If an institutional unit is under government control, it is then reviewed to determine whether it is a market or non-market producer.
The ABS adopts a principles-based approach when examining the factors for this determination. Units will typically be classified as market producers if they sell the majority of their output over the long-term at economically significant prices.
Economically significant prices are prices that have a significant effect on the amounts that producers are willing to supply and on the amounts that purchasers wish to buy. These prices normally result when (para. 2.59, AGFS 15):
- The producer has an incentive to adjust supply either with the goal of making a profit in the long run or, at a minimum, covering capital and other costs; and
- Consumers have the freedom to purchase or not purchase and make the choice on the basis of the prices charged.
The ABS considers three tests to assist in determining whether a unit is a market or non-market producer (para. 2.58, AGFS 15):
- Sales to costs ratio: the higher the proportion of total production costs that are covered by total sales (including subsidies), the more likely the unit is to be a market producer. There is no specified threshold for the sales to costs ratio.
- Government intervention: the extent to which the government can directly influence the prices, nature and level of goods and services provided by the producer.
- Competition: the ability of consumers to acquire similar goods and services from other producers on the basis of the prices charged, as competition can be restricted by excessive market control or government regulation. This test also considers the lack of competition when a unit is primarily supplying goods and services to other government units.
If it is established a public sector unit is a market producer, it will be classified as a public corporation. If not, the unit is classified as a general government unit.
Public corporations are further delineated into public non-financial corporations and public financial corporations, on the basis of whether the unit produces financial services. Additional guidance on types of public financial corporations can be found in para. 2.50-2.52 of the AGFS 15 manual.