Part C - Institutional units

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Australian System of Government Finance Statistics: Concepts, Sources and Methods
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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.


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.


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).


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


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.


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.

Types of institutional units


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.

Corporations and quasi-corporations


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.


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).


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.


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.


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.


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.

General government units


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.


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.


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.


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.


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.


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.


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.

Non-profit institutions


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.


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.



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.

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