, operation, or support of institutions providing post-secondary nontertiary 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 nontertiary 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 (i.e., educational programs, generally for adults, that 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 nongovernment 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 expenditure on social protection includes expenditure on services and transfers provided to individual persons and households and expenditure on services provided on a collective basis. Expenditure on individual services and transfers are allocated to groups (7101) through (7107); expenditure on collective services is 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 2008 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 and 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 that 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, and 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, and 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, and 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, and 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, and other periodic or lump-sum payments to survivors

  • Benefits in kind, such as payments toward funeral expenditure and 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, and other periodic or lump-sum payments to support households and help them meet the costs of specific needs (e.g., those of the lone parent families or families with handicapped children)

  • Benefits in kind, such as shelter and board provided to preschool children during the day or part of the day, financial assistance toward 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, and 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 and 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, and 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, and accommodation, food, or clothes provided to unemployed persons and their families.

Excludes: general programs or schemes directed toward 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 (i.e., to help with paying mortgages or interest), and 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, and 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 nongovernment 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).

In GFS, the functional classification is applied to expenditure—that is, the sum of expense transactions and net investment in nonfinancial assets.

Where these goods are used in own-account capital formation to create another asset, such as a fixed asset or another category of inventories, they would be recorded as part of the cost of the acquisition of such assets. However, where the goods are consumed during the process of providing a service, an expense is recorded.

See also Appendix 8, Table A8.2, for the detailed classifications.

[GFS] indicates that an item has the same name but different coverage in the 2008 SNA.

The numbers in parentheses after each classification category are the GFS classification codes. Appendix 8 provides all classification codes used in the GFS framework.

Compensation of employees is described in the 2008 SNA, paragraphs 7.28–7.70.

To the extent that compensation of employees is not paid on the agreed due for payment date, these other accounts payable will be in arrears from the date they became due (see paragraphs 9.20 and 7.226).

The use of the term “cash” should not be viewed as denoting the cash basis of recording, but rather denotes monetary remuneration.

Amounts directly paid to the employee should be rerouted to be included in revenue of the employer related to the service provided, and then expensed as wages and salaries.

If it is difficult to separate payments of wages and salaries to employees on short periods of absence due to sickness, accidents, etc., from other payments of wages and salaries, the payments during short periods of absence should remain included in wages and salaries.

This value may be estimated as the amount the employee would have to pay if the market equivalent interest rates were charged minus the amount of interest actually payable. The sums involved could be large when nominal interest rates are very high, but otherwise they may be too small and too uncertain to be worth estimating.

Under a stock option agreement, the employer gives an employee the option to buy stocks or shares at a specified price at a future date (see paragraphs 9.77–9.81).

The situation is parallel to one in which income taxes payable by employees are deducted by employers from the wages or salaries and paid directly to the tax authorities. The direct payment of social contributions, or income taxes, by government units as employers to other government units, such as social security schemes, other employment-related social insurance schemes, or tax authorities, is merely a shortcut taken on grounds of administrative convenience and efficiency.

Some defined-benefit pension schemes may have financial assets that exceed the liabilities of the scheme to present and past employees. It is possible that in this case, the government may take a “contribution holiday” and not make actual contributions for one or more periods. Nonetheless, an imputed contribution by the government should be calculated and recorded (see paragraph A2.46).

Use of goods and services is closely related to intermediate consumption in the 2008 SNA. The relationship between the two concepts is explained in Appendix 7. Intermediate consumption is described in the 2008 SNA, paragraphs 6.213–6.239.

As described in paragraph 7.75, inventories may include materials and supplies, work in progress, finished goods, goods for resale, and military inventories. See paragraphs 8.44–8.47 for a discussion on transactions in inventories.

The treatment in the 2008 SNA differs because national accounts have the purpose to calculate production, transfers, and consumption. Therefore, the SNA treatment is to record the cost of production and the imputed sale of the goods and services to the final recipient as the user of the goods and services. In addition, the SNA also records a transfer that is deemed to be used by the recipient to pay for the imputed sale (see the 2008 SNA, paragraphs 8.43–8.51).

Should these benefits be related to their employment contract, they will be included in compensation of employees (21).

Consumption of fixed capital is described in the 2008 SNA in paragraphs 6.240–6.257.

Organisation for Economic Co-operation and Development, Measuring Capital—OECD Manual: Measurement of Capital Stocks, Consumption of Fixed Capital and Capital Services (Paris, 2009) contains an extensive discussion of the methods for estimating capital stock and consumption of fixed capital.

Financial assets and their classification are described in Chapter 7.

There are three approaches for defining and measuring interest for traded debt instruments: debtor approach, creditor approach, and acquisition approach (see the BPM6, paragraphs 11.52–11.53).

Examples of the calculation of interest can be found in the PSDS Guide, Box 2.3, and 2013 EDS Guide, paragraphs 2.65–2.77.

The grace period is the period from the disbursement of the loan until the first payment due by the debtor.

If a prepayment fee or a penalty for prepayment is paid, it should be classified as a service fee under use of goods and services (22), and not as interest.

See the 2013 EDS Guide, paragraph 2.98 and Box 2.4, for a discussion on internal rate of return.

The original yield-to-maturity rate is the rate at which the present value of future interest and principal payments equals the issue price of the bond—that is, the yield of the security at issuance.

These approaches are discussed in more detail in the 2008 SNA, paragraphs 17.274–17.282, and the BPM6, paragraphs 11.59–11.65.

Similarly, any interest receivable from financial intermediaries would need to be increased by the value of the implicit service fee that has reduced the interest receivable.

Subsidies are described in the 2008 SNA, paragraphs 7.98–7.106.

Export subsidies do not include the repayment at the customs frontier of taxes previously paid on goods or services while they were inside the economic territory. They also exclude the waiving of the taxes that would be due if the goods were to be sold or used inside the economic territory instead of being exported. These tax expenditures/credits are not recorded separately in GFS (see paragraph 5.86).

In these cases, the subsidy is calculated as the difference between the purchase and the selling price.

Transfers to corporations and quasi-corporations to cover large operating deficits accumulated over two or more years are recorded as capital transfers not elsewhere classified (2822).

The institutional units involved, classification, and recording of flows and stock positions related to social protection are described in Appendix 2.

In the 2008 SNA, all payments of pension and other retirement benefits are recorded as transfer payments: those paid through social security schemes are solely transfer payments, whereas payments through employment-related schemes, other than social security (defined contributions or defined benefits), are first recorded as transfer payments to households in the use of income account, and then as a change in pension entitlements in the financial account. Subsequently, the reductions in liabilities are recorded as an adjustment entry made to remove any inconsistency between the benefits and the change in liabilities.

In the 2008 SNA, when a general government unit produces goods and services that are distributed as social benefits, the expense items related to the costs of producing them, such as compensation of employees, are the same as in this Manual. However, in the 2008 SNA, unlike this Manual, the value of the goods and services produced is also included as social benefits.

Although these reimbursements (partial or in full) are normally paid in cash, they are recorded as social benefits in kind, because they are assumed to be incurred directly by the social security fund at the time the household makes the purchase.

Distributions of profits by fiscal, export, and import monopolies are recorded as taxes payable (see paragraphs 5.63–5.68 and 5.86). Therefore, in expense, these amounts payable are classified as transfers not elsewhere classified (282).

For a description of flows and stock positions related to insurance and standardized guarantee schemes, see paragraphs A4.66–A4.80.

Membership dues and subscription fees are recorded as an expense in use of goods and services (22) if there is an exchange of a payment for some form of a service (see paragraph 6.42).

This expense category excludes amounts payable for the acquisition of equity (see paragraph 9.49).

Where a realistic expectation exists that such amounts will be repayable, as indicated by certain criteria (see Box 6.3), the transaction should be classified as the acquisition of a financial asset. A regular transfer covering an operating deficit is recorded as a subsidy.

Amounts payable up to the value of the liability assumed should be recorded as transactions in financial assets and liabilities (i.e., the reduction in liabilities) (see paragraphs 9.66–9.67).

In the 2008 SNA, nonlife insurance premiums payable are partitioned into a purchase of a service and a transfer. In GFS, the entire premium is considered a transfer because the policyholder is not able to partition the service and transfer components.

COFOG was produced by the Organisation for Economic Cooperation and Development (OECD) and was published together with the other three classifications in United Nations (UN), Classifications of Expenditure according to Purpose (New York, 2000). The other classifications are the Classifications of Individual Consumption According to Purpose (COICOP), the Classification of the Purpose of Nonprofit Institutions Serving Households (COPNI), and the Classification of the Outlays of Producers According to Purpose (COPP).

CEA is one of the classifications and lists contained in the System of Environmental-Economic Accounting Central Framework (SEEA). See Appendix 7 for a description of the linkages between GFS and the SEEA. For more details on CEA, also see the Classification of Environmental Protection Activities and Expenditure (CEPA) (UN, 2000c).

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