E4/REG/2005/18

/ EUROPEAN COMMISSION
EUROSTAT
Directorate E: Agriculture, fisheries, Structural Funds and environment statistics
Unit E-4: Regional accounts /

Working Party on “Regional and Urban Statistics”
Meeting of 17-19October 2005 in Luxembourg,
BECH building, room AMPERE

Document E4/REG/2005/18

Revision of SNA 1993 – stateofplay

European Commission, L-2920 Luxembourg. BECH building

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E4/REG/2005/18

Revision of SNA 1993 – stateofplay

1.The SNA revision process

The 1993 System of National Accounts (SNA) is currently undergoing comprehensive revision which started in 2003 and is to be completed by March2008 with the publication of a revised SNA (“SNA 93, Rev.1”). This is to be followed by a corresponding update of ESA 1995.

44 specific items for review have been identified for this update of the SNA (see annex). These issues are being considered by various expert groups,such as the Canberra II Group on the measurement of non-financial assets, electronic discussion groups and task forces. The outcome of these discussions is reported to the Advisory Expert Group on National Accounts (AEG) which comprises 20 national accounts experts from all regions of the world. The AEG decides on the expert groups’ proposals and forwards its decision to the Intersecretariat Working Group on National Accounts (ISWGNA) for final consultation.

Recommendations onmany of the 44 SNA update issues have already been decided and the remaining items are to be discussed and finalised by the AEG in January 2006. Much of 2006 and 2007 will then be spent on integrating the recommended changes into the present conceptual framework and ondrafting the text of the revised SNA, before finalising the process in early 2008.

2.Major (non-financial) SNA revision issues

The revision of the SNA covers a wide range of national accounts issues. This includes items related to both non-financial and financial accounts, various classification issues and the treatment of economic units. Examples are the treatment of unfunded employment retirement schemes, the measurement of non-life insurance services, the question of when leases and licences become an asset themselves, the measurement of databases,the valuation of non-performing loans and clarifications on economic units and the concept of residence.

A few of the more prominent non-financial issues which might also be of interest to regional accounts are summarised below.

Recognising research and development (R&D) output as capital formation

Issue:Currently the SNA does not recognise R&D output as capital formation, but treats it as intermediate consumption. The issue has been whether or not to recognise the outcome of R&D as capital formation (“knowledge assets”)in the revised SNA and, if so, whether to include only R&D undertaken by market producers or also R&D freely disseminated by non-market producers and, finally, how to measure R&D output.

AEG decision: At the last AEG meeting in July 2005 a large majority supported the recommendationthat the 1993 SNA should be changed to recognise R&D outputs as assets. A number of AEG members expressed concern about the proposed inclusion of freely disseminated R&D as this would potentially change the current SNA definition of “asset”. It was agreed that theoretically thisshould not be treated as assets. However, because the amount of R&D made freely available is likely to be small and difficult to identify, in practice itmight not be excluded. The AEG agreed to use the Frascati Manual definition of R&D addingthe clarification that this does not imply that human capital is treated as an asset in the SNA. It also decided that the Frascati framework provides the best means of deriving estimates of R&D statistics, but needs amendments to meet the requirements of the SNA better.

Government-owned assets – recording a return on capital

Issue: The present SNA measures non-market output by government and non-profit institutions as the sum of costs, i.e. intermediate consumption, compensation of employees, other taxes less subsidies on production and consumption of fixed capital. The issue is whether or not also to include, in the measurement of non-market output, a return on capital which would reflect the opportunity costs of the assets used in production.

AEG decision: The AEG strongly supported theprinciple ofinclusion of a return oncapital in the measurement of non-market output.However, concerns were expressed about the rate of return to be chosen and the availability of data oncapital stock. In terms of the range of assets which could be covered, most participants favoured including, in the generation of government output,assets similar to those used in market production.A smaller number favoured including roads and other infrastructure assets.Fewer favoured including assets such as city parks serving the community at large and land. This range of views should be sent to the countries and postedon the website, seeking responseson both conceptual and practical grounds.

Military assets – GFCF or intermediate consumption?

Issue: The 1993 SNA states that destructive military weapon systems designed for combat, such as warships, fighter aircraft and tanks, should be treated as intermediate consumption by general government rather than as fixed assets. This treatment has been seen by many experts as problematic for various reasons (e.g. the role of military assets in providing defence services, the notion that military assets have a value and can be sold, practical difficulties in clearly distinguishing between destructive and non-destructive equipment, and the fact that police weapons and equipment are already counted as assets). The issue, therefore,has been whether or not to change the SNA and record expenditure on military weapons as fixed capital formation.

AEG decision: The AEG decided to include expenditure on military weapon systems as gross fixed capital formation. There was general agreement that defence GFCF should be presented separately from other types of GFCF.

3.A separate regional accounts chapter in the SNA?

The present SNA mentions regional accounts only briefly and in rather general terms(SNA,sections19.88 – 19.96). Given the increasing importance of regional accounts in some parts of the world, it has been suggested that a separate chapter in the SNA should deal with conceptual issues relating to regionalisation of the accounts.

However, both the AEG and the ISWGNA rejected the idea of adding a separate regional accounts chapter to the SNA. They argued that there would beinsufficient benefit from following this course in the current SNA update. There isalready a chapter on regional accounts in ESA95. Furthermore, since 1995 Eurostat has published handbooks on practical, agreed ways to allocate national estimates for difficult activities. If further guidance is required it would be better dealt with in an extra handbook covering the rationale, compilation, distribution and measurement issues, including nationalpractices.

The Working Party is requested to take note of the stateofplay with the SNA updating process.

Annex

1993 SNA Update Issues

For further information on the SNA update process visit the website of the United Nations Statistics Division:

This site also includes the following list of all SNA update issues already decided and closed or still open for comments. To see the issue description just click on the issue name in the list. To see the list of corresponding background papers or summary papers just click on the icon forthe relevantissue in the relevantcolumn.

Issue/Subissue / AEG
Papers / Recomm.
Summaries / AEG
Rec. / Country
Comm. / Expert
Comm. / Status for
Comments
1.Repurchaseagreements / / 1
New! / 2 / Open
2.Employer retirement pension schemes / / 2
3.Employee stock options / / / 1 / 39 / 1 / Closed
4.Valuation of non-performing loans, loans and deposits
Non-performing loans / / / 2
New! / 52 / Open
Valuation of loans and deposits; Write-off and interest accrual on impaired loans / / 1
New! / Open
5.Non-life insurance services / / / 3 / 37 / 1 / Open
6.Financial services
Financial services / / 1 / 32 / 1 / Open
Allocation of the output of central banks / / 1 / 50 / 1 / Open
7.Taxes on holding gains / / / 1 / 36 / 1 / Closed
8.Interest under high inflation /
9.Research and development / / 1
New! / Open
10.Patented entities / 1
11.Originals and copies / / / 2
New! / 39 / Open
12.Databases / / / 2
New! / 45 / Open
13.Other intangible fixed assets / 1
14.Cost of ownership transfers / / / 2 / 76 / 1 / Open
15.Cost of capital services: production account / / 1
New! / 4 / Open
16.Government owned assets / / / 2
New! / 50 / 1 / Open
17.Mineral exploration / / / 1 / 45 / 1 / Open
18.Right to use/exploit non-produced resources between residents and non-residents
19.Military expenditures / / / 2 / 37 / 3 / Closed
20.Land / / / 2
New! / 46 / Open
21.Contracts and leases of assets / 1
22.Goodwill and other non-produced assets / / 1
New! / 1 / Open
23.Obsolescence and depreciation / / 1
New! / Open
24.Build-Own-Operate-Transfer (BOOT) schemes / 2
25.Units
Ancillary units / 1
Institutional units
Holding companies, special purpose entities, trusts / / / 1 / 46 / Open
Treatment of multi-territory enterprises / / / 2
New! / 45 / Open
Recognition of unincorporated branches / / / 1 / 40 / Open
Privatization, restructuring agencies, securitization and special purpose vehicles (SPVs) /
26.Cultivated assets / / 1 / 31 / 1 / Closed
27.Classification and terminology on assets
28.Amortization of tangible and intangible non-produced assets
29.Assets boundary for non-produced intangible assets
30.Definition of economic assets
31.Valuation of water / / 1
32.Informal sector / / 2
33.Illegal and underground activities / 1
34.Super dividend, capital injections and reinvested earnings (government transactions with public corporations (earnings and funding)) / / 3
35.Tax revenue, uncollectible taxes, and tax credits (recording of taxes) / / 3
36.Private/public/government sectors delineation (sectorization boundaries) / / 1 / 1
37.Activation of guarantees (contingent assets) and constructive obligations / / 4
38.Transaction concept
Change of economic ownership (as term) / / / 1 / 34 / Open
Assets, liabilities and personal effects of individuals changing residence ("migrant transfers") / / 1
New! / Open
Application of accrual principles to the debt in arrears / / / 2
New! / 48 / Open
39.Residence
Meaning of national economy
Predominant center of economic interest (as term) / / / 1 / 52 / Open
Clarification of non-permanent workers and entities with little or no physical presence / / 2
New! / Open
40.Goods sent abroad for processing / / / 1
New! / 5 / Open
41.Merchanting / / 1
42.Retained earnings of mutual funds, insurance companies, and pension funds /
43.Interest and related issues
Treatment of index linked debt instruments / / 2
New! / 1 / Open
Interest at concessional rates
Fees payable on securities lending and gold loans / / 1
New! / Open
44.Financial assets classification / / 1
New! / 2 / Open
45.Decisions on additional issues submitted to the AEG / / 1 / Closed

List of Clarifications

Clarification / AEG
Papers / Recomm.
Summaries / AEG
Recomm.
C1.Other subsidies on production to non-market producers
C2.The treatment of seignorage profits from the issue of coins in the 1993 SNA and in the Manual of Government Finance Statistics (GFS) 1986
C3.Review of SNA terminology for user-friendliness
C4.Volumes and prices in relation to taxes on products
C5.Clarification of components of compensation of employees
C6.Review of SNA codes
C7.Should the first appearance of value of financial derivatives be entered as other changes in volume (OCVA)?
C8.Classification of financial assets: F5 Shares and other equity/F52 Mutual Funds
C9.Valuation of equity
C10.Measurement of non market output
C11.Concept of jobs and concept of persons
C12.Top level industry classifications
C13.Clarification of Chapter XXI on satellite accounts
C14.The definition of interest
C15.The Public Sector
C16.Measurement of labor inputs
C17.Measurement of output produced for own final use
C18.Inventory withdraws defined including or excluding normal losses
C19.Government final consumption expenditure
C20.Legal versus economic terminology
C21.Definition of an establishment
C22.Valuation of work-in-progress
C23.Capital assets not yet ready for use
C24.Changes in inventories
C25.Links between business accounting and national accounting

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