Under current accounting standards, the Australian System of Government Finance Statistics Concepts, Sources and Methods, 2015 edition (also known as the AGFS15) will be effective for data reported for the period from 1 July 2017 onwards. This manual supersedes the Australian System of Government Finance Statistics Concepts, Sources and Methods, 2005, as amended in 2010.

The Australian GFS system is based on two important international statistical standards:

• the system of national accounts embodied in System of National Accounts 2008 (2008 SNA), issued jointly by the United Nations (UN), the International Monetary Fund (IMF), the Commission of European Communities, the Organisation for Economic Co-operation and Development (OECD) and the World Bank; and
• the International Monetary Fund Government Finance Statistics Manual 2014 (IMF GFSM 2014), which is the international statistical standard for compiling GFS developed by the IMF (in consultation with member countries). The current version was released in 2015, and it replaced the version released in 2001.

The 2008 SNA can be seen as an ‘umbrella’ standard with which a number of other international statistical standards are ‘harmonised’. The harmonised standards use 2008 SNA statistical concepts and, to a degree, use common classifications and items, enabling links between the harmonised system and the SNA to be readily established. The IMF standard for GFS is such a harmonised system.

The 2008 SNA is a statistical framework relating to the whole of an economy and covers government activities only as a component. The 2008 SNA also differs from the GFS system in that its central focus is on economic concepts such as production, whereas the GFS system concentrates mainly on fiscal concepts such as revenues and expenses.

The Australian System of National Accounts (ASNA) is aligned with international standards for national accounts set out in the 2008 SNA. There are close links between the ASNA and Australia’s GFS system, which is the main source of ASNA statistics about the general government sector and public non-financial corporations. The GFS system is designed to provide data that can be used in compiling the national accounts and the two data systems have many concepts in common.

The IMF GFS standard is internationally accepted as the appropriate framework on which to base the preparation and presentation of GFS. Therefore, the core definitions and descriptions in this manual are deliberately intended to be consistent (where possible) with equivalent descriptions and definitions in the IMF GFSM 2014. The ABS provides GFS to the IMF for publication with similar statistics for all IMF member countries. Because these statistics are prepared according to the IMF standard, they can be used to compare Australian government finance with the government finance of the other member countries. In publishing GFS for Australia, the ABS includes minor adaptations of the IMF standard, only deviating where necessary to meet local needs. Details of where the AGFS15 deviates from the IMF GFS standards are provided in Chapter 17 of this manual.

Harmonisation of the GFS system with the SNA ensures that users of GFS can relate the statistics to national accounts data for the whole economy and other sectors. International statistical standards relating to the Balance of Payments and International Investment Position Manual (BPM 6) and the Monetary and Financial Statistics Manual (MFSM) are also harmonised with the SNA. Therefore, where these statistics use concepts that are also used in the GFS system, the concepts are defined in the same way as in the GFS system.

Government activities covered by the GFS system include not only the functions of government departments and authorities that are financed primarily from taxation (classified as general government units and described as ‘non-market’ units in the IMF GFSM 2014), but also the operations of government controlled corporations and authorities (described as ‘market’ units in the IMF GFSM 2014). Distinctions are made in the statistics between the operations of such market-oriented units controlled by governments and all other government units. Market-oriented units are further sub-divided between those with primarily financial functions, such as government controlled banks and insurance companies (public financial corporations), and other market units such as government controlled utilities (referred to as public nonfinancial corporations). All three levels of government (national, state / territory, and local) are covered by the statistics and separate data are compiled for each level of government and for each jurisdiction (i.e. the Commonwealth, each state and territory and the control not further defined sector which includes public universities).

The main sources of information for compiling GFS in Australia are the data systems that support the public accounts of the Commonwealth, and each state and territory government. These accounts are largely geared towards financial accountability and control and are in a format reflecting accounting standards and legal and administrative imperatives in each jurisdiction. In compiling the statistics, the ABS makes use of the accounts of other government authorities that fall within the scope of the GFS system but are not covered by the public accounts and keep their own particular forms of financial accounts. Also used are local governments’ accounts, which are kept in a form dictated by administrative requirements and accounting standards.

The accounts that are the main sources of information for compiling GFS in Australia generally comply with Australian accounting standards for government entities. The accounting concepts established by these standards are generally consistent with the statistical concepts employed in GFS. In developing Australia’s GFS system, the ABS has worked closely with government accountants and the Australian Accounting Standards Board and has endeavoured to identify wand document the small number of unavoidable differences between the GFS system and the accounting standards.

Although accounting standards impose a high degree of uniformity on government financial reporting, government financial reports generally do not contain the degree of classificatory detail and the focus on particular economic and fiscal measures that GFS provides. Only the GFS system provides data that can be used for international comparisons and can be related to economic data included in the national accounts. The GFS relationship to the Australian accounting standards is further discussed in Chapter 17 of this manual.

In the past, government accounts were maintained primarily on a cash basis and only cash flows and selected balances were recorded. Similarly, the GFS system was originally a cash based system. However, the ABS moved to an accruals basis of recording GFS with supporting information about cash flows in 2000. Under the GFS accrual system, all economic events that create, transform, exchange, transfer or extinguish economic value are recorded, whether or not they are associated with cash flows. All such events are recorded at the time at which they occur rather than when associated cash flows occur.

In broad terms, the primary use of GFS is in fiscal analysis or the analysis of government financial data for the purpose of developing and evaluating government economic policy. Fiscal analysts focus on measures that are indicative of the financial situation of governments and the impact of government operations on the rest of the economy. While a wide range of financial information is required to meet the needs of fiscal analysts, a prominent feature of fiscal analysis is the use of key indicators that provide a convenient summary of financial outcomes. These indicators are derived using reported flows and / or stock positions. They are sometimes referred to as analytical balances or balancing items. Aggregates are generally calculated by summing individual flows / stocks, while balances are calculated by subtracting one aggregate from another aggregate.

This manual is intended as a general reference document for users and compilers of GFS. For users, the manual provides a detailed account of the concepts underlying GFS, the sources of data employed and the methods used to compile the statistics. As such, the manual should assist users to obtain a deeper understanding of the nature and content of the statistics than can be obtained from the ABS publications in which the statistics are presented. For compilers, the manual is intended to serve as a training aid and as a working reference on matters of technical detail.

This manual has been structured to provide a sequence of discussion of the concepts, sources and methods used in the compilation of GFS. The following structure has been used:

• Chapter 1: Introduction - (this chapter) discusses the nature of the GFS and the purpose and organisation of this manual.
• Chapter 2: Institutional units and sectors - discusses the scope and coverage of institutional units and sectors, including discussion on the concept of residence, types of institutional units, and the different institutional sectors.
• Chapter 3: Flows, stock positions and accounting rules - discusses economic flows in the context of transactions and other economic flows, the rearrangement of certain GFS transactions such as rerouting, partitioning, and reassignment, the economic stocks of assets, and the accounting rules used in the GFS.
• Chapter 4: The analytical framework - describes the ABS GFS analytical framework, discusses some of the input classifications and the statements that make up the GFS analytical framework.
• Chapter 5: The statement of operations - looks at the elements that relate to the GFS statement of operations, including the concepts of revenue and expenses, the net operating balance, transactions in non-financial assets, and the concept of GFS net lending (+) / net borrowing (-).
• Chapter 6: Revenue - examines the concept of revenue in detail, including revenue recognition, the time of recording of revenue and the detailed classification of revenue in the GFS.
• Chapter 7: Expenses - examines the concept of expenses in detail, including the time of recording of expenses, the treatment of certain expenses in GFS such as government payments to NPIs and superannuation, and the classification of expenses in the GFS.
• Chapter 8: The balance sheet - looks at the elements that make up the GFS balance sheet, describes the concepts of assets and liabilities, and discusses some other aspects of the GFS balance sheet including the treatment of debt in the GFS system.
• Chapter 9: Transactions in non-financial assets - examines the nature of non-financial assets, including the valuation, the time of recording and the classification of non-financial assets in the GFS system.
• Chapter 10: Transactions in financial assets and liabilities - examines the nature of financial assets and liabilities and the relationship between them, including the valuation, the time of recording and the classification of financial assets in the GFS system.
• Chapter 11: Other economic flows - discusses the concept of other economic flows in the context of holding gains and losses and other changes in the volume of assets and liabilities, and their classification in the GFS system.
• Chapter 12: The statement of sources and uses of cash - describes the definitions and classifications associated with the statement of sources and uses of cash in GFS.
• Chapter 13: Treatment of selected items - describes the treatment of various items that appear in the statement of operations and the balance sheet.
• Chapter 14: Data sources and methods of compilation - describes the data sources and the collection methodology used in the ABS GFS system, and the methods used in compilation of GFS data.
• Chapter 15: Data output - describes the statistical output of the GFS system.
• Chapter 16: Data quality - analyses the accuracy, reliability and timeliness of the statistics.
• Chapter 17: Relationships to other statistical systems - provides a broad description of the relationship of the AGFS15 with the IMF GFSM 2014, the ASNA, and the Australian accounting standard AASB 1049.
• Appendix 1: Classifications for compiling GFS
  • Part A: GFS classifications and framework - describes the GFS classifications and framework used in compiling GFS.
  • Part B: Supplementary information - describes the supporting information that appears as GFS input classifications, such as memorandum items, contingent liabilities, debt maturity, and a breakdown of own account capital formation.
  • Part C: Classification of the functions of government - Australia (COFOG-A) - describes the definitions and classifications contained in the COFOG-A.
• Appendix 2: Summary of changes from the Australian system of government finance statistics concepts, sources and methods, 2005 - describes the changes in the AGFS15 from the Australian System of Government Finance Statistics Concepts, Sources and Methods, 2005, as amended in 2010.
• Appendix 3: Departures from the international GFS standards - summarises the departures from the IMF GFSM 2014 in the AGFS15.

A glossary of terms used in the manual and index are provided at the end of this manual.

2.12.

Identifying the residence of an institutional unit is important for determining the coverage of the GFS system. Paragraph 2.7 of the IMF GFSM 2014 defines the residence of an institutional unit as the economic territory with which it has the strongest connection (i.e. its centre of predominant economic interest) rather than the legal or political territory.

2.13.

Paragraph 2.8 of the IMF GFSM 2014 defines economic territory as any geographical area or jurisdiction for which statistics are required. However, the most commonly used concept of economic territory is the area under the effective economic control of a single government. Paragraph 2.9 of the IMF GFSM 2014 states that economic territory includes:

• The land area;
• Airspace;
• Territorial waters, including areas over which jurisdiction is exercised over fishing rights and rights to fuels or minerals;
• In a maritime territory, islands that belong to the territory; and
• Territorial enclaves in the rest of the world (such as embassies, consulates, military bases, scientific stations, information or immigration offices, aid agencies, central bank representative offices with diplomatic status).

2.14.

The concept of the economic territory of a country includes territorial enclaves in the rest of the world. The SESCA defines these as clearly demarcated areas of land that are physically located in other countries, but which are used by the government for diplomatic, military, scientific or other purposes. Therefore, the coverage of the Australian GFS system includes the overseas operations of Australia’s embassies, consulates, trade offices, etc.

2.15.

Further, paragraph 2.10 of the IMF GFSM 2014 specifies that the economic territory of a country does not include the territorial enclaves that belong to foreign governments or international organisations that are physically located within the boundaries of that country, but which are not subject to the laws of the host country. Therefore the operations of foreign embassies, consulates, trade offices, military bases, etc., within the physical boundaries of Australia are excluded from the coverage of the Australian GFS system.

2.16.

In GFS, a unit's economic activity can only be attributed to one country based on residence. Therefore, every institutional unit must have a centre of predominant economic interest within an economic territory. Paragraph 2.12 of the IMF GFSM 2014 defines a centre of predominant economic interest to be a location, dwelling, place of production or other premises from which a unit engages (and intends to continue to engage) in economic activities and transactions on a significant scale indefinitely, or over a finite but long period of time. The location itself need not be fixed in the one place, so long as it remains within the economic territory of the country.

2.17.

The IMF consider all general government units to be residents in their own country regardless of their physical location, however, public corporations are considered to be residents of the economies in which they operate. The SESCA specifies that unincorporated enterprises other than notional resident institutional units, are not separate from their owners, and therefore have the same residence as their owners. Notional resident institutional units are further discussed in paragraphs 2.20 and 2.21 of this chapter.

2.18.

The SESCA defines Australia's economic territory as the area under the effective control of the Australian government, specifically:

• Geographic Australia which includes Cocos (Keeling) Islands and Christmas Island;
• Norfolk Island;
• Australian Antarctic Territory;
• Heard Island and McDonald Islands;
• Territory of Ashmore Reef and Cartier Island;
• Coral Sea Islands; and
• Australia's territorial enclaves overseas.

2.19.

Paragraph 2.12 of the IMF GFSM 2014 states that if a unit operates (or intends to operate) in an economic territory for one year or more, it is considered to have a centre of economic interest in that economic territory (unless the unit forms part of the territorial enclave of another country). The criterion of actual or intended location for one year or more is used as an operational definition, and is adopted in GFS to avoid uncertainty and facilitate international consistency. The SESCA indicates that ownership of land and structures within the economic territory of Australia is deemed sufficient justification to record a centre of economic interest in Australia on the grounds that the property can be used for production.

2.20.

The SESCA states that where a non-resident owner does not have any economic interest within the economic territory of Australia other than ownership of land and structures, the ownership of the land and structures are treated as having been transferred to a notional resident institutional unit in Australia.

2.21.

A notional resident unit is defined in paragraph 2.13 of the IMF GFSM 2014 as being created when the legal owner of immovable assets within an economic territory is a non-resident. Immovable assets in this context refers to assets such as land, other natural resources, buildings and structures, which are usually treated as being owned by resident units. For GFS purposes, a notional resident unit is created to reflect the receipt of the rent or rentals that accrue on those asset/s. In this situation, paragraph 2.13 of the IMF GFSM 2014 specifies that the legal owner is deemed to hold equivalent equity in the notional resident unit, and receives income from the notional resident unit in the form of property income paid abroad.

2.22.

The SESCA states that international organisations such as the United Nations (and its agencies) and the International Monetary Fund (IMF), are not considered to be residents of any economy, including those in which they are located or where they conduct their affairs. They are treated as non-residents by all economies. However, persons working for these organisations are treated as residents of the economies in which they live.

2.23.

A basic statistical unit that is classified by sector is known as an institutional unit. Institutional units in the Australian GFS system are assigned a number of unit classifications. These classifications are the institutional sector classification (INST), the level of government classification (LOG), the jurisdiction classification (JUR), which are discussed throughout this chapter. Paragraph 2.22 of the IMF GFSM 2014 notes that to be considered an institutional unit in it's own right, a unit must:

• Have the ability to own goods or assets and exchange these in transactions with other institutional units; Be able to make economic decisions and engage in economic activity for which itself is held responsible and accountable at law;
• Be able to incur liabilities on its own behalf, take on other obligations or future commitments, and to enter into contracts; and
• Be able to produce a complete set of accounts, including a balance sheet of assets, liabilities and net worth, an operating statement and a cash flow statement, or it would be possible and meaningful from both an economic and legal viewpoint to compile a complete set of accounts if required.

2.24.

The SESCA states that institutional units can be established formally (such as through an act of parliament), or informally (such as a household formed by individual members sharing a dwelling), or as a specific type of unit (such as through the Corporations Act, 2001). The concept of the ABS institutional unit for GFS purposes is aligned with that of the IMF GFSM 2014 and the 2008 SNA.

2.25.

Units that do not meet all of the criteria set out in paragraph 2.23 of this chapter are treated as part of their parent entity. Included are departments and agencies operating from the public accounts of the parent government. The exception to this rule is in the case of notional institutional units. These are public corporations that do not exist as separate legal entities from their collective parent government unit, but that operate autonomously in the market. To be recognised as a notional institutional unit, a unit must:

• Have the same relationship to its owners as a corporation has to its shareholders;
• Have a full set of accounts, including a statement of financial position; and
• Be a market producer (for the definition, see paragraphs 2.58 to 2.63 of this manual).

2.26.

In practice, notional institutional units will only be created where they engage in significant market activity.

2.27.

Artificial subsidiaries are a type of government unit that is established by government, but they cannot act independently and are simply passive holders of assets and liabilities. Artificial subsidiary units are not treated as separate institutional units, but are classified as components of the level of government that controls them unless the unit is resident in an economy different from that of its parent unit (see discussion on residence of units in paragraphs 2.12 to 2.22 of this manual). Government resident artificial subsidiaries are sometimes set up as Special Purpose Entities (SPEs) which are often legally constituted as corporations. If the SPE is a non-market producer and is controlled by another government unit, the SPE should be classified within the general government sector with the parent government unit that controls it. Further information on SPEs can be found in paragraphs 2.107 to 2.110 of this manual. Further information on artificial subsidiaries can be found in paragraphs 2.42 and 2.43 of the IMF GFSM 2014.

2.28.

Another example of a resident artificial subsidiary would be a central borrowing authority (CBA) if it was established by government with the purpose of borrowing on the market and lending only to the parent unit or other general government units. Paragraph 2.44 of the IMF GFSM 2014 states that such CBAs are classified to the general government with the government unit that controls them because they merely facilitate government borrowing. However, in Australia CBAs are not treated as artificial subsidiaries, but as separate institutional units and are classified to the public financial corporations sector because their function is not restricted to borrowing and lending only to the parent unit, and they play a key part in the financial corporations sector. Please see paragraphs 2.53 and 2.54 of this manual for further discussion on CBAs.

2.29.

Paragraph 2.26 of the IMF GFSM 2014 advises that the type of institutional unit used for compiling GFS must be determined by its objectives and functions, and cannot be inferred from its legal status or name alone. Australia's standard for defining institutional sectors and subsectors is the SISCA which is contained within the SESCA. There are four types of institutional units. These are:

• Corporations;
• General government units;
• Non-profit institutions; and
• Households.

2.30.

A corporation is defined in paragraph 2.31 of the IMF GFSM 2014 as an entity that is capable of generating a profit or other financial gain for its owner, is recognised by law as a separate legal entity from its owners, and is set up for the purpose of engaging in market production. All corporations are part of either the nonfinancial corporations sector or the financial corporations sector, depending on the nature of their primary activity.

2.31.

Corporations are typically:

• Created for the purpose of market production;
• Created by processes of law that establish their existence as independent from their shareholders, including other institutional units (i.e. other corporations, household unincorporated enterprises, government units and non-profit institutions serving households) that may own shares or other equity in the corporations;
• Owned by shareholders who receive a distribution of profits in proportion to their share holdings; and
• Fully accountable at law for their actions, obligations and contracts and are liable to pay taxes (i.e. they are a legal entity).

2.32.

The primary determinant for classifying a unit as a corporation in macroeconomic statistics is not its legal status, but rather the economic substance of the nature of the entity. Paragraph 2.32 of the IMF GFSM 2014 notes that the key to the correct classification of an institutional unit as a public corporation is knowing whether or not the unit is a market producer (one that produces goods and / or services at economically significant prices). In the ABS, this distinction is made on a case by case basis. Institutional units that qualify as corporations and are controlled by government units or other public corporations are classified as public corporations (as either public financial corporations or public non-financial corporations based on the nature of the activity of the unit). Only corporations that are controlled by government or other public corporations are included in GFS. Government control of corporations is further discussed in paragraphs 2.68 to 2.74 of this manual.

2.33.

Paragraph 2.32 of the IMF GFSM 2014 further states that some non-profit institutions and government units have the legal status of a corporation, but are not considered public corporations for the purposes of macroeconomic statistics because they are not market producers, and so they are classified as general government units. Other non-profit institutions are legal corporations that produce for the market but they are not allowed to be a source of financial gain to their owners. Conversely, some entities with different legal titles (such as partnerships or a joint-stock company), could be considered corporations for economic statistics when they satisfy the definition of corporations.

2.34.

A quasi-corporation is defined in paragraph 2.33 of the IMF GFSM 2014 as an entity which is not incorporated or otherwise legally established, but functions as if it was a corporation. Note that these units need to meet the criteria of being a separate institutional unit in their own right as per paragraph 2.23 of this manual. In GFS, quasi-corporations are treated as corporations if controlled by a government unit or another public corporation. Such a quasi-corporation can be either: 

• An unincorporated enterprise controlled by a resident public sector entity that has sufficient information to compile a complete set of accounts and is operated as if it were a separate corporation and whose de facto relationship to its owner is that of a corporation to its shareholders; or
• An unincorporated enterprise controlled by a non-resident public sector entity that is deemed to be a resident institutional unit because it engages in a significant amount of production in the economic territory over a long or indefinite period of time.

2.35.

Paragraph 2.34 of the IMF GFSM 2014 recommends that an entity or group of entities engaged in the same kind of production activities be treated as quasi-corporations if the entity:

• Charges prices for its outputs that are economically significant (see paragraph 2.59 of this manual for the definition);
• Is operated and managed in a similar way to a corporation; and
• Has a complete set of accounts (or is able to meaningfully construct a complete set of accounts), that enable its stock positions and flows to be separately identified and measured.

2.36.

Paragraph 2.38 of the IMF GFSM 2014 describes general government units as unique kinds of legal entities established by political processes that have legislative, judicial, or executive authority over other institutional units within a given area. The principal functions of government units are to:

• Assume responsibility for the provision of goods and services to the community or individual households primarily on a non-market basis;
• Redistribute income and wealth by means of transfer;
• Engage primarily in non-market production; and
• Finance their activities primarily out of taxation or other compulsory transfers.

2.37.

Paragraph 2.38 of the IMF GFSM 2014 considers the requirement of financing activities by compulsory transfers necessary to differentiate a general government unit from a non-profit institution, which may carry out the same functions as a government but obtains its funds from voluntary transfers, property income, or sales. In this context, the receipt of compulsory transfers may be indirect. For example, a local government may finance its activities with grants receivable from the Commonwealth Government. A government unit may also finance a portion of its activities in a specific period by borrowing or by acquiring funds from sources other than compulsory transfers. For example, interest revenue, incidental sales of goods and services, or the rent of subsoil assets. All general government units are part of the general government sector.

2.38.

The majority of general government units are readily identifiable as their operations are mainly financed from taxation and they redistribute income by means of transfers (e.g. subsidies, grants, welfare payments), or engage in other forms of non-market production such as the provision of government services (e.g. defence, education, health services) free of charge or at nominal prices.

2.39.

Statutory authorities and companies created by legislation or regulation which operate outside the public accounts, along with local government authorities, qualify individually as general government units.

2.40.

Statutory authorities are entities established by the Australian Constitution or by an Act of Parliament of the Commonwealth or one of the states or territories. Statutory authorities include the Governor General of Australia and the Governor of each Australian state, each house of the parliaments of the Commonwealth, each state and territory, and each court of law. Statutory authorities are not restricted to entities created as ‘bodies corporate’, but include any other entity which is described in legislation as having been established by the legislation. Included are entities established under legislation which provides for the establishment of a class of entities (e.g. government owned companies created under corporations law, and local government authorities created under local government legislation) rather than for each entity individually. The concept also includes entities which are created as statutory offices held by individual persons, or as statutory bodies comprising several statutory offices named in the legislation.

2.41.

Departmental entities include entities created as Departments of State by the instrument (e.g. proclamation, Executive Council order) required by legislation in the Commonwealth and each state or territory. However, for statistical purposes, ‘departmental entities’ exclude any statutory authorities which may be named as part of a department in the instrument of creation.

2.42.

Each statutory authority and departmental entity that is included in the public accounts of a jurisdiction is treated conceptually as part of a wider enterprise unit comprising all such units in the jurisdiction. Conversely, with one exception, each statutory authority and departmental entity that is not included in the public accounts of a jurisdiction is treated as an individual legal entity and therefore as an enterprise. The exception concerns units that operate as an integral part of another unit (e.g. they have no separate accounts and no separate employees); such units are merged with the unit of which they form an integral part.

2.43.

Non-profit institutions (NPIs) are defined in the SESCA as legal or social entities created for the purpose of producing goods and services whose status does not permit them to be a source of income, profit or other financial gain for the units that establish, control or finance them. NPIs must have an enabling instrument which includes a clause that prohibits the NPI from distributing income, profit or other financial gain to its establishing, controlling or financing unit. This includes benefitting from the sale of assets in the event of the dissolution of the unit. The productive activities of NPIs may generate either surpluses or deficits but any surpluses they make cannot be appropriated by the establishing, controlling or financing institutional unit. For this reason, they are frequently exempted from various kinds of taxes.

2.44.

The main characteristics of NPIs are they:

• Are created by processes of law that establish the NPI's separate existence from the units that establish, finance, control or manage them;
• Have purpose statements set out in articles of association;
• Are associations with members who have equal voting rights and limited liability with respect to the NPI's operations;
• Cannot distribute profits to members (the term 'non-profit institution' reflects the embargo on distribution of financial gains and is not intended to imply that NPIs cannot make a profit); and
• Are self-governing, with their direction usually vested in a group of officers, an executive committee or a similar body elected by a majority of members.

2.45.

A household consists of a person or a group of persons who share the same living accommodation, who pool some, or all, of their income and wealth and who consume certain types of goods and services collectively, mainly housing and food (see paragraph 2.28, IMF GFSM 2014). Individual members of households are not treated as institutional units because assets are often owned (and liabilities incurred) jointly by two or more members of a household. The income of a household is often pooled, and expenditure decisions are often made for the household as a whole. As a result, the household as a whole, including all individual members, is considered to be an institutional unit. Households fall outside the scope of the GFS system, the purpose of which is to measure government fiscal activity.

2.46.

An institutional sector groups together similar kinds of institutional units according to the nature of the economic activity they undertake. The Australian economy is divided into five mutually exclusive sectors, which are described in Table 2.1 below. Of these five institutional sectors that together make up the total economy, only some units in the first three sectors listed in Table 2.1 are part of the total public sector and therefore in scope for GFS.

2.47.

The institutional sector classification (INST) used in Australia's GFS system is a standard classification which defines institutional sectors that are also included in the SESCA. The INST is shown in Table 2.2 below:

2.48.

Non-financial corporations (INST 100) are defined in paragraph 2.114 of the IMF GFSM 2014 as all resident corporations whose principal activity is the production of non-financial goods and / or nonfinancial services at economically significant prices. These are known as market producers (see paragraphs 2.58 to 2.63 of this manual for the definition). Non-financial services are any services that do not qualify as financial intermediation or auxiliary financial services.

2.49.

All resident non-financial corporations controlled by general government units or other public corporations are part of the public non-financial corporations sector. Public non-financial corporations include corporations such as state water corporations and port authorities. This category could also include public non-profit institutions engaging in market production (such as hospitals, schools, or colleges) if they are separate institutional units and charge economically significant prices (see paragraph 2.59 of this manual for the definition).

2.50.

Financial corporations (INST 200) are defined in paragraph 2.115 of the IMF GFSM as all resident corporations that are principally engaged in providing financial services (including insurance and pension fund services) to other institutional units. These are known as market producers (see paragraphs 2.58 to 2.63 of this manual for the definition). All resident financial corporations controlled by general government units or other public corporations are part of the public financial corporations subsector. In the GFS system, the public financial corporations sector includes:

• Public deposit-taking corporations (central bank and public deposit-taking corporations except the central bank); and
• Other public financial corporations.

2.51.

Financial corporations include three types named financial intermediaries, financial auxiliaries, and captive financial institutions and money lenders. Paragraph 2.54 of the IMF GFSM 2014 identifies these as:

• Financial intermediaries - institutional units which incur liabilities on their own account for the purpose of acquiring financial assets by engaging in financial transactions on the market. The assets and liabilities of financial intermediaries are transformed or repackaged with respect to maturity, scale, risk, and the like, in the financial intermediation process. The financial intermediation process channels funds between third parties with a surplus of funds and those with a demand for funds. A financial intermediary not only acts as an agent for these other institutional units, but places itself at risk by acquiring financial assets and incurring liabilities on its own account. Financial intermediation is limited to acquiring assets and incurring liabilities with the general public or specified and relatively large groups thereof. Where the activity is limited to small groups, no intermediation takes place. Financial intermediaries include deposit-taking corporations, insurance corporations, and pension funds.
• Financial auxiliaries - financial corporations that are principally engaged in activities associated with transactions in financial assets and liabilities or with providing the regulatory context for these transactions but in circumstances that do not involve the auxiliary taking ownership of the financial assets and liabilities being transacted. They include brokers, managers of pension funds, mutual funds, etc. (but not the funds they manage), foreign exchange bureau, and central supervisory authorities.
• Captive financial institutions and money lenders - institutional units providing financial services other than insurance, where most of their assets or liabilities are not available on open financial markets. These entities transact within only a limited group of units (such as with subsidiaries) or subsidiaries of the same holding corporations or entities that provide loans from own funds provided by only one sponsor. Captive insurance corporations are the exception and are classified as insurance corporations.

2.52.

Public financial corporations include institutions that undertake a central bank role, including monetary policy development, issuing national currency, acting as custodian of international reserves, and providing banking services to government. In Australia, the Reserve Bank of Australia has responsibility for monetary policy, issuing bank note currency, holding Australia's international reserves, holding reserve deposits and providing banking services to the Commonwealth. The Reserve Bank of Australia is Australia's central bank and is therefore included as a public financial corporation for GFS purposes. Also treated as public financial corporations are various housing finance schemes established by state Governments to assist first home buyers.

2.53.

A central borrowing authority (CBA) would be a resident artificial subsidiary unit (see paragraphs 2.50 and 2.51 of this manual for the definition) established by government if its purpose was to borrow funds on the market and lend only to other general government units. Because such CBAs merely facilitate government borrowing, they would not qualify as separate institutional units and would be classified to the parent government unit in the general government sector.

2.54.

In Australia, CBAs have been established by some state and territory governments primarily to provide finance for public corporations, quasi-corporations and other units owned or controlled by the government, and to arrange investment of their surplus funds. Although the CBAs’ lending is often confined to the public sector in their jurisdiction, in Australia they also engage in financial intermediation activity for investment purposes and participate in the financial management activities of the parent government. Therefore, the CBAs of each Australian state and territory government are treated as public financial corporations and not as artificial subsidiaries in the general government sector. The exception is the Australian Capital Territory’s CBA which does not qualify as a separate institutional unit and is treated as part of the general government sector.

2.55.

The general government (GG) sector (INST 300) is defined in paragraph 2.58 of the IMF GFSM 2014 as consisting of resident institutional units that fulfil the functions of government as their primary activity. These institutional units perform the principal economic functions of government, in addition to fulfilling their political responsibilities and their role of economic regulator. The GG sector consists of all the government units at the national level of government (in Australia this consists of the Commonwealth Government and control not further defined units), each state and territory government, and all local government authorities and NPIs engaged in non-market production that are controlled by government units.

2.56.

The GG sector includes courts, government departments, and the Governor General's Office. Excluded from the GG sector are government owned corporations and quasi-corporations (see paragraphs 2.32 and 2.33 of this manual for definition) engaged in market production. However, paragraph 2.59 of the IMF GFSM 2014 states that unincorporated enterprises owned by government units that are not quasicorporations remain integral parts of those units, so they must be included in the GG sector. For further information on general government units, see paragraphs 2.43 to 2.49 of this manual.

2.57.

Using the concepts covered in this chapter of residence and institutional units, the following decision tree in Diagram 2.1 assists compilers of GFS to apply the appropriate sector classification to entities. The concepts of government control and market versus non-market production, which are used to allocate units to sectors, are also discussed in this section. The decision tree should be followed from the top and should answer the sequential questions asked to indicate whether the unit should be classified to the Rest of the World (ROW), Households, Non-profit Institutions Serving Households (NPISH), the General Government, Public Non-Financial Corporation or Public Financial Corporation sectors.

2.58.

To determine if a public sector unit is a public corporation or general government unit, it is necessary to classify it as a market producer (public corporation) or non-market producer (general government). The following indicators are useful when determining whether a government entity is a market or non-market producer. Note that macro-economic statistics are compiled using a principles based framework in Australia. Therefore these indicators are not ranked or weighted as they would be under a rules based approach. Usually two or three of the indicators are used collectively to classify units, although in some cases a single indicator could be sufficient to determine the type of producer. These indicators are designed to consider both the producer's and consumer's point of view to assess whether economically significant prices are being charged:

• What proportion of total production costs (including subsidies) are covered by total sales?
• What government interventions are in place to influence the supply of goods / services?
• Does the producer compete with other providers and/or is the consumer's choice of provider influenced by government interventions?

2.59.

A market producer is defined in paragraph 2.65 of the IMF GFSM 2014 as an institutional unit that provides all or most of its output to others at prices that are economically significant. Paragraph 2.66 of the IMF GFSM 2014 defines economically significant prices as prices that have a significant effect on the amounts that producers are willing to supply and on the amounts purchasers wish to buy. These prices normally result when:

• 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.

2.60.

A comparison between the receipts from sales and the costs of production of goods and / or services sold of an institutional unit over a number of years is recommended in paragraph 2.73 of the IMF GFSM 2014 to determine whether prices charged for the production of goods and / or services can be considered to be economically significant. This will assist to determine whether the institutional unit should be classified as a market or a non-market producer. In this context, the proportion of production costs covered by sales is a strong indicator of whether the unit is a market or non-market producer. It is generally expected that market producers will cover their production costs through sales. Therefore, the lower the ratio the more likely it is that the unit is a non-market producer, conversely the higher the ratio the higher the likelihood that the unit is a market producer. Further to the production costs to sales ratio, prices are considered economically significant if consumers are free to choose whether to buy, and how much to buy, on the basis of the prices charged.

2.61.

The value of sales from sales of goods and services should be measured before any taxes applicable to the products are added (i.e. ETF 1121 to ETF 1124), less all payments received from government (i.e. revenue from current grants and subsidies (ETF 1141)) unless they would be granted to any producer undertaking the same activity (see paragraphs 2.73 and 2.74 of the IMF GFSM 2014). Own-account production is not considered to be part of sales in this context because this activity does not generate receipts from sales.

2.62.

The costs of production include superannuation expenses (ETF 1211 to ETF 1213), other employee expenses (ETF 1221 to ETF 1229), production tax expenses (ETF 1231), use of goods and services (ETF 1233), depreciation (ETF 1241 or ETF 1242). Like for sales, the calculation of the costs of production exclude all costs associated with own-account capital formation (classified to the appropriate category within ETF 76). Subsidies receivable on production are not deducted from the costs of production.

2.63.

Once it is determined that the institutional unit is indeed a market producer, then it can be further classified as either a non-financial corporation or a financial corporation based on the nature of its activity.

2.64.

A non-market producer is an institutional unit that provides all or most of its output to others for free or at prices that are not economically significant (see paragraph 2.59 of this manual for the definition). A comparison between the receipts from sales and the production costs of goods and / or services sold over a multi-year period needs to be undertaken to assist in identifying whether the unit in question should be classified as a non-market producer.

2.65.

Paragraph 2.71 of the IMF GFSM 2014 states that corporations in receipt of substantial government financial support or other risk-reducing factors such as substantial government guarantees, respond to changes in the economic conditions differently from corporations without such advantages. This is because their budget constraints are softer, and so these types of entities are more likely to be classified as nonmarket producers.

2.66.

Government owned entities supplying goods and services to government are treated as non-market producers if the entity is a dedicated provider of ancillary services. Paragraph 2.45 of the IMF GFSM 2014 defines an ancillary activity as a supporting activity providing services within an enterprise in order to create the conditions within which the principal or secondary activities can be carried out. Ancillary services include keeping records, managing and paying employees, cleaning, maintenance, transportation, and security. Ancillary activities produce mainly services, but in exceptional cases they may sometimes produce goods that do not become a physical part of the marketable products produced by an an enterprise. Entities providing ancillary services generally do not satisfy the criteria to be an institutional unit.

2.67.

It can often be assumed that the producer is not a market producer if the unit provides the goods and services in the absence of competition with private producers, and when the choice of supplier to government is not based on price. This is true regardless of whether the supplier is the only supplier, and whether the government is the only customer of the supplier.

2.68.

A corporation is considered to be a public corporation if a government unit, another public corporation, or some combination of government units and public corporations controls the entity. Paragraph 2.107 of the IMF GFSM 2014 states that control of a corporation is defined as the ability to determine the general corporate policy of the corporation. The expression 'general corporate policy' in this context is taken to mean the key financial and operating policies relating to the corporation’s strategic objectives as a market producer, but does not necessarily include the direct control of the day-to-day activities or operations of a particular corporation.

2.69.

In some cases, the existence of government control may not be clear. In Australia, such is the case with some superannuation funds that governments have established for the benefit of their employees. Legislation places responsibility for the day-to-day operation of the superannuation funds with a board of trustees that is created as a separate legal entity. The establishing governments generally receive no monetary benefits from the funds. Although the establishing government has the power, under the legislation, to appoint and dismiss some or all of the trustees, the boards of trustees are typically not under the direction of government, and are required to act in the beneficiaries’ interests and not those of the government. Accordingly, the funds are not considered to be under government control. Although the circumstances of individual funds may vary, in the interest of uniformity, all superannuation funds with arrangements broadly similar to those described are included in the private sector.

2.70.

Instances can arise in which the public and private sectors share ownership of a corporation. In such cases, the corporation is allocated to the sector that has effective control over the determination of the activities and policy of the corporation.

2.71.

Because the arrangements for the control of corporations can vary considerably, the IMF GFSM 2014 has provided guidance to assist in determining whether government control exists over a corporation. Box 2.2 of the IMF GFSM 2014 identifies eight indicators of government control of a corporation. These indicators are not a definitive list of factors, but show the most important and likely factors to consider. Although a single indicator could be sufficient to establish control, in other cases, a number of separate indicators may collectively indicate control. Box 2.1 below reproduces the eight indicators of control which may be used in GFS to determine if a corporation is controlled by government.

2.72.

Non-profit institutions (NPIs) are defined in the SESCA as legal or social entities created for the purpose of producing goods and services and whose status does not permit them to be a source of income, profit or other financial gain for the units that establish, control, or finance them. NPIs must have an enabling instrument which includes a clause that prohibits the NPI from distributing income, profit or other financial gain to its establishing, controlling or financing unit. Paragraph 2.61 of the IMF GFSM 2014 defines non-profit institutions serving households (NPISH) as resident non-market non-profit institutions (NPIs) that are not controlled by government. These types of units provide goods and services to households for free or at prices that are not economically significant (see paragraph 2.59 of this manual for the definition of economically significant prices). It is important to note that NPISH are out of scope for GFS.

2.73.

Examples of NPISH include political parties, trade unions, consumers’ associations, churches or religious institutions, aid agencies, charities, and environmental groups. Excluded from NPISH are bodies serving similar functions that are controlled by government units. These types of entity are classified as part of the general government sector. Further excluded from NPISH are non-profit institutions engaged in market production (see paragraphs 2.58 to 2.67 of this manual for definitions of market and non-market producers). These types of entities are classified as financial or non-financial corporations depending on the nature of the business activity. Paragraph 2.61 of the IMF GFSM 2014 states that non-market NPIs controlled by foreign governments are classified as NPISHs in the host economy.

2.74.

NPIs may engage in market or non-market production (see paragraphs 2.58 to 2.67 of this manual for the definition of market and non-market producers). Paragraph 2.37 of the IMF GFSM 2014 contains the following guidance on NPIs that are involved in market or non-market activities:

• NPIs engaged in market production charge economically significant prices for their services. Schools, colleges, universities, clinics, hospitals, etc. constituted as NPIs are market producers when they charge fees that are based on their production costs and that are sufficiently high to have a significant influence on the demand for their services. Government payments to these NPIs are treated not as transfers but as payments for services rendered. There are no shareholders with a claim on the profits or equity of the NPI. Because of their status as NPIs, they are also able to raise significant additional funds through donations from persons, corporations, or governments. Nevertheless, NPIs that are engaged in market production and are controlled by government units must be treated as public corporations so long as they produce goods and services for the market at economically significant prices.
• Some market NPIs restrict their activities to serving a particular subset of other market producers. These consist of chambers of commerce, agricultural, manufacturing or trade associations, employers’ organisations, research or testing laboratories, or other organisations or institutions that engage in activities that are of common interest or benefit to the group of enterprises that control and finance them. These NPIs are usually financed by contributions or subscriptions from the group of enterprises concerned. Such subscriptions are treated not as transfers but as payments for services rendered and these NPIs are classified as market producers. These market NPIs are, like corporations and quasi-corporations, members of either the non-financial corporations sector or the financial corporations sector.
• NPIs that are engaged in non-market production, and are controlled by government. Schools, colleges, universities, clinics, hospitals, etc. constituted as NPIs are non-market producers only when they charge fees at prices that are not economically significant. These units are treated as general government units.
• The remaining NPIs, those that produce goods and services which are not sold at economically significant prices and are not controlled by government, are classified as a special group of units called NPIs serving households (NPISHs). These fall outside of the scope of the GFS system.

2.75.

In the AGFS15, there are three levels of government known as the national, state and territory, and local levels of government. The Level of Government (LOG) classification used in Australia's GFS system is a standard ABS classification that is included in the SESCA. This classification divides the total public sector into the subsectors of government on the basis of role and function and underpins the production of GFS. The LOG classification separates the total public sector to reflect the administrative and legal arrangements of government in Australia for output purposes. Although conceptually 'control not further defined' is not a level of government by convention, this has been allocated as a level of government in the Australian GFS classification system. The corresponding levels of the total public sector in Australia are described in Table 2.3 as:

2.76.

The National subsector is compiled for GFS output purposes and consists of the institutional units of the Commonwealth (LOG 1) (including the non-market NPIs that are controlled by the Commonwealth Government), and control not further defined units (LOG 4). The Commonwealth Government is Australia's central government which has the authority to impose certain taxes on all resident institutional units and non-resident units that are engaged in economic activity within Australia. The political responsibilities of the Commonwealth Government include national defence, the maintenance of law and order, making transfers to other levels of government, and providing collective goods and services for the benefit of the community as a whole.

2.77.

All public sector units that have a national role or function are classified to the National LOG. Units are generally considered to have a national role or function if the political authority underlying their functions extends over the entire territory of Australia or the functions involve policies that are primarily of concern at a national level. Currently, all Commonwealth Government controlled public sector units are classified to the National LOG. Such units include government units controlled by the Commonwealth Government, non-market NPIs that are controlled by the Commonwealth Government, and public non-financial and financial corporations (including the Reserve Bank of Australia) controlled by the Commonwealth Government.

2.78.

Units that are not controlled by the Commonwealth Government can also be classified to the National LOG. Currently, the only such cases are units that have a national role or function. These are called control not further defined units (LOG 4), formerly known as multi-jurisdictional units. These type of units are public sector units where jurisdiction is shared between two or more governments, or where the classification of a unit to a jurisdiction is otherwise unclear. The main control not further defined units currently classified to the National LOG are Australian public universities which, as described above, are mainly financed and partly controlled by the Commonwealth Government but are subject to a degree of control by the establishing state or territory government. On balance, Australian public universities are considered to be implementing policy (i.e. tertiary education) that is primarily of concern at a national level.

2.79.

The State / Territory (LOG 2) subsector consists of institutional units which exercise the functions of government directly below that of the Commonwealth Government. State or territory governments have fiscal, legislative and executive authority over areas of Australia that have been geographically divided for political and administrative purposes. State or territory governments have the authority to levy taxes on resident institutional units and non-resident units that are engaged in economic activity within their area of jurisdiction. State / territory governments also have the authority to distribute revenue from taxes or the funding from Commonwealth Government transfers, although some of the transfers received from the Commonwealth Government may be tied to specific purposes.

2.80.

All public sector units that have a state or territory role or function are classified to the State / Territory LOG. Units are generally considered to have a state or territory role or function if the political authority underlying their functions is limited to a state or territory, or the functions involve policies that are primarily of concern at a state or territory level. The fact that a unit is controlled by a state or territory government serves as evidence (but is not necessarily conclusive) that the unit has a state or territory role or function.

2.81.

Currently, all state or territory controlled public sector units are classified to the State / Territory LOG. Such units include government units controlled by a state or territory government, non-market NPIs that are controlled by a state or territory government, and all public non-financial and financial corporations that are controlled by a state or territory government. Norfolk Island is included within the scope of the State / Territory LOG, but is currently not included within the coverage of the GFS system

2.82.

The Local (LOG 3) subsector consists of institutional units which exercise the functions of government directly below that of the state or territory governments. Local governments have fiscal, legislative and executive authority over areas of Australian states and territories that have been geographically divided for political and administrative purposes. The function of local government is limited in nature and heavily reliant on transfers from higher levels of government to fund the range of services they provide to institutional units and local residents within their locality.

2.83.

All public sector units that have a local role or function are classified to the Local LOG. Units are generally considered to have a local role or function if the political authority underlying their functions is limited to a local government area or the functions involve policies that are primarily of concern at a local level. The fact that a unit is established as, or directly controlled by, a local government authority serves as evidence (but is not necessarily conclusive) that the unit has a local role or function.

2.84.

Currently, all local government authorities and the units they control are classified to the Local LOG. Such units include each local government authority constituted under one of the various local government acts (or the equivalent) in each state and the Northern Territory (for example municipal councils, land councils, counties, municipalities, towns, townships, boroughs, and districts), all non-market NPIs that are controlled by a local government unit, and all public non-financial and financial corporations that are controlled by a local government unit. The Australian Capital Territory has no separate local government.

2.85.

The jurisdiction classification (JUR) divides the total public sector into classes based on the government which exercises control over a particular institutional unit. The classes refer to the governments of the Commonwealth and the individual Australian states and territories and are called jurisdictions.

2.86.

In this context, the term 'jurisdiction' is indicative of the public sector units over which the Commonwealth Government or an individual state or territory government has direct control or (in the case of local government authorities) the government which administers the legislation under which the authority is established. The categories making up the jurisdiction classification are as shown in Table 2.4 below as:

2.87.

Although Norfolk Island is conceptually included within the scope of Australia's economic territory (for the definition, see paragraphs 2.18 to 2.19 of this manual), it is currently not included within the coverage of the GFS system.

2.88.

In most cases, classifying units to JUR is straightforward. There are units, however, for which jurisdiction is shared between two or more governments, or the classification of a unit to a jurisdiction is otherwise unclear. Such units are called control not further defined units (see paragraph 2.78 of this manual for the definition).

2.89.

Of the five institutional sectors together make up the total economy, only some units in the first three sectors listed in Table 2.1 are relevant in the GFS system. Together, the general government sector, public non-financial corporation sector, and public financial corporation sector equate to the total public sector. The NPISH sector consists of resident non-market, not-for-profit institutions that are not controlled by government, and are therefore out of scope for GFS. Households represent a group of persons who share the same living accommodation, and who pool some or all of their wealth and consume certain types of goods and services collectively (such as housing and food). Because the primary aim of the GFS system is to measure the financial activities of governments, the remainder of this chapter will focus on units that make up the total public sector. The total public sector and its relation to other institutional sectors of the economy is shown in Table 2.5 below:

Source: Based on Figure 2.2 International Monetary Fund Government Finance Statistics Manual 2014.

2.90.

The total public sector comprises:

• Government units that are legal entities established by political processes that have legislative, judicial or executive authority over other institutional units within a given areas; and
• All other institutional units and notional institutional units controlled by government.

2.91.

In the GFS system, the fiscal activities of general government units, and any fiscal activities of public nonfinancial corporations and public financial corporations represent the fiscal activities of the total public sector

2.92.

In Australia, the total public sector is made up of the different levels of government including the national (made up of the Commonwealth Government and control not further defined units), state and territory, and local governments. Also included are public non-financial corporations and public financial corporations as shown below in Diagram 2.2 below:

2.93.

Paragraphs 2.125 to 2.162 of the IMF GFSM 2014 contain descriptions and practical application for the sector classification of types of units typically encountered during the compilation of GFS. Some of this guidance has been reproduced in the remaining paragraphs in this chapter below.

2.94.

Quasi-corporations (as defined in paragraphs 2.35 and 2.36 of this manual), satisfy the criteria to be separate institutional units and function as if they were corporations. In macroeconomic statistics they are treated as if they were corporations; that is, as institutional units separate from the units to which they legally belong. Quasi-corporations that are owned or controlled by government units are grouped with public corporations in the public non-financial or public financial corporations sectors.

2.95.

The existence of (or possibility to meaningfully construct) a complete set of accounts for the entity (including balance sheets) is a necessary condition for it to be treated as a separate institutional unit. Also, the government must grant management of the entity discretion to operate as if it were a separate corporation. In practice this should apply both with respect to the management of the production process and also the use of funds, including maintaining their own working balances and business credit, and being able to finance some or all of their capital formation out of their own saving, financial assets, or borrowing. The ability to distinguish flows of income and finance between quasi-corporations and general government units implies that, in practice, their operating and financing activities must be separable from government revenue or financing statistics, despite the fact that they are not separate legal entities.

2.96.

Entities such as national railways, port authorities, post offices, government publishing offices, public theatres, museums, swimming pools, hospitals, education centres, and other entities that provide goods and services on market basis, should be treated as public corporations if these units satisfy the criteria to be quasi-corporations. Similar market producers that do not satisfy the requirements to be recognised as a quasi-corporation are treated as a market establishment integrated with the general government unit that controls them. In cases where government producers of similar goods and services sell their products at non-market prices, they remain a part of the non-market activities of general government.

2.97.

Large groups of corporations may be created whereby a parent corporation (or government in the case of public corporations) controls several subsidiaries, some of which may control subsidiaries of their own. Each individual corporation that satisfies the criteria to be an institutional unit should be classified as a separate institutional unit, whether or not it forms part of a group. The parent corporation in such circumstances is often referred to as a holding company. There are two different types of such units:

2.98.

The first type is the head office of such groups of corporations that is actively engaged in production. This class of corporations includes overseeing and managing other units of the company or enterprise; undertaking the strategic or organisational planning and decision making role of the company or enterprise; exercising operational control; and managing the day-to-day operations of their related units. Such units are allocated to the non-financial corporations subsector unless all or most of their subsidiaries are financial corporations, in which case they are treated by convention as financial auxiliaries (see paragraph 2.66 of this manual for definition) in the financial corporations sector.

2.99.

The second type of corporation is a unit that holds the assets of subsidiary corporations but does not undertake any management activities. This class of corporations includes the activities of holding companies, that is, units that hold the assets (owning controlling-levels of equity) of a group of subsidiary corporations and whose principal activity is to own the group. The holding companies in this case do not provide any other service to the enterprises in which the equity is held, that is, they do not administer or manage other units. These holding companies are classified according to the predominant activity of the corporations whose assets they hold.

2.100.

Restructuring agencies are entities set up to sell corporations and other assets, and for the reorganisation of companies. They may also serve for defeasance of impaired assets or repayment of liabilities of insolvent entities, often in the context of a banking crisis. These entities are known by various names such as restructuring corporations, privatisation vehicles, asset management companies, liquidation corporations, bridge banks, or bad banks.

2.101.

Some institutional units specialise in the restructuring of corporations, either non-financial or financial. These corporations may or may not be controlled by government. Restructuring agencies may be longstanding or created for this special purpose. Governments may fund the restructuring operations in various ways, either directly, through capital injections (capital transfer, loan or acquisition of equity) or indirectly, through granting guarantees. If the restructuring agency is controlled by government or another public corporation, it is classified in the public sector. Whether a restructuring unit forms part of the general government sector or is a public corporation is determined by whether it is a market or non-market producer. Given that the economically significant price criterion may be insufficient for this purpose because restructuring units have, by nature, little output, the following general criteria should be considered:

• A unit that serves only government, or primarily government, is more likely to be included as a nonmarket producer within the general government sector than one that serves other units as well.
• A unit that sells or buys financial assets at a value other than market values is more likely to be in the general government sector than not.
• A unit that takes on low risks because it acts with strong public financial support and, by law or effectively, on behalf of the government, is likely to be included within the general government sector.
• A restructuring agency may undertake the reorganisation of public or private sector entities or the indirect management of privatisation. Two cases may be considered:

1. The restructuring unit is a genuine holding company controlling and managing a group of subsidiaries and only a minor part of its activity is dedicated to channelling funds from one subsidiary to another on behalf of the government and for public policy purposes. This unit is more likely to be a market producer and classified according to the predominant sector of the subsidiaries, and the transactions made on behalf of the government rerouted through the general government unit using the service provided.
2. The restructuring unit (whatever its legal status) acts as a direct agent of the government and is not a market producer. Its main function is to redistribute national income and wealth, channelling funds from one unit to the other. The restructuring unit should be classified in the general government sector.

2.102.

Another example of a restructuring agency is one mainly concerned with impaired assets, mainly in the context of a banking or other financial crisis. Such a restructuring agency must be analysed according to the degree of risk it assumes, considering the degree of financing provided by the government. Again, two cases may be considered:

• The restructuring agency borrows on the market at its own risk to acquire financial or non-financial assets that it actively manages. In this case the unit is more likely to be a market producer and classified as either a financial or non-financial corporation based on the nature of the assets held.
• The restructuring agency deliberately purchases assets at above market prices with direct or indirect financial support from the government. It is primarily engaged in the redistribution of national income (and wealth), does not act independently of government or place itself at risk, and therefore is not a market producer and should be classified in the general government sector.

2.103.

The financial infrastructure of an economy may include financial protection schemes to protect the assets of financial institutions’ clients. These schemes are often referred to as deposit guarantee schemes or deposit insurance schemes. The main types of schemes provide protection of deposits or protect policyholders against failing life and non-life insurance schemes. These entities are known by various names, but to determine their sector classification the nature of their activities should be considered on a case by case basis.

2.104.

A financial protection scheme is classified as part of the general government, as a public financial corporation, or a private financial corporation outside the public sector according to the same sectorisation principles that apply to any other entity, as described earlier in this chapter.

2.105.

A resident financial protection scheme may satisfy the criteria to be an institutional unit or not. If it is not an institutional unit, it is treated as an integral part of the institutional unit that controls it.

2.106.

If the fees are set by government, or when the government or a public corporation has control over the financial protection scheme through other means, the scheme is to be included in the public sector. The following criteria should be considered in determining whether the scheme is part of the general government sector:

• If fees payable to government for such a protection scheme are compulsory, that is, if beneficiaries cannot opt out of the scheme, the scheme is to be included in general government sector;
• If fees payable to government are clearly out of proportion to the service provided (fees are not determined based on the associated risks covered), the scheme is to be included in general government sector;
• If fees payable to government are not set aside in a fund, or can be used for other purposes the scheme is to be included in general government sector; and
• If the fees are proportional to the cost of the service provided, and the scheme is an institutional unit, it is classified as an insurance corporation operating a fund that functions on insurance rules may indicate proportionality and the existence of a standardised guarantee scheme.

2.107.

While there is no internationally agreed upon definition of a special purpose entity (SPE), some typical features are that it has little physical presence, is related to another corporation or government, and is often resident in a territory other than the territory of residence of its parent unit.

2.108.

Governments may set up SPEs for financial convenience. For example, the SPE may be involved in fiscal or quasi-fiscal activities (including securitisation of assets, borrowing, etc.). Resident SPEs that function only in a passive manner relative to general government and that carry out fiscal and quasi-fiscal activities do not satisfy the criteria to be institutional units and are therefore not treated as separate institutional units in macroeconomic statistics - they are treated as part of general government regardless of their legal status. Resident SPEs acting independently, acquiring assets and incurring liabilities on their own behalf, and accepting the associated risk, are treated as separate institutional units and are classified to a sector according to their principal activity.

2.109.

SPEs that are resident in a different country than their controlling government are always classified as separate institutional units in the economy where they are established. When such entities exist, care must be taken to reflect the fiscal activities of government accurately. All flows and stock positions between the general government unit and the non-resident SPE should be recorded in the accounts for general government and the rest of the world when they occur.

2.110.

A government may create a non-resident SPE to undertake government borrowing or incur government outlays abroad for fiscal purposes. Even if there are no actual economic flows recorded between the government and the SPE related to these fiscal activities, flows and stock positions should be imputed in the accounts of both the government and the rest of the world to reflect the fiscal activities of the government undertaken by the SPE.

2.111.

Many public sector units enter into arrangements with private entities (e.g. a public-private partnership) or other public sector units to undertake a variety of activities jointly. The joint venture could be a market or non-market producer. Joint operations can be structured broadly as one of three types: jointly controlled units, referred to here as joint ventures; jointly controlled operations; and jointly controlled assets.

2.112.

A joint venture involves the establishment of a corporation, partnership, or other institutional unit in which, legally, each party has joint control over the activities of the joint venture unit. The joint venture unit operates in the same way as other units except that a legal arrangement between the parties establishes joint control over the unit. As an institutional unit, the joint venture may enter into contracts in its own name and raise finance for its own purposes. Such a joint venture maintains its own accounting records.

2.113.

The participants to a joint venture may be public sector and/or private sector units. To properly decide the sector classification of the joint venture in macroeconomic statistics, it must be determined which unit has economic control of the joint venture. Given the nature of a joint venture (created legally with joint control), the principal question to be considered here is whether the effective economic control of the joint venture establishes a public or a private unit:

• If a joint venture operates as a non-market producer, then the government is in effective control and it is classified as part of the general government sector.
• If the joint venture is a market producer, it is treated as a public or private corporation according to whether it is or is not controlled by a government unit. Normally, the percentage of ownership will be sufficient to determine control. If the public and private units own an equal percentage of the joint venture, the other indicators of control must be considered.
• Joint operating arrangements can be in the form of jointly controlled operations or jointly controlled assets. When public sector units enter into joint operating arrangements without establishing separate institutional units, there are no units requiring classification; however, the recording should reflect the proper economic ownership of assets. Also, any sharing arrangements of revenue and expense should be recorded in accordance with the provisions of the governing contract. For example, two units may agree to be responsible for different stages of a joint production process or one unit may own an asset or a complex of related assets but both units agree to share revenue and expense.

2.114.

A sinking fund is a separate account, which may be an institutional unit or not, that is made up of segregated contributions provided by the unit(s) that makes use of the fund (the “parent” unit) for the gradual redemption of the parent unit’s debt. A sinking fund may also be established to provide for major repairs or replacements. Aside from eventually extinguishing all government debt in a prudent and orderly manner, sinking funds may be meant to inspire confidence, supporting the market for government securities.

2.115.

Public sector sinking funds are classified to sectors according to whether they are separate institutional units and, if so, whether they provide their services at economically significant prices (see paragraph 2.34 of this manual for the definition).

• Sinking funds that are separate institutional units and provide services as market producers are classified as public financial corporations.
• Sinking funds that are separate institutional units and provide services as non-market producers are classified as general government units.
• Sinking funds that are not separate institutional units are classified with the unit that controls them (i.e. the parent unit).

2.116.

A variety of practices exist among sinking funds as to both their operation and the degree of control exercised by the parent unit (such as government):

• Some sinking funds retire or purchase only the parent unit’s securities for which they are established. Such sinking funds are normally not separate institutional units and are classified with the unit that controls them.
• Some sinking funds may have been assigned other responsibilities, such as the conduct of government lending programs or even the collection of earmarked taxes. Such sinking funds are normally not separate institutional units and are classified with the unit that controls them.
• Other sinking funds may purchase and sell securities of other governments or institutions (domestic or external) usually seeking securities that have similar maturity dates. Such sinking funds may well be institutional units providing services on a market basis and are classified as public financial corporations.

2.117.

Market regulatory agencies act on behalf of a government (or a regional organisation with governments as its members), and influence the market for specific goods or services directly and/or indirectly. These agencies influence the market directly by acting as buyers and sellers of the goods or services and influence the market indirectly through regulations, rulings, compliance laws or standards, to impact the production, price, and marketing of specific products. The regulations may cover the terms and conditions of supplying the goods and services and in particular the price allowed to be charged and / or to whom the goods and services are distributed. It is most common for a regulatory agency to control agricultural products, monopolistic markets, or, in some cases, natural resources.

2.118.

The nature of these market regulatory agencies may differ. The nature of each agency should be investigated to decide the sector classification according to sectorisation principles. At the one end of the spectrum, some agencies are merely distributing subsidies, while others may have an administrative, advisory, standard or price setting, or collective advertising function. At the other end of the spectrum, the agency may have total control over all aspects of the production and distribution process, including being the only legal buyer/seller of the products.

2.119.

Following the residence principle, those market regulatory agencies that meet the definition of an international or regional organisation are not included in the statistics of the individual member countries, but their activities might be reflected in regional data. By convention, financial regulatory (supervisory) bodies are considered as financial corporations when they are separate institutional units. For those resident market regulatory agencies involved with non-financial goods and services, the following guidance applies:

• Those agencies that do not satisfy the criteria to be an institutional unit remain an integral part of the general government unit that controls them. This would usually be the case for those agencies exclusively or principally involved in the distribution of subsidies on behalf of government.
• Those agencies that satisfy the criteria to be institutional units, and that are mainly non-market producers, such as performing some administrative functions, setting standards, or overseeing and regulating the production process, should be classified in the general government sector. Although the agency may have active participation of members from the market it serves, government control is established by the enabling instruments and non-market nature of these entities.
• Those agencies that satisfy the criteria to be an institutional unit, and that are mainly a market producer should be classified in the non-financial corporations subsector. These market regulatory agencies, whose sole or principal activity is to buy, hold, and sell the goods or services at economically significant prices, are market producers.

2.120.

Where market regulatory agencies are involved in a mixture of activities such as distributing subsidies and buying, holding, and selling goods and services, the sector classification may require careful consideration. If it is possible to separately identify a quasi-corporation that is undertaking market activities it should be classified in the non-financial corporations subsector. The non-market activities should be classified in the general government sector. If it is not possible to distinguish two institutional units, the majority of the activities of the entity should determine the sector classification.

2.121.

Internationally, some governments create special entities / funds to finance and develop the economy in general, develop specific sectors of the economy, or upgrade specific facilities such as infrastructure. These types of agencies / funds may be involved in various aspects of development, ranging from only providing the finances for development activities, to being involved in all aspects of the actual development and construction of the infrastructure or facilities. Various terms, such as 'development banks', 'investment funds', 'fiscal stabilisation funds', or 'infrastructure companies' are used to describe these agencies. Whatever they are called, the sector classification should not be based on their description, but rather on the economic nature of the entities.

2.122.

Using the criteria set out earlier in this chapter, compilers should determine whether the entity is a separate institutional unit in the public sector, or whether it is not an institutional unit and should be classified as an integral part of the unit that controls it.

2.123.

These entities may be established in the legal form of a corporation, but it is necessary to decide whether or not to classify them as institutional units. The financing arrangements of these entities usually involve the issuance of debt instruments, but could also include some other sources of financing. The customers that they serve, the financing arrangements, and the economic ownership of the assets created by these entities could often be indicative of the risks assumed by these entities, and could help to determine their status as an institutional unit. The following guidance applies:

• If the entity cannot act independently from its parent and is a passive holder of assets and liabilities, it is classified as an artificial subsidiary. If it is a resident unit, it is classified as a component of the level of government that controls them (i.e. as part of the parent unit). These entities are not treated as separate institutional units, unless they are resident in an economy different from that of its parent unit.
• If the entity borrows on the market and then lends only to general government units, it is not involved in financial intermediation and should be regarded as a resident artificial subsidiary.
• If government assumes economic ownership of the non-financial assets created, it is an indication that the development fund is just a device to borrow and acquire the assets, and the entity should be treated as a resident artificial subsidiary.
• If these entities meet the definition of an institutional unit and are government controlled market producers of goods or services, they should be classified as a corporation. More specifically, they will be a public financial corporation only if they are involved in providing financial services. They will be public non-financial corporations only if they produce and sell the infrastructure assets at economically significant prices in market transactions.

Economic flows are defined in paragraph 3.4 of the IMF GFSM 2014 as the creation, transformation, exchange, transfer, or extinction of economic value. They involve changes in the volume, composition, or value of a unit’s assets, liabilities and net worth. A flow can consist of a single event, such as the receipt of a tax payment from a taxpayer, or can relate to the cumulative value of a set of events over the accounting period, such as the continuous accrual of interest expense on a government bond.

There are two types of economic flows recognised in the GFS system. These are known as:

• transactions; and
• other economic flows.

A transaction is defined in paragraph 3.5 of the IMF GFSM 2014 as an economic flow that is an interaction between institutional units by mutual agreement or through the operation of the law, or an action within an institutional unit that is analytically useful to treat like a transaction, often because the unit is operating in two different capacities. In this context, mutual agreement is intended to mean that there was prior knowledge of the flow and consent given by each unit to enter into the transaction, but does not necessarily mean that the units entered into the transaction voluntarily.

Paragraph 3.5 of the IMF GFSM 2014 also states that some transactions (such as the payment of taxes) are enforced by law. Despite their compulsory nature, tax payments are regarded as mutually agreed interactions between the government and taxpayers, and are therefore treated as transactions. This is because there is collective recognition and acceptance by the community of the legal obligation to pay taxes. Similarly, the actions necessary to comply with judicial or administrative decisions may not be undertaken voluntarily, but because they are taken with prior knowledge and consent of the parties involved, these too are considered transactions in GFS.

The GFS system also recognises as transactions, certain flows that occur within in-scope units where a unit is viewed as operating simultaneously in two different economic capacities. Therefore, flows such as depreciation are recorded as transactions in GFS because the unit who owns the relevant asset is seen as simultaneously acting as both the owner of the depreciating asset and as the consumer of the service provided by the asset. Another example of an internal or intra-unit flow which is recognised as a transaction in GFS is the run-down of inventories in calculating non-employee expenses or use of goods and services.

The types of unit interactions intended to be excluded from the definition of a transaction in GFS include events such as the illegal seizure or destruction of a unit's property by another unit.

All transactions can be recorded as either exchanges or transfers in the GFS system.

An exchange is defined in paragraph 3.9 of the IMF GFSM 2014 as a transaction where one unit provides a good, service, asset, or labour to a second unit and receives a good, service, asset or labour of the same value in return. Compensation of employees, purchases of goods and services, the incurrence of interest expenses, and the sale of an asset such as an office building are all considered to be exchanges in GFS.

Exchange transactions do not include entitlements to collective services or benefits, which are considered to be transfers. This is because the amount of collective service or benefit that may eventually be receivable by an individual unit is not proportional to the amount payable. Taxes and non-life insurance claims are examples of such transactions classified as transfers due to the collective nature of the benefits.

A transfer is defined in paragraph 3.10 of the IMF GFSM 2014 as a transaction in which one institutional unit provides a good, service, or asset to another unit without receiving from the latter any good, service, or asset in return as a direct counterpart. This type of transaction is also referred to as being 'unrequited', or a 'something for nothing' transaction. Transfers can also arise where the value provided in return for an item is not economically significant or is much below its current market value. General government units engage in a large number of transfers which may be compulsory or voluntary in nature. Government grants, government subsidies, non-life insurance claims and taxes are all considered to be transfers in GFS.

Paragraph 3.13 of the IMF GFSM 2014 states that taxes are treated as transfers in GFS, even though the units making these payments may receive some benefit from services provided by the government unit receiving the taxes. For example, in principle no one can be excluded from sharing in the benefits provided by collective services such as public safety. In addition, a taxpayer may even be able to consume certain individual services provided by government units. However, it is usually not possible to identify a direct link between the tax payments and the benefits received by individual units. Moreover, the value of the services received by a unit usually bears no relation to the amount of the taxes payable by the same unit.

Paragraph 3.14 of the IMF GFSM 2014 also specifies that there is uncertainty if the contributing unit will receive any benefits and, if it does receive benefits, they may bear no relation to the amount of the premiums previously paid. Non-life insurance claims are also treated as transfers in GFS. This type of insurance entitles the units making the payment to benefits only if one of the events specified in the insurance contract occurs. That is, one unit pays a second unit for accepting the risk that a specified event may occur to the first unit. Non-life claims are considered transfers because in the nature of the insurance business, they distribute income between policyholders to those who claim, as opposed to all policyholders who contribute.

In GFS, transfers may be either current or capital in nature.

Capital transfers are defined in paragraph 3.16 of the IMF GFSM 2014 as transfers in which the ownership of an asset (other than cash or inventories) changes from one party to another; or that oblige one or both parties to acquire or dispose of an asset (other than cash or inventories); or where a liability is forgiven by the creditor. Capital transfers are typically large and infrequent, but capital transfers cannot be defined in terms of size or frequency. Cash transfers involving disposals of non-cash assets (other than inventories) or acquisition of non-cash assets (other than inventories) are also considered to be capital transfers. A capital transfer results in a commensurate change in the stock position of assets of one or both parties to the transaction.

A transfer in kind without a charge is a capital transfer when it consists of:

• the transfer of ownership of a non-financial asset (other than inventories);
• the forgiveness of a liability by a creditor when no corresponding value is received in return; and
• major non-recurrent payments in compensation for accumulated losses or extensive damages or serious injuries not covered by insurance policies.

A transfer of cash is a capital transfer when it is linked to (or conditional on) the acquisition or disposal of a non-financial produced asset by one or both parties to the transaction.

Current transfers are defined in paragraph 3.17 of the IMF GFSM 2014 as all transfers that are not capital transfers. Current transfers directly affect the level of disposable income and influence the consumption of goods or services. That is, current transfers reduce the income and consumption possibilities of the donor and increase the income and consumption possibilities of the recipient. For example, social benefits, subsidies and food aid are current transfers.

Paragraph 3.18 of the IMF GFSM 2014 states that it is possible that some cash transfers may be regarded as capital transfers by one party to the transaction and as current transfers by the other party. In order to ensure that a donor and a recipient do not treat the same transaction differently, a cash transfer should be classified as capital for both parties even if it involves the acquisition or disposal of an asset, or assets, by only one of the parties. When there is doubt about whether a transfer should be treated as current or capital, it should be treated as a current transfer.

Some transactions appear to be exchanges but are actually combinations of an exchange and transfer. Paragraph 3.11 of the IMF GFSM 2014 states that in such cases, a transaction should be partitioned (see explanation in paragraph 3.31 to 3.32 of this manual for the definition) and recorded as two separate transactions, one that is only an exchange and one that is only a transfer. An example of this type of transaction is where a general government unit sells an asset at a price that is clearly less than the market value of the asset, or at a price that is clearly above the market value of the asset. In this example, the transaction should be divided into an exchange at the asset's market value, and a transfer equal in value to the difference between the sale price and the market value.

The GFS system also includes transactions in which the final consideration is cash (known in GFS as monetary transactions), as well as transactions in kind (known in GFS as non-monetary transactions).

Monetary transactions are defined in paragraph 3.8 of the IMF GFSM 2014 as those in which one institutional unit makes a payment (or receives a payment), incurs a liability (or receives an asset), to (or from) another institutional unit stated in units of currency. In GFS, all flows are recorded in monetary terms, but the distinguishing feature of a monetary transaction is that the parties involved express their agreement in monetary terms. For example goods or services are usually purchased (or sold) at a given number of units of currency per unit of the good or service. All monetary transactions are interactions between two institutional units, recorded as either an exchange or a transfer (see paragraphs 3.15 to 3.18 of this manual for the definition).

Non-monetary transactions are defined in paragraph 3.19 of the IMF GFSM 2014 as transactions that are not initially stated in units of currency. These include all transactions that do not involve any cash flows, such as barter, in kind transactions, and certain internal transactions. For GFS purposes these transactions must be assigned a monetary value because GFS records flows and stock positions expressed in monetary terms. The entries therefore represent values that are indirectly measured or otherwise estimated. The values assigned to non-monetary transactions have a different economic implication than do monetary payments of the same amount, as they are not freely disposable sums of money. Nevertheless, to have a comprehensive and integrated set of accounts, it is necessary to assign the best estimate of current market values to the items involved in non-monetary transactions.

Paragraphs 3.21 to 3.25 of the IMF GFSM 2014 give the following examples of non-monetary transactions:

• Barter transactions - where two units exchange goods, services, or assets other than cash of equal value. For example, a government unit may agree to trade a parcel of land in an industrial area to a private corporation for a different parcel of land that the government will use as a national park, or between nations governments may trade strategic natural resources for another kind of product or service.
• Remuneration in kind - this occurs when an employee is compensated with goods, services, or assets other than money. Types of compensation that employers commonly provide without charge or at reduced prices to their employees may include meals and drinks, uniforms, housing services, transportation services, or child care services.
• Other payments in kind - these occur when payment is made in the form of goods and services rather than money. A payment to settle a liability can be made in the form of goods, services, or non-cash assets rather than money. For example, a government unit may agree to settle a claim for past-due taxes if the taxpayer transfers ownership of land or non-financial produced assets to the government.
• Transfers in kind - these may be used to increase efficiency, or to insure that the intended goods and services are consumed. For example, aid after a natural disaster may be more effective and be delivered faster if it is provided in the form of medicine, food, and shelter instead of money. Also, a general government unit might provide medical or educational services in kind to ensure that the need for those services is met.

Some transactions are modified in macroeconomic statistics to properly reflect their underlying economic nature and substance more clearly. The following definitions and discussions regarding rerouting, partitioning and reassignment appear in paragraphs 3.28 to 3.30 in the IMF GFSM 2014, and have been reproduced below.

Rerouting records a transaction as taking place through channels that differ from the actual ones, or as taking place in an economic sense when no actual transactions take place. Rerouting is often required when a unit that is in fact a party to a transaction does not appear in the actual accounting records because of administrative arrangements. Two kinds of rerouting often occur:

• In the first kind of rerouting, a direct transaction between unit A and unit C is recorded as taking place indirectly through a third unit B. For example, if government employees are enrolled in a superannuation scheme, accounting records may show the government unit making employer contributions directly to the superannuation scheme on behalf of its employees. However in macroeconomic statistics, these contributions are part of the compensation of employees and should be recorded as being paid to the employee. In such a case it is necessary to reroute the payments so that the government is seen as paying the employees, who then are deemed to make payments of the same amount to the superannuation scheme. As a result of the rerouting, these contributions are included as part of the employee expenses of government - see Diagram 3.1 below.

• In the second kind of rerouting, a transaction of one kind from unit A to unit B is recorded with a matching transaction of a different kind from unit B to unit A. For example, when a non-resident SPE of government borrows abroad, transactions should be imputed in the accounts of both the government and the non-resident SPE as if the SPE has extended a loan to government, and government has invested the corresponding amount in the SPE. This rearrangement of the transactions reflects government’s involvement in the non-resident SPE which would otherwise not be captured in government accounts.

The IMF uses the term partitioning to refer to situations where a single transaction is recorded as two or more differently classified transactions. Partitioning may be required in cases where it is logical from an accounting perspective to collect data as a single transaction, but for GFS purposes the transaction must be split into two or more transactions to be correctly recorded for economic purposes.

An example of where partitioning may be appropriate in GFS is when a general government unit acquires an asset at above or below its current market price. If the acquisition of the asset by government is part of a competitive process, then the asset can be said to have been acquired at the current market price and no partitioning is required. However, if the acquisition of the asset is a deliberate action by government (e.g. as part of a bailout operation) and there is clear evidence that the amount paid for the asset is above or below the market value of the asset, then the transaction is partitioned into an exchange transaction to record the market value of the asset, and a transfer transaction under assets acquired below market value (ETF 1152, TALC, COFOG-A, SDC) and the difference would be recorded as assets donated (ETF 1262, TALC, COFOG-A, SDC).

Reassignment records transactions arranged by third parties on behalf of others as taking place as if directly by the principal parties involved. Paragraph 3.30 of the IMF GFSM 2014 indicates that reassignment is required when one unit arranges for a transaction to be carried out between two other units, generally in return for a fee from one or both parties to the transaction. In this case, one unit acts as an agent for another unit. In GFS, the transaction must be recorded exclusively in the accounts of the two (or more) parties involved in the transaction and not in the accounts of the third party facilitating the transaction - see Diagram 3.2 below.

In GFS, changes in the value of assets or liabilities that do not result from transactions are referred to as other economic flows. Other economic flows are flows that do not meet the definition of a transaction (see paragraph 3.8 to 3.12 of this manual for the definition). Paragraph 3.31 of the IMF GFSM 2014 describes other economic flows as those flows where the value of assets or liabilities change due to a naturally occurring event such as an earthquake, flood or fire. In these cases, the change in the value of the assets and / or liabilities need to be taken into account for GFS purposes even though they have not resulted from a transaction, and so they are recorded as other economic flows. Other economic flows are discussed in further detail in Chapter 11 of this manual.

In GFS there are two major categories of other economic flows. These are described as holding gains and losses and other changes in the volume of assets and liabilities.

Holding gains or losses (which are also referred to as 'revaluations' in GFS) are defined in paragraph 3.33 of the IMF GFSM 2014 as changes in the monetary value of assets or liabilities resulting from changes in the level and structure of market prices, assuming that the asset or liability has not changed qualitatively or quantitatively. Holding gains or losses accrue purely as a result of holding an asset or liability over time, without transforming it in any way. Holding gains or losses can apply to any assets or liabilities held for any length of time during the accounting period. Any gains or losses made on the sale of assets are shown in output as holding gains or losses and not as GFS revenues.

Holding gains and losses on assets and liabilities include changes resulting from exchange rate movements. The GFS basis for valuing stocks and flows is at their respective market values. Therefore in concept, holding gains and losses are continuously generated as market prices change with market activity, whether the holding gain or loss is realised or not. Holding gains or losses often occur on financial assets such as shares and securities that are traded on financial markets and are subject to exchange rate fluctuations.

Further discussion on holding gains and losses may be found in Chapter 11 of this manual.

Economic flows that do not result from transactions or holding gains or losses are known as other changes in the volume of assets and liabilities (also sometimes referred to as 'other volume changes' in GFS). Other changes in the volume of assets and liabilities are events that bring about the addition of assets or liabilities to the GFS balance sheet or the removal (or part-removal) of assets or liabilities from the GFS balance sheet, and result in a change to GFS Net Worth.

Economic flows due to other changes in the volume of assets and liabilities cover a wide variety of events. Paragraph 3.35 of the IMF GFSM 2014 lists the three most common categories of events that result in other changes in the volume of assets and liabilities. These are:

1. Events that involve the appearance or disappearance of economic assets on the GFS balance sheet other than by transactions. In these cases, an other volume change is recorded when certain assets and liabilities enter and leave the GFS balance sheet through events other than by transactions. Examples include increases to the GFS Net Worth through mineral discoveries, or reductions in GFS Net Worth due to the unilateral writing off of bad debts by creditors.
2. External events (exceptional and unexpected) that impact on the economic benefits derivable from assets and corresponding liabilities. Examples include the reduction of GFS Net Worth due to the destruction of assets by fire or some other catastrophe, or the depletion of natural assets (e.g. forests, fisheries) as a result of physical removal or use.
3. Changes in classification. An example is when a change in the nature of the operations of a unit means it has to be transferred from General Government and reclassified as a Public Financial Corporation or a Public Non-Financial Corporation.

Further discussion on other volume changes may be found in Chapter 11 of this manual.

An economic stock position is defined as the total holdings of assets and / or liabilities at a certain point in time. Paragraph 3.36 of the IMF GFSM 2014 indicates that stock positions are recorded in the GFS balance sheet at the beginning of an accounting period and again at the end of an accounting period, and are connected by the economic flows which occur during the accounting period. All changes in the position of stocks are explained by transactions and other economic flows which take place during an accounting period.

In order to measure stock positions, it is necessary to define the asset boundary for GFS purposes. In GFS, the boundary for assets is limited to economic assets from which economic benefits accrue to the owners. These economic assets are further split into financial assets and non-financial assets. In GFS, all liabilities are financial in nature and so this further distinction is not necessary.

An asset is defined in paragraph 3.42 of the IMF GFSM 2014 as a store of value representing a benefit or series of benefits accruing to the economic owner by holding or using the resource over a period of time. It is a means of carrying forward value from one accounting period to another. Paragraph 3.43 of the IMF GFSM 2014 specifies that only economic assets are recorded in the GFS system and they appear in the balance sheet of the unit that is the economic owner of the asset. Personal attributes such as reputation or skill, which are sometimes described as an asset, are not recognised as such in GFS.

An economic asset is defined in paragraph 3.43 of the IMF GFSM 2014 as resources over which ownership rights are enforced and from which economic benefits may flow to the owners. The economic benefits derived from the ownership of an economic asset consist of primary income derived from the right to use, rent out, or otherwise generate income, and / or any holding gains that are realised by disposing of the asset. Paragraph 3.36 of the IMF GFSM 2014 lists the economic benefits that may be derived from an asset as including the:

• ability to use assets, such as buildings or machinery, in production;
• generation of services, for example, renting out produced assets to another entity;
• generation of property income (e.g., interest and dividends received by the owners of financial assets); and
• potential to sell and thus realise holding gains.

There are two types of ownership recognised in GFS, legal ownership and economic ownership.

The legal owner of resources such as goods and services, natural resources, assets, and liabilities is defined in paragraph 3.38 of the IMF GFSM 2014 as the institutional unit entitled by law and sustainable under the law to claim the benefits associated with the resource. Sometimes the government may claim legal ownership of a resource on behalf of the community at large. To be recognised in the GFS framework, a resource must have a legal owner, either on an individual or collective basis.

The economic owner of resources such as goods and services, natural resources, assets, and liabilities is defined in paragraph 3.39 of the IMF GFSM 2014 as the institutional unit entitled to claim the benefits associated with the use of these resources by virtue of accepting the associated risks. In most cases, the economic owner and the legal owner of a resource are the same. Where they are not, it is understood that the legal owner has passed responsibility for the risk involved in using the resource in an economic activity to the economic owner as well as associated benefits. In return, the legal owner accepts another package of risks and benefits from the economic owner. In GFS, when the expression 'ownership' or 'owner' is used and the legal and economic owners are different, the reference should generally be understood to be to the economic owner.

Paragraph 3.40 of the IMF GFSM 2014 states that the government may claim legal ownership of a resource on behalf of the community at large, such as territorial waters. If this is the case, the benefits also accrue to the government on behalf of the community at large. Therefore, the government is both the legal and economic owner of these resources. However, governments may share the benefits with other entities, but by virtue of accepting the majority of the risks, become the economic owner of a resource. For example, in the case of public-private partnerships (see Chapter 13 of this manual for definition); economic ownership can be vested with government when government accepts the majority of the risks.

In GFS, economic assets are recorded in the balance sheet and take the form of financial assets or nonfinancial assets.

Financial assets are defined in paragraph 3.48 of the IMF GFSM 2014 as economic assets which take the form of financial claims on other economic units and gold bullion held by monetary authorities as a reserve asset.

A financial claim is defined in paragraph 3.47 of the IMF GFSM 2014 as an asset that typically entitles the owner of the asset (known as the creditor) to receive funds or other resources from another unit (known as the debtor), under the terms of a liability. Financial claims are unconditional in nature (like liabilities), and provide benefits to the creditor by acting as a store of value, or by generating interest, other property income, or holding gains.

Financial assets differ from non-financial assets in that they generally have a counterpart liability, with the exception of monetary gold in the form of gold bullion held as reserve assets (see Chapter 8 and Chapter 10 of this manual for further discussion on monetary gold). Financial assets are the counterparts of the liabilities on which the claims are held. If one economic unit exchanges a particular set of benefits with another economic unit for future payment, a financial claim (and also a liability) is established in GFS.

Financial assets include currency and deposits, debt securities, loans and placements, insurance, superannuation and standardised guarantee schemes, and other financial assets. Further discussion on financial assets may be found in Chapter 8 and Chapter 10 of this manual.

All other economic assets are described as non-financial assets in GFS. Paragraph 3.50 of the IMF GFSM 2014 states that non-financial assets are further subdivided into non-financial assets that are 'produced' such as buildings, inventories, valuables (e.g. works of art), and non-financial assets that are 'non-produced' such as naturally occurring forests and fish stocks, and mineral reserves.

Further discussion on non-financial assets may be found in Chapter 8 and Chapter 9 of this manual.

A liability is defined in paragraph 3.45 of the IMF GFSM 2014 as being established when one unit (known as the debtor) is obliged, under specific circumstances, to provide funds or other resources to another unit (known as the creditor). In GFS, all liabilities are financial in nature and so they are not identified as financial and non-financial as is the case with assets. Liabilities are the counterparts to financial assets held by claimant economic units. This means that when a liability exists, the creditor has a corresponding financial claim on the debtor.

Paragraph 3.45 of the IMF GFSM 2014 further states that as is the case with commercial accounting, a liability in GFS is commonly created through a legally binding contract specifying the parties involved and the terms and conditions of the payment(s) to be made, and is extinguished when the debtor pays the sum agreed in the contract. In GFS, liabilities can also be imputed to reflect the underlying economic reality of a transaction, such as the creation of a notional loan when an asset is acquired under a financial lease. In GFS, liabilities can also be created by the force of law such as those arising through taxes, penalties, and judicial awards.

As is also the case with commercial accounting, contingent liabilities are recorded in GFS with the exception that these do not appear in the core GFS balance sheet (other than explicit contingent liabilities in the form of financial derivatives and provisions for calls under standardised guarantees), but rather as a memorandum item to the accounts. The reason for this is because the government is not obliged to recognise a liability unless an event occurs which forces them to step in and accept liability.

Contingent liabilities are defined in paragraph 7.251 of the IMF GFSM 2014 as obligations that do not arise unless a particular, discrete event(s) occurs in the future. Common types of contingent liabilities for general government units are guarantees of payment by a third party, such as when the general government unit guarantees the repayment of a loan by another borrower. In this case, the liability is contingent because the guarantor (the general government unit) is only required to repay the loan if the borrower defaults. Therefore for GFS purposes, a contingent liability will not appear in the core accounts of the general government unit unless, and until, the guarantee is called. However, the government needs to keep track of contingent liabilities to ensure it has an adequate reserve of funds prepared in case a guarantee is called. In order to do this, the details of significant contingent liabilities are recorded as a memorandum item to the GFS balance sheet.

Further discussion on contingent liabilities may be found in Chapter 13 of this manual.

Although GFS is based on economic principles, the data that supports it are sourced from the accounting systems of Australian treasuries, the Department of Finance, directly from public sector units, and others. In Australia, the GFS is embedded into the Australian Accounting Standards via Australian Accounting Standards Board 1049: Whole of Government and General Government Sector Financial Reporting (AASB 1049). This standard applies to the Commonwealth Government, and each state and territory government.

As is the case with commercial accounting, all entries in GFS are recorded in monetary terms through the use of double entry recording which captures debit and credit entries. In GFS, flows are recorded as revenue, expenses, and transactions in assets and liabilities, and stock positions are recorded as assets and liabilities. Similarly to commercial accounting, GFS employs the accrual basis of recording which means that transactions are recorded whenever economic value is created, transformed, exchanged, transferred or extinguished. The GFS reporting period also matches that of the accounting financial year and financial quarters.

While there are many similarities between GFS and the accounting rules applied by businesses and governments in their financial reports, there are also some important differences. For example, commercial accounting systems do not always require assets and liabilities to be valued at market value as does the GFS system. Also, GFS values sales at gross value rather than the net of the cost of goods sold. Other differences in the GFS system include the identification of assets as either financial or non-financial in nature and all liabilities as financial in nature, whereas commercial accounting identifies assets and liabilities as current or non-current in nature.

The GFS system uses double-entry accounting for the recording of flows. Under this system, every flow gives rise to a minimum of two entries of equal-value, referred to as debits and credits. This principle ensures that the total of all debit entries and that of all credit entries for all transactions are equal, thus permitting the accounts for a unit or sector to be checked for consistency.

By convention, debit entries are made for increases in assets and decreases in liabilities. Credit entries are made for decreases in assets and increases in liabilities. Changes to net worth arising from transactions are recorded as either revenues or expenses. Therefore, transaction entries that increase net worth (revenues) are credits, and transaction entries that decrease net worth (expenses) are debits. This can be demonstrated in Table 3.1 below:

Individual debit and credit entries are not usually made in Australian GFS, (as data are sourced from electronic downloads at an aggregated level), but are shown in Table 3.1 to demonstrate the double entry nature of the GFS system.

Other economic flows can increase or decrease stocks or values of assets and liabilities, with the counterpart entries recorded directly as changes in net worth. In the case of the reclassification of assets or liabilities, a change will occur in the stock position of two categories of assets or liabilities but there is no impact on net worth. This is because an increase in one category of assets or liabilities is paired with a decrease in another category of asset or liabilities.

The GFS balance sheet is defined in paragraph 3.56 of the IMF GFSM 2014 as a statement of the values of the stock positions of assets owned and of the liabilities owed by an institutional unit or group of units, drawn up in respect of a particular point in time. A fundamental rule of the GFS balance sheet is that the total value of the assets always equals the total value of the liabilities plus net worth. Use of the doubleentry recording in GFS ensures that this relationship is correctly maintained.

The time of recording of flows plays a very important role in GFS compilation. All flows are recorded on an accrual basis in GFS. This means that economic events are recorded at the time when they occur, irrespective of whether cash was received or paid (or was due to be received or paid), and flows are recorded whenever economic value is created, transformed, exchanged, transferred or extinguished. The recording of flows on an accruals basis also ensures that non-cash transactions, such as depreciation and transfers in kind, are included in GFS.

Applying the accrual basis of accounting to GFS is not always straight forward. For example, all taxes should be recorded when the activities, transactions, or other events occur that create the liabilities to pay taxes. In practice, information based on Australian Taxation Office tax assessments may be all that is readily available to government to serve as evidence that a taxable event took place, and these may have been submitted many months after the liability to pay the taxes had been created. Table 3.2 below provides some practical guidance for the timing of recording of specific flows, and is based on paragraphs 3.77 to 3.102 of the IMF GFSM 2014:

Several other transactions relate to flows that take place continuously, or over extended periods. For example, operating leases and depreciation accrue continuously over the entire period that a non-financial produced asset is used, and interest accrues continuously over the entire period that a financial claim exists. In GFS, these transactions should be recorded as if they are provided continuously over the whole period that the contract lasts, or the period that the asset is available for use. However in reality, as is the case for income taxes, the details of flows that take place continuously (or over extended periods) may not be available until the reporting date.

Under the cash basis of accounting, flows are recorded when cash is received or disbursed. GFS in Australia is recorded under the accrual basis of accounting which also enables the derivation of a statement of cash flows (called the statement of sources and uses of cash) as an integral part of GFS records. Information on cash flows assists in the management of liquidity and is crucial to the operation of any unit. In GFS, the cash basis of recording provides analytically useful information on the liquidity positions of government, which allows for liquidity management. However, it is difficult to assess the true financial position of a unit without an accrual based system of accounting because information on non-monetary flows such as arrears, depreciation, accounts receivable / accounts payable, and trade credits is missing in a pure cash system of accounting. Although useful for liquidity management and other analytical purposes, the pure cash basis of accounting does not fully record all economic activity and resource flows required in macroeconomic statistics.

In the GFS system, all flows and stock positions are measured at the current market price. Flows recorded in the GFS statement of operations should be valued at the market price on the date that the flow takes place, while flows recorded in the GFS Statement of sources and uses of cash should be valued at their monetary value at the time the cash flow occurred. Stock positions should be valued at the prices current on the balance sheet date or on the date that a change in the nature of the asset or liability occurs in the case of acquisitions, disposals or reclassifications.

The market value is defined in paragraph 3.108 of the IMF GFSM 2014 as amounts of money that willing buyers pay to acquire something from willing sellers; the exchanges are made between independent parties and on the basis of commercial considerations only, sometimes called 'at arm’s length'. According to this definition, a market price refers only to the price for one specific exchange under the stated conditions. A second exchange of an identical unit (even under circumstances that are almost exactly the same), could result in a different market price.

Paragraph 3.109 of the IMF GFSM 2014 indicates that when a price is agreed to by both parties in advance of a transaction taking place, this agreed (or contractual) price is the market price for that transaction regardless of the prices that prevail when the transaction takes place. Paragraph 3.110 of the IMF GFSM 2014 states that actual exchange values, expressed in monetary terms, are presumed to be the market prices in most cases. A market price is the price payable by the buyer after taking into account any rebates, refunds, adjustments, etc., from the seller.

All transactions in GFS are valued at current market value. Paragraph 3.111 of the IMF GFSM 2014 recommends that transactions in financial assets and liabilities are recorded exclusive of any commissions, fees, and taxes regardless of whether these are charged explicitly, included in the purchaser’s price, or deducted from the seller’s proceeds. The valuation of financial instruments (such as securities) differ from the valuation of non-financial assets (such as buildings or equipment, with the exception of land) because they exclude the costs of ownership transfer. This is because both debtors and creditors should record the same amount for the same financial instrument in each of their accounts. The commissions, fees, and / or taxes and similar payments for services that are necessary to acquire a financial asset or incur a liability should be recorded separately from the transaction under the appropriate categories of revenue or expense. A summary treatment of the costs of ownership transfer is demonstrated in Table 3.3 below:

Where market prices for transactions are not observable (such as for some barter or transfers in kind transactions), paragraph 3.112 of the IMF GFSM 2014 indicates that valuation based on market price equivalents may provide an approximation to market prices. In such cases, the market price of the same or similar items (when such prices exist) provide a good basis for applying the principle of market prices. Generally, market prices should be taken from the markets where the same or similar items are traded currently, in sufficient numbers and in similar circumstances. If there is no appropriate market in which a particular good or service is currently traded, the valuation of a transaction involving that good or service may be derived from the market price of similar goods and services by making adjustments to the price for quality and other differences.

Stock positions should be valued at the current market value, as if they were acquired in a market transaction on the balance sheet reporting date (also known as the reference date). Current market prices are readily available for assets and liabilities that are traded in active markets. Paragraphs 3.113 to 3.116 of the IMF GFSM 2014 state that assets and liabilities that are not traded in markets (or are traded only infrequently), need to be valued according to their market value equivalent. For these assets and liabilities, it is necessary to estimate fair values that approximate market prices. The present value of future cash flows may be used as an approximation to market prices, provided an appropriate discount rate is used.

Paragraph 3.125 of the IMF GFSM 2014 provides guidance on how to estimate the current market value of flows and stocks without the presence of an active market. This information has been reproduced in Box 3.2 below.

Paragraph 3.115 of the IMF GFSM 2014 lists some other valuation methods which may be analytically useful and appropriate to compare against current market values:

• Fair value - this is a market-equivalent value defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. It represents an estimate of what could be obtained if the creditor sold the financial claim or settled the liability.
• Nominal value - this is the amount that the debtor owes to the creditor at any moment in time. It reflects the value of the instrument at creation and subsequent economic flows, such as transactions, valuation changes (excluding market price changes), and other changes, such as debt forgiveness. Conceptually, the nominal value is equal to the required future payments of principal and interest discounted at the existing contractual interest rate. For financial instruments other than debt securities, equity, and financial derivatives, nominal value can be taken as a proxy for market value.
• Amortised value - this reflects the amount at which the financial asset or liability was measured at initial recognition minus the principal repayments. Excess payments over the scheduled principal repayments reduce the amortised value whereas payments that are less than the scheduled principal repayments or scheduled interest increase the amortised value. On each scheduled date, amortised value is the same as nominal value, but it may differ from the nominal value on other dates due to the accrued interest being included in the nominal value.
• Face value - this is the undiscounted amount of principal to be repaid at maturity. The use of face value as a proxy for nominal value in measuring the gross debt position can result in an inconsistent approach across all instruments and is not recommended. For example, the face value of deep discounted bonds and zero-coupon bonds includes interest not yet accrued, which runs counter to accrual principles.
• Written-down replacement cost - this is the current acquisition price of an equivalent new asset minus the accumulated consumption of fixed capital, amortisation, or depletion.
• Book value - this refers to the value recorded in the entities’ records. Book values may have different meanings because their values are influenced by accounting standards, rules, and policies, as well as the timing of acquisition, company takeovers, frequency of revaluations, and tax and other regulations.
• Historic cost - this reflects the cost of an asset at the time of acquisition.

Paragraphs 3.118 to 3.125 of the IMF GFSM 2014 provide the following guidance on special cases where valuation adjustments may be needed to reflect correct values of flow and stock positions:

• Where a unit sells an item and does not receive the corresponding payment for an unusually long time, and the amount of trade credit extended is large, then the value of the sale should be reduced by means of an appropriate discount rate and interest should be accrued until the actual payment is made.
• Where flow and stock positions are expressed in a foreign currency, flows need to be converted to their value in the domestic currency, at the rate prevailing at the moment the transactions or other flow takes place, and stocks need to be converted at the rate prevailing on the balance sheet date. The midpoint between the buying and selling rates should be used so that any service charge is excluded.
• Where the valuation in domestic currency of a purchase or sale on credit expressed in a foreign currency is different because the exchange rate changed in the interim, both transactions should be valued at their current market values as of the dates they actually occurred, and a holding gain or loss resulting from the change in the exchange rate should be recorded for the period or periods in which it occurs.
• Where a contract establishes a quotation period for a transaction in goods months after the goods have changed hands, the market value at the time of the change of ownership of the goods should be initially estimated, and revised with the actual market value when known. Market value is given by the contract price even if it is unknown at the time of change of ownership.
• Transfers in kind should be valued at the market price that would have been receivable if the resources had been sold in the market. In the absence of a market price, the donor’s view of the imputed value of the transaction will often be quite different from that of the recipient. The suggested rule of thumb is to use the value assigned by the donor as a basis of recording.
• Where a single payable/receivable refers to more than one transaction category, the individual flows should be partitioned and recorded separately. In such a case, the total value of the individual transactions after partitioning must equal the market value of the exchange that actually occurred.

Some transactions may take place at implied prices that include a grant or concession which means they are offered at below market prices. This is the case with concessional lending arrangements entered into by government. Paragraph 3.123 of the IMF GFSM 2014 states that while there is no precise definition of concessional loans, it is generally accepted that they occur when units lend to other units and the contractual interest rate is intentionally set below the market interest rate that would otherwise apply. Concessional loans effectively include a transfer from the creditor to the debtor, and the degree of concessionality can be enhanced with grace periods, frequencies of payments and a maturity period favourable to the debtor. With the exception of concessional lending to government employees and concessional lending by central banks, concessional debt is recorded as a memorandum item in GFS. Further discussion on the treatment of concessional loans in GFS may be found in Chapter 13, and Appendix 1 Part B of this manual.

Apart from transactions, the change in the value of assets and liabilities between two reporting periods may also result in holding gains and / or losses, and other changes in the volume of assets and liabilities.

Holding gains and / or losses occur if the value of an asset or liability changes during the time that it is held without changing in quality or quantity, or otherwise transforming or altering the asset or liability in any way. Holding gains and losses are recorded between the beginning of the accounting period (or the time an asset was acquired or produced during the accounting period); and the end of the accounting period or the time an asset is relinquished or consumed.

Holding gains and losses accrue continuously and apply to both non-financial assets and financial assets and liabilities in the statement of total changes in net worth (see Chapter 11 of this manual for further discussion). In GFS, holding gains and losses that occur during a reporting period are shown separately as flows related to the asset or liability in question. Since all financial assets (except monetary gold in the form of gold bullion held as reserve assets) are matched by liabilities (either within the domestic economy or with the rest of the world), it is important that holding gains or losses are recorded symmetrically. Table 3.4 below illustrates the recording of holding gains and losses.

Differences in the value of non-financial assets that are not explained by transactions or through holding gains or losses, are due to other changes in the volume of assets and liabilities. This is where the quality and / or quantity of an asset or liability is affected through events such as fires, floods, earthquakes, natural growth in stocks of biological assets such as fish or virgin forests, unilateral action (e.g. debt write-off or annexation of new territories) or changes to the classification or structure of an asset or liability.

Paragraph 3.128 of the IMF GFSM 2014 indicates that in order to determine the valuation of the other changes in the volume of non-financial assets, the asset value needs to be examined both before and after the change in volume event so that any difference that is not explained by transactions or holding gains and losses is the value of the other volume change. Other changes in the volume of financial assets and liabilities are recorded at the current market equivalent prices of similar instruments. For all reclassifications of assets and liabilities, the value of both the new and old instruments should be the same.

Further discussion on other changes in the volume of assets and liabilities may be found in Chapter 11 of this manual.

In GFS, derived measures are obtained by performing arithmetic operations on values recorded for the flows or stocks of individual units / sectors. Paragraphs 3.141 and 3.142 of the IMF GFSM 2014 outline two types of derived measures as aggregates and analytical balancing items.

Aggregates are summations of data relating to a class of flows or stocks of individual units / sectors. For example, tax revenues are the sum of all flows that are classified as taxes of a unit / sector. Aggregates and classifications are closely linked because classifications are designed to produce the aggregates considered to be most useful to users of GFS. In the GFS system, aggregates are produced after consolidation, which eliminates flows and stocks that occur between units contributing to the same aggregate.

Analytical balancing items are economic constructs obtained by subtracting one aggregate from a second aggregate. For example, the GFS net operating balance is an analytical balancing item obtained by subtracting the expenses aggregate from the revenues aggregate. Analytical balancing items are a prominent feature of fiscal analysis because they provide a convenient summary of financial outcomes.

In GFS, flows and stock positions may be presented on a gross or a net basis. Paragraph 3.143 of the IMF GFSM 2014 states that the presentation of flows and stock positions on the gross basis means that the data is presented as the total sum of a flow or stock. The presentation of flows and stocks on the net basis means that the flow or stock is shown as the sum of one set of flows or stock positions minus the sum of a second set of a similar kind. An example of the gross and net basis of recording of flow and stock positions can be shown through the presentation of total tax revenue. When presented on a gross basis, the total tax revenue is the total amount of all taxes accrued. When presented on a net basis, the total tax revenue is the gross amount minus tax refunds and non-payable tax credits.

The use of the terms 'gross' and 'net' are used in a very limited manner for GFS purposes. Apart from a few cases, the GFS classifications employ the word 'gross' and 'net' to indicate the value of variables before or after the deduction of depreciation. Paragraphs 3.143 to 3.151 of the IMF GFSM 2014 examine the gross and net presentations of flows and stocks as used in the GFS framework. Some of this information has reproduced in the points below:

• Revenues are presented gross of expense categories for the same or related category and likewise for expense categories. in particular, interest revenue and interest expense are presented gross rather than as net interest expense, or net interest revenue. Similarly, grant revenue and expense, and rent revenue from natural resources and expenses are presented as gross. Also, sales of goods and services are presented as gross of the expenses incurred in their production;
• Revenues are also presented net of refunds of revenues, and expense categories are presented net of inflows of expenses arising from erroneous or unauthorised transactions. For example, refunds of income taxes may be paid when the amount of taxes withheld or otherwise paid in advance of the final determination exceeds the actual tax due. Such refunds are recorded as negative tax revenues. Similarly, if monetary transfers paid in error to households are recovered, then such recoveries are recorded as negative expenses;
• Acquisitions and disposals of non-financial assets (other than inventories) are presented on a gross basis. For example, acquisitions of land are presented separately from disposals of land;
• Changes in inventories are presented on a net basis. That is, the change in inventories is presented as the value of additions less withdrawals. Acquisitions and disposals of financial assets are also presented on a net basis. For example, only the net change in the holding of cash is presented, not gross receipts and disbursements of cash. Similarly, liquidation of liabilities is netted against incurrence of liabilities;
• Holding gains and losses (also known as revaluations) are presented on a net basis. That is, the net holding gain for each asset and liability is presented, not the gross holding gain and the gross holding loss;
• Stocks of non-financial assets are presented net of depreciation, revaluations, depletion, and other changes since their acquisition;
• Stocks of financial assets and liabilities are presented net of revaluations and other changes since their acquisition; and
• Stocks of the same type of financial instrument held both as a financial asset and a liability are presented on a gross basis. For example, a unit’s holding of bonds as assets is presented separately from its liability for bonds.

Consolidation is the process of eliminating intra-group flows and stocks from aggregates for a group of units for which statistics are to be presented. In the GFS system, data are consolidated whenever they are presented for a group of units. In Australian GFS, data have to be consolidated for many different groups of units, covering the nation as a whole, and each jurisdiction individually.

Intra-sectoral consolidation is defined in paragraph 3.155 of the IMF GFSM 2014 as the in-principle elimination of flows and stocks that occur within a particular group of units, a sector or subsector. An institutional unit requires consolidation when the unit has multiple funds and accounts to carry out its operations and there are flows and stock positions among those funds. Failure to eliminate intra-sectoral flows and stock positions results in aggregates that cannot measure interaction with outside units exclusively. An example of intra-sectoral consolidation is that which is undertaken within the central government, or within the public non-financial corporations subsector, or within a state / territory government.

Inter-sectoral consolidation is defined in paragraph 3.156 of the IMF GFSM 2014 as the in-principle elimination of flows and stocks that occur between a particular group of units, subsectors or sectors. An example of inter-sectoral consolidation is that which occurs between central, state and local governments, or between the general government and public non-financial corporations, or between the general government and public financial corporations.

Paragraph 3.157 of the IMF GFSM 2014 recommends that intra-sectoral consolidation is undertaken before inter-sectoral consolidation takes place, and states that for international statistical purposes the general government sector and each of its subsectors should be presented on a consolidated basis. It further states that consolidated data for public corporations should also be presented together with general government units for the consolidated total public sector.

Because consolidation is performed in GFS under a double entry system of accounting (where credit entries are matched with debit entries of equal value), the adjustments to GFS data made through consolidation do not affect the GFS balancing items. Paragraph 3.166 of the IMF GFSM 2014 states that balancing items which are produced by simple aggregation are the same as those produced by consolidation due to the symmetry of the consolidation process. Therefore, when consolidated data produces different balancing items from the unconsolidated data, this is a good indication that recording errors have been made.

In the Australian GFS framework, data are presented on an intra-sectoral and inter-sectoral consolidated basis for each of the consolidation groupings that appear in Table 3.5 below.

In the Australian GFS system, data are consolidated whenever they are presented for a group of units. For example, each of the cells in Table 3.5 represents a grouping for which consolidated data must be produced. In addition, separate consolidation must be undertaken for each of the nine jurisdictions (including multi-jurisdictional units).

Consolidation requires the in-principle elimination of all intra-governmental and inter-governmental flows and stock positions among a group of public sector units or entities. Consolidation requires a review of the accounts that are to be consolidated in order to identify inter-sectoral and intra-sectoral flows and stock positions. Box 3.3 contains guidance as to the types of transactions, flows or stock positions that require consolidation, and has been reproduced from paragraphs 3.162 to 3.164 of the IMF GFSM 2014:

Paragraphs 3.165 and 3.166 of the IMF GFSM 2014 provide some practical guidance to help to determine if there are flows or stock positions to be consolidated, whether or not to measure the consolidation items based on their magnitude and cost of collection, and which unit may be considered to have the most reliable records. This guidance for implementing consolidation in GFS has been reproduced below.

• Step 1. Begin all consolidation exercises with an analysis of the accounts involved to determine if there are flows or stock positions internal to the units(s) to be consolidated. This will depend on knowledge of the relationships among the units involved. Do some units incur expenses or receive revenue from another unit? Do some units extend loans to other units? Do they buy debt securities issued by others? Do they have currency and deposits held by others?
• Step 2. Once these relationships are established, compilers must determine whether the intrasectoral and / or inter-sectoral flows and stock positions can be measured or estimated, and whether the amounts will be significant in terms of analytical importance.
• Step 3. If the amounts are likely to be significant, are they large enough to justify the effort to collect the data and other information for consolidation purposes? The effort and cost to identify an amount to be consolidated should be directly proportional to the expected amount and its impact on the aggregates.
• Step 4. The 'one-side' rule of thumb is commonly used in consolidation. If there is convincing evidence from one of the transactors that a flow or stock position exists, it should be imputed to the other transactor, even in the absence of the counterpart records. When such an adjustment is made in the data for a unit where the flow or stock position cannot be directly identified, it will be necessary to ensure that the records for that unit are properly modified.
• Step 5. For flows and stock positions in financial assets and liabilities, normally the creditor can be expected to maintain the most reliable records. For loans, the creditor unit usually maintains the most complete records. For debt securities, especially bearer instruments, only the creditor may have the information needed for consolidation. For example, when a central government issues securities, some of which are acquired by public corporations, the central government may have no direct information on who is holding the securities, especially if they can be acquired on secondary markets. It is therefore necessary to rely on the creditors' records for this kind of information.
• Step 6. Sometimes discrepancies may exist between data for two units that are being consolidated. There are many reasons for such discrepancies, such as coverage, time of recording, valuation, classification, etc. Resolving these discrepancies will promote proper consolidation and improve the overall quality of GFS compiled. However, where a discrepancy cannot be resolved, decisions need to be made about which unit or group of units has the most reliable source data. Generally, the higher level of government is considered to have more reliable records than the lower levels of government.
• Step 7. To create consistency with other macroeconomic data sets, components of the data for the public sector should be arranged in such a way to show the data before consolidation and after consolidation. This will allow for the unconsolidated data to be consistent with the data required in the national accounts and other data sets that are presented before consolidation.
• Step 8. Certain transactions that seemingly occur between units in the same sector should not be consolidated. An example of this is re-routed transactions involving employer social schemes, and employee related premiums to an insurer within the sector.

Paragraph 4.4 of the IMF GFSM 2014 describes the GFS analytical framework as a quantitative tool that supports fiscal analysis. The purpose of the GFS framework is to facilitate the identification, measurement, monitoring, and assessment of the impact of a government’s economic policies, and other activities within the economy.

To achieve these objectives, the GFS analytical framework follows the SNA format to enable integrated recording of government economic flows and stocks. The GFS framework requires that the opening values of economic stocks, plus the value of the transactions and other economic flows during the accounting period, should equal the values of the stocks at the end of the accounting period for individual classes of assets and liabilities.

In order to provide statistics for each component of the public sector, the GFS framework provides for the identification of the level of government, jurisdiction and institutional sector of each statistical unit in the framework. The GFS framework includes rules that govern the aggregation of data for individual units into totals for each level of government, jurisdiction and sector. The rules provide for the consolidation of flows and stocks that occur between units in the same level of government, jurisdiction or sector.

As well as providing the foregoing classification of units by level of government, jurisdiction and sector, the framework provides for the classification of economic flows by type (e.g. transactions versus other economic flows) and function (e.g. general public services, public order and safety, etc.) and economic stocks by type. At the broadest level, flows are subdivided between transactions and other economic flows. Transactions are categorised by type as either revenues, expenses, net acquisition of non-financial assets, net acquisition of financial assets, net incurrence of liabilities or net contributions of capital. Stocks are subdivided by type between non-financial assets, financial assets, liabilities, and shares and other contributed capital. Each of the classifications is hierarchical, such that each of the broad categories is disaggregated into subcategories, which in turn are further broken down into classes. The degree of disaggregation varies from category to category and is designed to cater for all analytical requirements.

The GFS framework presents information about opening stocks, flows during the accounting period and closing stocks, which enables the derivation of key analytical aggregates to support fiscal analysis. The key analytical aggregates that are derived from component statements are:

• GFS Net Operating Balance - this is the difference between GFS revenues and GFS expenses. It reflects the sustainability of government operations and is also known as the change in net worth due to transactions.
• GFS Net Lending (+) / Borrowing (-) - this shows the financing requirements of government, indicating the extent to which government is either putting financial resources at the disposal of other sectors in the economy or abroad, or utilising the financial resources generated by other sectors in the economy or from abroad. It is calculated as the GFS Net Operating Balance less the net acquisition of non-financial assets. A positive result reflects a net lending position and a negative result reflects a net borrowing position. This is also known as the change in net financial worth due to transactions.
• GFS Net Worth - this is the total stock of assets minus liabilities and shares / contributed capital. For the general government sector, net worth is assets less liabilities since shares and contributed capital is zero. It is an economic measure of wealth and reflects the contribution of governments to the wealth of Australia.
• GFS Net Financial Worth - this is the total stock of financial assets minus liabilities and shares/contributed capital. For the general government sector, net financial worth is financial assets less liabilities since shares and contributed capital is zero. It is an economic measure of the stock position of financial assets owned by the government of Australia.
• Cash Surplus (+) / Deficit (-) - this is the net cash inflow from operating activities minus net cash outflow from investments in non-financial assets. The cash surplus/deficit is a measure of a sector's cash flow requirements and if positive (i.e. a surplus), it reflects cash available to governments to either increase financial assets or decrease liabilities. When this measure is negative (i.e. a deficit), it identifies the extent to which a government needs to run down its financial assets in order to finance the cash shortfall.

The GFS framework provides a structure within which very detailed presentations of GFS can be formulated. In theory, the items in each of the basic statements can be disaggregated to the finest levels of each of the stocks and flows classifications and cross-classified according to the level of government, jurisdiction and sector of each unit in the framework. In practice, there are practical and quality limits to the degree of detail that can be tabulated. However, the previously discussed objectives of the framework are readily achieved with this design.

The GFS framework combines elements from the GFS balance sheet, statement of operations, the statement of sources and uses of cash, and statement of stocks and flows to describe and record economic events that occur during an accounting period. This can be shown through the maintenance of opening stock figures, details of the transactions and other economic flows that occur during the accounting period, and closing stock figures. The relationships between stocks and flows can be analysed to explain the effects of government policy and the fiscal effects of government operations.

The GFS analytical framework in diagram 4.1 presents the accrual component of the broader GFS framework and the relationships between the elements within it. In the broadest sense, the GFS analytical framework illustrates that during the accounting period, the closing stock position equals the opening stock position plus transactions and other economic flows.

The key analytical aggregates are shown in circles in the broad GFS analytical framework in Diagram 4.1. They are:

• Net worth with both opening and closing balances represented;
• Change in net worth due to transactions which is equal to the net operating balance;
• Change in net worth due to other economic flows;
• Net financial worth with both opening and closing balances represented;
• Change in net financial worth due to transactions which is equal to net lending (+) / net borrowing (-); and
• Change in net financial worth due to other economic flows

Please note that the cash surplus (+) / cash deficit (-) is also a key analytical aggregate in the broader GFS framework, although this does not appear in the analytical framework diagram. The GFS cash surplus (+) / cash deficit (-) is represented by cash flows from operating activities plus cash flows from investments in non-financial assets.

The second analytical aggregate in the statement of operations is the GFS net lending(+) / net borrowing(- ). This is derived as the net operating balance less net acquisition of non-financial assets. GFS net lending(+) / net borrowing(-) is also equal to the net acquisition of all financial assets arising from transactions minus the net incurrence of all liabilities arising from transactions. This can be demonstrated arithmetically as follows in Table 4.1:

In order for the GFS analytical framework to provide the means with which to assess and measure the impact of government policies and other activity on the Australian economy, financial data must enter the framework. The data that feed through the GFS analytical framework are primarily sourced from the financial accounts of state and territory treasuries, the Department of Finance, local governments and universities. These data are classified to the GFS analytical framework through a range of GFS classifications. The data are then processed and aggregated by the ABS to identify the key GFS analytical balances. For more information on the sources of GFS data and methods of compilation, please see Chapter 14 of this manual.

The GFS framework provides for the classification of units by level of government (LOG), jurisdiction (JUR), and institutional sector (INST). It also provides for the economic classification of stocks and flows by type (economic type classification, or ETF), and selected economic flows by function (classification of the functions of government - Australia, or COFOG-A). The COFOG-A replaces the government purpose classification (GPC) breakdown previously used. Each of the classifications are hierarchical in nature and are disaggregated into various subcategories. The degree of disaggregation varies from category to category, and is designed to cater for all analytical requirements. For further information on the classification of units see Chapter 2 and Appendix 1 Part A.

The main GFS classifications applied to units are the level of government (LOG), jurisdiction (JUR), and institutional sector (INST) classifications (for definitions, see Chapter 2 of this manual). Also used is the Australian and New Zealand Standard Industrial Classification, 2006 (or ANZSIC).

Unit classifications are first determined at the time a unit comes into the coverage of GFS. This usually happens when a unit is created by a government in Australia, or when an existing unit is split to more than one unit or is combined with another unit to form a new unit. Once determined, unit classifications are reviewed only when major changes occur to the functions and / or operating environment of the unit.

The GFS unit classification process involves examining Acts of Parliaments (where applicable) and the unit’s financial statements (i.e. the income and expenditure (profit and loss) statement, balance sheet, and cash flow statement). This process is intended to disclose the range of activities in which the unit engages, and the legislative background to its creation. Such information is used to determine whether the unit qualifies as a separate institutional unit in it's own right, and whether it falls within the scope of GFS. The information (supplemented where necessary by information obtained directly from the unit), is used to determine the classification(s) applicable to the unit. Further information on the classification of units and sectors may be found in Chapter 2 of this manual.

The GFS flows and stocks classifications and frameworks may be viewed from two perspectives, an input perspective and an output perspective. The input perspective takes into account the nature and structure of the data that enter the framework. The main sources of GFS data are government accounts, which provide accounting data that have to be reclassified and reorganised on an economic basis to be suitable for conversion to statistical output. As well, the input perspective identifies flows and stocks (e.g. those subject to consolidation) that do not enter final output as such. The output perspective views the classifications almost entirely (plus additional derived items) as the lists of items that appear in published statistics. The detailed classifications are set out in Appendix 1 Part A, Part B, and Part C of this manual.

The main flows and stocks classifications in GFS are the:

• Economic type framework (ETF);
• Source destination classification (SDC);
• Type of asset and liability classification (TALC);
• Taxes classification (TC); and
• Classification of the functions of government - Australia (COFOG-A).

The economic type framework (ETF) is the primary framework that is used to classify flows and stocks according to their economic nature (e.g. revenues, expenses, transactions in financial assets and liabilities, transactions in non-financial assets, assets, liabilities) in GFS. The structure of the ETF is hierarchical, and consists of a 1-digit level (division), a 2-digit level (subdivision), a 3-digit level (group) and a 4-digit level (class). The divisions reflect the primary financial statements of the government at the broadest level and the subdivisions describe the major components that form part of each financial statement. Each group and class details the assets, liabilities, revenues and expenses which comprise each subdivision. The full classification can be found in Appendix 1 Part A and Part B of this manual. The divisions and subdivisions are shown in Table 4.2 below and include the following:

Revenue (ETF 11) records public sector revenue in the form of taxation revenue (ETF 111); sales of goods and services (ETF 112); property income (ETF 113); other current revenue (ETF 114); and capital revenue (ETF 115). The finer level detail of each of these elements is further discussed in Chapter 6 of this manual.

Expense (ETF 12) records public sector expenses in the form of superannuation expenses (ETF 121); other employee expenses (ETF 122); non-employee expenses (ETF 123); depreciation (ETF 124); current transfer expenses (ETF 125); capital transfer expenses (ETF 126); interest expenses (ETF 127); and other property expenses (ETF 128). The finer level detail of each of these elements is further discussed in Chapter 7 of this manual.

Cash flows from operating activities (ETF 21) record cash flows in the form of cash receipts from operating activities (ETF 211); cash payments for employee expenses (ETF 212); and cash payments for non-employee expenses (ETF 213). The finer level detail of each of these elements is further discussed in Chapter 12 of this manual.

Cash flows from transactions in non-financial assets (ETF 22) records cash flows in the form of expenditure on non-financial assets (net) (ETF 221). The finer level detail of this element is further discussed in Chapter 12 of this manual.

Cash flows from transactions in financial assets for policy purposes (ETF 23) records cash flows in the form of advances paid (net) (ETF 231); and equity acquisitions, disposals, and sale of equity (net) (ETF 232). The finer level detail of each of these elements is further discussed in Chapter 12 of this manual.

Cash flows from investments in financial assets for liquidity management purposes (ETF 24) records cash flows in the form of increase in investments (ETF 241). The finer level detail of this element is further discussed in Chapter 12 of this manual.

Cash flows from other financing activities (ETF 25) records cash flows in the form of advances received (net) (ETF 251); borrowing (net) (ETF 252); deposits received (ETF 253); and other financing (net) (ETF 259). The finer level detail of each of these elements is further discussed in Chapter 12 of this manual.

Increase / (decrease) in cash held (ETF 26) records cash flows in the form of increase / (decrease) in cash held (ETF 261). The finer level detail of this element is further discussed in Chapter 12 of this manual.

Transactions in financial assets (net) (ETF 31) records transactions in the form of transactions in financial assets (net) (ETF 311). The finer level detail of this element is further discussed in Chapter 8 and Chapter 10 of this manual.

Transactions in liabilities (net) (ETF 32) records transactions in the form of transactions in liabilities (net) (ETF 321). The finer level detail of this element is further discussed in Chapter 8 and Chapter 10 of this manual.

Acquisitions of non-financial assets (ETF 41) records transactions in the form of acquisitions of nonfinancial assets (ETF 411). The finer level detail of this element is further discussed in Chapter 8 and Chapter 9 of this manual.

Disposals of non-financial assets (ETF 42) records transactions in the form of disposals of non-financial assets (ETF 421). The finer level detail of this element is further discussed in Chapter 8 and Chapter 9 of this manual.

Holding gains and losses (revaluations) (ETF 51) record the value of other economic flows in the form of holding gains and losses (revaluations) (ETF 511). The finer level detail of this element is further discussed in Chapter 11 of this manual.

Other changes in volume (ETF 52) record the value of other economic flows in the form of other changes in volume (ETF 521). The finer level detail of this element is further discussed in Chapter 11 of this manual.

Intra-unit transfers (ETF 60) records intra-unit transfers other than holding gains and losses and accrued transactions. This classification is used exclusively by the ABS for the processing of GFS data. Further information on this item may be found in Appendix 1 Part B of this manual.

Memorandum items - balance sheet (ETF 71) records supplementary information relating to the GFS balance sheet in the form of implicit transfers (ETF 711); liabilities in arrears and related charges (ETF 712); and non-performing loans (ETF 713). The finer level detail of each of these elements is further discussed in Appendix 1 Part B of this manual.

Contingent liabilities (ETF 72) records supplementary information relating to the GFS balance sheet in the form of explicit contingent liabilities (ETF 721); and implicit contingent liabilities (ETF 722). The finer level detail of each of these elements is further discussed in Appendix 1 Part B of this manual.

Provisions for doubtful debts (ETF 73) records provisions for anticipated doubtful debts during the reporting period. Provisions for doubtful debts are not recognised in GFS, but are recorded in the AGFS15 as part of the supplementary information so that the ABS can derive the face value of financial assets and liabilities which is required for international statistical reporting. Provisions or allowances for doubtful debts are not included in GFS output, and accounts receivable in the balance sheet is recorded gross of such provisions or allowances. Provisions for doubtful debts are further discussed in Chapter 13 Part A, and Appendix 1 Part A of this manual.

Debt maturity (ETF 74) records the value of public sector debt in the form of debt by maturity valued at market value (ETF 741). The finer level detail of this element is further discussed in Appendix 1 Part B of this manual.

Salary sacrifice expenses (ETF 75) records the value of the benefits supplied by a public sector employer to employees under a salary sacrifice arrangement. The finer level detail of this element is further discussed in Appendix 1 Part B of this manual.

Own-account capital formation (ETF 76) records the value of own-account capital formation in the form of own-account superannuation payments (ETF 761); own-account employee payments other than superannuation (ETF 762); and own-account non-employee payments (ETF 763). The finer level detail of each of these elements is further discussed in Appendix 1 Part B of this manual.

The balance sheet records the value of assets in the form of fixed produced assets (ETF 81); other produced assets (ETF 82); non-produced assets (ETF 83); and financial assets (ETF 84). The finer level detail of these categories is further discussed in Chapter 8, Chapter 9, and Chapter 10 of this manual.

Liabilities (ETF 85) record the value of the liabilities of public sector units. The finer level detail of this category is further discussed in Chapter 8, Chapter 9, and Chapter 10 of this manual.

Net worth (ETF 86) records the residual of the value of government assets minus government liabilities in the form of net worth (ETF 8611). The finer level detail of this element is further discussed in Chapter 8, Chapter 9, and Chapter 10 of this manual.

The source destination classification (SDC) is a classification that is used for the identification of the sectors that are the source and destination of transactions in, and stocks of, financial assets and liabilities in the Australian GFS. It is also used to identify the sectors that are the source and destination of transactions in non-financial assets. In addition, the SDC identifies the source of the funds if a transaction is an operating revenue or a cash receipt, and the destination of the funds if the transaction is an operating expense or a cash payment.

The SDC specifically identifies:

• the institutional sector and level of government of the unit against which the financial claim represented by the asset / liability is held for transactions in, and stocks of, financial assets and liabilities;
• the institutional sector and level of government of the unit which acquires a non-financial asset or which disposes of a non-financial asset; and
• the institutional sector and level of government (where applicable) of the unit (including nongovernment units) from which revenues are receivable (the source) or to which expenses are payable (the destination) for each transaction.

The SDC classifications are shown below in Table 4.3 as:

The public sector (SDC 100 - 43j) comprises Commonwealth public non-financial corporations, Commonwealth public financial corporations, and Commonwealth general government units (SDC 110, SDC 120, and SDC 130); State / territory public non-financial corporations, State / territory public financial corporations, and State / territory general government units (SDC 21j, SDC 22j, and SDC 23j) which are further disaggregated by state of jurisdiction; Local public non-financial corporations, Local public financial corporations, and Local general government units (SDC 31j, SDC 32j, and SDC 33j) which are further disaggregated by state of jurisdiction; and Control not further defined public non-financial corporations, Control not further defined public financial corporations, and Control not further defined general government units (SDC 41j, SDC 42j, and SDC 43j) which are further disaggregated by state of jurisdiction. Control not further defined units are made up of public universities and other units that are not controlled by any one particular jurisdiction in Australia.

The non-public sector consists of resident units which comprise resident private non-financial corporations (SDC 911), resident private depository corporations (SDC 912), resident households (SDC 913), resident non-profit institutions serving households (SDC 914), other resident private financial corporations (SDC 915), and residents not elsewhere classified (SDC 919).

The non-public sector also consists of non-resident units which comprise non-resident private depository corporations (SDC 921) and non-residents not elsewhere classified (SDC 929).

The type of asset and liability classification (TALC) is a classification used for the identification of nonfinancial and financial assets and liabilities for GFS output purposes. The structure of the TALC is hierarchical, and consists of a 1-digit level (division), a 2-digit level (group) and a 3-digit level (class). The division distinguishes between government non-financial assets and financial assets or liabilities, the group reflects the type of non-financial asset, financial asset or liability at a broad level and the class reflects the details of the individual assets and liabilities which comprise each group. Further information on the TALC can be found in Chapter 8, Chapter 9, Chapter 10 and Appendix 1 Part A of this manual. The division and group levels of the TALC are shown in Table 4.4 below:

Buildings and structures (TALC 11) record public sector holdings of fixed produced assets in the form of buildings and structures. These comprise dwellings (TALC 111); buildings other than dwellings (TALC 112); land improvements (TALC 113); and other structures not elsewhere classified (TALC 119).

Machinery and equipment (TALC 12) record public sector holdings of fixed produced assets in the form of machinery and equipment. These comprise transport equipment (TALC 121); information, computer and telecommunications equipment (TALC 122); and other machinery and equipment not elsewhere classified (TALC 129).

Cultivated biological resources (TALC 13) record public sector holdings of fixed produced assets in the form of cultivated biological resources. These comprise animal resources yielding repeat products (TALC 131); and tree, crop, and plant resources yielding repeat products (TALC 132).

Intellectual property products (TALC 14) record public sector holdings of fixed produced assets in the form of intellectual property products. These comprise research and development (TALC 141); mineral exploration and evaluation (TALC 142); computer software (TALC 143); databases (TALC 144); entertainment, literary and artistic originals (TALC 145); and intellectual property products not elsewhere classified (TALC 149).

Weapons systems (TALC 15) record public sector holdings of fixed produced assets in the form of weapons systems. This comprises weapons systems (TALC 151).

Inventories (TALC 21) record public sector holdings of other produced assets in the form of inventories. These comprise inventories - materials and supplies (TALC 211); inventories - work in progress (TALC 212); inventories - finished goods (TALC 213); inventories - goods for resale (TALC 214); and military inventories (TALC 215).

Valuables (TALC 22) record public sector holdings of other produced assets in the form of valuables. These comprise valuables (TALC 221).

Other produced assets (TALC 23) records public sector holdings of other produced assets. These comprise other not elsewhere classified produced assets (TALC 239).

Tangible non-produced assets (TALC 31) record public sector holdings of non-produced assets in the form of tangible non-produced assets. These comprise land (TALC 311); mineral and energy resources (TALC 312); non-cultivated biological resources (TALC 313); water resources (TALC 314); radio spectra (TALC 315); and tangible non-produced assets not elsewhere classified (TALC 319).

Intangible non-produced assets (TALC 32) record public sector holdings of non-produced assets in the form of intangible non-produced assets. These comprise marketable operating leases (TALC 321); permits to use natural resources (TALC 322); permits to undertake specified activities (TALC 323); entitlement to future goods and services on an exclusive basis (TALC 324); goodwill and marketing assets (TALC 325); and intangible non-produced assets not elsewhere classified (TALC 329).

Other non-produced assets (TALC 33) record public sector holdings of other non-produced assets. These comprise other non-produced assets not elsewhere classified (TALC 339).

Currency and deposits (TALC 41 and TALC 51) record public sector holdings of currency and deposit financial assets and liabilities. These comprise cash and deposits (TALC 411 and TALC 511); Special drawing rights (SDRs) (TALC 412 and TALC 512); and monetary gold (bullion) (TALC 414 asset only), and monetary gold (allocated and unallocated) (TALC 414 and TALC 511).

Securities and related assets / liabilities (TALC 42 and TALC 52) record public sector holdings of financial assets and liabilities in debt securities and related items. These comprise debt securities (TALC 421 and TALC 521); financial derivatives (TALC 422 and TALC 522); employee stock options (TALC 423 and TALC 523); equity including contributed capital (TALC 424 and TALC 524); and investment fund shares or units (TALC 425 and TALC 525).

Loans and placements (TALC 43 and TALC 53) record public sector holdings of loan and placements in the form of financial assets and liabilities. These comprise financial leases (TALC 431 and TALC 531); advances - concessional loans (TALC 432 and TALC 532); advances other than concessional loans (TALC 433 and TALC 533); and loans and placements not elsewhere classified (TALC 439 and TALC 539).

Insurance, superannuation and standardised guarantee schemes (TALC 44 and TALC 54) record public sector holdings of financial assets and liabilities in insurance, superannuation, and standardised guarantee schemes. These comprise non-life insurance technical reserves (TALC 441 and TALC 541); life insurance and annuities entitlements (TALC 442 and TALC 542); provisions for defined benefit superannuation (TALC 443 and TALC 543); claims of superannuation funds on superannuation manager (TALC 444 and TALC 544); and provisions for calls under standardised guarantee schemes (TALC 445 and TALC 545).

Other financial assets (TALC 45) and other liabilities (TALC 55) record public sector holdings of other financial assets and liabilities. These comprise provisions for employee entitlements other than superannuation (TALC 451 and TALC 551); accounts receivable (TALC 452) / accounts payable (TALC 552); and other financial assets not elsewhere classified (TALC 459) / other liabilities not elsewhere classified (TALC 559).

The taxes classification (TC) is a classification used for the identification of taxation revenue by type of tax, and is used for output purposes in the Australian GFS. The structure of the TC is hierarchical, and consists of a 1-digit level (division), a 2-digit level (group) and a 3-digit level (class). The division reflects the different types of taxes at the broad level; the group and class provide further detail about the taxes that comprise each division. The full classification of the TC can be found in Chapter 6 and Appendix 1 Part A of this manual. The division and group levels of the TC are shown in Table 4.6 below:

Income and capital gains taxes levied on individuals (TC 11) records taxes on income, profits, and capital gains in the form of income and capital gains taxes levied on individuals. These comprise personal income tax (TC 111); government health insurance levy (TC 112); mining withholding tax (TC 113); capital gains tax on individuals (TC 114); prescribed payments by individuals (TC 115); fringe benefits tax (TC 116); and other income tax levied on individuals (TC 119).

Income and capital gains taxes levied on enterprises (TC 12) records taxes on income, profits, and capital gains in the form of income and capital gains taxes levied on enterprises. These comprise company income tax (TC 121); income tax paid by superannuation funds (TC 122); capital gains taxes on enterprises (TC 123); and prescribed payments by enterprises (TC 124).

Income taxes levied on non-residents (TC 13) records taxes on income, profits, and capital gains in the form of income taxes levied on non-residents. These comprise dividend withholding tax (TC 131); interest withholding tax (TC 132); and income taxes levied on non-residents not elsewhere classified (TC 139).

Taxes on employer's payroll and labour force (TC 21) records taxes on employers' payroll and labour force. This comprises payroll taxes (TC 211), superannuation guarantee charge (TC 212), and taxes on employers' payroll and labour force not elsewhere classified (TC 219).

Taxes on immovable property (TC 31) records taxes on property in the form of taxes on immovable property. These comprise land taxes (TC 311); municipal rates (TC 312); metropolitan improvement rates (TC 313); property owners' contributions to fire brigades (TC 314); and taxes on immovable property not elsewhere classified (TC 319).

Estate, inheritance and gift taxes (TC 32) records taxes on property in the form of estate, inheritance, and gift taxes. These comprise estate, inheritance, and gift taxes (TC 321).

General taxes on provision of goods and services (TC 41) records taxes on provision of goods and services in the form of general taxes on provision of goods and services. These comprise sales tax (TC 411); and goods and services tax (GST) (TC 412).

Excises (TC 42) records taxes on provision of goods and services in the form of excises. These comprise excises on crude oil, LPG and petroleum products (TC 421); excises on beer and potable spirits (TC 422); excises on tobacco products (TC 423); Excise Act duties not elsewhere classified and refunds of Excise Act duties (TC 424); agricultural production taxes (TC 425); and levies on statutory corporations (TC 426).

Taxes on international trade (TC 43) records taxes on provision of goods and services in the form of taxes on international trade. These comprise customs duties on imports (TC 431); customs duties on exports (TC 432); and agricultural produce export taxes (TC 433).

Taxes on gambling (TC 44) records taxes on provision of goods and services in the form of taxes on gambling. These comprise taxes on government lotteries (TC 441); taxes on private lotteries (TC 442); taxes on gambling devices (TC 443); casino taxes (TC 444); race betting taxes (TC 445); and taxes on gambling not elsewhere classified (TC 449).

Taxes on insurance (TC 45) records taxes on provision of goods and services in the form of taxes on insurance. These comprise insurance companies' contributions to fire brigades (TC 451); third party insurance taxes (TC 452); and taxes on insurance not elsewhere classified (TC 459).

Taxes on financial and capital transactions (TC 46) records taxes on provision of goods and services in the form of taxes on financial and capital transactions. These comprise financial institutions transactions taxes (TC 461); government borrowing guarantee levies (TC 462); stamp duties on conveyances (TC 463); stamp duties on shares and marketable securities (TC 464); and other stamp duties on financial and capital transactions (TC 465).

Motor vehicle taxes (TC 51) records taxes on the use of goods and performance of activities in the form of motor vehicle taxes. These comprise stamp duty on vehicle registration (TC 511); road transport and maintenance taxes (TC 512); heavy vehicle registration fees and taxes (TC 513); and other vehicle registration fees and taxes (TC 519).

Franchise taxes (TC 52) records taxes on the use of goods and performance of activities in the form of franchise taxes. These comprise gas franchise taxes (TC 521); petroleum products franchise taxes (TC 522); tobacco franchise taxes (TC 523); and liquor franchise taxes (TC 524).

Other taxes on the use of goods and performance of activities (TC 53) records other taxes on the use of goods and performance of activities. These comprise broadcasting station licences (TC 531); television station licences (TC 532); departure tax (TC 533); clean energy and related taxes (TC 534); taxes on the use of goods and performance of activities levied on non-residents (TC 535); and other taxes on the use of goods and performance of activities not elsewhere classified (TC 539).

The classification of the functions of government - Australia (COFOG-A) (formerly known as the government purpose classification (GPC)) is used to classify selected revenues, all expenses, and all transactions in non-financial assets in terms of the government purpose (e.g. health, education, defence) of the expenditure. The COFOG-A is based on the 2008 SNA Classification of the Functions of Government (COFOG). For further information on the COFOG-A, see Appendix 1 Part C of this manual.

The COFOG-A is grouped according to type of government function or purpose. The structure of the COFOG-A is hierarchical and consists of a 2-digit level (division), a 3-digit level (group) and a 4-digit level (class). The divisions reflect the broad objectives of government; the groups and classes detail the means by which these broad objectives are achieved. The full classification can be found in Appendix 1 Part C of this manual. The divisions are shown in Table 4.7 below and include the following:

General public services (COFOG-A 01) include transactions from executive and legislative organs; financial and fiscal affairs; external affairs; foreign economic aid; general services; basic research; research and development on general public services; general public services not elsewhere classified, public debt transactions; and transfers of a general character between different levels of government.

Defence (COFOG-A 02) includes transactions from military and civil defence; foreign military aid; research and development on defence; and defence not elsewhere classified.

Public order and safety (COFOG-A 03) includes transactions from police services; fire protection services; law courts and associated activities; prisons; research and development on public order and safety; and public order and safety not elsewhere classified.

Economic affairs (COFOG-A 04) includes transactions from general and economic affairs, commercial, and labour affairs; agriculture, forestry, fishing and hunting; fuel and energy; mining, manufacturing and construction; communication; other industries; research and development on economic affairs; and economic affairs not elsewhere classified.

Environmental protection (COFOG-A 05) includes transactions from waste management; waste water management; pollution abatement; protection of biodiversity and landscape; research and development on environmental protection; and environmental protection not elsewhere classified.

Housing and community amenities (COFOG-A 06) includes transactions from housing development; community development; water supply; street lighting; research and development on housing and community amenities; and housing and community amenities not elsewhere classified.

Health (COFOG-A 07) includes transactions from medical products, appliances and equipment; outpatient services; hospital services; mental health institutions; community health services; public health services; research and development on health; and health not elsewhere classified.

Recreation, culture and religion (COFOG-A 08) includes transactions from recreational and sporting services; cultural services; broadcasting, publishing and film production services; religious and other community services; research and development on recreation, culture and religion; and recreation, culture and religion not elsewhere classified.

Education (COFOG-A 09) includes transactions from pre-primary and primary education; secondary education; tertiary education; education not definable by level; subsidiary services to education; research and development on education; and education not elsewhere classified.

Social protection (COFOG-A 10) includes transactions from sickness and disability; old age; survivors; family and children; unemployment; housing; social exclusion not elsewhere classified; research and development on social protection; and social protection not elsewhere classified.

Transport (COFOG-A 11) includes transactions from road transport; bus transport; water transport; railway transport; air transport; multi-mode urban transport; pipeline and other transport; research and development on transport and transport not elsewhere classified.

There are four key output statements in the broader GFS framework. Each is made up of financial data from the Department of Finance, state and territory treasuries, local governments, universities, and control not further defined units that contain data classified by relevant classifications in the GFS framework. The primary financial statements relating to the GFS analytical framework are the:

• Statement of operations - this statement (formerly known as the GFS operating statement) records GFS revenues, GFS expenses, and the net acquisition of non-financial assets.
• Statement of sources and uses of cash - this statement (formerly known as the Cash Flow Statement) records cash inflows and outflows during the accounting period.
• Balance sheet - this statement records the stock positions of government assets, liabilities and equity.
• Statement of stocks and flows - this statement records the opening stocks of assets and liabilities, the transactions in these, the value of holding gains and losses (revaluations) and other volume changes, and the closing stocks of assets and liabilities.

The statement of operations (formerly known as the GFS operating statement) is a summary of the transactions (except transactions in financial assets and liabilities) of a sector or subsector in a given reporting period. It records transactions that increase or decrease net worth such as revenues and expenses, the net investment in non-financial assets, the net acquisition of financial assets, and the net incurrence of liabilities during the reporting period. This statement also facilitates the derivation of key GFS derived items such as the net operating balance and the net lending (+) / net borrowing (-) position, net acquisition of non-financial assets and gross fixed capital formation. The GFS data items that make up the statement of operations are further discussed in Chapter 5 of this manual.

The statement of sources and uses of cash (formerly known as the cash flow statement) records cash inflows and outflows during the reporting period.

The balance sheet records the stock positions of assets, liabilities and the net worth of the sector or subsector at the end of the reporting period. The classification of assets and liabilities is further discussed in Chapter 8, Chapter 9 and Chapter 10 of this manual.

The statement of stocks and flows records the opening stocks, transactions, revaluations, other volume changes and closing stocks of assets and liabilities, and contains three analytical items, GFS net worth, net debt and net financial worth.

The statement of operations records transactions in revenue, expenses, and non-financial assets. Transactions are classified according to whether they increase net worth (revenue), decrease net worth (expense), or change the stocks of non-financial assets. A broad outline of the statement of operations is given in Table 4.8 below, and the full details can be found in Chapter 5 of this manual.

The GFS statement of operations includes two balancing items. The first of these is the net operating balance (NOB) which is used to measure the fiscal effects of government operations, and is derived as total revenue less total expenses. Revenues and expenses are increases or decreases in GFS net worth resulting from transactions. Certain exchange transactions, such as the acquisition of non-financial produced assets for cash, do not change net worth but simply change the composition of assets, liabilities or equity. The net operating balance is equal to the change in net worth due to transactions.

The net operating balance is measured as revenue minus expense (other than depreciation ETF 124). The gross operating balance may be used if depreciation is unknown. However, the net operating balance is preferred because it captures all of the cost of government operations during the reporting period.

The second analytical balance in the GFS statement of operations is the GFS net lending (+) / net borrowing (-). This measures the public sector's financing requirements and is derived as the net operating balance less transactions in non-financial assets. The GFS net lending (+) / net borrowing (-) is equal to the change in net financial worth due to transactions. The GFS statement of operations is further discussed in Chapter 5 of this manual.

The statement of sources and uses of cash (formerly known as the cash flow statement in Australian GFS) records the net cash inflows from government operating activities, the net increase / (decrease) in cash held and the GFS cash surplus / cash deficit. The statement of sources and uses of cash records when cash is received by the government and cash is paid by the government during an accounting period and is important for assessing the liquidity of the general government and public sectors.

Paragraph 4.34 of the IMF GFSM 2014 recommends that statistics on cash-based monetary flows should reflect transactions as close to the payment stage as possible. In GFS, the cash-based data recorded in the statement of sources and uses of cash are complementary to the data in the accrual GFS statements and form an integral part of the complete GFS framework. Table 4.9 below shows a broad outline of the elements that make up the GFS statement of sources and uses of cash.

The cash flows from operating activities is a net measure representing the cash receipts arising from operating activities less cash payments arising from operating activities. Operating activities in this context indicates the types of activities that are recorded in the statement of operations. Cash flows from operating activities include cash receipts from taxation, sales of goods and services, grants and subsidies, property income, and all other revenue earning activities recorded in the statement of operations. The item also includes cash payments for employee expenses, including cash contributions to superannuation schemes, purchases of goods and services, and payment of subsidies and grants, current and capital transfers, property expenses and all other expense-incurring activities recorded in the statement of operations.

The GFS cash surplus (+) / GFS cash deficit (-) reflects the level of cash available to governments to either increase financial assets or decrease liabilities. When GFS cash surplus (+) / GFS cash deficit (-) is positive, it indicates there are additional cash funds resulting from the net cash inflow from operating activities and the cash outflow from own account capital formation and investment in other non-financial assets. This residual value reflects the cash available to governments to either increase financial assets or decrease liabilities.

When GFS cash surplus (+) / GFS cash deficit (-) is negative, it indicates that there is a shortage of residual cash funds as a result from the net cash inflow from operating activities and the cash outflow from investment in non-financial assets. This identifies the extent to which a government needs to run down its financial assets or borrow in order to finance the cash shortfall.

The net cash flows from other financing activities is a net measure representing the cash flows from advances received, borrowing, deposits received, and other financing.

The net change in the stock of cash measures the change in the stock of cash by adding the cash surplus (+) / cash deficit (-) to the net cash inflows from financing activities.

The statement of sources and uses of cash is further discussed in Chapter 12 of this manual.

The balance sheet records the stock positions of assets and liabilities at the beginning of a reporting period and at the end of a reporting period. The balancing item of the balance sheet is GFS net worth which represents the total value of assets minus the total value of liabilities. Table 4.10 shows a broad outline of the elements that make up the GFS balance sheet.

The assets that are included in the GFS balance sheet are economic assets. These are defined as resources over which ownership rights are enforced by institutional units and from which economic benefits may be derived by holding them, or using them over a period of time. Assets that are not owned and controlled by a reporting unit or sector, and assets that have no economic value are excluded from the balance sheet. In the GFS balance sheet, assets are recorded as either non-financial assets or financial assets.

Non-financial assets are all economic assets other than financial assets. Non-financial assets comprise all of the elements in the type of asset and liability classification (TALC) that classifies non-financial assets (TALC 1, 2 and 3). These include non-financial fixed produced assets in the form of buildings and structures (TALC 11); machinery and equipment (TALC 12); cultivated biological resources (TALC 13); intellectual property products (TALC 14) and weapons systems (TALC 15). Also included as non-financial assets are other non-financial produced assets in the form of inventories (TALC 21); valuables (TALC 22); and other produced assets (TALC 23). Further included as non-financial assets are non-financial non-produced assets in the form of tangible non-produced assets (TALC 31); intangible non-produced assets (TALC 32) and other non-produced assets (TALC 33).

Financial assets are assets in the form of financial claims on other economic units. They are the counterparts of the liabilities of the units on which the claims are held (except in the case of monetary gold) and so are often referred to together in GFS. Financial assets comprise all of the elements in the type of asset and liability classification (TALC) that classifies financial assets (TALC 4). These include currency and deposits (TALC 41); securities and related assets (TALC 42); loans and placements (TALC 43); insurance, superannuation and standardised guarantee schemes (TALC 44); and other financial assets (TALC 45).

Liabilities are defined as the obligation to provide funds or other resources of economic value to another unit. Liabilities are the counterparts of financial assets in GFS (with the exception of monetary gold in the form of gold bullion held as reserves). Liabilities comprise all of the elements in the type of asset and liability classification (TALC) that classifies liabilities (TALC 5). These include currency and deposits (TALC 51); securities and related liabilities (TALC 52); loans and placements (TALC 53); insurance, superannuation, and standardised guarantee schemes (TALC 54); and other liabilities (TALC 55).

The GFS balance sheet also contains several memorandum items. These record additional information of analytic interest on specific items for GFS purposes. Memorandum items in GFS differ to those in commercial accounting in that they are mandatory rather than optional. The memorandum items to the GFS balance sheet are recorded as part of the supplementary information in GFS, and include implicit transfers (ETF 711); liabilities in arrears and related charges (ETF 712); and non-performing loans (ETF 713). Memorandum items are further discussed in Appendix 1 Part B of this manual.

Further discussion on the GFS balance sheet and the elements that comprise it can be found in Chapter 8, Chapter 9, Chapter 10, Chapter 15, and Appendix 1 Part A of this manual.

As with the GFS balance sheet (see Chapter 8 of this manual), the statement of stocks and flows records assets and liabilities and GFS net worth. However, the statement of stocks and flows also records the opening stocks, transactions, revaluations, other volume changes and closing stocks of the assets and liabilities, with the analytical items shown as GFS net worth, net debt and net financial worth. Table 4.11 shows a broad outline of the elements that make up the GFS statement of stocks and flows.

In parallel to the GFS balance sheet, the assets that are included in the statement of stocks and flows are recorded as either financial assets or non-financial assets. Financial assets are assets in the form of financial claims on other economic units, and they appear in the statement of stocks and flows as currency and deposits; advances paid; investments, loans and placements; other non-equity assets; equity; and other financial assets. In GFS, financial assets are the counterparts of the liabilities of the units on which the claims are held (for further information (see Chapter 8 and Chapter 10 of this manual for further information).

Non-financial assets are all assets other than financial assets, and they appear in the statement of stocks and flows as non-financial produced assets, inventories, valuables, land, other non-produced assets, and other non-financial assets (see Chapter 8 and Chapter 9 of this manual for further information).

The liabilities recorded in the statement of stocks and flows include deposits held, advances received; borrowing; unfunded superannuation and other employee entitlements; and other non-equity liabilities (see Chapter 8 and Chapter 10 of this manual for further information).

Also recorded as part of the statement of stocks and flows are net debt and net financial worth. Further detail of the elements that make up the statement of stocks and flows may be found in Chapter 15 of this manual.

There are six other output statements in GFS whose compilation is required for international statistical reporting purposes, and are published as output by the ABS. These are:

• The statement of total changes in net worth;
• The statement of contingent liabilities;
• The statement of stocks and flows of financial assets and liabilities by source; and
• Gross public sector debt and other liabilities at market value by level of government subsector;
• Net public sector debt and other liabilities at market value by level of government subsector; and
• The presentation of debt instruments by market value by maturity.

The statement of total changes in net worth combines elements of the statement of operations and the statement of stocks and flows in the one statement, and serves to highlight the total changes in net worth of government. Paragraph 4.46 of the IMF GFSM 2014 notes that the statement of total changes in net worth provides a clear statistical explanation of the factors causing the change in the net worth of government. It explains the sources of changes in assets and liabilities from one reporting period to another in terms of transactions in revenue and expense and other economic flows. For further information please see Chapter 15 of this manual.

The summary statement of explicit contingent liabilities and net implicit obligations for future social security benefits records explicit contingent liabilities such as one-off guarantees, and implicit contingent liabilities such as the present value of implicit obligations for future social security benefits in the one statement. In this context, social security benefits relate to the international concept of the social security schemes. At the time of writing, there are no such social security schemes in Australia. For further information please see Chapter 15 of this manual.

The classification of stocks and flows by financial asset and liabilities by source records the opening stocks of financial assets and liabilities, the transactions, holding gains and losses (revaluations), other economic flows and the closing stocks. In this classification, financial assets and liabilities are split into domestic and foreign financial assets / liabilities and whether these are bank or non-bank items. The ABS records the classification of stocks and flows by financial asset and liabilities by source as an indicator of default risk. For further information please see Chapter 15 of this manual.

Gross public sector debt and other liabilities at market value by level of government subsector records debt instruments at their current market value, and by level of government subsector on the gross basis. In this statement, the market value debt instruments are recorded for the Commonwealth general government, total general government sector, total public non-financial sector and total public financial sector on the gross basis. For further information please see Chapter 15 of this manual.

Net public sector debt and other liabilities at market value by level of government subsector records debt instruments at their current market value, and by level of government subsector on the net basis. In this statement, the market value debt instruments are recorded for the Commonwealth general government, total general government sector, total public non-financial sector and total public financial sector on the net basis. For further information please see Chapter 15 of this manual.

The presentation of debt instruments at market value by maturity records government debt instruments at market value into:

• Short term debt by original maturity;
• Long term debt by original maturity - with payment due in one year or less;
• Long term debt by original maturity - with payment due in more that one year (long term debt by remaining maturity); and
• Short term debt by remaining maturity.

The ABS records debt instruments at market value by maturity to provide data that assists in managing liquidity risk. For further information please see Chapter 15 of this manual.

Transactions represent economic flows that are interactions between institutional units by mutual agreement or through the operation of the law (see Chapter 4 of this manual for further information on transactions). The GFS statement of operations records transactions that increase or decrease net worth in the form of revenue (ETF 11) and expenses (ETF 12), but excludes economic flows such as holding gains and losses (ETF 51) and other changes in the volume of assets and liabilities (ETF 52).

Revenue (ETF 11) is defined as an increase in net worth resulting from transactions. The main way that governments raise revenue is through the imposition of taxes on individuals and businesses, sales of goods and services, property income, other current revenue, and capital revenue.

Paragraph 4.23 of the IMF GFSM 2014 states that the disposal of a non-financial asset by sale or barter is not considered to be revenue because it has no effect on net worth. Rather, it changes the composition of the balance sheet by exchanging one asset (the non-financial asset) for another (the proceeds of the sale). Similarly, amounts receivable from loan repayments and loan disbursements are not considered to be revenue.

Expenses (ETF 12) are defined as the decrease in net worth resulting from transactions. The most common types of expenses for most public sector units are employee expenses and transfer expenses. Expenses are incurred by public sector units when supplying goods and services to the community.

Paragraph 6.2 of the IMF GFSM 2014 states that a government unit may generate expenses by producing goods and services itself and distributing them, purchasing them from a third party and distributing them, or transferring cash to households so they can purchase the goods and services directly.

Analytical aggregates are economic constructs that are obtained by calculating the sum and / or residual values of various GFS aggregates and are particularly useful in fiscal analysis. The analytical aggregates that are recorded in the GFS statement of operations are the net acquisition of non-financial assets, the GFS net operating balance, and GFS net lending (+) / net borrowing (-).

Non-financial assets are defined as economic assets other than financial assets. The net acquisition of nonfinancial assets records the transactions that change a government's net investment in non-financial assets. The calculation of the net acquisition of non-financial assets is shown in Table 5.1 below:

GFS net operating balance is a key analytical balance in the GFS statement of operations. It is derived by subtracting total expenses from total revenues in the GFS. The net operating balance may be positive or negative in value. When the net operating balance is positive, it indicates that surplus funds have been generated from current operations and are available to finance capital acquisitions. When the net operating balance is negative, it indicates that a shortfall has been incurred on current operations and that it has been necessary to liquidate assets, incur liabilities or increase equity in order to finance the operations. The net operating balance is comparable to the national accounts concept of saving plus net capital transfers receivable.

The gross operating balance is derived by adding depreciation (ETF 124) to the net operating balance. However, the net operating balance is the preferred measure because it captures all of the operating costs during the reporting period.

GFS net lending (+) / net borrowing (-) is the summary balance of GFS revenue minus GFS expenses minus transactions in non-financial assets. This is represented by the net operating balance minus the net acquisition of non-financial assets. The GFS net lending (+) / net borrowing (-) is equivalent in concept to the national accounting balance of the same name, but may not be equal in value due to some measurement differences for government. The GFS net lending (+) / net borrowing (-) position may be positive or negative. When positive, it indicates a surplus of funds that may be used to purchase assets and / or repay liabilities. When GFS net lending (+) / net borrowing (-) is negative, it indicates that there are insufficient funds available to finance current operations, and may require the liquidation of assets or the incurrence of liabilities to continue to fund current operations.

Gross fixed capital formation is measured as acquisitions of fixed produced assets (ETF 411, TALC 1) less disposals of fixed produced assets (ETF 421, TALC 1). Fixed produced assets are goods and services that are used in production for more than 1 year. Valuables are excluded from GFCF because, although they may be produced assets, valuables are not used in production. Although inventories form part of capital formation, they do not form part of GFCF because inventories have a production life of less than one year.

The broad classification of the statement of operations is presented in Table 5.2 below. The more detailed classification of revenue and expenses may be found in Chapter 6, Chapter 7 and Appendix 1 Part A of this manual.

Revenue is defined as all increases in net worth resulting from transactions. Revenue consists mainly of taxation revenue, sales of goods and services, property income, other current revenue, and capital revenue. Paragraph 5.1 of the IMF GFSM 2014 notes that the most common source of revenue for most general government units is from taxation revenue. Public corporations cannot levy taxes, but commonly derive the majority of their revenue from property income and the sale of goods and services. Each of the elements that comprise revenue are discussed individually below.

In Australia, government revenue is generated through the taxation of individuals, corporations, property, products, production, and other taxes. Taxes are defined in paragraph 5.2 of the IMF GFSM 2014 as compulsory, unrequited amounts receivable by government units from institutional units, which may be receivable in cash or in kind. Taxation revenue is considered to be unrequited because there is no clear and direct link between the payment of taxes by an individual or entity, and the provision of goods and services by government in exchange for the payment. The amount of tax revenue accruing in a period is the amount generated when the underlying transactions or events which give rise to the government’s right to collect the taxes occur in that period.

Governments may use the tax revenue collected to provide goods or services to other units, either individually or to the community as a whole. Where the government charges for a service such as issuing licences, but the revenue raised is clearly out of all proportion to the cost of providing the service, then it is classified as taxation revenue rather than sales of goods and services in GFS. The treatment of government taxes versus government fees for services is further discussed in Chapter 13 Part J of this manual.

The attribution of a tax refers to the arrangement where taxes are collected by one government unit and then passed on to a second government unit. Depending on the arrangement, the taxes passed onto the second government unit may be reassigned as tax revenue of that unit, or recorded as tax revenue of the collecting unit and a grant recorded from the collecting unit to the second government unit.

In Australian GFS, tax is attributed to the government unit that:

(a) Exercises the authority to impose the tax (either as principal or through the delegated authority of the principal);
(b) Has final discretion to set and vary the rate of the tax; and
(c) Has discretion over the distribution of funds.

In the case of the Goods and Services Tax (GST), the tax is levied under the authority of the Commonwealth, who has the final discretion to set and vary the rate of the tax and final discretion over the distribution of the funds. Therefore, the GST is treated as a Commonwealth tax in GFS. In Australian GFS, because GST is recorded as a Commonwealth tax, a grant is also recorded from the Commonwealth to the states and territories, as the Commonwealth distributes all of the GST.

Sales of goods and services refer to revenues from the direct provision of goods and services by general government and public corporations, excluding GST. Sales of goods and services include fees and charges for services rendered by general government and public corporations; the sale of goods and services by market establishments; administrative fees charged for services; revenues of general government units for work done when acting as an agent for other government and private units; incidental sales by non-market establishments; and imputed sales of goods and services.

Governments may regulate certain activities by issuing licences, for which fees are payable. The service may include activities such as checking the competency or qualifications of a would-be licensee. If the service charge is clearly out of all proportion to the cost of providing the service then the revenue raised is deemed to be taxation revenue rather than revenue from the sales of goods and services. In certain circumstances it may be conceptually justifiable to split the payment, e.g. treating a portion of the payment as the sale of goods and services and the remaining portion as a tax. It may be appropriate to adopt this treatment in situations where a product of measurable benefit is provided to the payer and the case is economically significant. The treatment of sales of goods and services is further discussed in Chapter 13 Part J of this manual.

Property income refers to income accrued from the ownership of financial assets or tangible non-produced assets (mainly land and sub-soil assets). Property income accrues when the owners of such assets put them at the disposal of other entities. Revenue from property income on financial assets is in the form of interest, dividends, income from public corporations, profits from investment in investment funds or direct investment in private corporations. Revenue from property income on land and sub-soil assets is in the form of land rent and royalty income.

A common source of revenue for government units is income received from transfers. Paragraph 3.10 of the IMF GFSM 2014 defines a transfer as a transaction in which one unit provides a good, service, asset, or labour to a second unit without receiving simultaneously a good, service, asset, or labour of any value in return as a direct counterpart. In GFS, transfers are recognised as either current transfers or capital transfers, with the distinction being based on the nature of the activities or the types of assets for which the transfers are made. If the activities relate to the acquisition of assets (other than inventories) that will be used in the production of government goods and services for one year or more, then the transfers are treated as capital transfers. Otherwise, the transfer is treated as a current transfer.

Current transfer revenues are amounts receivable for current purposes for which no economic benefits are payable in return. These are reported as revenue from current grants and subsidies (ETF 1141, SDC), and include grants received for current purposes from private non-profit institutions serving households, grants from foreign governments and organisations (including grants from aid projects), and current grants from one level of government to another (e.g. Commonwealth to state / territory). Also included are subsidies, which are defined in paragraph 5.146 of the IMF GFSM 2014 as current unrequited transfers received by public enterprises on the basis of the level of their production activities, or the quantities or values of the goods and services they produce, sell, export or import. Subsidies include transfers receivable by public corporations to offset recurring losses that are a consequence of government policy to maintain the corporations’ prices at a level that does not cover the cost of production.

Capital transfer revenues are receipts of a capital nature for which no economic benefits are payable in return. Capital transfers are usually non-recurrent and irregular for donor or recipient. Capital transfer revenues are reported as revenue from capital grants (ETF 1151, SDC), and include grants received for capital purposes from private non-profit institutions serving households, capital grants from foreign governments and organisations (including grants from aid projects), and capital grants from one level of government to another (e.g. Commonwealth to state / territory). Also included are transfers received for the damage or destruction of non-financial assets, and transfers to increase financial capital.

Paragraph 3.18 of the IMF GFSM 2014 indicates that it is possible that some cash transfers may be regarded as capital by one party to the transaction and as current by the other party. So that a donor and a recipient do not treat the same transaction differently, a transfer should be classified as capital for both parties, if it involves the acquisition or disposal of an asset, or assets. However, if there is doubt about whether a transfer should be treated as current or capital, it should be treated as a current transfer.

In GFS, revenue is recorded on an accruals basis in the period in which it occurs rather than when payment is received. Consequently, all economic activities, transactions, or other events, are recorded at the point in time when they create an unconditional claim for the government unit or public corporation to receive the revenue.

Under an accruals basis of reporting, the time period between the moment when a revenue transaction occurs and payment is received is bridged by an account receivable. However, in the case of the receipt of pre-payments of revenue that cover two or more reporting periods into the future, paragraph 5.13 of the IMF GFSM 2014 indicates that the pre-payment is taken to be a financial advance that is made to a public sector unit by the payee and constitutes a liability of the public sector unit and an asset of the payee. The receipt of pre-payments of revenue to a public sector unit covering two or more periods should be recorded as transactions in liabilities - accounts payable (ETF 3211, TALC 552, SDC). The accounts payable liability is extinguished as the revenue falls due in the future periods. This treatment should be used to record advances for the provision of goods and services that will be delivered in the future, capital grants received for the construction of non-financial produced assets over a number of years, and other deferred revenues covering two or more reporting periods into the future.

In the GFS statement of sources and uses of cash, cash receipts from operating activities are recorded when the cash is received or paid.

Recording revenue data on an accruals basis can create difficulties if there is a delay between the time that the economic activity occurs and the time that payment is received, especially in the quarterly GFS series. In Australian GFS, revenue may not be reported on an accruals basis by treasuries, the Department of Finance and local governments for various reasons such as:

• Financial data may be uploaded by individual government agencies to a central system on an annual or biannual basis;
• Revenue collection and billing cycles are annual or biannual; or
• Appropriate closing and other journal entries have not been made to properly accrualise the data for the period in question, i.e. a raw dump of the ledger has been provided.

In most cases, the receipt of revenue from land tax is recorded on an annual basis by State Revenue Offices, however, use of the land for economic activity occurs continuously throughout the year. Where data relating to continuous economic activity are reported on an annual or biannual basis, the ABS practice is to proportion the reported data equally over four financial quarters (in consultation with the relevant state or territory treasury, the Department of Finance, or local governments) to better represent the spread of the economic activity. Generally, this is done by pro-rating the data across the four quarters while aligning to the reported year-to-date figures.

There are other revenue items which may attract timing adjustments by the ABS, but which are less frequent. These include the under or over estimation of taxation revenue or royalty income from rents received from natural resources, or for the amendment of data errors. The timing adjustment to data reported for these three issues are discussed below.

Taxation revenue may further require timing adjustments in cases where taxes on income may be under or over stated. This can sometimes occur if there are delays between the generation of income tax under a Pay-As-You-Earn (PAYE) system and the lodging of an income tax return by an individual or corporation. For example, an individual may earn income in the current period but not lodge their tax return until a future period. This means the government cannot record the taxation revenue until a tax return is lodged by the individual and a tax assessment is made by the Australian Taxation Office, and this may lead to under or over estimation in taxation revenue.

Adjustments to taxation revenue may also occur due to reassessments of taxation liabilities through a court case or other such investigation. Paragraph 5.20 of the IMF GFSM 2014 states that if transactions are recorded for taxes (and other revenue) that overestimate the amount of revenue receivable, an adjustment should be recorded in the GFS framework to reduce taxation revenue with a corresponding reduction in transactions in financial assets - accounts receivable (ETF 3111, TALC 452, SDC).

Paragraph 3.79 of the IMF GFSM 2014 notes that contested tax assessments (as part of an active court case or other investigation) are treated as contingent liabilities and are excluded from taxation revenue. If a new tax liability is assessed after a court case or other investigation has concluded, then the new amount of taxation revenue is recorded in the usual way. Adjustments for under or over reporting of taxation revenue is made by the ABS in consultation with the relevant state or territory treasury or the Department of Finance

Royalty income refers to rents received for the use of government owned non-produced assets such as minerals, fossil fuels, and other natural resources. Extractors of natural resources usually make royalty rent payments to the government on an annual or biannual basis even though the production that gives rise to the royalty rent payments may occur continuously throughout the year. As is the case of under or over estimated taxation revenue, if an under or over estimation of royalty income is recorded, then an adjustment is recorded in the period that it is detected. Any adjustments to royalty income (ETF 1135, SDC) (especially for the quarterly GFS series) is undertaken by the ABS in consultation with the relevant state or territory treasury, the Department of Finance, or local governments.

Where quarterly data are volatile and result in large movements that do not have a plausible economic explanation, the ABS may apply timing adjustments to better represent the underlying economic activity rather than the financial reporting of the activity. This often means a reduction to the relevant revenue item with a corresponding reduction transactions in financial assets - accounts receivable (ETF 3111, TALC 452, SDC) for over estimations, or vice versa for under estimations for revenue received. In all cases, adjustments for under or over reporting of revenue are made by the ABS in consultation with the relevant state or territory treasury, the Department of Finance, or local government.

In the GFS system, revenue is classified according to different characteristics such as the type of revenue (using the economic type framework (ETF) codes), the source of the revenue (using an appropriate source destination classification (SDC) code), and in some cases by purpose (using an appropriate code within the classification of the functions of government - Australian (COFOG-A). For taxation revenue, the classification is further determined by the base on which the tax is levied using the taxes classification (TC) codes. The detailed revenue classification is shown in Table 6.1 below.

Taxation revenue makes up the largest proportion of government revenue in Australia. Taxation revenue (ETF 111) consists of direct input data from state and territory treasuries, the Department of Finance, and local governments. In the GFS system, taxation revenue (ETF 111) is further classified as:

• Taxes on income (ETF 1111, TC, SDC);
• Other current taxes (ETF 1112, TC, SDC);
• Taxes on products (ETF 1113, TC, SDC);
• Other taxes on production (ETF 1114, TC, SDC); and 
• Capital taxes (ETF 1115, TC, SDC).

Taxes on income (ETF 1111, TC, SDC) are defined as government revenue received from taxes assessed on the actual or presumed incomes of institutional units. These types of taxes are payable by either resident or non-resident individuals, corporations or other enterprises. Paragraph 5.41 of the IMF GFSM 2014 notes that this classification item includes revenue from taxes assessed on holdings of property, land or real estate when these holdings are used as a basis for estimating the income of their owners. By incorporating the appropriate tax classifications (TC) (see Appendix 1 Part A of this manual for full TC listing), taxes on income (ETF 1111, TC, SDC) are further classified as:

• Personal income tax (ETF 1111, TC 111, SDC); 
• Government health insurance levy (ETF 1111, TC 112, SDC); 
• Mining withholding tax (ETF 1111, TC 113, SDC); 
• Capital gains tax on individuals (ETF 1111, TC 114, SDC); 
• Prescribed payments by individuals (ETF 1111, TC 115, SDC); 
• Other income tax levied on individuals (ETF 1111, TC 119, SDC); 
• Company income tax (ETF 1111, TC 121, SDC); 
• Income tax paid by superannuation funds (ETF 1111, TC 122, SDC); 
• Capital gains taxes on enterprises (ETF 1111, TC 123, SDC); 
• Prescribed payments by enterprises (ETF 1111, TC 124, SDC);
• Income and capital gains taxes levied on enterprises not elsewhere classified (ETF 1111, TC 129, SDC); 
• Dividend withholding tax (ETF 1111, TC 131, SDC);
• Interest withholding tax (ETF 1111, TC 132, SDC); and 
• Other income tax levied on non-residents (ETF 1111, TC 139, SDC).

Personal income tax (TC 1111, TC 111, SDC) is a type of taxation revenue which consists of taxes levied on the net income or profits of individuals. Such taxes are usually levied on the total declared (or presumed) income from all sources of the individual, including compensation of employees (e.g. wages, salaries, tips, fees, commissions, and fringe benefits), property income (such as interest, dividends, rent and royalty incomes) and pensions (such as the taxable portion of social security benefits, pensions, annuities, life insurance and other retirement benefit distributions) after deducting certain allowances in accordance with income tax laws. Included in this classification category is personal income tax deducted by employers (Pay-As-You-Earn taxes), taxes on the income of owners of unincorporated enterprises, and taxes on the income of family estates and trusts where the beneficiaries are individuals.

The government health insurance levy (ETF 1111, TC 112, SDC) is a type of taxation revenue which consists of the higher rate of tax on the income of taxpayers without other health insurance cover, to finance the payment of Commonwealth medical and hospital benefits. These were known as Medibank during the period 1 October 1976 to 1 November 1978, and Medicare from 1 February 1984 onwards. A health care levy that applies to all income taxpayers is included under personal income tax (ETF 1111, TC 111, SDC).

The mining withholding tax (ETF 1111, TC 113, SDC) is a type of taxation revenue which consists of income tax on royalty payments made after 30 June 1979 to Aboriginal people and Aboriginal groups and bodies, in respect to mining and exploration activities on Aboriginal land. Whilst the liability for the tax rests with the Aboriginal people, the tax payable is deducted from the mining royalty payments and is paid directly by the mining companies involved.

Capital gains tax on individuals (ETF 1111, TC 114, SDC) is a type of taxation revenue which consists of taxes levied on capital gains made by resident households, individual proprietorships and partnerships. The taxes are usually payable on nominal rather than real capital gains, and on realised rather than unrealised capital gains.

Prescribed payments by individuals (ETF 1111, TC 115, SDC) are a type of taxation revenue which consist of taxes collected from individuals by the Commonwealth under the Prescribed Payments System.

Income and capital gains taxes levied on individuals not elsewhere classified (ETF 1111, TC 119, SDC) is a type of taxation revenue which consists of income taxes levied on individuals other than personal income tax (ETF 1111, TC 111, SDC), the government health insurance levy (ETF 1111, TC 112, SDC), the mining withholding tax (ETF 1111, TC 113, SDC), capital gains tax on individuals (ETF 1111, TC 114, SDC), prescribed payments by individuals (ETF 1111, TC 115, SDC), or fringe benefits tax (FBT) (ETF 1111, TC 116, SDC).

Company income tax (ETF 1111, TC 121, SDC) is a type of taxation revenue which consists of taxes levied on the net income or profits of trading and financial enterprises. This classification category includes the Mineral Resource Rent Tax, and Petroleum Resource Rent Tax, and covers income from all sources and not simply profits generated by production. Also included are income taxes on trusts where the beneficiaries are corporations.

Income tax paid by superannuation funds (TC 122) is a type of taxation revenue which consists of taxes levied on the profits made by superannuation funds. The tax will vary according to the portfolio mix chosen by the fund. Superannuation funds investing in government securities are subject to lower tax assessments and may be exempt from tax under certain circumstances.

Capital gains taxes on enterprises (ETF 1111, TC 123, SDC) are a type of taxation revenue which consist of taxes levied on capital gains which form part of the taxable income of trading and financial enterprises. The taxes are usually payable on nominal rather than real capital gains, and on realised rather than unrealised capital gains.

Prescribed payments by enterprises (ETF 1111, TC 124, SDC) are a type of taxation revenue which consist of taxes collected from enterprises by the Commonwealth under the Prescribed Payments System.

Income and capital gains taxes levied on enterprises not elsewhere classified (ETF 1111, TC 129, SDC) records income and capital gains taxes levied on enterprises not elsewhere classified as company income tax (ETF 1111, TC 121, SDC), income tax paid by superannuation funds (ETF 1111, TC 122, SDC), capital gains taxes on enterprises (ETF 1111, TC 123, SDC), or prescribed payments by enterprises (ETF 1111, TC 124, SDC).

Dividend withholding tax (ETF 1111, TC 131, SDC) is a type of taxation revenue which consists of taxation payments by companies that are levied on dividends accruing to non-residents of Australia.

Interest withholding tax (ETF 1111, TC 132) is a type of taxation revenue which consists of taxation payments by companies that are levied on interest accruing to non-residents of Australia.

Income tax levied on non-residents not elsewhere classified (ETF 1111, TC 139, SDC) is a type of taxation revenue which consists of income taxes levied on non-residents other than dividend withholding tax (ETF 1111, TC 131, SDC) or interest withholding tax (ETF 1111, TC 132, SDC). This classification category excludes withholding tax on royalties which are classified as taxes on the use of goods and performance of activities levied on non-residents (ETF 1111, TC 535, SDC).

Other current taxes (ETF 1112, TC, SDC) consist mainly of payments by households to obtain licences to own or use vehicles, boats or aircraft, and for licences to hunt, shoot or fish. Apart from the inclusion of fringe benefits tax (FBT) (ETF 1112, TC 116, SDC), other current taxes relate only to the household sector, and so will have a SDC code of 913. By incorporating the appropriate tax classifications (TC) (see Appendix 1 Part A of this manual for full TC listing), other current taxes (ETF 1112, TC, SDC) are further classified as:

• Fringe benefits tax (FBT) (ETF 1112, TC 116, SDC); 
• Stamp duty on vehicle registration (ETF 1112, TC 511, SDC 913); 
• Road transport and maintenance taxes (ETF 1112, TC 512, SDC 913); 
• Heavy vehicle registration fees and taxes (ETF 1112, TC 513, SDC 913); 
• Other vehicle registration fees and taxes (ETF 1112, TC 514, SDC 913) 
• Motor vehicle taxes not elsewhere classified (ETF 1112, TC 519, SDC 913); and 
• Departure tax (ETF 1112, TC 533, SDC 913)

Fringe benefits tax (FBT) (ETF 1112, TC 116, SDC) are other current taxes which consist of taxes collected from employers in relation to fringe benefits accruing to employees.

Stamp duty on vehicle registration (ETF 1112, TC 511, SDC 913) are other current taxes payable by households, consisting of stamp duties imposed on motor vehicle registration and transfer. Stamp duty on vehicle registration payable by units other than households are recorded as other taxes on production - stamp duty on vehicle registration (ETF 1114, TC 511, SDC (except for SDC 913)).

Road transport and maintenance taxes (ETF 1112, TC 512, SDC 913) are other current taxes payable by households, consisting of taxes levied on the carriage of goods and passengers by road, including taxes collected specifically for road maintenance. Road transport and maintenance taxes payable by units other than households are recorded as other taxes on production - road transport and maintenance taxes (ETF 1114, TC 512, SDC (except for SDC 913))

Heavy vehicle registration fees and taxes (ETF 1112, TC 513, SDC 913) are a type of taxation revenue payable by households, consisting of motor vehicle registration, transfer, or number plate fees for vehicles with a gross vehicle mass greater than 4.5 tonnes. Heavy vehicle registration fees and taxes payable by units other than households are recorded as other taxes on production - heavy vehicle registration fees and taxes (ETF 1114, TC 513, SDC (except for SDC 913)).

Other vehicle registration fees and taxes (ETF 1112, TC 514, SDC 913) are a type of taxation revenue payable by households, consisting of motor vehicle registration, transfer, or number plate fees for vehicles (other than those with a gross vehicle mass greater than 4.5 tonnes which are classified as heavy vehicle registration fees and taxes (ETF 1112, TC 513, SDC 913)). Other vehicle registration fees and taxes payable by units other than households are recorded as other taxes on production - other vehicle registration fees and taxes (ETF 1114, TC 514, SDC (except for SDC 913)).

Motor vehicle taxes not elsewhere classified (ETF 1112, TC 519, SDC 913) records motor vehicle taxes not elsewhere classified as stamp duty on vehicle registration (ETF 1112, TC 511, SDC 913), road transport and maintenance taxes (ETF 1112, TC 512, SDC 913), heavy vehicle registration fees and taxes (ETF 1112, TC 513, SDC 913), or other vehicle registration fees and taxes (ETF 1112, TC 514, SDC 913).

Departure tax (ETF 1112, TC 533, SDC 913) is a type of taxation revenue payable by households, consisting of the levy imposed on all individuals leaving Australia. The fifty per cent indirect component of this tax consists of the estimated tax collected from Australian residents going abroad for business purposes. Departure tax payable by units other than households are recorded as other taxes on production - departure tax (ETF 1114, TC 533, SDC (except for SDC 913)).

Taxes on products (ETF 1113, TC, SDC) are taxes that are payable on goods and services when they are produced, delivered, sold, transferred or otherwise disposed of by their producers, e.g. GST, sales tax and excise tax. Taxes on products are payable per unit of the product (i.e. a flat amount dependent on the physical quantity of the product or a percentage of the value at which the product is sold). By incorporating the appropriate tax classifications (TC) (see Appendix 1 Part A of this manual for full TC listing), taxes on products (ETF 1113, TC, SDC) are further classified as:

• Sales tax (ETF 1113, TC 411, SDC); and
• Goods and services tax (GST) (ETF 1113, TC 412, SDC).
• Excises on crude oil, LPG and petroleum products (ETF 1113, TC 421, SDC);
• Excises on beer and potable spirits (ETF 1113, TC 422, SDC);
• Excises on tobacco products (ETF 1113, TC 423, SDC);
• Excise Act duties not elsewhere classified and refunds of Excise Act duties (ETF 1113, TC 424, SDC);
• Agricultural production taxes (ETF 1113, TC 425, SDC);
• Levies on statutory corporations (ETF 1113, TC 426, SDC);
• Excises not elsewhere classified (ETF 1113, TC 429, SDC);
• Customs duties on imports (ETF 1113, TC 431, SDC);
• Customs duties on exports (ETF 1113, TC 432, SDC);
• Agricultural produce export taxes (ETF 1113, TC 433, SDC);
• Taxes on international trade not elsewhere classified (ETF 1113, TC 439, SDC);
• Taxes on government lotteries (ETF 1113, TC 441, SDC);
• Taxes on private lotteries (ETF 1113, TC 442, SDC);
• Taxes on gambling devices (ETF 1113, TC 443, SDC);
• Casino taxes (ETF 1113, TC 444, SDC);
• Race and other sports betting taxes (ETF 1113, TC 445, SDC);
• Taxes on gambling not elsewhere classified (ETF 1113, TC 449, SDC);
• Insurance companies' contribution to fire brigades (ETF 1113, TC 451, SDC);
• Third party insurance taxes (ETF 1113, TC 452, SDC);
• Taxes on insurance not elsewhere classified (ETF 1113, TC 459, SDC);
• Financial institutions transactions taxes (ETF 1113, TC 461, SDC);
• Government borrowing guarantee levies (ETF 1113, TC 462, SDC);
• Stamp duties on conveyances (ETF 1113, TC 463, SDC);
• Stamp duty on shares and marketable securities (ETF 1113, TC 464, SDC);
• Other stamp duties on financial and capital transactions (ETF 1113, TC 465, SDC); and
• Taxes on financial and capital transactions not elsewhere classified (ETF 1113, TC 469, SDC).

General taxes on the provision of goods and services are taxes on products consisting of sales tax (ETF 1113, TC 411, SDC) and goods and services tax (GST) (ETF 1113, TC 412, SDC). Paragraph 5.57 of the IMF GFSM 2014 states that general taxes on goods and services may be levied regardless of whether the goods or services are produced domestically or imported, and they may be imposed at any stage of production or distribution.

Sales tax (ETF 1113, TC 411, SDC) are taxes on products consisting of all general taxes levied on sales at one stage only, whether at manufacturing or production stages or on wholesale or retail trade. Please note that this classification item has been superseded by goods and services tax (GST) (ETF 1113, TC 412, SDC) but remains part of the GFS classifications in order to maintain the time series. In Australia, sales tax was a single stage tax designed substantially to fall on sales by manufacturers and wholesalers to retailers. The sales tax applied to goods only and not to services. Second-hand goods that were used in Australia were not ordinarily taxed, but imported goods that had been used overseas were normally taxable in a similar fashion to new goods. Although termed a sales tax, the levy was not limited to sales only. Where goods had not already borne tax, it would (for example) fall on the leases of those goods or on the application of those goods to a taxpayer’s own use. It may have also been levied on importation of goods where they were not imported for sale by wholesalers, e.g. where they were imported by retailers or consumers. The tax was payable on what was termed a ‘sale value’ which was equivalent to a fair wholesale price.

Goods and services tax (GST) (ETF 1113, TC 412, SDC) are taxes on products consisting of taxes on goods or services collected in stages by enterprises but which are ultimately charged in full to the final purchasers. Paragraph 5.58 of the IMF GFSM 2014 describes this as a deductible tax because producers are not usually required to pay the government the full amount of the tax they invoice to their customers, as they are permitted to deduct the amount of tax they have been invoiced on their own purchases of goods or services intended for intermediate consumption or fixed capital formation. GST is usually calculated on the price of the good or service, including any other tax on the product. GST may also be payable on imports of goods or services in addition to any import duties or other taxes on the imports. This classification category includes GST revenue receivable by the Commonwealth Government, gross of the cost of collection but net of input tax credits.

Excises (ETF 1113, TC 42) are taxes on products consisting of taxes levied on specified goods (or ranges of goods) intended for domestic consumption other than taxes levied exclusively on the importation of goods (in which case they are treated as customs duties on imports (ETF 1113, TC 431, SDC)). However, paragraph 5.62 of the IMF GFSM 2014 specifies that if a tax collected principally on imported goods also applies (or would apply) under the same law to comparable domestically produced goods, then the revenue from this tax is classified as arising from excises rather than from import duties. This principle applies even if there is no comparable domestic production or no possibility of such production.

Paragraph 5.62 of the IMF GFSM 2014 further notes that excises may be imposed at any stage of production or distribution and are usually levied at differentiated rates on non-essential or luxury goods, alcoholic beverages, tobacco, energy, and gambling. Excises are usually assessed as a specific charge per unit based on characteristics by reference to the value, weight, strength, or quantity of the product. Excluded from this category are customs duties on imports which are classified as customs duties on imports (ETF 1113, TC 431, SDC), and customs duties on exports which are classified as customs duties on exports (ETF 1113, TC 432, SDC).

Excises on crude oil, LPG and petroleum products (ETF 1113, TC 421, SDC) are taxes on products consisting of excises levied on the production of crude oil and naturally occurring LPG from Australian fields, and on petroleum products (including 'fuel tax'). The levy on crude oil can vary depending on the volume and quality of the crude oil and the date the field came into production.

Excises on beer and potable spirits (ETF 1113, TC 422, SDC) are taxes on products consisting of duties levied on beer and potable spirits under the Excise Act.

Excises on tobacco products (ETF 1111, TC 423, SDC) are taxes on products consisting of duties levied on tobacco products under the Excise Act.

Excise Act duties not elsewhere classified and refunds of Excise Act duties (ETF 1113, TC 424, SDC) are taxes on products consisting of duties levied under the Excise Act that cannot be classified to excises on crude oil, LPG and petroleum products (ETF 1113, TC 421, SDC), excises on beer and potable spirits (ETF 1111, TC 422, SDC), or excises on tobacco products (ETF 1113, TC 423, SDC).

Agricultural production taxes (ETF 1113, TC 425, SDC) are taxes on products consisting of levies raised on specified agricultural products that are usually assessed by reference to weight or quality. Included are taxes levied on wool, dairy products, poultry, cattle, sheep, wheat, and wine grapes.

Levies on statutory corporations (ETF 1113, TC 426, SDC) are taxes on products consisting of contributions which are required under legislation to be paid by specified statutory corporations to state and territory governments. The taxes are calculated as a fixed proportion of the revenue earned by statutory corporations. Excluded are taxes assessed on amounts equivalent to net profits and capital gains by state and territory governments which are classified to dividend income (including tax equivalents) (ETF 1132, SDC).

Excises not elsewhere classified (ETF 1113, TC 429, SDC) records the value of excises not elsewhere classified as excises on crude oil, LPG and petroleum products (ETF 1113, TC 421, SDC), excises on beer and potable spirits (ETF 1113, TC 422, SDC), excises on tobacco products (ETF 1111, TC 423, SDC), excise Act duties not elsewhere classified and refunds of Excise Act duties (ETF 1113, TC 424, SDC), agricultural production taxes (ETF 1113, TC 425, SDC), or levies on statutory corporations (ETF 1113, TC 426, SDC).

Taxes on international trade and transactions (ETF 1113, SDC) are taxes on products consisting of taxes that become payable when goods cross the national or customs frontiers of the economic territory, or when transactions in services exchange between residents and non-residents. Excluded from this classification category are taxes collected on imports as part of a general tax on goods which should be classified as goods and services tax (GST) (ETF 1113, TC 412, SDC).

Customs duties on imports (ETF 1113, TC 431, SDC) are taxes on products consisting of revenue from all levies and duties payable on goods of a particular kind because they are entering the country or services because they are delivered by non-residents to residents. Paragraph 5.84 of the IMF GFSM 2014 states that these levies may be imposed with the intention to raise revenue or discourage imports in order to protect resident producers of the same goods or services. The duties may be determined on a specific or ad valorem basis, but they must be restricted by law to imported products. Included are duties levied under the customs tariff schedule and its annexes, including surtaxes that are based on the tariff schedule, consular fees, tonnage charges, statistical taxes, fiscal duties, and surtaxes not based on the customs tariff schedule. This category covers taxes that fall on imports only. Imports that fall into a wider category of goods that are subject to the tax should be recorded as excises. If excises are levied on imported goods under the same law to comparable domestically produced goods, then the revenue from the tax should be classified as arising from excises rather than from import duties.

Customs duties on exports (ETF 1113, TC 432, SDC) are taxes on products consisting of all levies that become payable on goods that are transported out of the country, or services that are provided to nonresidents by residents. Paragraph 5.85 of the IMF GFSM 2014 indicates that rebates on exported goods that are repayments of previously paid general consumption taxes, excises, or import duties are deducted from the gross amounts receivable from the respective taxes, and not from amounts receivable in this category.

Agricultural produce export taxes (ETF 1113, TC 433, SDC) are taxes on products consisting of taxes payable on specific agricultural produce exported from Australia. The rate is usually based on the quantity of products exported.

Taxes on international trade not elsewhere classified (ETF 1113, TC 439, SDC) records the value of taxes on international trade not elsewhere classified as customs duties on imports (ETF 1113, TC 431, SDC), customs duties on exports (ETF 1113, TC 432, SDC), or agricultural produce export taxes (ETF 1113, TC 433, SDC).

Taxes on gambling (ETF 1113, TC 44) are taxes on products consisting of taxes levied on gambling and betting stakes. These taxes may be collected either from the gamblers as a percentage of their stake or winnings, or from entities providing the gambling service either as a licence fee or percentage of their gross income from gambling. Excluded are taxes on individual gains from gamblers.

Taxes on government lotteries (ETF 1113, TC 441, SDC) are taxes on products consisting of taxes on the profits of lotteries, 'lotto' games, etc. organised by the government.

Taxes on private lotteries (ETF 1113, TC 442, SDC) are taxes on products consisting of stamp duties levied on the share of gross revenue from privately organised lotteries, 'lotto' games, football pools etc.

Taxes on gambling devices (ETF 1113, TC 443, SDC) are taxes on products consisting of taxes and licences imposed on clubs for the operation of poker machines and other gambling devices.

Casino taxes (ETF 1113, TC 444, SDC) are taxes on products consisting of licence fees and taxes levied on the holders of casino licences.

Race and other sports betting taxes (ETF 1113, TC 445, SDC) are taxes on products consisting of taxes levied on all forms of racing and both on-course and off-course betting.

Taxes on gambling not elsewhere classified (ETF 1113, TC 449, SDC)are taxes on products consisting of taxes levied on gambling that cannot be classified as part of taxes on government lotteries (ETF 1113, TC 441, SDC), taxes on private lotteries (ETF 1113, TC 442, SDC), taxes on gambling devices (ETF 1113, TC 443, SDC), casino taxes (ETF 1113, TC 444, SDC) or race betting taxes (ETF 1113, TC 445, SDC).

Taxes on insurance (ETF 1113, TC 45) are taxes on products consisting of taxes levied specifically on insurance companies. This classification category includes taxes levied on insurance premiums, and contributions collected to finance services which reduce risk.

Insurance companies' contribution to fire brigades (ETF 1113, TC 451, SDC) are taxes on products consisting of levies imposed on insurance companies to contribute to financing fire-fighting protection services.

Third party insurance taxes (ETF 1113, TC 452, SDC) are taxes on products consisting of surcharges and stamp duties on third party insurance premiums.

Taxes on insurance not elsewhere classified (ETF 1113, TC 459, SDC) are taxes on products consisting of taxes on insurance that do not fall within the categories of insurance companies' contribution to fire brigades (ETF 1113, TC 451, SDC) or third party insurance taxes (ETF 1113, TC 452, SDC).

Taxes on financial and capital transactions (ETF 1113, TC 46) are taxes on products consisting of taxes levied on the change in ownership of property, except those classified as estate, inheritance, and gift taxes (ETF 1115, TC 32, SDC). Paragraph 5.61 of the IMF GFSM 2014 indicates that these are taxes on the services of the unit selling the asset. Included in this concept are taxes on the purchase and sale of nonfinancial or financial assets (including foreign exchange or securities), taxes on cheques and other forms of payment, and taxes levied on specific legal transactions, such as the validation of contracts on the sale of immovable property. ).

Financial institutions transaction taxes (ETF 1113, TC 461, SDC) are taxes on products consisting of taxes on debits or credits to accounts with financial institutions, including state / territory government duties on credits to accounts held with financial institutions. Excluded from this classification category are stamp duties on cheques which are classified to other stamp duties on financial and capital transactions (ETF 1111, TC 465, SDC).

Government borrowing guarantee levies (ETF 1113, TC 462, SDC) are taxes on products consisting of guarantee fees / charges levied on the borrowings of public authorities by government.

Stamp duties on conveyances (ETF 1113, TC 463, SDC) are taxes on products consisting of the revenue earned from stamp duties on conveyances and transfer of real estate, business and other property. This item excludes stamp duties on motor vehicle registration which are classified to stamp duty on vehicle registrations (ETF 1113, TC 511, SDC). Also excluded are taxes on insurance which are classified to an appropriate category in taxes on insurance (ETF 1113, TC 45, SDC), and taxes on gambling which are classified to an appropriate category in taxes on gambling (ETF 1113, TC 44, SDC).

Stamp duty on shares and marketable securities (ETF 1113, TC 464, SDC) are taxes on products consisting of revenue earned from stamp duty on transfers of shares and marketable securities. This item excludes stamp duties on motor vehicle registration which are classified to stamp duty on vehicle registrations (ETF 1113, TC 511, SDC). Also excluded are taxes on insurance which are classified to an appropriate category in taxes on insurance (ETF 1113, TC 45, SDC), and taxes on gambling which are classified to an appropriate category in taxes on gambling (ETF 1113, TC 44, SDC).

Other stamp duties on financial and capital transactions (ETF 1113, TC 465, SDC) are taxes on products consisting of revenue earned from stamps affixed to (or franked on) documents which evidence financial and capital transactions. This item excludes stamp duties on motor vehicle registration which are classified to stamp duty on vehicle registrations (ETF 1113, TC 511, SDC), and on shares and marketable securities which are classified to stamp duty on shares and marketable securities (ETF 1113, TC 464, SDC). Also excluded are taxes on insurance which are classified to an appropriate category in taxes on insurance (ETF 1113, TC 45, SDC) and taxes on gambling which are classified to an appropriate category in taxes on gambling (ETF 1113, TC 44, SDC).

Taxes on financial and capital transactions not elsewhere classified (ETF 1113, TC 469, SDC) record the value of taxes on financial and capital transactions not elsewhere classified as financial institutions transaction taxes (ETF 1113, TC 461, SDC), government borrowing guarantee levies (ETF 1113, TC 462, SDC), stamp duties on conveyances (ETF 1113, TC 463, SDC), or other stamp duties on financial and capital transactions (ETF 1113, TC 465, SDC).

Paragraph A7.33 of the IMF GFSM 2014 describes other taxes on production as consisting of all taxes except taxes on products that enterprises incur as a result of engaging in production. While taxes on products are taxes payable per unit of some type of good or service, other taxes on production are imposed on the producer regardless of the production of any product (e.g. land taxes). By incorporating the appropriate tax classifications (TC) (see Appendix 1 Part A of this manual for full TC listing), other taxes on production (ETF 1114, TC, SDC) are further classified as:

• Payroll taxes (ETF 1114, TC 221, SDC);
• Superannuation guarantee charge (ETF 1114, TC 212, SDC);
• Taxes on employers' payroll and labour force not elsewhere classified (ETF 1114, TC 299, SDC);
• Land taxes (ETF 1114, TC 311, SDC);
• Municipal rates (ETF 1114, TC 312, SDC);
• Metropolitan movement rates (ETF 1114, TC 313, SDC);
• Property owners' contribution to fire brigades (ETF 1114, TC 314, SDC);
• Taxes on immovable property not elsewhere classified (ETF 1114, TC 319, SDC);
• Stamp duty on vehicle registration (ETF 1114, TC 511, SDC (except for SDC 913));
• Road transport and maintenance taxes (ETF 1114, TC 512, SDC (except for SDC 913));
• Heavy vehicle registration fees and taxes (ETF 1114, TC 513, SDC (except for SDC 913));
• Other vehicle registration fees and taxes (ETF 1114, TC 514, SDC (except for SDC 913));
• Motor vehicle taxes not elsewhere classified (ETF 1114, TC 519, SDC (except for SDC 913));
• Gas franchise taxes (ETF 1114, TC 521, SDC);
• Petroleum products franchise taxes (ETF 1114, TC 522, SDC);
• Tobacco franchise taxes (ETF 1114, TC 523, SDC);
• Liquor franchise taxes (ETF 1114, TC 524, SDC);
• Franchise taxes not elsewhere classified (ETF 1114, TC 529, SDC);
• Broadcasting station licences (ETF 1114, TC 531, SDC);
• Television station licences (ETF 1114, TC 532, SDC);
• Departure tax (ETF 1114, TC 533, SDC (except for SDC 913));
• Clean energy and related taxes (ETF 1114, TC 534, SDC);
• Taxes on the use of goods and performance of activities levied on non-residents (ETF 1114, TC 535, SDC); and
• Other taxes on the use of goods and performance of activities not elsewhere classified (ETF 1114, TC 539, SDC).

Payroll taxes (ETF 1114, TC 211, SDC) are types of other taxes on production consisting primarily of taxes payable by enterprises assessed either as a proportion of the wages and salaries paid, or as a fixed amount per person employed. Taxes paid by the employees themselves out of their wages or salaries are excluded, and are instead classified as taxes on income as personal income tax (ETF 1111, TC 111, SDC).

Superannuation guarantee charge (ETF 1114, TC 212, SDC) are types of other taxes on production consisting of charges paid by employers under the superannuation guarantee charge.

Taxes on employers' payroll and labour force not elsewhere classified (ETF 1114, TC 299, SDC) records the value of taxes on employers' payroll and labour force not elsewhere classified as payroll taxes (ETF 1114, TC 211, SDC), or superannuation guarantee charge (ETF 1114, TC 212, SDC).

Taxes on immovable property are other taxes on production consisting of taxes that are levied for the ownership or use of immovable property such as land taxes (ETF 1114, TC 311, SDC), municipal rates (ETF 1114, TC 312, SDC), metropolitan improvement rates (ETF 1114, TC 313, SDC), property owners' contributions to fire brigades (ETF 1114, TC 314, SDC), and taxes on immovable property not elsewhere classified (ETF 1114, TC 319, SDC). Paragraph 5.49 of the IMF GFSM 2014 indicates that taxes on immovable property can be levied on proprietors, tenants, or both. The value of the taxes is usually based on a percentage of an assessed property value that is based on a notional rental income, sales price, capitalised yield, or other characteristics such as size or location. Unlike recurrent taxes on net wealth, liabilities incurred on the property are usually not taken into account in assessment of these taxes.

Land taxes (ETF 1114, TC 311, SDC) are other taxes on production consisting of taxes on the ownership of land, based on the assessed value of the land.

Municipal rates (ETF 1114, TC 312, SDC) are other taxes on production consisting of levies imposed by local government authorities on the assessed value of property for the purpose of financing the provision of ordinary local services. Excluded from this classification category are amounts collected with municipal rates but identified as charges for the direct supply of goods and services such as water and sewerage rates, and garbage charges.

Metropolitan improvement rates (ETF 1114, TC 313, SDC) are other taxes on production consisting of levies on property owners intended specifically for financing the planning and development of land within the metropolitan region. The financing purposes covered within this classification category include acquisition of land for the development of metropolitan parks, the support of regional studies, and financing for open space improvements.

Property owners' contribution to fire brigades (ETF 1114, TC 314, SDC) are other taxes on production consisting of levies imposed on property owners for contribution toward the financing of fire protection services.

Taxes on immovable property not elsewhere classified (ETF 1114, TC 319, SDC) are other taxes on production consisting of other taxes on the owners or users of immovable property that cannot be classified to land taxes (ETF 1114, TC 311, SDC), municipal rates (ETF 1114, TC 312, SDC), metropolitan improvement rates (ETF 1114, TC 313, SDC), or property owners' contribution to fire brigades (ETF 1114, TC 314, SDC).

Taxes on the use of goods and performance of activities (ETF 1114, TC 5) are other taxes on production consisting of fees levied for the issuance of a licence or permit that are not commensurate with the cost of the control function of government. Paragraph 5.72 of the IMF GFSM 2014 notes that governments provide permission to use certain goods or perform certain activities to individual units directly in the form of a licence, permit, certificate of registration or other authorisation in return for payment. This payment forms part of a mandatory process that ensures proper recognition of ownership, or ensures that activities are performed under the correct authorisation of the law.

This classification category includes taxes paid by enterprises in order to obtain a licence to carry on a particular kind of business or profession, and taxes payable by individuals to perform certain activities. The distinction between payments that are classified as government taxes or as government fees for services is not always clear and requires additional guidance (see Chapter 13 Part J of this manual). In principle, if a licence to carry on a particular kind of business or profession is valid for several years, the payment for the current period is classified as other taxes on production as part of taxes on the use of goods and performance of activities (ETF 1114, TC 5, SDC), and the prepayment covering future years is classified as transactions in liabilities (net) - accounts payable (ETF 3211, TALC 552, SDC). However, if the government unit does not recognise a liability to repay the licensee in the case of a cancellation, the whole of the fee payable is recorded as a single tax payment as other taxes on production as part of taxes on the use of goods and performance of activities (ETF 1114, TC 5, SDC) at the time it is paid.

Motor vehicle taxes (ETF 1114, TC 51) are other taxes on production consisting of taxes levied on the use of motor vehicles or permission to use motor vehicles, whether paid by households or enterprises. Paragraph 5.80 of the IMF GFSM 2014 indicates that this classification category does not include taxes on tolls for use of roads, bridges, and tunnels (classified as other taxes on the use of goods and performance of activities not elsewhere classified (ETF 1114, TC 539, SDC)). Also excluded are taxes on third party insurance which are classified as third party insurance taxes (ETF 1113, TC 452, SDC).

Stamp duty on vehicle registration (ETF 1114, TC 511, SDC (except for SDC 913)) are other taxes on production payable by units other than households, consisting of stamp duties imposed on motor vehicle registration and transfer. Stamp duty on vehicle registration payable by households are recorded as other taxes on production - stamp duty on vehicle registration (ETF 1112, TC 511, SDC 913).

Road transport and maintenance taxes (ETF 1114, TC 512, SDC (except for SDC 913)) are other taxes on production payable by units other than households, consisting of taxes levied on the carriage of goods and passengers by road, including taxes collected specifically for road maintenance. Road transport and maintenance taxes payable by households are recorded as other taxes on production - road transport and maintenance taxes (ETF 1112, TC 512, SDC 913).

Heavy vehicle registration fees and taxes (ETF 1114, TC 513, SDC (except for SDC 913)) are other taxes on production payable by units other than households, consisting of motor vehicle registration, transfer, or number plate fees for vehicles with a gross vehicle mass greater than 4.5 tonnes. Heavy vehicle registration fees and taxes payable by households are recorded as other taxes on production - heavy vehicle registration fees and taxes (ETF 1112, TC 513, SDC 913).

Other vehicle registration fees and taxes (ETF 1114, TC 514, SDC (except for SDC 913)) are other taxes on production payable by units other than households, consisting of motor vehicle registration, transfer, or number plate fees for vehicles (other than those with a gross vehicle mass greater than 4.5 tonnes which are classified as heavy vehicle registration fees and taxes (ETF 1114, TC 513, SDC (except for SDC 913)). Other vehicle registration fees and taxes payable by households are recorded as other taxes on production - other vehicle registration fees and taxes (ETF 1112, TC 514, SDC 913).

Motor vehicle taxes not elsewhere classified (ETF 1114, TC 519, SDC (except for SDC 913)) records the value of motor vehicle taxes not elsewhere classified as stamp duty on vehicle registration (ETF 1114, TC 511, SDC (except for SDC 913)), road transport and maintenance taxes (ETF 1114, TC 512, SDC (except for SDC 913)), heavy vehicle registration fees and taxes (ETF 1114, TC 513, SDC (except for SDC 913)), or other vehicle registration fees and taxes (ETF 1114, TC 514, SDC (except for SDC 913)).

Franchise taxes (ETF 1114, TC 52, SDC) are other taxes on production consisting of taxes levied in respect of the permission to sell certain goods.

Gas franchise taxes (ETF 1114, TC 521, SDC) are other taxes on production consisting of licence fees levied on gas suppliers. The fee is assessed by reference to the supplier's previous gross receipts of gas retailed to the public.

Petroleum products franchise taxes (ETF 1114, TC 522, SDC) are other taxes on production consisting of licence fees paid by petroleum wholesalers and petroleum retailers to conduct their business. The tax may be assessed on the marked or prescribed value, or volume of petroleum products sold.

Tobacco franchise taxes (ETF 1114, TC 523, SDC) are other taxes on production consisting of fees collected from wholesale tobacco merchants and retail tobacconists for licences that are required to be held. The taxes are usually assessed on the basis of value sold.

Liquor franchise taxes (ETF 1114, TC 524, SDC) are other taxes on production consisting of fees collected for licences and permits to supply liquor. These taxes are levied on hotelkeepers, wholesale and retail liquor merchants and licensed clubs. These fees are regarded as taxes because of the substantial revenue they generate. These fees are usually assessed on the basis of volume and alcoholic content of sales. Some state and territory governments offer an exemption or concession to encourage consumption of low alcohol liquor. This classification category also includes permits for the supply of liquor with meals, e.g. licensed restaurants.

Franchise taxes not elsewhere classified (ETF 1114, TC 529, SDC) records the value of franchise taxes not elsewhere classified as gas franchise taxes (ETF 1114, TC 521, SDC), petroleum products franchise taxes (ETF 1114, TC 522, SDC), tobacco franchise taxes (ETF 1114, TC 523, SDC), or liquor franchise taxes (ETF 1114, TC 524, SDC).

Other taxes on the use of goods and the performance of activities (ETF 1114, TC 53, SDC) are other taxes on production consisting of taxes levied on the use of goods or the permission to use goods or perform activities that cannot be classified to motor vehicle taxes (ETF 1114, TC 51, SDC) or franchise taxes (ETF 1114, TC 52, SDC). This classification category includes permits to carry on a business which provides a service (such as broadcasting and television services), pollution taxes not based on the value of particular goods, and taxes for the permission to perform an activity such as departure tax.

Broadcasting station licences (ETF 1114, TC 531, SDC) are other taxes on production consisting of fees for licences for commercial radio stations to transmit their service. These licence fees are regarded as taxes because of the substantial revenue they generate. The tax is assessed on gross earnings.

Television station licences (ETF 1114, TC 532, SDC) are other taxes on production consisting of fees for licences for commercial television stations to transmit their services. These licence fees are regarded as taxes because of the substantial revenue they generate. The tax is assessed on gross earnings.

Departure tax (ETF 1114, TC 533, SDC (except for SDC 913)) are other taxes on production payable by units other than households, consisting of the levy imposed on all individuals leaving Australia. The fifty per cent indirect component of this tax consists of the estimated tax collected from Australian residents going abroad for business purposes. Departure tax payable by households are recorded as other taxes on production - departure tax (ETF 1112, TC 533, SDC 913).

Clean energy and related taxes (ETF 1114, TC 534, SDC) are other taxes on production consisting of taxes levied on greenhouse gas emissions.

Taxes on the use of goods and performance of activities levied on non-residents (ETF 1114, TC 535, SDC) are other taxes on production consisting of taxes levied on the use of goods and permission to perform activities by non-residents. This classification category includes withholding tax on royalties levied on nonresidents and payments for a licence or permit to conduct extraction operations on sub-soil assets by non-residents.

Other taxes on the use of goods and performance of activities not elsewhere classified (ETF 1114, TC 539, SDC) are other taxes on production consisting of taxes on the use of goods or performance of activities that cannot be classified to broadcasting station licences (ETF 1111, TC 531, SDC), television station licences (ETF 1114, TC 532, SDC), departure tax (ETF 1114, TC 533, SDC), clean energy and related taxes (ETF 1114, TC 534, SDC) or taxes on the use of goods and performance of activities levied on nonresidents (ETF 1114, TC 535, SDC). Included in this classification category are other general business taxes or licences set as a fixed amount according to the kind of business, or on the basis of various indicators such as floor space, installed horsepower, capital, or shipping tonnage. Also included in this classification category are taxes payable by persons or households for licences for recreational hunting, shooting, or fishing, and taxes on the ownership of pets when the amount payable is not commensurate with the administrative cost. Excluded from this category are business taxes on gross sales which are classified under general taxes on provision of goods and services (ETF 1113, TC 41, SDC).

Capital taxes (ETF 1115, TC) are a type of taxation revenue which consist of capital levies and taxes on capital transfers. Capital levies are imposed at irregular and infrequent intervals on the value of assets or net worth owned by institutional units. Taxes on capital transfers are imposed at irregular and infrequent intervals on the value of assets transferred between institutional units as a result of legacies, gifts or other transfers. Included in this classification category are:

• Estate, inheritance, and gift taxes (ETF 1115, TC 321, SDC)

Estate, inheritance, and gift taxes (ETF 1111, TC 321, SDC) are a type of taxation revenue which consist of taxes on transfers of property at death and on gifts, including gifts made between living members of the same family to avoid (or minimise) the payment of inheritance taxes. Paragraph 5.51 of the IMF GFSM 2014 indicates that taxes on the transfer of property at death include estate taxes (which are usually based on the size of the total estate), and inheritance taxes (which may be determined by the amount received by beneficiaries and / or their relationship to the deceased).

Sales of goods and services (ETF 112) refers to revenues generated from the direct provision of goods and services by general government and public corporations, excluding GST. In GFS, revenue from sales of goods are recorded when legal ownership changes. Paragraph 5.141 of the IMF GFSM 2014 recommends that if this time cannot be determined precisely, recording may take place when there is a change in physical ownership or control. Transactions in services are normally recorded when the services are provided, however some services are supplied or take place on a continuous basis, e.g. rentals are continuous flows and are recorded continuously as long as they are being provided. In the GFS system, sales of goods and services (ETF 112) are further classified as:

• Sales by market establishments (ETF 1121, COFOG-A, SDC);
• Administrative fees (ETF 1122, COFOG-A, SDC);
• Incidental sales by non-market establishments (ETF 1123, COFOG-A, SDC); and
• Imputed sales of goods and services (ETF 1124, COFOG-A, SDC).

Sales by market establishments (ETF 1121, COFOG-A, SDC) are a type of revenue which consist of the sales of all market establishments that are part of the units for which statistics are being compiled. Paragraph 5.137 of the IMF GFSM 21014 defines an establishment as part of an enterprise situated in a single location and at which only a single productive activity is carried out or the principal productive activity accounts for most of the value added. A market establishment within a government unit is a government unit that sells (or otherwise disposes of) all, or most of its output at economically significant prices (for definition, see Chapter 2 of this manual). Because public corporations comprise market establishments, their sales are included in this category when compiling statistics for the public sector, unless the sales are of a specific type that are to be recorded elsewhere (such as under insurance premiums and administrative fees). Income from rental payments made under an operating lease for the use of produced assets such as buildings, ships, aircraft, vehicles, buildings, copyrights, patents, trademarks, etc, are included in this classification category. Government income derived from the sale of non-financial assets other than inventories are disposals of non-financial assets (classified as disposals of non-financial assets (ETF 421, TALC, SDC)); and are not included in this classification category.

Administrative fees (ETF 1122, COFOG-A, SDC) are a type of revenue which consist of fees and charges for compulsory licences and other administrative fees that make up a part of sales of services. If the government exercises a regulatory function, such as checking the competency or qualifications of a wouldbe licensee, then such fees are treated as revenues from sales of goods and services. In this case, the payment is taken to be proportional to the cost of producing the service. If there is little or no work involved on the part of the government in the processing or granting of the licence, permit or other service, or if the revenues raised are clearly out of all proportion to the cost of providing the service, then the fee is classified as other taxes on use of goods and performance of activities (ETF 1111, TC 539, SDC). Examples of administrative fees include drivers’ licence fees, court fees, and radio and television licence fees when public authorities provide general broadcasting services. Paragraph 5.138 of the IMF GFSM 2014 notes that fees payable for voluntary participation in deposit insurance or other guarantee schemes that do not qualify to be a standardised guarantee scheme are also included in this classification category. For further information on the boundary between taxes and the purchases of services, see Chapter 13 of this manual.

Incidental sales by non-market establishments (ETF 1123, COFOG-A, SDC) are a type of revenue which consist of incidental sales by non-market establishments of general government units other than administrative fees. Paragraph 5.139 of the IMF GFSM 2014 indicates that this classification category includes sales incidental to the usual social or community activities of government departments and agencies, such as sales of products made at vocational schools, seeds from experimental farms, postcards and art reproductions by museums, fees at government hospitals and clinics, tuition fees at government schools, and admission fees to government museums, parks, and cultural and recreational facilities that are not public corporations.

Imputed sales of goods and services (ETF 1124, COFOG-A, SDC) are a type of revenue which consist of imputed income from sales rather than actual sales of goods and services. Paragraph 5.140 of the IMF GFSM 2014 states that it may be necessary to record imputed sales of goods and services in situations where a unit produces goods and services for the purpose of using them as compensation of employees in kind, or when goods or services are provided on a continuous basis, but where payment or the change in legal ownership takes place at a different time to the sale of goods and / or provision of services. Paragraph 5.140 of the IMF GFSM 2014 further notes that for a defined contribution pension scheme, this category also includes an imputed sale for the services rendered if the employer operates the scheme itself. In that case, the value of the costs of operating the scheme is recorded as an imputed contribution payable to the employee as part of compensation of employees. The counterpart of this amount should be recorded as an imputed sale of a financial service to the household sector under imputed employers’ contributions - defined benefit superannuation (ETF 1213, COFOG-A, SDC).

Property income (ETF 113) is defined as revenue receivable in return for putting financial assets and natural resources at the disposal of another unit. This refers to income accrued from the ownership of financial assets or tangible non-produced assets. In the GFS system, property income (ETF 113) is further classified as:

• Interest income (ETF 1131, SDC);
• Dividend income (including tax equivalents) (ETF 1132, SDC);
• Withdrawal from income of quasi-corporations (ETF 1133, SDC);
• Land rent income (ETF 1134, SDC);
• Royalty income (ETF 1135, SDC);
• Revenue from investment funds (ETF 1136, SDC);
• Reinvested earnings from foreign direct investments (ETF 1137, SDC); and
• Property income not elsewhere classified (ETF 1139, SDC).

Interest income (ETF 1131, SDC) is a type of revenue which consists of income that is receivable by owners of certain kinds of financial assets (SDRs, deposits, debt securities, loans, and other accounts receivable) for putting the financial asset at the disposal of another institutional unit. In the case of financial assets that give rise to interest, an amount of outstanding debt will increase as interest accrues continuously over the period that the financial asset exists. The amount due to the creditor will decline as payments are made on the debt by the debtor. The balance that a debtor owes to a creditor at any time is referred to as the principal outstanding. Paragraph 5.108 of the IMF GFSM 2014 notes that interest income can accrue on advances to the private sector, public corporations, building societies and foreign governments, and on bank account balances, fixed deposits held with banks, government securities, intra-sector deposits and short-term money market balances.

Paragraph 5.109 of the IMF GFSM 2014 notes that interest may be a predetermined sum of money or a fixed or variable percentage of the principal outstanding. If some (or all) of the interest is not paid during the period in question, the accrued interest should be added to the amount of the principal outstanding.

Interest income (ETF 1131, SDC) includes interest on advances to the private sector, public corporations, building societies and foreign governments; interest on bank account balances and fixed deposits held with banks, government securities, intra-sector deposits and short term money market balances; imputed interest that originates from interest foregone by employers when they provide loans to employees at reduced, or even zero rates of interest as part of the remuneration in kind of government and public sector employees; and interest charged on overdue taxes. Also included are accrued interest flows from a funded defined benefit superannuation scheme that is over-funded, that is, the financial assets held by the defined benefit superannuation scheme exceeds the value of the superannuation entitlements, leading to a claim of the employer on the superannuation scheme. When the superannuation scheme is over-funded, the accounts should show an accrued interest flow from the defined benefit superannuation scheme to the employer, equal to the discount rate that is used in calculating the superannuation entitlements times the claim of the superannuation scheme on the employer. Excluded from the concept of interest income (ETF 1131, SDC) are cash settlements of interest swap contracts, which are treated as financial transactions.

In Australian GFS, interest income includes financial intermediation services indirectly measured (FISIM). FISIM is a service fee charged by financial institutions for providing their services to depositors and borrowers. FISIM represents the service implicitly provided by financial intermediaries such as banks, on deposit and loan facilities. It is measured as the difference between the interest rates on loans and deposits and a pure or reference rate of interest, multiplied by the level of loans and deposits, respectively. For depositors and borrowers of financial institutions, FISIM is implicit in the interest rates charged by financial intermediaries and cannot easily be separately identified from interest income. A large part of the output of financial institutions has to be imputed by the ABS because part of the interest received by the institutions is deemed to arise from production (i.e. payment for services rendered by the institutions), and part is deemed to be property income, which does not arise from production and is recorded in the allocation of primary income account. The imputed amounts of FISIM are deducted from the interest receivable by financial institutions and included in their output, and are also deducted from the interest payable by users of the institutions’ services and included in their intermediate consumption. FISIM remains included as part of the concept of interest income (ETF 1131, SDC) reported by Australian state and territory treasuries, the Department of Finance and other providers. The FISIM portion is estimated by compilers of the National Accounts in the ABS for all depositors and borrowers of financial institutions, and is then removed from interest income (ETF 1131, SDC) for national accounting purposes.

Dividend income (including tax equivalents) (ETF 1132, SDC) is a type of revenue which consists of distributed earnings allocated to government or public sector units (as the owners of equity), for placing funds at the disposal of corporations. Dividend income is not funded by the sale of assets, capital restructure, borrowings or other credit arrangements. Paragraph 5.111 of the IMF GFSM 2014 consider dividends as a form of property income to which government or public sector units become entitled in their capacity as shareholders and / or owners of a corporation. General government units may receive dividends from private or public corporations. Dividends may occasionally take the form of an issue of shares, but the concept of dividend income excludes issues of bonus shares that represent a reclassification between own funds, reserves and undistributed profits. Dividend income is also distinguished from the sale or other divestment of equity holdings, which are sales of financial assets and not revenues.

For GFS purposes, dividends are recorded at the time the dividend is declared payable for non-quoted shares. Paragraph 5.112 of the IMF GFSM 2014 states that quoted shares may be sold 'ex-dividend', which is the date that the dividend is excluded from the market price prior to sale. The owner of the equity at the ex-dividend date (not the owner on the date dividends became payable), has the right to the dividend. A share sold ex-dividend is therefore worth less than one sold without this constraint. In this case, the time of recording of dividends is the point at which the share price starts to be quoted on an ex-dividend basis rather than at a price that includes the dividend.

The concept of dividend income includes income from dividends to public enterprises from subsidiaries; dividends from shares held as investments in private and public corporations; transfers of income from public non-financial corporations and public financial corporations; profits of central banks transferred to government units; profits transferred or distributed from the operation of monetary authority functions outside the central bank; profits transferred by state lotteries that compete with other privately organised lotteries; and issues of shares as a dividend.

Excluded from the concept of dividend income is revenue from the IMF’s gold disbursements (classified to transactions in financial assets (net) - equity including contributed capital (ETF 3111, TALC 424, SDC); issues of bonus shares that represent a reclassification between own funds, reserves and undistributed profits (classified to transactions in financial assets (net) - equity including contributed capital (ETF 3111, TALC 424, SDC)); profits of fiscal monopolies (classified to taxes on products (derived by the ABS) (ETF 1114)); profits of export or import monopolies (classified to taxes on products (derived by the ABS) (ETF 1114, TC, SDC)); dividends declared greatly in excess of the recent level of dividends and earnings (classified to transactions in financial assets (net) (ETF 3111), equity including contributed capital (TALC 424), (SDC)); and interim dividends where evidence exists that such dividends are not from the current period’s operating surplus (classified to transactions in financial assets (net) (ETF 3111), advances other than concessional loans (TALC 433), (SDC)).

These are dividends that are received during a reporting period, but before the final operating result of a corporation is known. Paragraph 5.117 of the IMF GFSM 201 recommends that if evidence exists that such dividends are not from the current period’s operating surplus, the interim dividend payments should be recorded as transactions in financial assets (net) - advances other than concessional loans (ETF 3111, TALC 433, SDC).

All dividends are notionally paid from the operating surplus of the current period by a corporation. However, corporations sometimes adjust the value of dividends, particularly if their operating surplus is very volatile. Paragraph 5.115 of the IMF GFSM 2014 indicates that such adjustments to the value of dividends is normal, except when dividends are disproportionately large in relation to the recent level of dividends and earnings. Disproportionately large payments of dividends are referred to as super dividends, and are often based on accumulated reserves, privatisation receipts, other sales of assets, or holding gains, rather than operating surpluses. Therefore, the payment of super dividends more closely resembles an equity transaction than a dividend payment, and any dividends declared greatly in excess of the recent level of dividends and earnings should be recorded as the withdrawal of owners’ equity from the corporation in GFS and classified as transactions in financial assets (net) - equity including contributed capital (ETF 3111, TALC 424, SDC). Determining whether dividends are in line with past practice is recommended for all corporations, including the central bank.

Withdrawals from income of quasi-corporations (ETF 1133, SDC) is a type of revenue which consists of that part of distributable income that the owner withdraws from the entity. A quasi-corporation is an enterprise owned by a resident institutional unit (or non-resident institutional unit that is deemed to be a resident institutional unit) that keeps a full set of accounts (including a balance sheet) and functions as if it were a corporation, but is not incorporated or otherwise legally established. By definition, a quasicorporation cannot distribute income in the form of dividends, however, the owner may choose to withdraw some (or all) of the distributable income. Conceptually, the withdrawal of such income is equivalent to the distribution of dividends and is treated as property income accruing to the owners of the quasi-corporation.

Excluded from the concept of withdrawal of income from quasi-corporations (ETF 1133, SDC) are withdrawals of funds realised from the sale or other disposal of the quasi-corporation’s assets such as inventories, non-financial produced assets, land or other non-produced assets (classified to transactions in financial assets (net) - equity including contributed capital (ETF 3111, TALC 424, SDC)); and withdrawals of funds realised from the liquidation of large amounts of accumulated retained earnings or other reserves (classified to transactions in financial assets (net) - equity including contributed capital (ETF 3111, TALC 424, SDC)).

Land rent income (ETF 1134, SDC) is a type of revenue which consists of income in the form of rent for the use of land and other non-produced assets. This classification category includes rent on leasehold land in the territories (ACT and NT), and other leasing of crown lands. Rent on land accrues continuously throughout the period of the lease contract. Paragraph 5.127 of the IMF GFSM 2014 recommends that rent payable to government sector units that own inland waters and rivers for the right to exploit such waters for recreational or other purposes (including fishing), or non-cultivated land for the right to cut timber on the land be included as part of land rent income (ETF 1134, SDC). In the case of permits that allow timber felling in a natural forest, fees payable per unit volume of timber felled (stumpage) are also recorded as land rent income (ETF 1134, SDC).

In situations where a single payment covers both land rent and rentals of produced assets (such as rentals on the buildings or fixtures on the land) in a single contract or lease, and there is no objective basis on which to split the payment between rent on land and rental on the produced assets, then paragraph 5.132 of the IMF GFSM 2014 recommends to treat the whole amount as land rent income (ETF 1134, SDC) if the value of the land is believed to exceed the value of the buildings and other produced assets.

Royalty income (ETF 1135, SDC) is a type of revenue which consists of rent income relating to the use of non-produced subsoil assets such as deposits of minerals, off-shore petroleum or fossil fuels such as coal, oil, or natural gas. Paragraph 5.130 of the IMF GFSM 2014 states that general government units may grant leases to other institutional units that permit them to extract these deposits over a specified period of time in return for a payment, or series of payments. These payments are called royalties in GFS. The rent may take the form of periodic payments of fixed amounts that are irrespective of the rate of extraction, or they may be a function of the quantity, volume, or value of the asset extracted. Enterprises engaged in exploration on government land may make payments to general government units in exchange for the right to undertake test drilling or otherwise investigate the existence and location of subsoil assets. Such payments are also treated as rents even though no extraction may take place.

Although the terms rent and royalties are widely used in commercial accounting, paragraph 5.133 of the IMF GFSM 2014 warns that rents and royalties in the macroeconomic context should not be confused with severance taxes, business licences, or other taxes. Severance taxes are imposed on the extraction of minerals and fossil fuels from reserves owned privately or by another government. If the payment counts toward the taxes on profits, then it should be classified as taxation revenue (ETF 1111, TC, SDC). Payments received from licences or permits to conduct extraction operations should be classified as land rent income (ETF 1134, SDC) or royalty income (ETF 1135, SDC).

Revenue from investment funds (ETF 1136, SDC) is a type of revenue which consists of revenue from collective investment undertakings through which investors pool funds specifically for investment in financial or non-financial assets. Investment funds may take the form of mutual funds or unit trusts. Investors in an investment fund will receive shares if the investment fund operates under a corporate structure, or units if the investment fund operates under a trust structure. Paragraph 7.174 of the IMF GFSM 2014 states that investment funds are divided into Money Market Funds (MMF) and non-MMFs. MMFs invest in money market instruments with a residual maturity of less than one year, and the units of MMFs are taken as close substitutes for bank deposits. Non-MMF investment funds invest in longer-term financial assets and real estate.

An investor in an investment fund can choose to either leave their investment in the fund, or withdraw their investment at the current market value through secondary market trading / redemption facilities. Because of this high degree of control that investors have over their investment in an investment fund, and because there can be no savings in an investment fund because all earnings are issued to the investors, paragraph 9.56 of the IMF GFSM 2014 considers any increases in the value of investment fund shares (that are not the result of holding gains and after reinvested earnings have been deducted) to be property income resulting from deliberate investment decisions.

Paragraph 5.121 of the IMF GFSM 2014 notes that investment income attributed to holders of share or units in investment funds includes two separate items. The first of these is the dividends distributed to investment fund shareholders. The second is retained earnings attributed to investment fund shareholders. The increase in value of investment fund shares or units other than from holding gains and losses is recorded as if they were distributed to the share or unit holders and then reinvested by them in the financial instrument.

Paragraph 5.120 of the IMF GFSM 2014 indicates that insurance enterprises hold technical reserves in the form of prepayments of premiums, reserves against outstanding claims, and actuarial reserves against outstanding risks with respect to life insurance policies. These reserves are liabilities toward the beneficiaries, including any government or other public sector units that are policyholders. Any income receivable from the investment of the corresponding assets should also be attributed as the property income of the policyholders or beneficiaries. However, for government sector units as the holder of policies, the revenue related to this item is likely to be unknown, and therefore this revenue item is excluded from GFS and is treated as an adjustment item between GFS and national accounts.

Reinvested earnings on foreign direct investment (ETF 1137, SDC) are a type of revenue which consist of direct investor’s share of the retained earnings of the direct investment enterprise. Paragraph 5.134 of the IMF GFSM 2014 describes direct investment as a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. A general government unit or public corporation may have foreign direct investment in non-resident special purpose entities (SPEs), or non-resident branches or subsidiaries of public corporations. Actual distributions receivable from such non-resident units out of their distributable income should be recorded as dividend income (including tax equivalents) (ETF 1132, SDC) or withdrawal from income of quasi-corporations (ETF 1133, SDC).

Paragraph 5.135 of the IMF GFSM 2014 states that any retained earnings of a foreign direct investment enterprise are to be recorded as if they were distributed to foreign direct investors in proportion to their ownership of the equity of the enterprise and then reinvested by them. The imputed remittance of these retained earnings is classified as a form of distributed income that is separate from, and additional to, any actual payments of dividends or withdrawals of income from quasi-corporations, and should be recorded as reinvested earnings on foreign direct investment (ETF 1137). The counterpart entry for the imputed reinvestment should be recorded as the acquisition of equity and classified as transactions in financial assets (net) (ETF 3111), equity including contributed capital (TALC 424, SDC). The rationale behind this treatment is that, because a direct investment enterprise is subject to control or influence by the direct investor or investors, the decision to retain some of its earnings within the enterprise represents an investment decision on the part of the foreign direct investor(s).

Property income not elsewhere classified (ETF 1139, SDC) records the value of property income not elsewhere classified as interest income (ETF 1131, SDC), dividend income (including tax equivalents) (ETF 1132, SDC), withdrawals from income of quasi-corporations (ETF 1133, SDC), land rent income (ETF 1134, SDC), royalty income (ETF 1135, SDC), revenue from investment funds (ETF 1136, SDC), or reinvested earnings on foreign direct investment (ETF 1137, SDC).

Other current revenue (ETF 155, SDC) are types of revenue which consist of revenue other than from taxation revenue (ETF 111, TC, SDC), sales of goods and services (ETF 112, COFOG-A, SDC), and property income (ETF 113, SDC). In the GFS system, other current revenue (ETF 114) is further classified as:

• Revenue from current grants and subsidies (ETF 1141, SDC);
• Fines, penalties and forfeits (ETF 1142, SDC)
• Premiums, fees and current claims related to non-life insurance and standardised guarantee schemes (ETF 1143, SDC); and
• Other current revenue not elsewhere classified (ETF 1149, SDC).

Revenue from current grants and subsidies (ETF 1141, SDC) are a type of revenue which consist of current transfers receivable by government units. Current transfer revenues comprise current grants which are defined as amounts receivable for current purposes for which no economic benefits are payable in return, and subsidies which are defined in paragraph 5.146 of the IMF GFSM 2014 as current unrequited transfers received by public enterprises on the basis of the level of their production activities, or the quantities or values of the goods and services they produce, sell, export or import. Grants are normally receivable in cash, but may also take the form of the receipt of goods or services (in kind). Subsidies include transfers receivable by public corporations to offset recurring losses that are a consequence of government policy to maintain the corporations’ prices at a level that does not cover the cost of production.

Fines, penalties and forfeits (ETF 1142, SDC) are a type of revenue which consist of compulsory current transfers imposed on units by courts of law or quasi-judicial bodies for violations of laws or administrative rules. Paragraph 5.142 of the IMF GFSM 2014 states that out-of-court agreements are included as part of this classification item, as are forfeits which are amounts deposited with a general government unit pending a legal or administrative proceeding that have been transferred to the general government unit as part of the resolution of that proceeding.

Penalties imposed by tax authorities are excluded from fines, penalties and forfeitures (ETF 1142), and are instead classified to the appropriate category under taxation revenue (ETF 1111, TC, SDC). However, paragraph 5.143 of the IMF GFSM 2014 recommends that fines and penalties charged on overdue taxes or for the attempted evasion of taxes should be recorded as fines, penalties and forfeitures (ETF 1142) and not as taxation revenue (ETF 1111, TC, SDC). However, it may not be possible to separate payments of fines or other penalties from the taxes to which they relate. Therefore, the fines and penalties relating to a particular tax are recorded together with that tax, and any fines and penalties related to unidentifiable taxes are classified as other income tax levied on individuals (ETF 1111, TC 119, SDC) for individuals, and other income taxes levied on non-residents not elsewhere classified (ETF 1111, TC 139, SDC) for non-residents.

In the GFS system, fines, penalties, and forfeits are recorded when the general government unit has an unconditional claim to the funds. Paragraph 5.144 of the IMF GFSM 2014 states that this may be at the time that a court renders judgment or an administrative ruling is published, or it may be when a late payment or other infringement automatically causes a fine or penalty. Fines also include bail set by courts when bail conditions have been violated. When bail is set, repayable amounts should be recorded as transactions in liabilities (net) - other liabilities not elsewhere classified (ETF 3211, TALC 559, SDC) and should only be recorded as revenue once the conditions for the bail are violated. In cases where no actual payment is made when bail is set, the government acquires a conditional claim to the funds which is not recorded in the GFS system until the conditions are fulfilled.

Premiums, fees and current claims related to non-life insurance and standardised guarantee schemes (ETF 1143, SDC) are a type of revenue which consist of premiums receivable by non-life insurance schemes from insurance policyholders, claims receivable from insurance schemes by beneficiaries, and fees receivable for the issuance of standardised guarantees of a current nature. Paragraph 5.149 of the IMF GFSM 2014 states that while premiums and fees are always of a current nature, claims receivable could be of a capital or current nature.

Paragraph 5.150 of the IMF GFSM 2014 indicates that premiums and fees receivable recorded under this classification category should only include those that provide insurance coverage in the current reporting period. Receipts of prepayment of premiums and fees should not be recognised as revenue, but should be recorded as the incurrence of a liability under transactions in liabilities (net) - non-life insurance technical reserves (ETF 3211, TALC 541, SDC).

Other current revenue not elsewhere classified (ETF 1149, SDC) is a type of revenue which consists of the receipt of transfers from sources other than from revenue from current grants and subsidies (ETF 1141, SDC), fines, penalties and forfeits (ETF 1142, SDC), or premiums, fees and current claims related to nonlife insurance and standardised guarantee schemes (ETF 1143, SDC). This classification category includes gifts and transfers of a current nature (other than grants or subsidies). Paragraph 5.147 of the IMF GFSM 2014 states that these transfers could be in cash or in kind, e.g. contributions of food, blankets, and medical supplies for relief purposes. This classification category also includes the revenue of local governments in lieu of municipal rates, gifts, conscience moneys, and unclaimed moneys such as unclaimed lottery prizes, unclaimed TAB dividends, and unclaimed moneys in bank accounts.

Capital revenue (ETF 115) consists of other revenue for capital purposes. In the GFS system, capital revenue (ETF 115) is further classified as:

• Revenue from capital grants (ETF 1151, SDC);
• Assets acquired below market value (ETF 1152, COFOG-A, TALC, SDC);
• Capital claims related to non-life insurance and standardised guarantee schemes (ETF 1153, SDC); and
• Capital revenue not elsewhere classified (ETF 1159, SDC).

Revenue from capital grants (ETF 1151, SDC) are a type of transfer revenue which consist of receipts of a capital nature for which no economic benefits are payable in return. These differ from current grants which are transfers receivable for current purposes. Capital grants are usually non-recurrent, and irregular for the donor or the recipient. Included are grants for capital purposes received from private non-profit institutions serving households, foreign governments, and international organisations (including grants received from aid projects), and capital grants received by one level of government from another (e.g. Commonwealth to state / territory). Included are transfers received in the form of compensation for damage or destruction of non-financial assets, or to increase financial capital.

Assets acquired below market value (ETF 1152, COFOG-A, TALC, SDC) consists of the capital grant received when capital assets are acquired below current market value or without cost. The capital grant is equal to the difference between the current market value and the acquisition cost of the asset. This type of acquisition is recorded by imputation of equivalent transactions when they are of an economic nature and where valuations are realistically obtainable.

Capital claims related to non-life insurance and standardised guarantee schemes (ETF 1153, SDC) are a type of revenue which consist of the claims receivable from insurance schemes by beneficiaries of a capital nature. Paragraph 5.149 of the IMF GFSM 2014 states that while premiums and fees are always of a current nature, claims receivable could be of a capital or current nature. Paragraph 5.151 of the IMF GFSM 2014 states that all non-life insurance claims are classified as current transfers, unless the nature of the claim makes it necessary to record a capital transfer.

Other capital revenue not elsewhere classified (ETF 1159, SDC) is a type of revenue which consists of all other revenue for capital purposes. Included in this classification category are gifts and transfers of a capital nature (other than grants) from individuals, private non-profit institutions, non-governmental foundations, or corporations. Paragraph 5.148 of the IMF GFSM 2014 gives the following examples of items that are included in this classification category:

• Major non-recurrent payments receivable in compensation for extensive damages or serious injuries not covered by insurance policies. The payments may be awarded by courts of law or settled out of court. They include payments of compensation for damages caused by major explosions, oil spillages, etc.;
• International aid of a capital nature receivable after natural disasters from non-residents other than international organisations and foreign governments;
• Payments receivable for damage to property other than payments from an insurance settlement;
• Transfers receivable from government units by public corporations to cover large operating deficits accumulated over two or more years. Where a realistic expectation exists that such amounts will be repayable, the transaction should be classified as the acquisition of a financial asset under transactions in financial assets (net) (ETF 3111, TALC, SDC) for the government unit and incurrence of liability for the public corporation (transactions in liabilities (net) (ETF 3211, TALC, SDC));
• Legacies or large gifts receivable by government or public sector units, including gifts of land, buildings, or research and development assets such as patents and copyrights;
• Exceptionally large donations receivable from households or enterprises to public sector units to finance gross fixed capital formation (measured in macroeconomic statistics as acquisitions minus disposals of non-financial produced assets). For example, transfers for the construction or purchase of hospitals, schools, museums, theatres, and cultural centres, or gifts to universities to cover the costs of building new residential colleges, libraries, laboratories, etc.;
• Capital transfers from corporations, quasi-corporations, non-profit institutions serving households, households, and non-residents other than governments and international organisations for the cancellation or assumption of a debt by mutual agreement with the government without the government incurring an effective liability toward them;
• Amounts receivable in excess of the expected value of liabilities assumed for the provision of employment related pension entitlements. Amounts receivable up to the expected value of the liabilities should be recorded as transactions in liabilities (net) - insurance, superannuation, and standardised guarantee schemes (ETF 3211, TALC 54, SDC); and
• Community built assets where responsibility for maintenance is then assumed by a public sector unit.

The most common types of expenses for most public sector units are employee expenses, non-employee expenses and transfer expenses. In the GFS system, expenses are recorded net of recoverable GST, and consist primarily of:

• Superannuation expenses (ETF 121);
• Other employee expenses (ETF 122);
• Non-employee expenses (ETF 123);
• Depreciation (ETF 124);
• Current transfer expenses (ETF 125);
• Capital transfer expenses (ETF 126);
• Interest expenses (ETF 127); and
• Other property expenses (ETF 128).

There are two types of transactions that are treated as decreases in expense rather than revenue in GFS. These are:

• Refunds paid, recoveries of overpayments, and erroneous payments - these transactions are adjustments that correct an excessive decrease in net worth previously recorded. As such, these transactions are treated as a reduction in expense, with a corresponding reduction in accounts payable / cash; and
• The costs incurred in the production of goods and services - these are recorded as expenses despite the fact that the goods and services may have been sold for a price that exceeded the cost of production, thereby increasing net worth. The amount receivable for the sale of the goods and services is recorded as revenue and not as a reduction in expense.

Paragraph 6.5 of the IMF GFSM 2014 further indicates that some transactions are exchanges in assets and / or liabilities and should not be recorded as expenses. The acquisition of a non-financial asset by purchase or barter does not affect net worth, and these transactions are not expenses. They are transactions in nonfinancial assets as described in Chapter 9 of this manual. However, when ownership of an asset is given up without receiving anything of value in return, the net worth of the unit has decreased. This increase in expense is recorded as a capital transfer. Amounts payable on loans extended, and repayments on loans incurred are also not recorded as expenses. These are transactions in financial assets or liabilities as described in Chapter 10 of this manual.

In the Australian GFS, expenses are recorded on an accruals basis when activities, transactions, or other events occur that create an unconditional obligation to make payments, or otherwise give up resources. However, an expense is not recorded for the payment of all goods. Paragraph 6.6 of the IMF GFSM 2014 states that goods which are not immediately consumed or otherwise utilised by a producer unit as part of the production process during the reporting period, are added to their stock of inventories rather than expensed. This is because the goods will be used as part of future production processes. In addition, where purchased goods are used in own-account capital formation for the creation of another asset, their value is recorded as a transaction in own-account capital formation (ETF 4113, TALC, COFOG-A) as part of acquisitions of non-financial assets, with a further break down classified to an appropriate category within own-account use of goods and services (ETF 76, TALC, COFOG-A) as part of supplementary information (see Appendix 1 Part B). However, where goods are consumed during the process of providing a service, an expense is recorded in the GFS system.

Some GFS quarterly data supplied by state or territory treasuries, the Department of Finance, or other GFS data providers are only reported on a year-to-date basis, or on an annual basis. Where this is the case, the ABS applies timing adjustments so that the data better represent the actual economic activity over the four financial quarters. The ABS does this by pro-rating the value of the relevant expense across the four financial quarters, in consultation with the relevant state or territory treasury, the Department of Finance, or other GFS data providers.

Other GFS expense items which may attract timing adjustments are:

• Superannuation expenses (ETF 121) and other employee expenses (ETF 122) - payment may occur in the quarter before or after the period to which the employee work relates, due to public holidays or departmental shut down periods falling during scheduled pay days. In Australia, this can occur around the Christmas and Easter periods. Where these cases are identified, the ABS will request information from the relevant state or territory treasury, the Department of Finance, or other GFS data provider to move the payments to the quarter to which they relate.
• Social benefit to households in goods and services (ETF 1232) - payments that are due to occur during departmental holiday shut down periods pose a similar problem to the payment of wages and salaries. On some occasions, social benefit payments that are for the March quarter are made in the December quarter due to the Christmas shut down period. Where these cases are identified, the ABS will request information from the relevant state or territory treasury, the Department of Finance or other GFS data provider to move the payments to the quarter to which they relate.
• Land rent and royalty expenses (ETF 1283) - payment for royalty expenses may be annual or biannual. However, the production that gives rise to the royalties continues throughout the year and so royalties should be recorded in the period pertaining to the production regardless of when the actual payments are made. Where these cases are identified, the ABS will request information from the relevant state or territory treasury, the Department of Finance or other GFS data provider to move the payments to the quarter to which the production relates.
• Volatile data - where quarterly GFS data reported to the ABS are volatile and result in large movements which do not have a plausible economic explanation, the ABS may apply timing adjustments to provide for a GFS series that is more in line with the underlying activity rather than the financial reporting of the activity. An example might be where large increases in operating expenses are recorded in the June quarter which may reflect the payment of invoices from earlier periods, or the pre-payment of expenses for a future quarter (e.g. cash based rather than accrual reporting). In most cases, the year-to-date totals remain unchanged. In such a situation, the ABS would retain the year to date total but adjust the quarterly pattern of data according to the following criteria in consultation with the relevant state or territory treasury, the Department of Finance or other GFS data provider if:
  • Movements exceed a pre-determined threshold (e.g. greater than 10%); and
  • A plausible economic explanation for the large movement is not available.

As is previously noted, expenses are decreases in net worth resulting from transactions. In the Australian GFS, expenses are classified by type of expense using the classification codes in the economic type framework (ETF). Expenses are further classified by purpose of the expense using an appropriate code in the classification of the functions of government - Australian (COFOG-A), and by destination using an appropriate code in the source destination classification (SDC). Note that all payments connected with own-account capital formation are reported as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A) as part of acquisitions of non-financial assets, with a further breakdown using an appropriate category in the supplementary information under own-account capital formation (ETF 76, TALC, COFOG-A) (see Appendix 1 Part B). Further discussion on expenses can be found in Chapter 5 of this manual. The detailed classification of expenses is shown in Table 7.1 below

Superannuation expenses (ETF 121) record data on expenses relating to employment-related superannuation schemes provided by government units to employees. In the GFS system, superannuation expenses (ETF 121) are further classified as:

• Superannuation expenses - defined contribution scheme (ETF 1211, COFOG-A, SDC);
• Superannuation expenses - defined benefit scheme (ETF 1212, COFOG-A, SDC); and
• Imputed employers' contribution - defined benefit scheme (ETF 1213, COFOG-A, SDC).

Superannuation expenses - defined contribution scheme (ETF 1211, COFOG-A, SDC) record the expenses accrued under a defined contribution public sector superannuation scheme. Under such a scheme, the benefits payable to the employee on retirement are determined by the funds that have accumulated from employer and employee contributions over the working life of the employee, together with income and capital gains / losses arising from the investment of the accumulated funds. This item includes amounts payable by employers to defined contribution superannuation schemes, in respect of services provided by employees in the current period, to finance future superannuation payments. This item excludes amounts arising from actuarial reviews and reassessments which are treated as an other change in the volume of assets, and amounts relating to services not provided by employees in the current period.

Superannuation expenses - defined benefit scheme (ETF 1212, COFOG-A, SDC) record the expenses accrued under a defined benefit public sector superannuation scheme. Under such a scheme, the benefits payable to the employee on retirement are determined by a formula, usually based on a combination of final salary (or final average salary), age at retirement and the number of years of membership in the scheme. This item includes amounts payable by employers to defined benefit superannuation schemes, in respect of services provided by employees in the current period, to finance future superannuation payments. This item excludes amounts arising from actuarial reviews and reassessments which are treated as an other change in the volume of assets, and amounts relating to services not provided by employees in the current period.

Imputed employers' contribution - defined benefit scheme (ETF 1213, COFOG-A, SDC) consists of the amount of employer contributions to defined benefit superannuation schemes that would be needed to secure the de-facto entitlements to the benefits accumulated by their employees. Some employers provide benefits directly to their employees, former employees or their dependants from their own resources without involving an autonomous superannuation fund and without creating a special fund or segregated reserve for the purpose. This type of situation is uncommon however, as superannuation is compulsory in Australia.

Some funded defined benefit pension schemes may have financial assets that exceed the liabilities of the scheme to present and past employees. The defined benefit superannuation scheme is said to be 'overfunded' in such a case. Under these circumstances, it is possible for the employer to take a 'contribution holiday' and not make actual contributions for part of a period or one or more periods while the scheme remains over-funded. Nonetheless, an imputed contribution by the employer should be calculated and recorded.

Other employee expenses (ETF 122) record the compensation of employees other than superannuation expenses. Paragraph 6.9 of the IMF GFSM 2014 defines compensation of employees as the total remuneration (in cash or in kind) payable to an individual in an employer / employee relationship in return for work done by the employee during the reporting period. In the international GFS standards, the concept of compensation of employees differs to that of the 2008 SNA because compensation of employees related to work done on own-account capital formation is excluded. In Australian GFS, although the concept of compensation of employees is aligned with the international GFS standards, to facilitate reporting under the ASNA 2012 employee payments relating to work done on own-account capital formation is recorded in the GFS system as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A) as part of acquisitions of non-financial assets, with a further break down classified to the appropriate category in own-account capital formation (ETF 76) as part of supplementary information (see Appendix 1 Part B).

The major part of employee expenses is made up of wages, salaries and supplements. Allowances for overtime, shift work, living away from home and travel are included, as are in-kind payments such as accommodation, vehicles and clothing provided by employers. Employee expenses also include salary sacrifice expenses, and accrued expenses for the period relating to workers' compensation premiums, fringe benefits tax expenses (FBT), employee sick leave, employee annual leave, employee long service leave, and expenses relating to retirement and redundancy of employees. Payments charged to capital works (e.g. wages and salaries, or employee superannuation expenses relating to own-account capital formation) are excluded from this category and are recorded separately as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A) as part of acquisitions of non-financial assets, with a further break down classified to the appropriate category in own-account capital formation (ETF 76) as part of the supplementary information (see Appendix 1 Part B). Taxes paid on employers’ payroll and labour force are not included as employee expenses but are recorded as tax expenses (ETF 1255, COFOG-A, TC, SDC). Expenses relating to usage of labour hire agencies are also excluded from employee expenses and are classified as use of goods and services (ETF 1233, COFOG-A, SDC).

In the GFS system, other employee expenses (ETF 122, COFOG-A, SDC) are further classified as:

• Wages, salaries and supplements in cash (ETF 1221, COFOG-A, SDC);
• Wages and salaries in kind (ETF 1222, COFOG-A, SDC);
• Fringe benefits tax (FBT) expenses (ETF 1223, COFOG-A, SDC);
• Workers' compensation expenses (ETF 1224, COFOG-A, SDC); and
• Other employee expenses not elsewhere classified (ETF 1229, COFOG-A, SDC).

Wages, salaries and supplements in cash (ETF 1221, COFOG-A, SDC) record employer expenses relating to employee wages and salaries payable in cash, or any other financial instruments used as means of payments, to employees in return for work done. The use of the term 'cash' here should not be viewed as denoting the cash basis of recording, but rather denotes monetary remuneration. Paragraph 6.13 of the IMF GFSM 2014 includes the following kinds of remuneration included as wages, salaries and supplements in cash:

• Basic wages or salaries payable at regular weekly, monthly or other intervals, including payments by results and piecework payments; enhanced payments or special allowances for working overtime, at nights, on weekends or other irregular hours; allowances for working away from home or in disagreeable or hazardous circumstances; expatriation allowances for working abroad; etc.;
• Supplementary allowances payable regularly, such as housing allowances or allowances to cover the costs of travel to and from work, but excluding social benefits payable by the employers;
• Wages or salaries payable to employees away from work for short periods, for example, on vacation or as a result of a temporary halt to production, except during absences due to sickness, injury, annual leave etc.;
• Annual supplementary pay, such as bonuses and '13th month' pay;
• Ad hoc bonuses or other exceptional payments linked to the overall performance of the enterprise made under incentive schemes; and
• Commissions, gratuities, and tips received by employees: these should be included in payments for services rendered by the unit employing the worker, even when they are payable directly to the employee by a third party. They are thus regarded as being paid by the employer to the employee. Amounts directly paid to the employee should be rerouted to be included in revenue of the employer related to the service provided, and then expensed as wages and salaries.

Excluded from the concept of wages, salaries and supplements in cash (ETF 1221, COFOG-A, SDC) are wages and salaries charged to capital works (e.g. wages and salaries, or employee superannuation payments relating to own-account capital formation). These are recorded as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A) as part of acquisitions of non-financial assets, with a further break down classified to own-account wages, salaries and supplements in cash (ETF 7621, TALC, COFOGA) as part of the supplementary information (see Appendix 1 Part B). Taxes paid on employers’ payroll and labour force are not included as employee expenses but are recorded as tax expenses (ETF 1255, COFOGA, SDC, TC). Expenses relating to the usage of labour hire agencies (e.g. for contractors or non-ongoing staff) are also excluded from employee expenses and are classified as use of goods and services (ETF 1233, COFOG-A, SDC).

Wages, salaries and supplements in cash (ETF 1221, COFOG-A, SDC) also exclude reimbursement of costs incurred by employees in order to enable them to carry out their work. Paragraph 6.15 of the IMF GFSM 2014 notes the following exclusions:

• The reimbursement of travel, relocation, or related expenses made by employees when they take up new jobs or are required by their employers to move their homes to different parts of the country or to another country; and
• The reimbursement of costs incurred by employees on tools, equipment, special clothing, or other items that are needed exclusively, or primarily, to enable them to carry out their work. To the extent that employees, who are required by their contract of employment to purchase tools, equipment, special clothing, etc., are not fully reimbursed, the remaining expense they incur should be deducted from the amounts they receive in wages and salaries and the government’s use of goods and services increased accordingly.

Paragraph 6.16 of the IMF GFSM 2014 notes that wages and salaries in cash also exclude social benefits payable by governments to their employees in the form of children’s, spouse’s, family, education, or other allowances in respect of dependants (classified to other employee expenses not elsewhere classified (ETF 1229, COFOG-A, SDC)); payments made at full, or reduced, wage or salary rates to workers absent from work because of illness, accidental injury, maternity leave, annual leave, etc. (classified to other employee expenses not elsewhere classified (ETF 1229, COFOG-A, SDC)); and severance payments to workers or their survivors who lose their jobs because of redundancy, incapacity, accidental death, etc (classified to other employee expenses not elsewhere classified (ETF 1229, COFOG-A, SDC)).

Wages and salaries in kind (ETF 1222, COFOG-A, SDC) record employer expenses relating to employee wages and salaries in kind that are payable in the form of goods, services, interest forgone, and shares issued to employees in return for work done. This category consists of goods and services provided without charge, or at reduced prices. When provided at reduced prices, the value of the wages and salaries in kind is derived from the difference between the full value of the goods and services and the amount payable by the employees. These goods and services provided in kind by the government to its employees are not necessary for work. They could be used by employees in their own time, and at their own discretion, for the satisfaction of their own needs or wants, or those of other members of their households.

Almost any kind of goods or services may be provided as wages and salaries in kind, however in kind amounts connected with own-account capital formation are excluded from this item and recorded as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A, SDC) as part of acquisitions of non-financial assets, with a further break down classified to own-account wages and salaries in kind (ETF 7622, TALC, COFOG-A) as part of the supplementary information (see Appendix 1 Part B). Paragraph 6.17 of the IMF GFSM 2014 notes the most common types of goods and services provided to employees without charge, or at reduced prices, as:

• Meals and drinks provided on a regular basis, including any subsidy element of an office canteen (for practical reasons, it is unnecessary to make estimates for meals and drinks consumed as part of official entertainment or during business travel);
• Clothing or footwear that employees may choose to wear frequently outside of the workplace as well as while at work;
• Housing services or accommodation of a type that can be used by all members of the household to which the employee belongs;
• Vehicles or other durables provided for the personal use of employees;
• Goods and services produced by the employer, such as free travel on government airplanes or trains;
• Sports, recreation, or holiday facilities for employees and their families;
• Transportation to and from work, free or subsidised employee parking;
• Childcare for the children of employees;
• The value of the interest forgone by employers when they provide loans to employees at reduced or even zero rates of interest for purposes of buying houses, vehicles, furniture, or other goods or services. The value of interest forgone may be estimated as the amount the employee would have to pay if the market equivalent interest rates were charged minus the amount of interest actually payable, however, the sums involved may be too small and too uncertain to be worth estimating; and
• In the case of public corporations, wages and salaries in kind can also include bonus shares or stock options distributed to employees. Under a stock option agreement, the employer gives an employee the option to buy stocks or shares at a specified price at a future date.

Fringe benefits tax (FBT) expenses (ETF 1223, COFOG-A, SDC) record the employers' FBT expenses. FBT is a tax levied on employers for non-cash benefits provided to employees. In Australia, fringe benefits tax (FBT) is calculated at the highest marginal income tax rate plus the medicare levy. The Australian Taxation Office website (www.ato.gov.au) indicates that employer benefits provided to employees include rights and privileges such as:

• Use of a work car for private purposes;
• Below market loans to employees;
• Employee’s private health insurance costs;
• Cleaning services for an employee’s private residence;
• Reimbursement of non-business expenses incurred by an employee (such as school fees); or
• Entertainment by way of food, drink or recreation.

The Australian Taxation Office website (www.ato.gov.au) lists a number of items that are exempt from fringe benefits tax (FBT). They include (among others), work related items such as mobile phones, laptops and protective clothing. Also exempt from fringe benefits tax (FBT) are living away from home allowances and employee relocation expenses.

Workers' compensation expenses (ETF 1224, COFOG-A, SDC) record the expenses of the employer regarding the provision of workers' compensation benefits to employees for national accounting purposes. Workers' compensation is a type of insurance that is compulsory for employers, which provides benefits to employees who are injured in the ordinary course or their employment. Benefits include the payment of the employee’s medical expenses relating to the injury (including rehabilitation), and wage replacement. Information about what types of benefits may be claimed under workers' compensation may be found at Safe Work Australia (www.safeworkaustralia.gov.au), which is the government body that is set up to coordinate and develop national policy and strategies regarding workers' compensation.

Other employee expenses not elsewhere classified (ETF 1229, COFOG-A, SDC) record employee expenses other than wages, salaries and supplements in cash (ETF 1221, COFOG-A, SDC), wages and salaries in kind (ETF 1222, COFOG-A, SDC), Fringe Benefits Tax (FBT) expenses (ETF 1223, COFOG-A, SDC), or workers' compensation expenses (ETF 1224, COFOG-A, SDC). This item includes accrued expenses for the period relating to sick leave, annual leave, long service leave, retirement and redundancy.

Non-employee expenses (ETF 123) record operating expenses that are not related to the compensation of employees. In the GFS system, non-employee expenses (ETF 123) are further classified as:

• Production tax expenses (ETF 1231, COFOG-A, SDC);
• Social benefits to households in goods and services (ETF 1232, COFOG-A, SDC);
• Use of goods and services (ETF 1233, COFOG-A, SDC); and
• Other non-employee expenses not elsewhere classified (ETF 1239, COFOG-A, SDC).

Production tax expenses (ETF 1231, COFOG-A, SDC) record all taxes on production, known as indirect taxes. Taxes on production exclude taxes on products, and are imposed on a producer as a result of the unit engaging in the production of goods and services. Production taxes are payable irrespective of the profitability of the production process. They may be payable on labour, non-financial produced assets and land used in the production process.

Social benefits to households in goods and services (ETF 1232, COFOG-A, SDC) record the expenditure by government units on goods and services produced by market producers that are provided directly to households as social transfers in kind. This item includes medical and pharmaceutical benefits, telephone rental concessions, concessional railway fares, rental subsidies, reduced utility charges, etc. In the national accounts, this item is included in the measure of final consumption expenditure by government but not in actual government consumption. The difference between government transfer payments and the purchase of goods and social benefits to households in goods and services is discussed in Chapter 13 Part O of this manual.

Use of goods and services (ETF 1233, COFOG-A, SDC) record the value of goods and services used for the production of market and non-market goods and services. These consist of the cost of inexpensive durable goods (such as small / hand tools) when purchased regularly, and are small in value when compared with the costs incurred for the acquisition of machinery and equipment; amounts payable to labour hire agencies, contractors, self-employed outworkers, and other workers who are not employees of general government or public sector units; and the cost of goods and services used by a donor government unit to produce non-market goods and services consumed by other governments and international organisations. The boundary between use of goods and services and transfers, employee expenses, and the acquisition of non-financial assets are discussed in Chapter 13 Part P, Part Q, and Part R of this manual.

In the GFS system, the value of use of goods or services is recorded on a gross basis when the goods or services are actually used, rather than when they were acquired or paid for. Paragraph 6.28 of the IMF GFSM 2014 states that in practice, these events often coincide for inputs of services but not for goods, which may be acquired some time in advance of their use. The value of goods purchased and held for resale is recorded as use of goods and services when they are sold. Paragraph 6.30 of the IMF GFSM 2014 states that any fees or charges collected for goods and services provided by general government units should be shown as revenue rather than deducted from expense.

Included in the concept of use of goods and services (ETF 1233, COFOG-A, SDC) are:

• Cost of medical or dental treatments for households, surgery, hospital accommodation, and home care;
• Value of goods purchased and held for resale when they are sold;
• Amounts payable to labour hire agencies, contractors, self-employed out-workers and other workers who are not employees of general government or public sector units;
• Goods and services used by employees where such use is mandatory in order to enable employees to carry out their work whether purchased by the employer or purchased by employees who are then subsequently reimbursed by the employer;
• Tools or equipment used exclusively, or mainly, at work whether purchased by the employer or purchased by employees who are then subsequently reimbursed by the employer;
• Clothing or footwear of a kind that ordinary consumers do not choose to purchase or wear and which are worn exclusively, or mainly, at work such as protective clothing, overalls or uniforms whether purchased by the employer or purchased by employees who are then subsequently reimbursed by the employer;
• Accommodation services at the place of work of a kind that cannot be used by the households to which the employees belong such as barracks, cabins, dormitories and huts;
• Special meals or drinks necessitated by exceptional working conditions while travelling for business reasons, or meals or drinks provided to employees while on active duty whether purchased by the employer or purchased by employees who are then subsequently reimbursed by the employer;
• First aid facilities, medical examinations or other health checks required because of the nature of the work;
• Travel, relocation or related expenses when employees take up new jobs or are required by their employers to move their homes to different parts of the country or to another country whether purchased by the employer or purchased by employees who are then subsequently reimbursed by the employer;
• Goods and services acquired so that government employees can conduct relief operations in a foreign country after a natural disaster;
• Membership dues and subscription fees if there is an exchange of a payment for some form of a service such as payments by public corporations of membership dues or subscriptions to market non-profit institutions serving businesses such as chambers of commerce or trade associations;
• Goods and services consumed for the ordinary maintenance and repair of non-financial produced assets;
• Expenditure on military goods such as single-use weapons and spare parts once they have been used;
• Goods and services used in research and development where it is clear that the activity does not create any future economic benefit for the owner;
• Materials to produce coins or notes of the national currency or amounts payable to contractors to produce the currency;
• Payments by the lessee for rental of a non-financial produced asset under an operating lease; and
• Explicit fees for financial services. Note that implicit fees for financial services (known in macroeconomic statistics as financial intermediary services indirectly measured or FISIM) remain included in interest expenses for GFS purposes.

Excluded from the concept of use of goods and services (ETF 1233, COFOG-A, SDC) are depreciation (classified to ETF 124, TALC, COFOG-A) and goods and services used in own-account capital formation. These are recorded as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A, SDC) as part of acquisitions of non-financial assets, with a further break down classified to own-account use of goods and services (ETF 7631, TALC, COFOG-A) as part of the supplementary information. For further information, see Appendix 1 Part B of this manual.

Non-employee expenses not elsewhere classified (ETF 1239, COFOG-A, SDC) consists of non-employee expenses that cannot be classified to production tax expenses (ETF 1231, COFOG-A, SDC, TC), social benefits to households in goods and services (ETF 1232, COFOG-A, SDC), or use of goods and services (ETF 1233, COFOG-A, SDC).

Depreciation (ETF 124) is the term used to describe the decline in the current value of the stock of produced assets owned by public sector units over their useful life, due to physical deterioration, normal obsolescence, or accidental damage. Depreciation records the value of accounting processes by which the cost of assets are written off over time, and relates to non-financial, tangible produced assets. The IMF GFSM 2014 and the 2008 SNA use the concept of consumption of fixed capital rather than depreciation. Depreciation may deviate considerably from consumption of fixed capital because under general accounting principles, depreciation is calculated using a mixture of valuations (including the current replacement cost of non-financial produced assets), whereas consumption of fixed capital is calculated using the current market value of assets only. Although it is standard practice to value all aspects of assets and liabilities at the current market value in Australian GFS, depreciation (as recorded in the financial records of public sector units) is used to record the decline in the current value of the stock of produced assets, in agreement with providers of Australian GFS data. The use of depreciation in the Australian GFS instead of consumption of fixed capital has no impact on GFS net lending (+) / net borrowing (-).

Depreciation relates only to fixed, tangible, produced, non-financial assets. The reduction in value of intangible produced, non-financial assets (eg. the depletion in the value of patents over time) is referred as amortisation. Amortisation of intangible produced, non-financial assets is not classified as transactions. It is classified as an other change in volume (ETF 5212 TALC 14). These matters are further discussed in paragraph 11.167 to paragraph 11.173 of this manual.

In the GFS system, depreciation (ETF 124) is further classified as:

• Depreciation of fixed produced assets (non-defence) (ETF 1241, TALC, COFOG-A); and
• Depreciation of fixed produced assets (defence) (ETF 1242, TALC, COFOG-A).

Depreciation of fixed produced assets (non-defence) (ETF 1241, TALC, COFOG-A) records amounts charged to current operations in respect of the depreciation (or consumption) of non-current tangible assets not related to defence weapons platforms.

Depreciation of fixed produced assets (defence) (ETF 1242, TALC, COFOG-A) records amounts charged to current operations in respect of the depreciation (or consumption) of non-current tangible assets related to defence weapons platforms.

Current transfer expenses (ETF 125) records the cost of regular payments that are current in nature, and where no economic benefits are received in return for payment. In the GFS system, current transfer expenses (ETF 125) are further classified as:

• Current grant expenses (ETF 1251, COFOG-A, SDC);
• Subsidies on products (ETF 1252, COFOG-A, SDC);
• Other subsidies on production (ETF 1253, COFOG-A, SDC);
• Current monetary transfers to households (ETF 1254, COFOG-A, SDC);
• Tax expenses (ETF 1255, COFOG-A, SDC, TC);
• Premiums, fees and current claims related to non-life insurance and standardised guarantee schemes (ETF 1256, COFOG-A, SDC); and
• Current transfer expenses not elsewhere classified (ETF 1259, COFOG-A, SDC).

Current grant expenses (ETF 1251, COFOG-A, SDC) record the cost of voluntary unrequited transfers intended to finance the current activities of the recipient. The time at which a grant is recorded is when all requirements and conditions for receiving it are satisfied, and the donor unit has an unconditional obligation to provide the grant to the recipient. This classification category includes grants for current purposes to private non-profit organisations serving households, grants made to foreign governments and organisations including grants made for aid projects, and current grants from one level of government to another (e.g. Commonwealth to state) and between units within the same level of government (e.g. budget sector to non-budget sector).

Grants are normally payable in cash, but may also take the form of provision of goods or services (in kind). Grants in kind should be valued at current market prices. If market prices are not available, then the value should be the explicit costs incurred in providing the resources or the amounts that would be received if the resources were sold.

Subsidies are defined as current, unrequited payments that government units make to enterprises such as public corporations, private enterprises, or other sectors on the basis of the level of their production activities or the quantities or values of the goods or services they produce, sell, export, or import. Paragraph 6.84 of the IMF GFSM 2014 states that in GFS, subsidies are payable to producers only (not to final consumers), and are current transfers only. Subsidy expenses are further identified as either subsidies on products or other subsidies on production.

Subsidies on products (ETF 1252, COFOG-A, SDC) are paid by general government units to producers per unit of a good or service. Subsidies on products usually become payable to producer units when a good or service is produced, sold, exported, or imported, but it may also be payable in other circumstances, such as when a good is transferred, leased, delivered, or used for own consumption or own-account capital formation. Subsidies on products include:

• Direct foreign trade subsidies, such as subsidies on imported or exported goods and services that become payable when the goods cross the frontier of the economic territory or when the services are delivered to resident institutional units (import subsidies) or to non-resident units (export subsidies);
• Subsidies payable to resident producers in respect of their production that is used or consumed within the economic territory;
• Regular transfers paid to public corporations and quasi-corporations that are intended to compensate for persistent losses (that is, negative operating surpluses) incurred on their productive activities as a result of charging prices that are lower than their average costs of production as a matter of deliberate government economic and social policy; and
• Subsidies resulting from the central bank accepting interest rates lower than prevailing market rates.

Other subsidies on production (ETF 1253, COFOG-A, SDC) record subsidies that producer units receive as a consequence of engaging in production, but are not related to specific products. Paragraph 6.90 of the IMF GFSM 2014 includes the following as other subsidies on production:

• Subsidies on payroll or workforce, which are payable on the total wage or salary bill, the size of the total workforce, or the employment of particular types of persons such as physically handicapped persons or persons who have been unemployed for long periods. The subsidies may also be intended to cover some or all of the costs of training schemes organised or financed by enterprises; and
• Subsidies to reduce pollution, which are transfers intended to cover some or all of the costs of additional processing undertaken to reduce or eliminate the discharge of pollutants into the environment.

Current monetary transfers to households (ETF 1254, COFOG-A, SDC) record the cost of social benefits in cash to Australian residents. Current monetary transfers to households record payments by government to individuals or households, who are not required to provide any significant amount of goods or services in return (e.g. old age pensions and unemployment benefits). 'Work for the dole' schemes are included in the concept of current monetary transfers to households (ETF 1254, COFOG-A, SDC), as the main purpose of such schemes is the transfer of monetary benefits and acquisition of employment skills. Also included in this category are personal benefit payments to Australian citizens resident overseas.

Tax expenses (ETF 1255, COFOG-A, SDC, TC) record the value of direct tax expenses (e.g. the taxes on income) of public sector units. These differ to production tax expenses which are taxes levied on the production of goods and services. Tax expenses may be reflected in the financial accounts as transfers to provisions. Tax expenses also include all tax expenses of general government units such as state / territory government payroll taxes. This item excludes the indirect tax expenses of public enterprises that should be recorded as production tax expenses (ETF 1231, COFOG-A, SDC, TC).

Premiums, fees and current claims related to non-life insurance and standardised guarantees (ETF 1256, COFOG-A, SDC) record the value of expenses payable in respect of premiums, fees, and current claims related to non-life insurance and standardised guarantees. Paragraph 6.125 of the IMF GFSM 2014 states that this category includes non-life insurance premiums payable to insurance schemes / corporations to secure entitlement to insurance against risks, current claims payable by insurance schemes to beneficiaries, as well as fees payable to obtain standardised guarantees. Also included are non-life insurance premiums and fees for standardised guarantees payable to insurance schemes and corporations to obtain cover against various events or accidents and non-life insurance claims payable by insurance schemes operated by a general government unit or public insurance corporation in settlement of claims that become due during the current reporting period. Claims become due when the eventuality occurs that gives rise to a valid claim, whether or not paid, settled, or reported during the reporting period.

Current transfer expenses not elsewhere classified (ETF 1259, COFOG-A, SDC) record the value of transfer expenses other than current grant expenses (ETF 1251, COFOG-A, SDC); subsidies on products (ETF 1252, COFOG-A, SDC); other subsidies on production (ETF 1253, COFOG-A, SDC); current monetary transfers to households (ETF 1254, COFOG-A, SDC); tax expenses (ETF 1255, COFOG-A, SDC, TC); or premiums, fees and current claims related to non-life insurance and standardised guarantee schemes (ETF 1256, COFOG-A, SDC). Included are gifts and transfers of a current nature (other than current grant expenses, subsidies on products, or other subsidies on production). These transfer expenses may be in cash or in kind, e.g. contributions of food, blankets, and medical supplies for relief purposes. This is further discussed in paragraph A1A.1.

Capital transfer expenses (ETF 126) record the cost of voluntary unrequited transfers intended to finance the capital activities of the recipient. In the GFS system, capital transfer expenses (ETF 126) are further classified as:

• Capital grant expenses (ETF 1261, COFOG-A, SDC);
• Assets donated ( ETF 1262, COFOG-A, TALC, SDC);
• Capital claims related to non-life insurance and standardised guarantee schemes (ETF 1263, COFOG-A, SDC); and
• Capital transfer expenses not elsewhere classified (ETF 1269, COFOG-A, SDC).

Capital grant expenses (ETF 1261, COFOG-A, SDC) record the cost of unrequited payments by government to finance the acquisition of non-financial assets by the recipient, or compensate the recipient for damage or destruction of non-financial assets, or increase the financial capital of the recipient. Capital grants include transfers of assets (other than inventories and cash), and the cancellation of a liability by mutual agreement between a creditor and debtor. This classification category includes grants for capital purposes to private non-profit organisations serving households, to foreign governments and organisations including grants made for aid projects, and capital grants from one level of government to another (e.g. Commonwealth to state) and between units within the same level of government (e.g. budget sector to non-budget sector). This classification category further includes capital transfers paid to public nonfinancial corporations, public financial corporations, other entities such as non-profit institutions operating on a non-market basis; and the value of assets donated to public non-financial corporations, public financial corporations, and other entities.

Assets donated (ETF 1262, COFOG-A, TALC, SDC) record the value of assets that are donated by government. Assets may be donated for a variety of reasons (including cultural reasons or other such reasons) and are included in the GFS system by imputation of equivalent transactions when they are of an economic nature, and where valuations are realistically obtainable.

Capital claims related to non-life insurance and standardised guarantee schemes (ETF 1263, COFOG-A, SDC) record the value of exceptionally large insurance settlements payable in the wake of a catastrophic event or disaster. Paragraph 6.125 of the IMF GFSM 2014 indicates that for these exceptionally large claims payable (such as those following a catastrophe), some part of the claims may be recorded as capital transfers rather than as current transfers. It may be difficult for the parties to identify these events consistently, so as a simplifying convention, all non-life insurance claims are classified as current transfers unless it is necessary to record a capital transfer according to the nature of the claim.

Capital transfer expenses not elsewhere classified (ETF 1269, COFOG-A, SDC) record the value of transfer expenses other than capital grant expenses (ETF 1261, COFOG-A, SDC); assets donated (ETF 1262, COFOG-A, SDC), and capital claims related to non-life insurance and standardised guarantee schemes (ETF 1263, COFOG-A, SDC).

Interest expenses (ETF 127) record the value of interest payable by government during the reporting period. In the GFS system, interest expenses (ETF 127) are further classified as:

• Accrued interest on defined benefit superannuation (ETF 1271, COFOG-A, SDC); and
• Interest expenses not elsewhere classified (ETF 1279, COFOG-A, SDC).

Interest is defined as a form of investment income that is receivable by the owners of certain kinds of financial assets (such as SDRs, deposits, debt securities, loans, and other accounts receivable) for putting these financial (and other) resources at the disposal of another institutional unit. Paragraph 6.63 of the IMF GFSM 2014 defines interest expenses as the value of interest that is payable by units that incur liabilities by borrowing funds from another unit. Interest is the expense that the debtor unit incurs for the use of the principal outstanding which represents the economic value that has been provided by the creditor.

In GFS, interest is recorded as accruing continuously over time to the creditor on the amount outstanding. Paragraph 6.64 of the IMF GFSM 2014 states that depending on the contractual arrangements, the rate at which interest accrues can be a percentage of the amount outstanding, a predetermined sum of money, a variable sum of money dependent on a defined indicator, or some combination of these. Interest normally is not payable until the expense has accrued. That is, if interest on a loan is payable monthly, the amount paid is usually the expense that has accrued during the previous month. Under the accrual basis of recording, as interest accrues the debtor’s total liability to the creditor has increased by the amount of interest expense accrued but not yet paid. What are commonly referred to as interest payments, are reductions of the debtor’s existing liability, part of which was created by the accrued interest expense.

In Australian GFS, interest expenses are valued using the creditor approach. The creditor approach assumes that the future interest expense of financial assets is recalculated each time there is a change in the market interest rate. An increase in the interest rate leads to a decrease in the market value of the instrument and a holding gain for the debtor. At this point, a financial instrument is treated as a new instrument that was issued at a discount. If there are no further changes in the interest rate, then the gradual increases in the market value of the instrument over the remaining period will be treated as interest expense.

In Australian GFS, interest expenses also include financial intermediation services indirectly measured (FISIM). FISIM represents an implicit service charge contained within the interest rates set by financial intermediaries for depositors and borrowers, to defray the costs of providing its services to its depositors and borrowers without explicit fees. FISIM is measured as the difference between the interest rates on loans and deposits and a pure or reference rate of interest, multiplied by the level of loans and deposits, respectively. FISIM is indirectly formulated by the ABS, and is deducted from the value of the GFS measure of interest expenses for national accounting purposes.

Accrued interest on defined benefit superannuation (ETF 1271, COFOG-A, SDC) records the value of interest accrued during the period on defined benefit superannuation liabilities. Superannuation expenses in a period represent the increase in superannuation liability due to services provided by employees in that period. The liability so generated by the employer (the government in this case), is therefore an asset attributed to the household sector (the employees). The government is viewed as compulsorily ‘borrowing’ from employees the value of the increase in superannuation liability each period. In doing so, it sustains an additional cost for the use of these ‘borrowed’ funds which is an interest expense. The cost of these ‘borrowed’ funds is included here as interest. This classification category also records the value of accrued interest flows when the funded defined benefit superannuation fund is under-funded, that is, the superannuation entitlements exceed the financial assets held by the superannuation fund, leading to a claim of the superannuation fund on the employer. In this case, the accounts should record an accrued interest flow from the employer to the superannuation fund equal to the discount rate that is used in calculating the superannuation entitlements times the claim of the superannuation fund on the employer.

Interest expenses not elsewhere classified (ETF 1279, COFOG-A, SDC) record the value of requited transfer payments for the use of money. This item includes interest on advances, loans, overdrafts, bonds and bills, deposits and the interest component of finance lease repayments. This item is also inclusive of financial intermediation services indirectly measured (FISIM) which is derived by the ABS for national accounting purposes. For further information on FISIM, see paragraph 7.60 of this manual.

Other property expenses (ETF 128) record the value of expenses payable to the owners of financial assets or natural resources when they put them at the disposal of other institutional units. In the GFS system, other property expenses (ETF 128) are further classified as:

• Income transferred by public enterprises (ETF 1281, COFOG-A, SDC);
• Withdrawal from income of quasi-corporations (ETF 1282, COFOG-A, SDC);
• Land rent and royalty expenses (ETF 1283, COFOG-A, SDC);
• Dividends to shareholders (ETF 1284, COFOG-A, SDC);
• Reinvested earnings on foreign direct investment (ETF 1285, COFOG-A, SDC);
• Property expenses for investment income disbursement (ETF 1286, COFOG-A, SDC); and
• Other property expenses not elsewhere classified (ETF 1289, COFOG-A, SDC).

Income transferred by public corporations as dividends (including tax equivalents) (ETF 1281, COFOGA, SDC) record the value of that part of the income of public enterprises that is transferred to their parent bodies as dividends, income tax equivalents, and wholesale sales tax equivalents. This item includes dividends paid to parent governments or parent public enterprises, but excludes other dividends paid to private sector shareholders recorded as dividends to shareholders (ETF 1284, COFOG-A, SDC). This item excludes transfers such as income tax and other forms of taxation.

Withdrawals of income from quasi-corporations (ETF 1282, COFOG-A, SDC) record the value of that part of distributable income that the owner withdraws from an entity. Excluded from this concept are withdrawals of funds realised from the sale or other disposal of the quasi-corporation’s assets such as inventories, nonfinancial produced assets, land or other non-produced assets (classified as transactions in financial assets (net) (ETF 3111, TALC 424, SDC)); and withdrawals of funds realised from the liquidation of large amounts of accumulated retained earnings or other reserves (classified as transactions in financial assets (net) (ETF 3111, TALC 424, SDC)).

Land rent and royalty expenses (ETF 1283, COFOG-A, SDC) record the value of rent for the use of nonproduced assets such as land and subsoil assets. Land rent and royalty expenses include royalty payments for the right to exploit natural resources. This item excludes rentals on produced assets such as for the use of buildings or the right to use copyrights, patents, trademarks, etc. recorded under use of goods and services (ETF 1233, COFOG-A, SDC).

Rent is defined in paragraph 5.122 of the IMF GFSM 2014 as the expense payable to the owners of a natural resource (the lessor or landlord) for putting the natural resource at the disposal of another institutional unit (lessee or tenant) for use of the natural resource in production. Rent is payable on land, and on subsoil resources and other natural resources as royalty expenses. Rent accrues continuously to the asset’s owner throughout the period of the contract. The rent recorded for a particular reporting period is, therefore, equal to the value of the accumulated rent that becomes payable over the reporting period and may differ from the amount of rent that becomes due for payment or is actually paid during the period.

Paragraph 5.131 of the IMF GFSM 2014 indicates that rent may be payable in cash or in kind, and the term 'rent' should not be confused with the term 'rental' which is payment for the use of produced assets, such as a government’s use of a building as a tenant. Paragraph 5.132 of the IMF GFSM 2014 states that in some circumstances, a single payment may cover both rent and rentals. If there is no objective basis on which to split the payment between rent on land and rental on the buildings, it is recommended to treat the whole amount as rent when the value of the land is believed to exceed the value of the buildings and as a rental otherwise.

Rent may be payable by general government units or public corporations to the owners of subsoil assets, permitting them to extract such deposits over a specified period of time. While payments for test drilling are included in rent, the actual outlays on drilling and other exploration are treated as the acquisition of a non-financial asset. Other types of rent include payments for the right to cut timber on non-cultivated land, or to exploit bodies of unmanaged water for recreational or commercial purposes (including fishing).

Dividends to shareholders (ETF 1284, COFOG-A, SDC) record the value of dividends to private sector shareholders who are minority owners of public enterprises. This item excludes dividends paid to parent government which are treated as income transferred by public corporations as dividends (including tax equivalents) (ETF 1281, COFOG-A, SDC).

Dividends are defined as a form of investment income to which shareholders and owners of corporations become entitled as a result of placing funds at the disposal of a corporation. Paragraph 6.109 of the IMF GFSM 2014 notes that public corporations obtain equity funds from general government units, other public corporations (and possibly other units), and they may pay dividends to those units. Dividend payments are usually not required; the board of directors or other managers of the corporation must declare a dividend payable on their own volition. Distributions of profits by public corporations may take place irregularly and may not be explicitly labelled as dividends. Nevertheless, dividends include all distributions of profits by public corporations to their shareholders or owners. The time of recording of dividends is the point at which the share price starts to be quoted on an ex-dividend basis rather than at a price that includes the dividend.

Paragraph 6.110 of the IMF GFSM 2014 draws specific attention to circumstances when dividends are disproportionately large relative to the recent level of dividends and earnings. Such disproportionately large withdrawals (often referred to as super-dividends), are often based on accumulated reserves, privatisation receipts and other sales of assets, or holding gains. Any dividends declared greatly in excess of the recent level of dividends and earnings should be treated as a financial transaction, specifically, the withdrawal of owners’ equity from the corporation.

Reinvested earnings on foreign direct investment (ETF 1285, COFOG-A, SDC) record the value of expenses relating to reinvested earnings on foreign direct investment. Paragraph 6.121 of the IMF GFSM 2014 states that public corporations may have non-resident direct investors, and distributions to such investors are made in the form of dividends or withdrawals of income from quasi-corporations. However, macroeconomic statistics also require the retained earnings of a foreign direct investment enterprise to be recorded as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity in the enterprise, and then reinvested by them by means of additions to equity. This treatment assumes that the decision to retain some earnings within the enterprise represents a deliberate investment decision on the part of the foreign direct investor.

Property expenses for investment income disbursement (ETF 1286, COFOG-A, SDC) record the value of property expenses attributed to insurance policyholders and holders of investment fund shares. Paragraph 6.113 of the IMF GFSM 2014 states that public corporations may take the form of insurance enterprises which hold technical reserves in the form of reserves against outstanding risks in respect of non-life and life insurance policies, as well as reserves to provide for the entitlement of benefits for policyholders and calls under standardised guarantee schemes. The reserves are liabilities toward the policyholders or beneficiaries. Any income receivable from the investment of the corresponding assets should be attributed as the property income of the policyholders or beneficiaries and therefore a property expense is recorded to reflect the increase in liabilities.

Paragraph 6.114 of the IMF GFSM 2014 states that if general government units operate an insurance scheme and they maintain separate reserves, the property expense attributed to insurance policyholders are recorded in the same manner as for a public corporation. If the general government unit does not maintain separate reserves, then no investment income is generated and so no property expense is attributed to the policyholders.

Paragraph 6.115 of the IMF GFSM 2014 indicates that for government units operating a standardised guarantee scheme against fees, there may also be investment income earned on the reserves of the scheme and this should be shown as a property expense being distributed to the units paying the fees (which may not be the same units that stand to benefit from the guarantees).

Other property expenses not elsewhere classified (ETF 1289, COFOG-A, SDC) record the value of property expenses other than those classified to income transferred by public corporations as dividends (including tax equivalents) (ETF 1281, COFOG-A, SDC); withdrawal from income of quasi-corporations (ETF 1282, COFOG-A, SDC); land rent and royalty expenses (ETF 1283, COFOG-A, SDC); dividends to shareholders (ETF 1284, COFOG-A, SDC); reinvested earnings on foreign direct investment (ETF 1285, COFOG-A, SDC); and property expenses for investment income disbursement (ETF 1286, COFOG-A, SDC).

In GFS, assets are defined as instruments or entities over which ownership rights must be able to be enforced, and from which economic benefits may be derived by holding them, or using them, over a period of time. In GFS, only two types of ownership of assets are recognised, legal ownership and economic ownership. Paragraph 7.5 of the IMF GFSM 2014 states:

• The legal owner of resources (such as goods and services, natural resources, financial assets, and liabilities), is the institutional unit entitled in law and sustainable under the law, to claim the benefits associated with the resources. Only if such resources have a legal owner (either on an individual or collective basis), are they recognised in macroeconomic statistics.
• The economic owner of resources (such as goods and services, natural resources, financial assets, and liabilities) is the institutional unit entitled to claim the benefits associated with the use of the resource by virtue of accepting the associated risks. Examples of where the economic owner is different to the legal owner of resources include financial lease arrangements (where the lessee is the economic owner but not the legal owner for the life of the lease).

Only economic assets are included within the asset boundary in the GFS framework, and they appear in the balance sheet of the unit that is the economic owner of the asset. Paragraph 7.6 of the IMF GFSM 2014 defines economic assets as:

1. Resources over which economic ownership rights are enforced by institutional units, individually or collectively; and
2. From which economic benefits may be derived by their owners by holding them or using them over a period of time.

In the GFS framework, economic assets provide benefits by functioning as a store of value. Paragraph 7.7 of the IMF GFSM 2014 indicates that some benefits are derived by using assets (such as buildings or machinery) in the production of goods and services; and some benefits consist of income from property (such as interest, dividends, and rents received by the owners of financial assets, land, and certain other assets).

In GFS, resources are not considered to be economic assets if ownership rights over them have not been established, or are not (or cannot be) enforced. Paragraph 7.10 of the IMF GFSM 2014 states that in some cases, ownership rights may be established but it may not be feasible to enforce them. An example of this is for land that is so remote or inaccessible that the government cannot exercise effective control over it. In such cases, it is a matter of judgment as to whether the degree of control exercised by the government is sufficient for the land to be classified as an economic asset. Even if ownership rights can be enforced, if the assets are not capable of bringing economic benefits to their owners, then they should be excluded from GFS.

In some cases, governments can create economic assets by exercising the powers delegated to them. An example given in paragraph 7.12 of the IMF GFSM 2014 is where a government uses its authority to assert ownership rights over naturally occurring assets that otherwise would not be subject to ownership (such as the electromagnetic spectrum), or natural resources in international waters subject to designation as an exclusive economic zone. These assets are classified as economic assets only if the government uses its authority to establish and enforce ownership rights over them.

Governments use assets to produce goods and services (albeit primarily as non-market producers), much like corporations do. An example given in paragraph 7.11 of the IMF GFSM 2014 is that of government office buildings (together with the services of government employees, office equipment, and other goods and services) that are used to produce collective or individual services, such as general administrative services. Governments often own assets whose services are consumed directly by the general public, and assets that require preservation because of their historic or cultural importance. Thus, when the asset boundary is applied to the general government sector, it often incorporates a wider range of assets than is normally owned by a private organisation. Government units frequently own:

• General-purpose assets - assets that other units would be likely to possess and use in similar ways, such as schools, road-building equipment, fire engines, office buildings, furniture, and computers;
• Infrastructure assets - immovable non-financial assets that generally do not have alternative uses and whose benefits accrue to the community at large. Examples are streets, highways, lighting systems, bridges, communication networks, and canals; and
• Heritage assets - assets that a government intends to preserve indefinitely because they have unique historic, cultural, educational, artistic, or architectural significance.

In the GFS framework, assets are identified as either financial assets or non-financial assets, rather than current and non-current as is the case in commercial accounting.

Financial assets are assets that are in the form of financial claims on other economic units. They are the counterparts of liabilities of the units on which the claims are held (with the exception of monetary gold in the form of gold bullion held as reserve assets). All other assets in GFS are described as non-financial assets. Financial assets are further discussed in paragraphs 8.148 to 8.201 of this manual.

Non-financial assets are stores of value which provide benefits to owners either through their use in the production of goods and services, or in the form of property income. Non-financial assets are all economic assets other than financial assets. Paragraph 7.17 of the IMF GFSM 2014 states that unlike financial assets, non-financial assets have no counterpart liability (that is, the owner of the non-financial asset does not have a claim on another institutional unit). Non-financial assets come into existence as outputs from a production process, or in ways other than through processes of production, such as through natural occurrences. The production of non-financial assets may occur over two or more accounting periods depending on the type of non-financial asset. The recording of non-financial assets over two or more accounting periods is further discussed in Chapter 13 Part S.

In GFS, non-financial assets are described as non-financial produced assets, and non-financial nonproduced assets.

In GFS, non-financial produced assets are described as fixed produced assets, inventories, or valuables.

Fixed produced assets are those types of non-financial produced assets that are used repeatedly or continuously in production processes for more than one year. The key feature of fixed produced assets are that they are used repeatedly or continuously in production over a long period of time, rather than the physical durability of the asset itself. Some goods may be used repeatedly or continuously in production over many years but may be small, inexpensive, and used to perform relatively simple operations. Small hand tools such as saws, spades, knives, axes, hammers, screwdrivers, and spanners or wrenches are excluded from the non-financial produced asset boundary. If the expense on such tools takes place at a fairly steady rate and if their value is small compared with amounts payable on more complex machinery and equipment, the tools are treated as use of goods and services (ETF 1233). Non-financial produced assets are further discussed in paragraphs 8.55 to 8.117 of this manual.

Inventories are defined in paragraph 7.18 of the IMF GFSM 2014 as non-financial produced assets consisting of goods and services, which came into existence in the current period or in an earlier period, and that are held for sale, use in production, or other use at a later date. Paragraph 7.76 of the IMF GFSM states that the concept of inventories consist of stocks of:

• Goods that are still held by the units that produced them prior to their being further processed, sold, delivered to other units, or used in other ways;
• Products acquired from other units for use in the production of market and non-market goods and services by units, or for resale without further processing;
• Strategic stocks that are goods held for strategic and emergency purposes, goods held by market regulatory organisations, and other goods of special importance to the nation, such as grain, military inventories, and petroleum; and
• Services such as architectural drawings in the process of completion.

In GFS, inventories include materials and supplies, work in progress, finished goods, goods for resale and military inventories. It is important to note that military inventories are separately identified in Australian GFS. Inventories are further discussed in paragraphs 8.97 to 8.112 of this manual.

Valuables are defined in paragraph 7.18 of the IMF GFSM 2014 as non-financial produced assets of considerable value that are not used for the purpose of production or consumption, but are held primarily as stores of value over time. Paragraph 7.88 of the IMF GFSM 2014 notes that the concept of valuables includes:

• Non-monetary gold and other precious stones and metals that are not intended to be used as materials and supplies in the processes of production;
• Paintings, sculptures, and other objects recognised as works of art, or antiques held primarily as stores of value over time; and
• Jewellery of significant value fashioned out of precious stones and metals, collections, and miscellaneous other valuables.

Valuables are further discussed in paragraphs 8.112 to 8.115 of this manual.

Non-financial non-produced assets are defined in paragraph 7.19 of the IMF GFSM 2014 as naturally occurring assets and constructs of society. Naturally occurring assets include tangible non-financial nonproduced assets such as land, mineral and energy resources, non-cultivated biological resources and water resources. Non-financial non-produced assets also include intangible assets that are constructs of society, such as a licence to use an electromagnetic spectrum. In GFS, non-financial non-produced assets include tangible and intangible non-produced assets.

Tangible non-produced assets are assets that occur in nature and over which ownership may be acquired and transferred. Examples include assets such as land, mineral and energy resources, non-cultivated biological assets, water resources, radio spectra, and other types of natural resources. Tangible nonproduced assets are further discussed in paragraphs 8.118 to 8.133 of this manual.

Intangible non-produced assets are defined in paragraph 7.104 of the IMF GFSM 2014 as constructs of society as evidenced by legal or accounting actions. In GFS, these include assets such as marketable operating leases, permits to use natural resources, permits to undertake specific activities, entitlement to future goods and services on an exclusive basis, goodwill and marketing assets and other intangible assets. Intangible non-produced assets are further discussed in paragraphs 8.134 to 8.144 of this manual.

Liabilities are defined in paragraph 7.15 of the IMF GFSM 2014 as established when one unit (the debtor) is obliged, under specific circumstances, to provide funds or other resources to another unit (the creditor). Liabilities are the counterparts of financial assets held by the claimant economic units (other than monetary gold in the form of gold bullion held as reserve assets). In the GFS framework, all liabilities are considered to be financial in nature, and no distinction is made between financial and non-financial as it is for assets.

Only actual (outstanding) liabilities and their corresponding assets are included in the GFS balance sheet. Contingent liabilities are defined in paragraph 7.251 of the IMF GFSM 2014 as obligations that do not arise unless a particular, discrete event(s) occurs in the future. The key difference between contingent liabilities and actual liabilities is that, for a contingent liability, one or more conditions must be fulfilled before a financial transaction is recorded. In GFS, contingent liabilities are not recognised as liabilities prior to their associated condition(s) being fulfilled. However, explicit contingent liabilities provide valuable information regarding potential obligations to provide economic value to another unit, and so these are recorded as memorandum items to the GFS balance sheet. Memorandum items in GFS differ to those of commercial accounting in that they are compulsory in the GFS framework rather than optional as in commercial accounting. Contingent liabilities are further discussed in Chapter 13 Part C and paragraphs A1B.17 to A1B.28 of this manual

Paragraph 7.15 of the IMF GFSM 2014 states that whenever a liability exists, the creditor in the transaction has a corresponding financial claim on the debtor. A financial claim is an asset that typically entitles the owner of the asset (the creditor) to receive funds or other resources from another unit (the debtor), under the terms of a liability. Like liabilities, financial claims are not dependant on any other associated condition(s) being fulfilled. Financial claims consist of debt instruments (including financial derivatives and monetary gold in the form of allocated and unallocated gold accounts), and equity and investment fund shares.

• Debt instruments are financial instruments that are created when one unit provides funds or other resources (for example, goods in the case of trade credit, or funds in the case of a loan) to a second unit and the second unit agrees to provide a return in the future.
• Equity and investment fund shares issued by corporations and similar legal forms of organisation are treated as liabilities of the issuing units even though the holders of the claims do not have a fixed or predetermined monetary claim on the corporation. Equity and investment fund shares entitle their owners to benefits in the form of dividends and other ownership distributions, and they often are held with the expectation of receiving holding gains. In the event that the issuing unit is liquidated, shares and other equities become claims on the residual value of the unit after the claims of all creditors have been met. If a public corporation has formally issued shares or another form of equity, then the shares are a liability of that corporation and an asset of the government or other unit that owns them. If a public corporation has not issued any type of shares, then the existence of other equity is imputed.
• Monetary gold in the form of allocated and unallocated gold accounts is a financial claim and a liability of another unit in the form of currency and deposits. Monetary gold in the form of bullion is not a financial claim, because it is not the liability of any other unit. Monetary gold provides economic benefits by serving as a store of value and a means of international payment to settle financial claims and finance other types of transactions. As a result, monetary gold in the form of bullion is treated as a financial asset only.

Liabilities are further discussed in paragraphs 0 to 8.200 of this manual.

All assets and liabilities should be valued as if they were acquired in current market transactions on the balance sheet reporting date (reference date). Paragraph 7.20 of the IMF GFSM 2014 states that the value of an asset (or liability) at any given time is its current market value, which is defined as the amount that would have to be paid to acquire the asset on the reporting date, taking into account its age, condition, and other relevant factors. This amount depends on the economic benefits that the owner of the asset can derive by holding or using it. The remaining benefits expected to be received from most assets diminish with the passage of time through depreciation / amortisation, which reduces the value of the asset. However, the remaining benefits of some assets (such as valuables), may increase or appreciate with the passage of time. The value of the remaining benefits may also increase or decrease because of changes in economic conditions.

If the market value of assets or liabilities increase or decrease during the financial reporting period, then holding gains and losses on the value of the assets or liabilities are recorded in GFS as other economic flows. Holding gains and losses are further discussed in Chapter 11 of this manual.

If the volume of non-financial assets increases through the addition of assets not previously recognised on the GFS balance sheet (such as the discovery of a mineral deposit), or decreases through destruction or depletion of the assets (such as through fire, flood, or other damage), then an other change in the volume of assets entry is recorded in the GFS accounts as other changes in volume of non-financial assets (ETF 5212, TALC). Similarly, if the volume of liabilities increase through situations such as the unilateral write off of debt by government as part of a bail out or other operation, then this is recorded as other change in the volume of liabilities (ETF 5213, TALC). However, if the volume of liabilities increase or decrease due to debt forgiveness or debt rescheduling, these are recorded as transactions in liabilities (ETF 3211, TALC, SDC) due to the mutually agreed nature of the transaction and not as an other volume change. Debt forgiveness and debt rescheduling are discussed in Chapter 13 Part B of this manual. Other changes in the volume of assets are further discussed in Chapter 11 of this manual.

Paragraph 7.24 of the IMF GFS 2014 recommends that observable market prices be used to value all assets and liabilities in the GFS balance sheet. However, in estimating the current market price for balance sheet valuation, a price averaged over all transactions in a market can be used if the market is one on which the items in question are regularly, actively and freely traded. Where there are no observable prices because the assets or liabilities in question have not been purchased or sold on the market in the recent past, then an attempt should be made to estimate what the prices would be, were the assets or liabilities to be acquired on the market on the date to which the balance sheet relates. Such estimates may be obtained by (i) accumulating and revaluing transactions, or (ii) calculating the present value of future returns.

In the Australian macroeconomic statistics, the value of an acquisition or disposal of an existing financial asset or liability is its current market value under the creditor approach (or from the perspective of the unit holding the security). Paragraph 17.261 of the 2008 SNA states that the creditor approach uses the current rate to estimate the value of interest between any two points in the instrument’s life. Market value is conceptually equal to the required future payments of principal and contractual interest discounted at the existing market yield. The current IMF GFSM 2014 no longer recognises the use of the creditor approach, and only refers to it indirectly in paragraph 6.66. The Australian GFS diverges from the IMF GFSM 2014 in the valuation of all government assets and liabilities at the current market value using the creditor approach. The creditor approach is further discussed in Chapter 13 Part B of this manual.

The 2008 SNA and the IMF GFSM 2014 value their financial assets and liabilities using the nominal value under the debtor approach. The nominal value is conceptually equal to the required future payments of principal and interest discounted at the contractual interest rate. The debtor approach assumes that interest payments are fixed in advance, and accrued interest is determined using the original yield-tomaturity which is established at the time of the security issuance.

The essential difference between nominal and market valuation is the use of the current market yield instead of the contractual rate(s) as the discount rate(s) applicable. The relevance of historical (contractual) interest rates to reflect current valuation is not supported by the ABS. The market valuation principle using the creditor approach (from the perspective of the unit holding the security) reflects the current market value of assets and liabilities, and is a fundamental principle across ABS economic statistics. It should be noted that for consistency, valuation of debt at current market values requires measurement of interest payments and receipts at the current market yield, not contractual rates. The market value is further discussed in Chapter 13 Part B of this manual.

Debt data will be sought at market value, but if only available on a nominal value basis the ABS will work with providers to find a suitable solution which may entail modelling to estimate the market value using the data which is available.

Paragraphs 8.34 to 8.40 below provide general descriptions of methods used to estimate current market prices, and are extracted from paragraphs 7.26 to 7.33 of the IMF GFSM 2014. Because the valuation of liabilities in GFS is the same as the valuation of their corresponding financial assets, references to financial assets in this chapter should be read as including liabilities as well.

The ideal source of price observations for valuing balance sheet items is a market (like the stock exchange), in which each asset traded is completely homogeneous, is often traded in considerable volume, and has its market price listed at regular intervals. Such markets yield data on prices that can be multiplied by indicators of quantity in order to compute the total market value of different classes of assets held by sectors and of different classes of their liabilities.

For securities quoted on a stock exchange, it is feasible to gather the prices of individual assets and broad classes of assets of all existing securities. The global valuation of existing securities may also be determined to assist in valuation of the assets. Debt securities traded (or tradeable) in organised and other financial markets (such as bills, bonds, debentures, negotiable certificates of deposit, asset-backed securities, etc.) should be valued at the current market value. The treatment of debt in GFS is further discussed in Chapter 13 Part B of this manual.

If assets of the same kind are being produced and sold on the market, an existing asset may be valued at the current market price of a newly produced asset adjusted for depreciation in the case of non-financial produced assets, and any other differences between the existing asset and a newly produced asset. This adjustment for depreciation should be calculated on the basis of the asset prices prevailing on the balance sheet reference date rather than the actual amounts previously recorded as an expense.

In addition to providing direct observations on the prices of assets actually traded there, information from such markets may also be used to price similar assets that are not traded. For example, information from the stock exchange also may be used to price unlisted shares by analogy with similar, listed shares, making some allowance for the inferior marketability of the unlisted shares. Similarly, appraisals of assets for insurance or other purposes generally are based on observed prices for items that are close substitutes, although not identical, and this approach can be used for balance sheet valuation.

In the absence of observable market prices, the balance sheet value of an asset may be obtained by accumulating and revaluing transactions. The values of most non-financial assets change year by year reflecting changes in market prices. At the same time, initial acquisition costs are reduced by depreciation (in the case of non-financial produced assets), or amortisation, or depletion over the expected life of the asset. The value of such an asset at a specific point in its life is given by the current acquisition price of an equivalent new asset minus the depreciation, amortisation, or depletion imputed by applying the chosen pattern of decline to that price. This valuation is referred to as the written-down replacement cost. When directly observed prices for used assets are not available, this procedure gives a reasonable approximation of what the market price would be, were the asset to be offered for sale.

• In the absence of observed market values, most non-financial produced assets are recorded in the balance sheet at their written-down replacement cost.
• Intangible non-produced assets (such as goodwill and marketing assets), are typically valued at their initial acquisition costs (using observed prices or the historical value revalued to the current period price using an appropriate price index) minus an allowance for amortisation. For this method, a pattern of decline must be chosen, which may be based on tax laws and accounting conventions.
• It may be possible to value subsoil and other naturally occurring assets at their initial acquisition costs (using observed prices or the historical value revalued to the current period price using an appropriate price index) minus an allowance for depletion.

The perpetual inventory method (PIM) is commonly used to estimate the written-down replacement cost of a category of assets, especially tangible non-financial produced assets. Under this method, the value of the stock is based on estimates of acquisitions and disposals that have been accumulated (after deduction of the accumulated depreciation, amortisation, or depletion imputed by applying the chosen pattern of decline to that price), and revalued over a long enough period to cover the acquisition of all assets in the category. The PIM may be viewed as the macroeconomic equivalent of an asset register, with the difference being that the PIM calculates the written-down replacement cost for large groups of assets, while an asset register does them for individual assets or asset types.

In some cases, current market prices may be approximated by the present value of the future economic benefits expected from a given asset. The present value is the value today of a future payment or stream of payments discounted at some appropriate compounded interest rate. It is also referred to as the time value of money or discounted cash flow. This method may be feasible for a number of assets such as naturally occurring assets and intangible assets. For example, timber and subsoil assets are assets whose benefits are normally receivable well in the future and / or spread over several years. Current prices can be used to estimate the gross return from the disposal of these assets and the costs of bringing them to market. These returns and costs can then be discounted to estimate the present value of the expected benefits.

The current market value of non-financial assets (except land but including all other tangible non-produced assets) includes all costs of ownership transfer to the extent they have not been expensed as depreciation. The costs of ownership transfer on land are not included in the value of the land itself, but are included as part of the value of land improvements (TALC 113). The reason for this is because the costs of ownership transfer relate to the items that are built on the surface of the land (these are produced assets and therefore seen as improvements to the land) rather than the land itself (which is treated as a non-produced asset in GFS). Land only includes the ground, including the soil covering and any associated surface waters, over which ownership rights are enforced. Therefore, there are no costs of ownership transfer shown separately in the GFS balance sheet.

Paragraph 8.8 of the IMF GFSM 2014 indicates that costs of ownership transfer are attributed to the purchaser or seller of the asset according to which unit bears the responsibility of meeting the costs in the purchase / sale agreement. Examples of costs of ownership transfer include fees paid to surveyors, engineers, architects, lawyers, estate agents, trade and transport costs separately invoiced to the purchaser, and taxes payable on the transfer. Paragraph 6.60 of the IMF GFSM 2014 notes that costs of ownership transfer are estimated at the time of the acquisition of an asset and are written off through depreciation over the period the asset is expected to be held by the purchaser rather than over the whole life of the asset.

Also included as part of costs of ownership transfer are terminal costs (also known as decommissioning or make-good costs). These are estimated at the time of the acquisition of the asset by the owner, but differ to other costs of ownership transfer because they are written off over the life of the associated asset, regardless of the number of owners during the life of the asset. Paragraph 6.60 of the IMF GFSM 2014 notes that in the case of large assets, such as oil rigs and nuclear power stations, there may be large terminal costs associated with the decommissioning of the assets at the end of their productive life. For some land sites, such as those used for landfill, there may be large terminal costs associated with rehabilitation of the site.

The costs of ownership transfer on financial assets are excluded from the current market value of the financial assets themselves. Counterpart financial assets and liabilities refer to the same financial instrument and so debtors and creditors record the same value. Therefore, the costs associated with the acquisition of a financial asset are treated as use of goods and services (ETF 1233, COFOG-A, SDC) at the time the financial asset is acquired. Costs of ownership transfer and decommissioning costs are also excluded on inventories and military inventories. The reason for this is because inventories are held for specific use by producer units for use in the production of goods or services.

The value of financial assets and liabilities denominated in foreign currencies should be converted to the domestic currency value at the market exchange rate prevailing on the date to which the balance sheet relates. Paragraph 3.119 of the IMF GFSM 2014 recommends that the rate used is the mid-point between the buying and selling spot rates for currency transactions. When a multiple exchange rate system is in operation, the valuation should be based on the rate applicable to the type of asset in question.

If a transaction expressed in a foreign currency involves the creation of a financial asset or liability, such as other accounts receivable / payable, and is followed by a second transaction in the same foreign currency that extinguishes the financial asset or liability, then both transactions are valued at the exchange rates effective when each takes place.

The GFS net worth is a key economic measure which represents the value of a government entity’s assets at market value at a point in time less the value of financial claims on the entity by other units. The excess of the value of assets over the value of liabilities and shares and other equity is defined as a unit’s net worth. Net worth may be positive, negative, or zero in value.

Paragraph 7.229 of the IMF GFSM 2014 states that for most government units, the net worth is the economic value of the unit because they usually have no issued shares and other equity. In the case of quasi-corporations, net worth is zero because the value of the owners’ equity is assumed to be equal to its assets minus its liabilities. Even when general government units have liabilities in the form of equity, the net worth of such government units is zero (similar to that of quasi-corporations), if these shares are not traded or the value of the shares cannot be determined independently.

The net worth at the end of a reference period less the net worth at the beginning of the period gives a measure of the change in net worth over the period. This change in net worth is made up of contributions from the following three components:

• Change in net worth due to transactions i.e. as reflected by the net operating balance;
• Change in net worth due to holding gains and losses (also known as revaluations); and
• Change in net worth due to other changes in the volume of assets.

In GFS, the balance sheet records the stock positions of assets and liabilities owned by an institutional unit (or group of units) at their current market value, at the end of an accounting (or reference) period. The GFS balance sheet identifies financial assets, non-financial assets, liabilities and net worth as appears in Table 8.1 below:

In GFS, input data are sourced from the financial accounts of the state and territory treasuries, the Department of Finance, local government units, and universities. These input data are classified to the GFS framework using a variety of input classifications in order to produce the variety of output statements that the ABS publish on a quarterly and annual basis. Table 8.2 below shows the broad framework of assets and liabilities as it appears in the economic type framework (ETF).

As shown in Table 8.2 above, the economic type framework (ETF) contains the asset and liability framework at its broadest level. In order to populate the GFS balance sheet with the detail required for output purposes, a number of additional input classifications must be used. These additional classifications include the:

• Type of asset and liability classification (TALC) - this identifies non-financial and financial assets and liabilities by type of asset / liability (see Chapter 4 and Appendix 1 Part A for further information).
• Source destination classification (SDC) - this identifies the sector that is the source or destination of transactions in, and stocks of, financial assets and liabilities in GFS (see Chapter 4 and Appendix 1 Part A of this manual for further information).

The detailed framework of assets and liabilities is shown in Table 8.3 below. This includes a hierarchical classification of non-financial assets, financial assets and liabilities pertaining to the GFS balance sheet, and the additional classifications required to populate the GFS balance sheet for output purposes.

As can be seen from Table 8.3, non-financial assets and financial assets and liabilities are classified to the GFS balance sheet (ETF 8) by type using the type of asset and liability classification (TALC). Non-financial assets are identified in GFS balance sheet as produced assets in the form of fixed produced assets (ETF 81) and other produced assets (ETF 82); and as non-financial non-produced assets in the form of nonproduced assets (ETF 83).

Fixed produced assets (ETF 81) are types of non-financial produced assets that are owned by public sector units, and are created rather than occurring naturally in nature. These are assets that are made by humans or machines. The current market value of fixed produced assets are recorded in the GFS balance sheet. In this context, the current market value includes the un-depreciated component of costs of ownership transfer on all non-financial assets except for land (which are recorded as land improvements (ETF 8113)) and inventories. In GFS, fixed produced assets are further classified as:

• Buildings and structures (ETF 811);
• Machinery and equipment (ETF 812);
• Cultivated biological resources (ETF 813);
• Intellectual property products (ETF 814); and
• Weapons systems (ETF 815).

Buildings and structures (ETF 811) records the current market value of buildings and associated structures. In GFS, buildings and structures are further classified as:

• Dwellings (ETF 8111);
• Buildings other than dwellings (ETF 8112);
• Land improvements (ETF 8113); and
• Structures not elsewhere classified (ETF 8119).

Dwellings (ETF 8111) records the current market value of dwellings including the costs of ownership transfer. Dwellings are defined in paragraph 7.44 of the IMF GFSM 2014 as buildings, or designated parts of buildings, that are used entirely or primarily as residences, including any associated structures (such as garages), and all permanent fixtures customarily installed in residences, excluding the land upon which the dwelling exists.

Included as part of the concept of dwellings (ETF 8111) are houseboats; barges; mobile homes; caravans that are used as principal residences; and public monuments identified primarily as dwellings. Dwellings acquired by government for military personnel are also included in this category because they are used in the same way as dwellings acquired by civilians. Incomplete dwellings are included to the extent that the ultimate user is deemed to have taken economic ownership; because the construction is on own account; the ultimate user assumed the risks and benefits of the asset; or as evidenced by the existence of a contract of sale or purchase.

Buildings other than dwellings (ETF 8112) records the current market value of buildings other than dwellings including the costs of ownership transfer. Buildings other than dwellings are defined in paragraph 7.46 and 7.47 of the IMF GFSM as whole buildings or parts of buildings not designated as dwellings, excluding the land upon which the building other than dwellings exists.

Included as part of the concept of buildings other than dwellings (ETF 8112) are fixtures, facilities, and equipment that are integral parts of the structures, and the costs of site clearance and preparation for new buildings. The types of buildings included in this category are office buildings, schools, hospitals, buildings for public entertainment, warehouses and industrial buildings, commercial buildings, hotels, and restaurants. Public monuments identified primarily as non-residential buildings are also included. Prisons, schools, and hospitals are regarded as buildings other than dwellings despite the fact that they may shelter institutional households.

Land improvements (ETF 8113) records the current market value of improvements to land including the costs of ownership transfer on land. Paragraph 8.50 of the IMF GFSM 2014 describes land improvements as actions that lead to major improvements in the quantity, quality, or productivity of land, or prevent its deterioration (such as land clearance, land contouring, creation of wells and watering holes that are integral to the land in question).

Land improvements are non-financial produced assets that are distinct from the non-financial nonproduced asset land (ETF 8311). In GFS, the unimproved value of land must be separately identified from land improvements, and is subject to holding gains and losses separately from price changes due to improvements to the land. In cases where it is not possible to separate the value of the land before improvement and the value of those improvements, paragraph 7.50 of the IMF GFSM 2014 notes that the asset should be allocated to the category that represents the greater part of the value. Land improvements are further discussed in Chapter 13 Part F of this manual.

Included as part of the concept of land improvements (ETF 8113) are activities that are integral to the land in question such as land reclamation, land clearance, land contouring, creation of wells and watering holes; preparation for the erection of buildings; planting of crops; and the costs of ownership transfer on land.

Excluded from the concept of land improvements (ETF 8113) are the construction of seawalls, dykes, dams and major irrigation systems that are not integral (or part of) the land, and often affect land belonging to several owners, and which are often carried out by government (classified to other structures not elsewhere classified (ETF 8119)).

Structures not elsewhere classified (ETF 8119) records the current market value of other structures that are not elsewhere classified, including the costs of ownership transfer. Paragraph 7.48 of the IMF GFSM 2014 defined other structures as all structures other than buildings, excluding the land upon which the other structure not elsewhere classified exists.

Included as part of the concept of structures not elsewhere classified (ETF 8119) are highways; streets; roads; bridges; elevated highways; tunnels; railways; subways; airfield runways; sewers; waterways; harbours; dams; shafts, tunnels and other structures associated with mining mineral and energy resources; communication lines; power lines; long distance pipelines; local pipelines; cables; outdoor sport and recreation facilities; mining and manufacturing constructions; construction of sea walls, dikes, flood barriers and similar structures intended to improve the quality and quantity of land adjacent to them; infrastructure necessary for aquaculture such as fish farms and shellfish beds; public monuments that cannot be identified as dwellings or buildings other than dwellings; structures acquired for military purposes that are used repeatedly (or continuously) in processes of production for more than one year; and the costs of site clearance and preparation.

Machinery and equipment (ETF 812) records the current market value of machinery and equipment including the costs of ownership transfer. In GFS, machinery and equipment are further classified as:

• Transport equipment (ETF 8121);
• Information, computer, and telecommunications equipment (ETF 8122); and
• Machinery and equipment not elsewhere classified (ETF 8129).

Transport equipment (ETF 8121) records the current market value of transport equipment including the costs of ownership transfer. Paragraph 7.54 of the IMF GFSM 2014 states that the concept of transport equipment (ETF 8121) includes equipment for moving people and objects, including motor vehicles, trailers and semitrailers, ships, railway locomotives and rolling stock, aircraft, spacecraft (e.g. satellite launch vehicles), motorcycles, and bicycles.

Information, computer, and telecommunications equipment (ETF 8122) records the current market value of information, computer, and telecommunications equipment including the costs of ownership transfer. Paragraph 7.56 of the IMF GFSM 2014 defines information, computer, and telecommunications equipment as computer hardware and telecommunications equipment consisting of devices using electronic controls and also the electronic components forming part of these devices.

Included in the concept of information, computer, and telecommunications equipment (ETF 8122) are products that form part of computing machinery and parts and accessories thereof; television and radio transmitters; television, video, and digital cameras; satellites, and telephone sets.

Machinery and equipment not elsewhere classified (ETF 8129) records the current market value of other machinery and equipment that is not elsewhere classified, including the costs of ownership transfer. Paragraph 7.57 of the IMF GFSM 2014 notes that this category includes all machinery and equipment not classified in any of the other machinery and equipment categories.

Included as part of the concept of machinery and equipment not elsewhere classified (ETF 8129) are general-purpose and special-purpose machinery; office and accounting equipment; electrical machinery; medical appliances; precision and optical instruments; furniture; watches and clocks; musical instruments; and sports goods. Also included are paintings, sculptures, other works of art or antiques, and other collections of considerable value that are owned and displayed for the purpose of producing museum and similar services, in other words, for production purposes.

Excluded from the concept of machinery and equipment not elsewhere classified (ETF 8129) are similar items owned primarily as stores of value that are not intended for use in production (classified as valuables (ETF 8221)). Also excluded from this category are inexpensive durable goods such as small / hand tools that are recorded as use of goods and services (ETF 1233).

Cultivated biological resources (ETF 813) records the current market value of cultivated biological resources including the costs of ownership transfer. In GFS, cultivated biological resources are further classified as:

• Animal resources yielding repeat products (ETF 8131); and
• Tree, crop, and plant resources yielding repeat products (ETF 8132).

Animal resources yielding repeat products (ETF 8131) records the current market value of animal resources yielding repeat products, including the costs of ownership transfer. Paragraph 7.63 of the IMF GFSM 2014 indicates that only animals and plants cultivated under the direct control, responsibility, and management of institutional units are considered to be cultivated assets in GFS.

Paragraph 7.60 of the IMF GFSM 2014 notes that the concept of animal resources yielding repeat products (ETF 8131) includes breeding stocks, dairy cattle, draft animals, sheep, or other animals used for wool production, animals used for transportation, racing, or entertainment, and aquatic resources yielding repeat products.

Excluded from the concept of animal resources yielding repeat products (ETF 8131) are immature cultivated assets (unless produced for own use), and animals raised for slaughter, including poultry (classified as inventories (ETF 821)).

Tree, crop, and plant resources yielding repeat products (ETF 8132) records the current market value of tree, crop, and plant resources yielding repeat products, including the costs of ownership transfer.

Paragraph 7.61 of the IMF GFSM 2014 notes that the concept of tree, crop, and plant resources yielding repeat products (ETF 8132) includes trees (including vines and shrubs) cultivated for fruits and nuts, for sap and resin, and for bark and leaf products.

Excluded from the concept of tree, crop, and plant resources yielding repeat products (ETF 8132) are trees grown for timber that yield a finished product once only when they are ultimately felled (classified to the appropriate category within inventories (ETF 821)), and grains or vegetables that produce only a single crop when they are harvested (classified to the appropriate category within inventories (ETF 821)).

Paragraph 7.62 of the IMF GFSM 2014 notes that in general, when the production of non-financial produced assets takes a long time to complete, those assets for which production is not yet completed at the end of the reporting period are recorded as inventories in the form of work in progress (ETF 8212). These general principles also apply to the production of cultivated assets, such as animals or trees that may take a long time to reach maturity. Two cases need to be distinguished from each other: the production of cultivated products by specialised producers (such as breeders or tree nurseries), and the own-account production of cultivated assets by their users:

• In the case of the specialist producers, animals or trees whose production is not yet complete and are not ready for sale or delivery are recorded as inventories - work in progress (ETF 8212). 
• However, when animals or trees intended to be used as non-financial produced assets are produced on own account on farms or elsewhere, incomplete assets in the form of immature animals, trees, etc. not ready to be used in production are treated as the acquisition of non-financial produced assets by the producing public sector unit in its capacity as the eventual user, and not as work in progress.

Intellectual property products (ETF 814) records the current market value of intellectual property products including the costs of ownership transfer. In GFS, intellectual property products are further classified as:

• Research and development (ETF 8141);
• Mineral exploration and evaluation (ETF 8142);
• Computer software (ETF 8143);
• Databases (ETF 8144);
• Entertainment, literary, and artistic originals (ETF 8145); and
• Intellectual property products not elsewhere classified (ETF 8149).

Research and development (ETF 8141) records the current market value of research and development including the costs of ownership transfer. Research and development is defined in paragraph 7.66 of the IMF GFSM 2014 as the value of expenditure on creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of humankind, culture, and society, and use of this stock of knowledge to devise new applications.

Included as part of the concept of research and development (ETF 8141) is research and development that provides an economic benefit to its owner.

Excluded from the concept of research and development (ETF 8141) is any research and development that does not provide an economic benefit to its owner (classified as other non-employee expenses not elsewhere classified (ETF 1229, COFOG-A, SDC)).

Mineral exploration and evaluation (ETF 8142) records the current market value of mineral exploration and evaluation, including any costs of ownership transfer. Paragraph 7.68 of the IMF GFSM 2014 indicates that mineral exploration and evaluation consists of the value of expenditure on exploration for petroleum and natural gas, and for non-petroleum deposits, and subsequent evaluation of the discoveries made.

The concept of mineral exploration and evaluation (ETF 8142) includes the costs of actual test drilling and boring; pre-license, license, acquisition, and appraisal costs; the costs of aerial and other surveys; and transportation and other costs incurred to make the exploration possible.

Computer software (ETF 8143) records the current market value of computer software, including costs of ownership transfer. Paragraph 7.70 of the IMF GFSM 2014 notes that computer software may be purchased from other units or developed on own account, and may be intended only for own use or may be intended for sale by means of copies.

Included as part of the concept of computer software (ETF 8143) are computer programs, program descriptions, and supporting materials for both systems and applications software that are expected to be used for more than one year.

Databases (ETF 8144) records the current market value of databases, including the costs of ownership transfer. Paragraph 7.70 of the IMF GFSM 2014 defines databases as consisting of files of data organised in such a way as to permit resource effective access and use of the data, including the value of the information content. The costs associated with the purchase, development, or extension of databases are recorded as assets when they are used in production for more than one year.

Entertainment, literary, and artistic originals (ETF 8145) records the current market value of entertainment, literary, and artistic originals, including the costs of ownership transfer. Paragraph 7.72 of the IMF GFSM 2014 defines entertainment, literary, and artistic originals as original films, sound recordings, manuscripts, tapes, and models in which drama performances, radio and television programming, musical performances, sporting events, and literary and artistic output are recorded or embodied.

Intellectual property products not elsewhere classified (ETF 8149) records the current market value of other intellectual property products not elsewhere classified. Paragraph 7.73 of the IMF GFSM 2014 defines other intellectual property products not elsewhere classified as consisting of new information and specialised knowledge not elsewhere classified, the use of which is restricted to the units that have established ownership rights over the information or to other units licensed by the owners.

Included as part of the concept of intellectual property products not elsewhere classified (ETF 8149) are intellectual property products other than research and development, mineral exploration and evaluation, computer software, databases, and entertainment, literary and artistic originals.

Weapons systems (ETF 815 and ETF 851) (also known as defence weapons platforms in Australian GFS) record the current market value of military weapons systems, including the costs of ownership transfer (these include fees for transport costs separately invoiced to the purchaser, and decommissioning costs). Included as part of the concept of weapons systems (ETF 815, and ETF 851) are specialised vehicles and other equipment such as warships, submarines, military aircraft, tanks, missile carriers; launchers; singleuse weapons with a highly destructive capability which provide an ongoing service of deterrence against aggressors such as ballistic missiles, used repeatedly or continuously in the provision of defence services over a period of more than one year, even if their peacetime use is simply to provide deterrence.

Excluded from the concept of weapons systems (ETF 815 and ETF 851) is expenditure on military goods such as single-use weapons (ammunition, missiles, rockets, bombs, torpedoes) and spare parts. Paragraph 7.74 of the IMF GFSM 2014 notes that expenditure on military goods such as single-use weapons and spare parts are recorded as transactions in acquisitions of non-financial assets via change in inventories (military inventories) (ETF 4111, TALC 215). When military inventories are used, they are withdrawn from inventories and recorded as use of goods and services (ETF 1233, COFOG-A, SDC).

Other produced assets (ETF 82) record the current market value of other non-financial produced assets, including any costs of ownership transfer. In GFS, other non-financial produced assets are further classified as:

• Inventories (ETF 821);
• Valuables (ETF 822); and
• Other produced assets (ETF 823).

Inventories (ETF 821) record the current market value of inventories. Paragraph 7.75 of the IMF GFSM 2014 defines inventories as produced assets consisting of goods and services, which came into existence in the current period or in an earlier period, and that are held for sale, use in production, or other use at a later date. It is important to note that the current market value of inventories does not include any costs of ownership transfer (including transport, storage and decommissioning costs). The reason for this is because inventories form part of the production of goods and services, and are held by producer units specifically for the purpose of being further processed, sold, delivered to other units, or used in other ways as part of a production process. Inventories may also consist of products acquired from other units that are intended to be used in the production of market and non-market goods and services by producer units, or for resale without further processing. In GFS, inventories are further classified as:

• Inventories - materials and supplies (ETF 8211);
• Inventories - work in progress (ETF 8212);
• Inventories - finished goods (ETF 8213);
• Inventories - goods for resale (ETF 8214); and
• Military inventories (ETF 8215).

Inventories - materials and supplies (ETF 8211) records the current market value of inventories of materials and supplies excluding costs of ownership transfer. Paragraph 7.79 of the IMF GFSM 2014 defines materials and supplies to be all goods held with the intention of using them as inputs to a production process. Every public sector unit may be expected to hold some materials and supplies, if only office supplies.

Included as part of the concept of inventories - materials and supplies (ETF 8211) are office supplies, fuel, and foodstuffs.

Excluded from the concept of inventories - materials and supplies (ETF 8211) are the costs of ownership transfer (including transport, storage and decommissioning costs).

Inventories - work in progress (ETF 8212) records the current market value of inventories of work in progress excluding costs of ownership transfer. Paragraph 7.80 of the IMF GFSM 2014 defines work in progress as goods and services that are not yet sufficiently processed to be in a state in which it is normally supplied to other institutional units.

Paragraph 7.80 of the IMF GFSM 2014 notes that public sector units that primarily produce non-market services are likely to have little or no work in progress because the production of such services are completed in a short time span, or continuously. Work in progress must be recorded for any output that is not complete at the end of the accounting period, such as construction or growing crops. The only exceptions to recording incomplete work as work in progress are for partially completed projects for which the ultimate owner is deemed to have taken ownership, either because the production is for own use or as evidenced by the existence of a contract of sale or purchase. In these exceptions, the partially complete products are recorded as the acquisition of non-financial produced assets rather than work in progress.

Included as part of the concept of inventories - work in progress (ETF 8212) are immature animal resource assets unless produced for own use; animals raised for slaughter, including poultry; trees grown for timber that yield a finished product once only when they are ultimately felled; grains or vegetables that produce only a single crop when they are harvested; and immature tree, crop and plant resource assets unless produced for own use.

Excluded from the concept of inventories - work in progress (ETF 8212) are partially completed projects for which the ultimate owner is deemed to have taken economic ownership in stages, either when the production is for own use and the new owner assumes the risks and benefits associated with the incomplete asset, or when evidenced by specific clauses in a contract of sale or purchase (classified to the appropriate category under fixed produced assets (ETF 81)); and costs of ownership transfer (including transport, storage and decommissioning costs).

Inventories - finished goods (ETF 8213) records the current market value of inventories of finished goods excluding costs of ownership transfer. Paragraph 7.83 of the IMF GFSM 2014 defines finished goods as goods that are the output of a production process, are still held by their producer, and are not expected to be processed further by the producer before being supplied to other units. Finished goods may only be held by the units that produce them. Public sector units will have finished goods only if they produce goods for sale or transfer to other units. Inventories of finished goods are valued at their current market value (before the addition of any taxes, transport, or distribution charges) or at their current replacement price, and exclude costs of ownership transfer.

Inventories - goods for resale (ETF 8214) records the current market value of inventories of goods for resale excluding costs of ownership transfer. Paragraph 7.84 of the IMF GFSM 2014 defines goods for resale as goods acquired for the purpose of reselling or transferring to other units without being further processed. Goods for resale may be transported, stored, graded, sorted, washed, or packaged by their owners to present them for resale in ways that are attractive to their customers or beneficiaries, but they are not otherwise transformed.

Public sector units that sell goods at economically significant prices are likely to possess an inventory of goods for resale. Paragraph 7.83 of the IMF GFSM 2014 states that this category also includes goods purchased by public sector units for provision free of charge or at prices that are not economically significant to other units. By convention, goods acquired for distribution as social transfers in kind but that have not yet been so delivered are also included in goods for resale.

Included as part of the concept of inventories - goods for resale (ETF 8214) are strategic stocks which are held for strategic and emergency purposes; goods held by market regulatory organisations; and commodities of special importance to the nation such as grain and petroleum.