Background Notes

Introduction

This release comprises the latest official publication by CSO of annual Government Income and Expenditure (GIE) results for years 2011 to 2016.  The results for 2016 are still provisional estimates and replace the data published as part of the Excessive Deficit Procedure notification on 24 April 2017. The data published in this series are fully consistent with the National Income and Expenditure 2016.

The tables provide detailed revenue and expenditure data for general government and its two subsectors, namely central and local government.  A full time series of these data back to 2000 are available on Statbank. Data back to 1995 for all EU Member States are available on Eurostat’s data base, located at the following link:

http://ec.europa.eu/eurostat/web/government-finance-statistics/data/main-tables

Note: These tables have replaced what were tables 19, 20 and 21 of the annual National Income and Expenditure(NIE)  publication since NIE 2015.

The full suite of government finance statistics tables are also available on the CSO’s website by following the link:

http://www.cso.ie/en/statistics/nationalaccounts/governmentfinancestatistics/

Changed treatment of sale of mobile telephony (UMTS) licences

On 27 March 2017 Eurostat published a Guidance Note on the treatment of mobile phone licences, exploration rights and other licences on the recording of revenues arising from the sale of licences by government see - http://ec.europa.eu/eurostat/documents/1015035/7959867/Mobile-phone-licences-exploration-rights-and-other-licences.pdf.

This clarifies the rules for whether sales of licences by government for use of natural resources (e.g. use of the electromagnetic spectrum for mobile phone transmissions) should be treated as the direct sale of an asset, resulting in a once-off revenue or as the rent of an asset over a prolonged period resulting in a series of revenue over the period of the licence.

The CSO have amended the treatment of past sales of mobile phone licences to bring these in line with the March 2017 guidance note on the treatment of the sales of UMTS licences in 2002, 2007 and 2013.  The transactions in question are no longer treated as disposals of non-produced assets but as payments for rent of natural resources by the relevant operators over the period of the licence.  Under this treatment the deficit benefit accruing from the transaction is spread over the period of the licence rather than entering the accounts in the year of the transaction.  Up front lump sum payments are treated as a prepayment, and enter the balance sheet of government as a liability under “accounts payable” and are unwound over the period of the licence.

The changes in key revenue and expenditure aggregates following this revised treatment are as follows:

• Reversal of negative capital expenditure (NP) in 2002, 2007 and 2013 (increases expenditure in relevant years).
• Imputation of rent revenues (D.45r) over the period of each licence (increases revenue in each year).
• Reduction in interest receivable (D.41r) associated with imputed loan asset on UMTS sales over the period of the licences (reduction of revenue over the years 2002-2016).
• Additions to interest payable (D.41p) due to imputation of interest over the period of the licences (increased expenditure over the period of the licences).
• Removal of a loan asset from the financial accounts and acquisition of an accounts payable liability.

Treatment of pre-paid margin on borrowing from the European Financial Stability Facility (EFSF)

The general government debt (GG Debt) of Ireland includes borrowings from the European Financial Stability Facility (EFSF). The terms of the agreement establishing the EFSF were that it was a facility to make loans to euro area Member States and to finance such loans by issuing or entering into funding instruments backed by guarantees.  The financing was made available in the context of the financial crisis as a facility for Member States “in difficulties caused by exceptional circumstances beyond such Member States' control”.

The first of these loans to Ireland was drawn down in February 2011 and had an original maturity date of 18 July 2016.  In accordance with the arrangements for EFSF borrowing at that time, a pre-paid margin of €530 million was deducted from the loan amount on disbursement and held as a cash reserve, essentially as a form of security.

The total amount shown on the GG Debt for Ireland in relation to this loan was €4,194 million. This sum includes the full pre-paid margin of €530 million. There was also a counterbalancing asset in the amount of the margin shown in the accounts.

Following a decision of the relevant Heads of State and Government on 21 July 2011 the margin was no longer applicable to new loans, and the reimbursement of the prepaid margin plus interest earned over the period fell due to Ireland and the member state guarantors (€485 million and €45 million respectively) in proportion to the duration of the loan before and after 21 July 2011.  For Ireland, therefore, this reimbursement fell due on 18 July 2016*.  On this date a payment of €554.9 million was received.  This payment comprises the portion of the pre-paid margin due to the Exchequer (covering the period from 21 July 2011 onwards) plus interest income.

Following clarification from Eurostat the original margin of €530 million has been recorded as interest expenditure over the period of the loan (2011-2016) and the rebate of €554.9 million has been treated as one-off capital transfer revenue in 2016.  This treatment is specific to this particular loan and applies to all Member States involved in this type of borrowing from the EFSF. It does not apply to other loans drawn down from the EFSF or other programme funding accessed by Ireland during the financial crisis.  This treatment was applied in the April version of these figures and is unchanged in the current release.

*In 2013 the original loan was extended and split into two separate loans, with maturity dates in 2032 and 2033. However, the agreement to reimburse the prepaid margin on the maturity date of the original loan held under the new arrangements.

GDP figures used in publication

The GDP figures used in the current publication are consistent with those published in the National Income and Expenditure 2016 and the latest Quarterly National Accounts publication both published on 14 July 2017.

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

Estimates of the general government deficit for years 2002 to 2016 have been revised since April 2017. The changes reflect the changes due to the revised methodology following the updated Eurostat guidance on the sale of licences along with changes in the estimation of financial intermediation services indirectly measured (FISIM).  Changes to recent years also reflect the availability of more up-to-date and detailed data sources.

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.

Detailed statistics on government revenue and expenditure are also provided to Eurostat under the ESA transmission programme.  For annual data the main tables reported are:

Table 0200   Revenue and expenditure of general government and sub-sectors

Tables 0900 and 0999     Taxes and national tax list

These data are available on the Eurostat website.

http://ec.europa.eu/eurostat/web/government-finance-statistics/data/main-tables

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 as shown in the GFS release.

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.42    Dividends receivable by the owners of share equities. Dividends exclude "super dividends" which arise where the dividend paid is large relative to the recent level of dividends and earnings. Super dividends are recorded as withdrawal of equity (F.5). This arises, for example, in the case of dividends paid by the Central Bank in 2015.

           D.45    Rent of a natural resource – income receivable by the owner of a natural resource for putting the resource at the disposal of another party.

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.

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