VII. THE PRIMARY DISTRIBUTION OF INCOME ACCOUNT
E. Operating surplus or mixed income (B.2/B.3)
| 7.80. | Operating surplus and mixed income are two alternative names for the same balancing item used for different types of enterprises. Operating surplus or mixed income is the balancing item in the generation of income account it is defined as:
value added
minus
compensation of employees payable
minus
taxes on production payable
plus
subsidies receivable.
As already noted, value added should be measured net - after deducting consumption of fixed capital - but provision has to be made in the accounts of the system for value added, and hence all subsequent balancing items that depend on value added, to be measured gross or net of consumption of fixed capital because of the practical difficulty of measuring the latter. Value added may be assumed to be measured net, unless stated to the contrary. |
| 7.81. | Mixed income is the term reserved for the balancing item of the generation of income account of unincorporated enterprises owned by members of households, either individually or in partnership with others, in which the owners, or other members of their households, may work without receiving any wage or salary. In practice, all unincorporated enterprises owned by households that are not quasi-corporations are deemed to fall in this category, except owner-occupiers in their capacity as producers of housing services for own final consumption and households employing paid domestic staff, an activity that generates no surplus. |
| 7.82. | Operating surplus/mixed income is a measure of the surplus accruing from processes of production before deducting any explicit or implicit interest charges, rents or other property incomes payable on the financial assets, land or other tangible non-produced assets required to carry on the production. It is, therefore, invariant as to whether:
(a) The land or other tangible non-produced assets used in production are owned or rented by the enterprise; and
(b) The inventories, fixed assets, land or other non-produced assets owned by the enterprise and used in production are financed out of own funds (or equity capital) or out of borrowed funds (or loan capital).
Although the operating surplus/mixed income is invariant to the extent to which land is owned or assets in general are financed, it needs to be sufficient to cover both any explicit, or implicit, rents on land and the explicit, or implicit interest charges on the value of all the assets owned by the enterprise in order to justify their continued use in production. The implicit interest costs of using the enterprise's own funds to purchase inventories, fixed assets or other assets are the opportunity costs of using the funds in this way rather than to acquire financial assets on which actual interest could be earned. The amounts of rents and interest actually payable on rented land and borrowed funds are recorded in the allocation of primary income account, and the entrepreneurial income account, but the implicit rents on land owned by the enterprise and the implicit interest chargeable on the use of the enterprise's own funds are not recorded in the accounts of the System. |
| 7.83. | The operating surplus/mixed income is not invariant, however, to the extent to which the fixed assets used in production are owned or rented. When buildings, other structures, machinery or equipment are rented by an enterprise, the payments of rentals under an operating lease or similar lease are recorded as purchases of services. These services form part of intermediate consumption. Thus, as explained in chapter VI, paragraphs 6.181 to 6.183, the payment of the rental on a fixed asset tends to reduce gross value added below what it would be if the producer owned the asset. The impact on net value added, however, is mitigated by the fact that a tenant, or lessee, incurs no consumption of fixed capital whereas an owner would. In general, however, even net value added will tend to be lower when a fixed asset is rented as the rental has to cover the lessor's operating and interest costs as well as the consumption of fixed capital. Thus, the net operating surplus/mixed income is not invariant to the extent to which fixed assets are rented rather than purchased. At the level of the total economy, however, the lower surpluses accruing to tenants or lessees will tend to be counterbalanced by the operating surpluses earned by the lessors. |
| 7.84. | It should also be noted that enterprises may invest surplus funds in financial assets or even land, especially in times of uncertainty and high interest rates. Considerable property income may be received from such investments. The property income paid out by a corporation will be influenced by the amount of property income received as well as by its operating surplus. Thus, it is not appropriate to record all the property income paid out by an enterprise as if it were chargeable against the operating surplus. Some interest costs, especially implicit costs, may be attributable to assets other than those used in production. For this reason, the explicit and implicit interest costs payable by an enterprise ought not to be recorded in the generation of income account in which the resources consist only of value added accruing from production. They are recorded in the allocation of income account after taking account of any property income receivable as well as the operating surplus. |
Mixed income
| 7.85. | "Mixed income" has already been used to describe the balancing item in the generation of income account for a sub-set of enterprises, i.e., unincorporated enterprises owned by members of households either individually or in partnership with others in which the owners, or other members of their households, may work without receiving a wage or salary. Owners of such enterprises must be self-employed: those with paid employees are employers, while those without paid employees are own-account workers. In a few cases it may be possible to estimate the wage or salary element implicitly included within mixed income, but there is usually not enough information available about the number of hours worked or appropriate rates of remuneration for values to be imputed systematically. Thus, mixed income contains an unknown element of remuneration for work done by the owner of the enterprise, or other members of the same household, as well as the surplus accruing from production. The element of remuneration could be predominant in some cases. |
| 7.86. | A further difficulty with unincorporated enterprises is that it is often not possible to draw a clear distinction between the assets, including financial assets and liabilities, of an unincorporated enterprise and those of the owner in a personal capacity. Many fixed assets, such as buildings and vehicles, may be used partly for business purposes and partly for purposes of household final consumption. In addition, some goods ostensibly purchased for intermediate consumption may in fact be consumed by members of the household. Owners of enterprises may have an incentive to portray durable or non-durable goods used for final consumption as being used by the enterprise in order to reduce profits as reported to tax authorities. Even when there is no such incentive, owners may have genuine difficulty in separating their business expenditures or liabilities from their personal expenditures or liabilities. Thus, mixed incomes may be less reliable than the operating surpluses reported by corporations or government enterprises, and it may be useful to separate them for this reason also. |
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