Abstract
The ESA 2010 defined the consolidation perimeter of the government, in other words, the entities (named institutional units) to be considered for the purpose of the calculation of the deficit and the public debt. Under the ESA 2010, a unit that is to be classified as an institutional unit requires two conditions: to have decision autonomy and complete accounting. Decision autonomy is understood to be (1) the right to be the owner of goods and assets and to be able to transact them, (2) to be able to make economic decisions, (3) to be able to contract liabilities, and (4) to be able to elaborate autonomous accounting records. The definition of the sector that belongs to an institutional unit depends, in the first place, on the control of that unit. Control is understood to be (1) able to determine a general policy and (2) able to choose the management board and (3) to hold more that 50% of the capital (which is considered to be sufficient but is not necessary a condition for control). Non-market institutional units are understood to be any institutional unit that does not fulfil the market revenue rule: whereby more than 50% of the total costs are covered by market revenue (revenue by sales at an economically significant price).
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Notes
- 1.
Regulation (EU) No 549/2013 of the European Parliament and of the Council of 21 May 2013, on the European System of National and Regional Accounts in the European Union. The ESA 2010, such as its predecessor ESA 1995, is of mandatory application in the European Union space, being implemented be the different Member States, until the end of September 2014.
- 2.
See ESA 2010, 2.05 and 2.06 for territory definition: “Economic territory consists of the following: (a) the area (geographic territory) under the effective administration and economic control of a single government; (b) any free zones, including bonded warehouses and factories under customs control; (c) the national air-space, territorial waters and the continental shelf lying in international waters, over which the country enjoys exclusive rights; (d) territorial enclaves, these being geographic territories situated in the rest of the world and used, under international treaties or agreements between States, by general government agencies of the country (such as embassies, consulates, military bases, scientific bases, etc.); (e) deposits of oil, natural gas, etc. in international waters outside the continental shelf of the country, worked by units resident in the territory as defined in points (a)–(d). Fishing boats, other ships, floating platforms and aircraft are treated in the ESA as mobile equipment, whether owned and/or operated by units resident in the country, or owned by non-residents and operated by resident units. Transactions involving the ownership (gross fixed capital formation) and use (renting, insurance, etc.) of mobile equipment are attributed to the economy of the country of which the owner and/or operator respectively are residents. In cases of financial leasing, a change of ownership is assumed. Economic territory may be an area larger or smaller than that defined above. An example of a larger area is a currency union such as the European Monetary Union; an example of a smaller area is a part of a country such as a region. Economic territory excludes extraterritorial enclaves. Also excluded are the parts of the country’s own geographic territory used by the following organisations: (a) general government agencies of other countries; (b) institutions and bodies of the European Union; and (c) international organisations under international treaties between States. The territories used by the institutions and bodies of the European Union and international organisations are separate economic territories. A feature of such territories is that the only residents are the institutions”.
- 3.
In the original from the ESA 2010: “A resident unit is regarded as constituting an institutional unit in the economic territory where it has its centre of predominant economic interest if it has decision- making autonomy and either keeps a complete set of accounts, or is able to compile a complete set of accounts”.
- 4.
In the original from the Eurostat (2016): “able to draw up a complete set of accounts, comprised of accounting records of covering all its transactions carried out during the accounting period, as well as balance sheet of assets and liabilities”.
- 5.
See ESA 20.18, 20.307 and 20.310.
- 6.
See ESA 2010, 20.303.
- 7.
Regarding the financing question, see ESA 2010, 20.15.
- 8.
ESA 2010, 20.19.
- 9.
ESA 2010, 20.19 and following.
- 10.
In the original from Eurostat (2016): “A price is said to be economically significant when “it has a substantial influence on the amounts of products the producers are willing to supply and on the amounts of products that the purchasers wish to acquire.” The capacity of producers and consumers to react to economic “signals” is fundamental as to assess market behaviour. Conversely, a price is said to be not economically significant when it has little or no influence at all on how much the producer is prepared to supply and have only a minor influence on the quantities demanded. It is thus a price that does not determine the observed levels of supply or demand”.
- 11.
Page 21 from the Eurostat Manual: “In order to be assimilated to sales, these payments (to which any producer of the same service should be entitled) must be directly linked to the volume or value of the output, and not only because the producer is engaged in such production. For example, in respect of public transport, government could choose to pay subsidies based on the number of tickets sold, such that the subsidies paid vary directly with usage and cover the gap between the price charged to users (generally controlled by government) and the costs for the corresponding output. On the contrary, payments made irrespectively of the actual amount of tickets sold to final users, under the form of a global lump sum to cover operating deficit resulting for the insufficient coverage of costs by pricing, would not be added to the sales for the 50% test. In practice, the payments included in the extensive notion of “sales” are labelled “subsidies on products” (D.31), defined in ESA 2010.4.33 as “payable per unit of a good or service produced or imported”. ESA 2010 3.33, however, specifies explicitly that “the payments made by general government to cover an overall deficit of public corporations and quasicorporations” that “constitute part of other subsidies on products as defined in ESA 2010 4.35 (c)” are not considered sales. For their part, “other subsidies on production” (D.39) (ESA 2010 4.36) and other transfers from government are not taken in account. Therefore, any subsidy for which the total amount to be paid has been fixed ex-ante (possibly already partially or totally paid before the whole activity has been carried out), generally in the context of global budget negotiations focusing on factors such as maintenance of buildings, investment in technical equipment, payment for compensation of employees, are excluded from “sales” when applying the market quantitative test”.
- 12.
ESA 2010, 3.33.
- 13.
Some services are typically required as ancillary services. They include activities such as transportation, financing and investment, purchasing, sales, marketing, computer services, communications, cleaning, and maintenance. A unit that provides this type of services exclusively to its parent unit or to other units in the same group of units is an ancillary unit. It is not a separate institutional unit and is classified with its parent unit. Ancillary units provide all of their output to their owners for use as intermediate consumption or gross fixed capital formation.
- 14.
In the original Eurostat (2016): “a holding company according to ESA 2010 2.14 (b) holds assets of subsidiaries (essentially shares with voting rights), exerts control on them but undertake no management activities, i.e. does not have an active role as regards the daily activity of the group. Holding companies just monitor the income distribution of the subsidiaries, and only reallocate the income to its own shareholder(s). More precisely, such entities “do not provide any other service to the businesses in which the equity is held”. According to ESA 2010, from a general perspective, holding companies must be considered a captive financial institution”.
- 15.
For the concept of “mother and daughters”, see Directive 2011/96/EU.
References
ESA 2010 European System of Accounts 2010. https://ec.europa.eu/eurostat/cache/metadata/Annexes/nasa_10_f_esms_an1.pdf
Eurostat (2016) Manual of government deficit and debt. https://ec.europa.eu/eurostat/documents/3859598/7203647/KS-GQ-16-001-EN-N.pdf/5cfae6dd-29d8-4487-80ac-37f76cd1f012. Accessed 1 Nov 2016
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Miranda Sarmento, J. (2018). The General Government Sector in the National Accounts. In: Public Finance and National Accounts in the European Context . Financial and Monetary Policy Studies, vol 47. Springer, Cham. https://doi.org/10.1007/978-3-030-05174-7_8
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