Background Notes

Introduction

This detailed release along with the headline figures published on 12 October 2015 together comprise the latest official publication by CSO of annual Government Finance Statistics results for years 2009 to 2014.  First estimates for 2014 were published in April 2015.

The data published in this series are consistent with the General Government Deficit and Debt levels reported at end-September 2015 under the EU regulation governing the Excessive Deficit Procedure (EDP).   Consequently they may not always be fully aligned with the National Income and Expenditure and related publications such as the Institutional Sector Accounts.

The official publication by Eurostat of deficit and debt levels for all EU member states is due on Wednesday 21 October 2015.

Significant events arising since the last release that impact Deficit/Debt

Register of Public Sector Bodies

The Central Statistics Office (CSO) is required to define the scope of the public sector (which includes the General Government Sector) for the official reporting of Ireland’s General Government Deficit/Surplus, Government Debt, and other Government Finance Statistics.  In this context, the public sector includes all bodies that are directly or indirectly controlled by a Government department or office, or by a local authority.  General Government, in turn, includes all public sector bodies that are also mainly financed by Government bodies.  The decision rules governing the classification of bodies to the public and General Government sectors are set out in detail in the Manual on Government Deficit and Debt (MGDD).

The CSO’s Register of Public Sector bodies is updated twice a year to coincide with the submission of government deficit and debt figures to Eurostat under the Excessive Deficit Procedure. It reflects any changes in the composition of the government sector since the previous update. Some additions to the Register since April 2015 include:

1. Irish Water has been classified to Sector S.1311 (Central Government) *.

*This had been a preliminary and provisional classification at the time of the publication of the March EDP. The final classification decision was published by Eurostat on 28 July 2015(letter dated 24 July 2015) and the Register of Public Sector bodies has been updated accordingly.  Copies of documents relating to this classification decision can be seen at:

http://www.cso.ie/en/surveysandmethodology/nationalaccounts/classificationdecisions/

A detailed explanation of the application of these rules and the most up-to-date list of public sector bodies (including general government bodies) for Ireland is also shown at this link.

Sale of National Lottery Licence

In October 2013, the Department of Public Expenditure and Reform announced that Premier Lotteries Ireland had been selected as the licence holder of the National Lottery Licence for a 20 year period.  The actual transfer took place on 30^th November 2014. As the licence holder is unable to sell the permit to a third party government is not deemed to have sold an asset.  Rather it is found to have granted permission to limit the number of individual units entitled to engage in this activity and therefore the receipt is to be recorded as ‘other taxes’ (D.29 (e)) over the life of the licence. The present value of the cash received up front in 2014 is recorded in the ‘Other accounts payable’ liability (AF.8) which will in turn be reduced each year by the future tax revenue accruals.

Transfer of pension obligations to government

The Government assumed the pension fund liability of Waterford Crystal under an agreement reached at the end of 2014.  As the liabilities exceed the assets of the scheme, we are required to recognise the difference in the assets and liabilities at the time of the transfer, which we record as expenditure (D.9) capital transfer.  An ‘accounts payable’ (AF.8) liability is recorded in the government accounts at the time of the transfer and as cash payments are made in future periods this liability decreases accordingly.

Other changes since the last release

Revisions to General Government Deficit/Surplus (GG Deficit/Surplus)

Estimates of the general government deficit for both 2013 and 2014 have been revised since April 2015. The changes indicate an improvement in the deficit of €166 million and €153 million for each of the years respectively. Because audited accounts for many government bodies become available between April and September, this release allows us to present more final data for 2014 than the provisional outturn previously published. These revisions mainly result in a reduction to net capital transfers (D.9).

Revisions to GDP

The GDP figures used in the current publication are consistent with those published in the National Income and Expenditure 2014.

Contingent Liabilities

   (a)   Public Private Partnerships (PPPs)

The figures previously included in Table 6 for the value of off-balance sheet PPPs has been revised for all periods.  This is mainly due to the capital value for a number of projects which were previously reported as the contract value (construction, operation & maintenance, lifecycle and overheads including cost of finance expressed in NPV terms at financial close of the relevant project) being revised to report nominal design and construction value. This was done in order to better align the concepts used in these tables with the concepts used in other reporting of contingent liabilities to Eurostat.

   (b)   Guarantees

This item refers to the stock of debt of non-government bodies guaranteed by government.  The figure for 2011 has been revised due to the classification of IBRC in the Government Sector which means their borrowings are no longer regarded as external to Government.

   (c) Pension Liabilities

The estimated pension liability of government (the accrued liability in respect of Public Service occupational pensions) is a contingent liability of government and does not form part of the ESA accounts of general government.  It is shown in this release as a memorandum item.  The value shown for years 2009-2011 of €116 billion was calculated by the Comptroller and Auditor General.    The value of this liability is reduced by €18 billion to €98 billion with effect from 2012. This follows an actuarial valuation carried out by the Department of Public Service and Reform.   The main reasons for the reduction were the pay and pension cuts since 2009 and the freeze in pay and pension rates until after the Haddington Road Agreement.  Details on this updated estimate can be accessed at:

 http://www.per.gov.ie/public-service-pensions-accrued-liability/.

Government Finance Statistics – Concepts and Definitions

Government Finance Statistics (GFS) form the basis for fiscal monitoring in Europe, in particular in relation to the Excessive Deficit Procedure (EDP). 

European GFS, including EDP statistics are produced according to the legally binding accounting rules of the European System of Accounts (ESA2010).  The Manual on Government Debt and Deficit (MGDD) provides further guidance on the implementation of ESA 2010 in the context of GFS. 

EU Member States are required to report government deficit/surplus and debt data biannually under the EDP (before 1 April and 1 October in year N) for years N-4 to N-1 calendar years as well as a forecast for the current year. The data are reported in harmonised tables, which provide a consistent framework for the presentation of this data by Member States. The tables provide a structure for linking national budgetary aggregates with government deficit and debt.

In addition to the EDP transmission programme, detailed statistics on Government revenue and expenditure are also provided to Eurostat under the ESA transmission programme.  For quarterly data the main tables reported are:

Table 801   Quarterly Non-financial accounts by sector  

Table 2700 Quarterly financial accounts for general government

Table 2800 Quarterly government debt

These data are available on the Eurostat website.

Definition of general government and its subsectors

The general government sector of the economy, is defined in ESA2010 paragraph 2.111: as “institutional units which are non-market producers whose output is intended for individual and collective consumption, and are financed by compulsory payments made by units belonging to other sectors, and institutional units principally engaged in the redistribution of national income and wealth.” General government comprises the sub-sectors central government (S.1311), state government (S.1312 – which does not apply in Ireland), local government (S.1313), and social security funds (S.1314 – which does not apply in Ireland),

General Government Deficit/Surplus (GG Deficit/Surplus) is the standard European measure of the fiscal balance, which is used to monitor compliance with the Stability and Growth Pact.

This measure is by definition equal to both Total Revenue (TR) less Total Expenditure (TE), and Net Acquisition of Financial Assets less Net Incurrence of Liabilities. In order to respect this accounting identity, a technical adjustment is made to the level of transactions recorded in liability category F32 (long-term debt securities) to eliminate any statistical discrepancy between the two approaches to the calculation of GG Deficit/Surplus. This adjustment has no impact on gross debt, net debt or net worth.

General Government Gross Debt (GG Debt) is defined in the EU regulations implementing the Maastricht Treaty as the gross debt liabilities of the consolidated General Government sector, at nominal value.

‘Gross’ means that the value of any financial assets held by General Government cannot be deducted from the GG Debt. In Ireland’s case, this means that the liquid assets which are deducted from the ‘gross’ National Debt in arriving at the audited National Debt cannot be deducted from the GG Debt.

‘Debt liabilities’ are defined as the ESA 2010 categories AF.2 (Currency and Deposits), AF.3 (Debt Securities), and AF.4 (Loans).

This definition excludes liabilities in derivatives, equity liabilities, pension and insurance liabilities and accounts payable.

‘Consolidated’ means that any money owed by one entity within General Government to another is excluded from the total GG Debt.

‘Nominal value’ is defined in the governing regulation as face value.  If debt is sold at a discount, it is the undiscounted value of the instrument, rather than the amount actually received, that is shown in the GG Debt. In other statistical contexts, ‘nominal value’ means face value plus any interest accrued but not paid; however, such interest is excluded from GG Debt by definition.

General Government Net Debt is a measure produced in accordance with the methodology of the IMF/World Bank Public Sector Debt Statistics Guide, by subtracting from the GG Gross Debt figure the value of the financial assets corresponding to the categories of financial liabilities which comprise GG Gross Debt.

General Government Net Worth is calculated as the sum of financial and non-financial assets of General Government less financial liabilities. 

Detailed codes and technical definitions can be seen in the ESA 2010 manual available at http://ec.europa.eu/eurostat/documents/3859598/5925693/KS-02-13-269-EN.PDF/44cd9d01-bc64-40e5-bd40-d17df0c69334

 A listing of some of the main items included in this release is shown below

Main Components of General Government Expenditure and Revenue

P.2       Intermediate consumption – value of goods and services used in the process of production, excluding fixed assets

P.5       Gross capital formation

P.51g   Gross fixed capital formation - acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of non-produced assets realised by productive activity. Fixed assets are tangible or intangible assets produced as outputs from processes of production that are themselves used repeatedly, or continuously, in processes of production for more than one year

P.51c   Consumption of fixed capital - the amount of fixed assets used up, during the period under consideration, as a result of normal wear and tear and foreseeable obsolescence, including a provision for losses of fixed assets as a result of accidental damage which can be insured against.

P.52     Changes in inventories

P.53     Acquisitions less disposals of valuables

D.1      Compensation of employees – the total remuneration of government employees

D.29    Other taxes on production (payable) all taxes that enterprises incur as a result of engaging in production, independently of the quantity or value of the goods and services produced or sold. These include taxes on use or ownership of land or buildings, taxes on use of fixed assets, taxes on total wage bill and payroll, taxes on international transactions related to production.

D.3      Subsidies (payable) - current unrequited payments which general government or the institutions of the European Union make to resident  producers, with the objective of influencing their levels of production, their prices or the remuneration of the factors of production

D.4      Property income accrues when the owners of financial assets and natural resources put them at the disposal of other units of the economy. The income payable for the use of financial assets is called investment income, while that payable for the use of a natural resource is called rent. Property income is the sum of investment income and rent.

D.41    Interest receivable by the owners of a financial asset for putting it at the disposal of another institutional unit. Applies to deposits (AF.2), debt securities (AF.3), loans (AF.4) and other accounts payable (AF.8)

D.5      Current taxes on income, wealth, etc, (payable)  - all compulsory, unrequited payments, in cash or in kind, levied periodically by general government and by the rest of the world on the income and wealth of units in the economy, and some periodic taxes which are assessed neither on income nor wealth

D.6      Social contributions - transfers to households, in cash or in kind, intended to relieve them from the financial burden of a number of risks or needs.

D.7      Other current transfers – includes VAT and GNI based EU budget contributions, current transfers between subsectors of government, current international co-operation and current transfers to households and non-profit institutions.

D.9      Capital transfers - involve the acquisition or disposal of an asset, or assets, by at least one of the parties to the transaction.  Includes capital taxes and investment grants.

Categories of Financial Flows

F.1       Monetary gold and special drawing rights (SDRs)

            F.11     Monetary gold

            F.12     Special drawing rights (SDRs)

F.2       Currency and deposits

            F.21     Currency

            F.22     Transferable deposits

            F.29     Other deposits

F.3       Debt securities

            F.31     Short-term

            F.32     Long-term

F.4       Loans

            F.41 - Short-term loans

            F.42 - Long-term loans

F.5       Equity and investment fund shares

            F.51 Equity

            F.52 Investment fund shares/units

F.6       Insurance pension and standardised guarantee schemes

F.7       Financial derivatives and employee stock options

            F.71     Financial derivatives

            F.72     Employee stock options

F.8       Other accounts receivable/payable

            F.81     Trade credits and advances

            F.89     Other

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