Review of Expenditure Aggregates

1. Review of Expenditure Aggregates Derek Blades World Bank Consultant

2. Contents • Expenditure aggregates • Valuation • Two measures of consumption

3. Main expenditure aggregates

4. Expenditure Aggregates of 1993 SNA

5. Expenditure Aggregates of 1993 SNA

7. Household consumption expenditure • “Real” expenditures • food, clothing, transport, rent, services…. • Imputed expenditures: • rents of owner-occupiers • food and other goods for own consumption • goods and services provided as income in kind

8. Consumption expenditure by NPISHs • Examples: • religious organisations (mosques, temples, churches, schools, clinics, hospitals) • trade unions • political parties in multi-party states • UNICEF, OXFAM, Red Crescent • Consumption expenditure is the total of: • compensation of employees, • intermediate consumption, • consumption of fixed capital, • taxes less subsidies on production • minus any payments received from households for services provided. • Only one basic heading – no breakdown by type

9. Consumption Expenditure by Government • All levels of government are covered-central, federal, provincial, local, townships … Consumption expenditure is the total of: • compensation of employees, • intermediate consumption, • consumption of fixed capital, • taxes less subsidies on production • minus any payments received from households for services provided. • Divided between “individual” and “collective”

10. Individual versus Collective • Most expenditures on housing, health, recreation and culture, education and social protection are individual. (21 basic headings) • Expenditures on general public services, defence, public order and safety, economic affairs and environment protection are collective. (5 basic headings)

11. Gross fixed capital formation (GFCF) • Goods that are expected to be used in production for several years • GFCF is always measured net of sales: • sales for scrap, sales to other domestic producers, exports of second-hand assets • 1993 SNA includes expenditures on software and on mineral exploration in GFCF • Three basic headings: • Machinery and equipment • Construction • Other products

12. Change in inventories • Work in progress - construction, ships… • Stocks of raw materials, finished goods, goods for resale, goods stored by government as strategic reserves, such as food and fuel. • Estimates may not be comprehensive but should cover important items such as food and fuel stocks, stocks of mining companies, large retailers...

13. Acquisitions less disposal of Valuables • Valuables are goods acquired as a store of value: • Precious metals • Paintings and antiques • Jewellery • Not used in production

14. Valuation

15. Valuation - general rule • General rule is to use the prices at which sales of goods and services are transacted - “purchasers” (or “market”) prices. • These prices may be reduced by discounts or rebates: • bargaining, sales, bulk purchases… • Note that price data for ICP must also reflect discounts or rebates.

16. Valuation - imputed rents • Use rents actually paid for similar kinds of dwellings, in similar locations and with similar facilities • If not possible, rents are valued at cost - consumption of fixed capital, return on capital, regular maintenance, and insurance

17. Valuation – goods produced for own consumption • Prices in local markets for livestock, vegetables, fruit… • Estimated basic prices for furniture, textiles, hand-tools (retail prices less sales taxes and retail margins)

18. Valuation – Government and NPISH • Compensation of employees – not only wages and salaries • Intermediate consumption – valued at purchasers prices • Consumption of fixed capital – in current prices (not historical) • Taxes less subsidies on production • minus any payments received from households for services provided.

19. Valuation - GFCF • GFCF is valued at purchasers’ prices • Prices should include: • cost of transport • cost of installation • and any fees or taxes for transfer of ownership. • Own-account production of fixed capital assets is valued at basic prices or, if not available, at the costs of production.

20. Valuation - Change in Inventories • The change in inventories must reflect only the physical change - not holding gains or losses due to changes in prices during the year. • The physical quantities of inventories at the beginning and end of the year are usually valued using the average prices over the year or, failing that, mid-year prices.

21. Valuation - Exports and Imports • Exports of goods and services • Free-on-board (f.o.b.) prices • Imports of goods and services • Cost, insurance, freight (c.i.f.) prices

22. Two Measures of Consumption

23. Two ways of looking at consumption • Who buys? • Who consumes?

24. Consumption expenditure Households Non-profit institutions Government: Individual Collective Actual consumption Households: Household expenditures Non-profit institutions Government individual expenditures Government: Government collective expenditures Consumption Expenditure versus Actual Consumption

25. To summarise: • Actual consumption of households consists of: • All consumption expenditure of households • All consumption expenditures of non-profit institutions serving households • Individual consumption expenditures of government • Actual consumption expenditure of government consists of: • Collective consumption expenditures of government • ICP compares actual consumption, not consumption expenditures