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5216.0 - Australian National Accounts: Concepts, Sources and Methods, 2000  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 15/11/2000   
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Contents >> Chapter 14: Final consumption expenditure >> Government final consumption expenditure

Government final consumption expenditure

Classification

14.300 The SNA93 proposes a classification of the functions of government which is designed for classifying current transactions (such as consumption expenditure, subsidies and current transfers), capital outlays (capital formation and capital transfers) and acquisition of financial assets by general government and its subsectors. The categories used in the classification of total outlays in accordance with the Classification of the Functions of Government (COFOG) are as follows:


1General public services
2Defence affairs and services
3Public order and safety affairs
4Education affairs and services
5Health affairs and services
6Social security and welfare affairs and services
7Housing and community amenity affairs and services
8Recreational, cultural and religious affairs and services
9Fuel and energy affairs and services
10Agriculture, forestry, fishing and hunting affairs and services
11Mining and mineral resource affairs and services, other than fuels; manufacturing affairs and services; and construction affairs and services
12Transportation and communication affairs and services
13Other economic affairs and services
14Expenditures not classified by major group



Description

14.301 Government final consumption expenditure is current expenditure by general government bodies on services to the community such as defence, education, and public order and safety. Because these are provided free of charge or at charges which cover only a small proportion of costs, the government is considered to be the consumer of its own output. This output has no directly observable market value, and so it is valued in the national accounts at its cost of production.

14.302 Government final consumption expenditure covers net outlays by general government on goods and services for current purposes (i.e. outlays which do not result in the creation of capital assets, or in the acquisition of land and existing buildings or second-hand capital goods). Transfer payments (e.g. interest payments on government debt securities and social assistance benefits) are not included.

14.303 An exception to the above definition is made for defence expenditure. Current defence expenditure includes purchases of durable military equipment such as ships and aircraft used as weapons platforms, and outlays on construction works that can only be used for military purposes. The ABS has followed international recommendations in applying this treatment. The justification for it has been that the durability of military hardware is uncertain because of wars and other conflicts. However, expenditure on military assets that can be used for civilian purposes, such as hospitals and dock facilities, is classified as gross fixed capital formation.

14.304 Expenditure overseas on major items of military equipment with no equivalent civilian use is included in government final consumption expenditure in the period in which the equipment is delivered. The value of military equipment and facilities transferred to civilian use or as gifts to foreign countries is offset against expenditure on defence.

14.305 Government final consumption expenditure can be regarded as comprising the following:


compensation of employees paid to employees of general government bodies (other than those producing capital goods)
plusintermediate consumption of goods and services, (e.g. purchases of office supplies and the services of consultants)
lessthe value of goods and services sold by general government to other sectors
plusconsumption of fixed capital
plusthe timing adjustment for overseas purchases of defence equipment.


14.306 Intermediate consumption for general government includes general government's share of the imputed financial services provided by banks and other financial intermediaries (FISIM). Detailed estimates of government final consumption expenditure classified by purpose are available, as a general rule, from 1961-62.

Universities

14.307 Public universities are treated as non-market NPIs allocated to the general government sector. However, the treatment of public universities has changed with the introduction of the SNA93. Universities have been shifted from the State and local level of general government to what is now termed the 'national' level.

14.308 Public universities are defined as non-market NPIs on the basis of their funding arrangements. While most public universities were created by State legislation, the bulk of their funding (more than 70 per cent) is received from the Commonwealth government. Approximately 20 per cent of the remaining funding is accounted for by the Higher Education Contribution Scheme (HECS) fees, with only around 10 per cent accounted for by fees for overseas students, post-graduate students and entrepreneurial activity. They are allocated to the government sector on the basis that, while no Australian government is able to control universities in the sense of being able to appoint their managing officers, it is clear that the Commonwealth government is able to exercise a significant degree of control through its funding power.

14.309 While there continue to be two subsectors within the general government sector defined according to their level of government, their definitions have changed. Whereas previously these subsectors were defined as (i) Commonwealth and (ii) State and local, they are now defined as (i) National and (ii) State and local. The previous subsector definitions presented problems when allocating institutional units such as public universities, which are subject to a degree of control from both the Commonwealth government and State governments. The scope of the new National subsector has been changed to include multi-jurisdictional units in addition to units which are solely under the jurisdiction of the Commonwealth. At present, universities are the only institutions to be designated as multi-jurisdictional units.

Sources and methods

Annual estimates

14.310 For Commonwealth and State general government, data are sourced from public account ledgers, budget papers, Auditors'-General Reports, and supplementary departmental documents. These data are coded using a standardised classification which allows unit records to be aggregated to national accounting totals.

14.311 For local government, an annual ABS questionnaire is used to collect data from local government authorities in some States, while in others the data are jointly collected through the Commonwealth Grants Commission or the Department of Local Government.

Quarterly estimates

14.312 Information about Commonwealth and State general government is mostly extracted from administrative sources such as the Commonwealth Department of Finance and Administration quarterly ledger, and State government monthly and quarterly statements of receipts and expenditure. Additional information is collected quarterly from a number of general government non-budget enterprises. Estimates for local government are prepared from a quarterly sample of local government authorities.

Volume estimates of government final consumption expenditure

14.313 All of the components of government final consumption expenditure (GFCE) for each State, described below, are revalued to the prices of the previous year. They are summed to State and national totals and then chained to form chain volume estimates.

14.314 Most of the services produced by the general government sector are not sold on the market, and therefore there are no values and prices associated with most outputs. Hence it has been the practice for GFCE at current prices to be revalued at the prices of the previous year using price indexes (i.e. deflators) relating to the inputs to the general government sector. The major input is labour, and public sector/industry wage rate indexes from Wage Cost Index (Cat. no. 6345.0) figure prominently in the deflators used. Intermediate inputs cover a wide range of goods and services, including electricity, paper and publishing, transport and office requisites. Detailed information obtained periodically from Commonwealth and State government departments is used to identify the significant components of intermediate input and provide the weights for combining them and the wage rate indexes together. The price indexes for components of intermediate input are taken from Price Indexes of Articles Produced by Manufacturing Industry (Cat. no. 6412.0), Price Indexes of Materials Used in Manufacturing Industries (Cat. no. 6411.0), Consumer Price Index (Cat. no. 6401.0) and Import Price Index (Cat. no. 6414.0).

14.315 There is one other input: consumption of fixed capital (COFC). Estimates of COFC for the nation in the prices of the previous year are derived using the perpetual inventory method (PIM) - see Chapter 16 for details. State estimates are derived by allocating the national estimates to each State in proportion to more approximate estimates derived from a simplified version of the PIM.

14.316 Commonwealth GFCE also includes various personal benefit payments (other than social assistance benefits). These are revalued to the prices of the previous year using price indexes relating to the services for which the payments are made.

Defence

14.317 Defence payments are revalued using a chain price index comprising wage rate indexes and price indexes relating to intermediate inputs and equipment. Detailed information is available of major purchases of military equipment, which allows the construction of a chain price index deflator.

14.318 The current price estimates of the defence adjustment are revalued using an import price index for other transport equipment.

14.319 COFC is derived using the PIM.

Commonwealth non-defence

14.320 COFC is derived using the PIM.

14.321 Current price estimates of redundancy payments in the previous year are extrapolated using public service employment numbers.

14.322 Current price estimates of medical personal benefit payments are revalued using a composite of price indexes derived from Medicare statistics reflecting doctors' service charges.

14.323 Current price estimates of pharmaceutical benefit payments are revalued using the consumer price index for chemist goods.

14.324 Current price estimates of the cost of superannuation are revalued using the total public sector wage rates index.

14.325 The current price estimates of the remainder of Commonwealth non-defence GFCE are revalued using a price index comprising wage rate indexes and price indexes relating to intermediate inputs.

State and local

14.326 COFC is derived using the PIM.

14.327 Current price estimates of redundancy payments in the previous year are extrapolated using public service employment numbers.

14.328 The current price estimates of the remainder of State and local GFCE are revalued using a price index comprising wage rate indexes and price indexes relating to intermediate inputs.


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