IX. THE USE OF INCOME ACCOUNT
D. Household final consumption expenditure (P.3)
1. Introduction
| 9.45. | Household final consumption expenditure consists of expenditure incurred by resident households on consumption goods or services. Final consumption expenditure excludes expenditure on fixed assets in the form of dwellings or on valuables. Dwellings are goods used by their owners to produce housing services. Expenditure on dwellings by households, therefore, constitutes gross fixed capital formation. When dwellings are rented by their owners, rentals are recorded as output of housing services by owners and final consumption expenditure by tenants. When dwellings are occupied by their owners, the imputed value of the housing services enters into both the output and final consumption expenditure of the owners. Valuables are expensive durable goods that do not deteriorate over time, are not used up in consumption or production, and are acquired primarily as stores of value. They consist mainly of works of art, precious stones and metals and jewellery fashioned out of such stones and metals. Valuables are held in the expectation that their prices, relative to those of other goods and services, will tend to increase over time, or at least not decline. Although the owners of valuables may derive satisfaction from possessing them, they are not used up in the way that household consumption goods, including consumer durables, are used up over time. |
| 9.46. | The treatment of expenditure in some specific situations and on certain specific types of goods and services is outlined in the following sections. |
2. Expenditures by households owning unincorporated enterprises
| 9.47. | When a household includes one or more persons who own an unincorporated enterprise, it is necessary to ensure that only expenditure for the direct satisfaction of human needs and wants is included in household final consumption expenditure; all expenditure incurred for business purposes is excluded from household consumption expenditure. This may not be easy in practice when the same good or service (for example, electricity or other fuels) may be used equally well for business purposes or for final consumption. Business expenditures cannot therefore be identified purely on the basis of the type of good or service purchased. Particular care needs to be exercised in the case of farms, including subsistence farms, where goods that have been purchased, or produced on own account, may be used either for household final consumption or for intermediate consumption; for example, corn or potatoes may be consumed by members of the households, fed to animals or used as seeds for future crops. |
| 9.48. | Care is also needed with purchases of consumer durables such as vehicles, furniture, or electrical equipment which are to be classified as gross fixed capital formation by the household enterprise when purchased for business purposes but as final consumption expenditure when purchased for the personal use of household members. While the nature of the distinction may be clear in principle, it is often blurred in practice, especially when the owner of the business uses a durable good, such as a vehicle, partly for business purposes and partly for personal benefit. In such cases, the expenditure on the purchase of the durable should be split between gross fixed capital formation by the enterprise and household final consumption expenditure in proportion to its usage for business and personal purposes. When durables are purchased wholly or partly for business purposes, the decline in their value attributable to their use within the business should be recorded under the consumption of fixed capital of the unincorporated enterprise. |
3. Barter transactions
| 9.49. | The values of the goods or services acquired in barter transactions constitute imputed expenditures. Values have to be imputed for goods or services exchanged in barter transactions equal to their market values, or their average market values, if the market values of the goods or services exchanged are not the same. Thus, when the goods or services obtained through barter are used for household consumption their imputed values must be recorded as household final consumption expenditure. When a good offered for barter is an existing good and not newly produced output, negative imputed expenditure must be recorded for the unit offering the good, in the same way that sales of existing goods are recorded as negative expenditures. |
4. Expenditures on goods and services received as income in kind
| 9.50. | Income in kind received by employees is measured by the value of the goods and services provided by employers to their employees in remuneration for work done. This income is simultaneously spent by the employees on the goods and services in question. Thus, the values of the goods and services must be recorded as final consumption expenditure incurred by households as well as income in kind. |
| 9.51. | A distinction has to be made between goods or services provided to employees as remuneration in kind and goods or services provided because they are needed at work, the latter constituting intermediate consumption by the enterprise. In principle, the distinction is clear. Goods or services that employers are obliged to provide to their employees to enable them to carry out their work, such as tools, equipment, special clothing, etc., constitute intermediate consumption. On the other hand, goods or services that employees are able to use in their own time for the direct satisfaction of their needs or wants, or those of their families, constitute remuneration in kind. In practice, there are inevitably borderline cases, such as uniforms that must be worn at work but are also worn extensively by employees away from work. A detailed listing of the kinds of goods and services that are included in remuneration in kind is given in the section on compensation of employees in chapter VII. |
5. Expenditures on goods and services produced on own account
| 9.52. | Household final consumption expenditure includes the imputed values of goods or services produced as outputs of unincorporated enterprises owned by households that are retained for consumption by members of the household. The production of services for own consumption within the same household falls outside the production boundary of the System, except for housing services produced by owner-occupiers and services produced by employing paid domestic staff. As the costs of producing goods or services for own consumption are borne by the households themselves, it is clear that the expenditures on them are also incurred by households, even though their values must be imputed. The main types of goods and services produced and consumed within the same household are as follows:
(a) Food or other agricultural goods produced for own final consumption by farmers, including subsistence farmers, or others for whom agricultural production is only a secondary, or even leisure, activity;
(b) Other kinds of goods produced by unincorporated enterprises owned by households that are consumed by members of the same households;
(c) Housing services produced for own final consumption by owner-occupiers (discussed further below);
(d) Domestic or other services produced for own final consumption by households that employ paid staff for this purpose - servants, cooks, gardeners, chauffeurs, etc.
Values are imputed for these goods or services on the basis of the estimated current basic prices of similar goods or services sold on the market, or by costs of production when suitable prices are not available, except for the services of paid staff; services of paid staff, by convention, are valued simply by the compensation of employees paid, in cash and in kind. |
6. Expenditures on particular types of goods and services
Expenditures on financial intermediation services
| 9.53. | When appropriate, values must be imputed for the expenditures which households incur on services provided by financial intermediaries for which no explicit charges are made. Expenditures on services for which financial intermediaries do make charges are recorded in the usual way. |
Financial intermediation services, except insurance and pension fund services
| 9.54. | Financial intermediaries, except insurance corporations and pension funds, which include all corporations engaged in banking, may not charge households (or their other clients) explicitly for some of the services they provide. Instead, the nominal rates of interest they charge households on advances, overdrafts, mortgages or other loans are higher than they themselves pay on the deposits that households hold with them. The differences between the various rates of interest charged and paid constitute an indirect method of charging customers for services. As already explained in chapter VI, the total value of these services is estimated as the difference between the property income received by these financial intermediaries (excluding income from the investment of their own funds) less the interest they pay to creditors. This total value, may, or may not, be allocated to the household and other sectors, depending upon the procedures adopted in the country in question. |
| 9.55. | When the value of the services is actually allocated among sectors using one or another of the methods suggested in chapter VI, the imputed values of the services are recorded as expenditures on the services of financial intermediaries in the use of income account for households. The interest recorded in the primary distribution of income account for households as being received from financial intermediaries is equal to the amount actually received plus the imputed value the service charge paid on household lending. The amount of interest recorded as paid to financial intermediaries is equal to the amount actually paid less the imputed value of the service charge on household borrowing. Household saving is the same, whether the service charge is allocated or not. |
Insurance and pension fund services
| 9.56. | The way in which the value of the services produced by insurance enterprises is calculated in the System has been explained in chapter VI. The same method is used to calculate the output of autonomous pension funds. |
| 9.57. | The values of the insurance services consumed by different sectors, sub-sectors or institutional units are estimated by allocating the total value of the services produced by an insurance enterprise or autonomous pension fund in proportion to the actual premiums or pension contributions paid. The amounts paid by households are recorded as final consumption expenditure (except for the insurance services purchased by unincorporated enterprises owned by households). |
Services of dwellings, repairs and improvements
Services of owner-occupied dwellings
| 9.58. | Persons who own the dwellings in which they live are treated as owning unincorporated enterprises that produce housing services that are consumed by the household to which the owner belongs. The housing services produced are deemed to be equal in value to the rentals that would be paid on the market for accommodations of the same size, quality and type. The imputed values of the housing services are recorded as final consumption expenditures of the owners. |
Decoration, maintenance and repair
| 9.59. | As already noted in chapter VI, expenditures that an owner-occupier incurs on the decoration, maintenance and repair of the dwelling should not be treated as household final consumption expenditure but as intermediate expenditure incurred in the production of housing services. These expenditures may consist either of payments for services provided by professional builders or decorators or purchases of materials for "do-it-yourself " repairs and decoration. In the latter case, simple, routine repairs and interior decoration of a kind carried out by tenants as well as owners may be treated as falling outside the production boundary. Purchases of materials used for such repairs or decoration should therefore be treated as final consumption expenditure. |
Major improvements
| 9.60. | Expenditures on major improvements - that is, reconstructions, renovations or enlargements - to dwellings are not classed as repairs and maintenance. They are excluded from household consumption expenditure and are treated as gross fixed capital formation on the part of the owners of those dwellings. |
The repair and maintenance of durables
| 9.61. | Expenditures on the repair and maintenance of consumer durables, including vehicles, are treated in the same way as simple repairs to dwellings. They constitute final consumption expenditure whether the repairs and maintenance are carried out by specialist producers or by members of the household as "do-it-yourself " activities. In the latter case, only the values of the materials purchased should be included in household consumption expenditure. |
Licences and fees
| 9.62. | Households make payments to government units to obtain various kinds of licences, permits, certificates, passports, etc., and in some cases it is not clear whether the government units actually provide services in return, such as testing or inspection, or whether the payments are de facto taxes. As explained in chapter VIII, paragraph 8.54 (c), the treatment of certain controversial borderline cases has been decided by the following convention, based on the practices followed in the majority of countries: payments by households for licences to own or use vehicles, boats or aircraft and also licences to hunt, shoot or fish are treated as taxes, while payments for all other kinds of licences, permits, certificates, passports, etc., are treated as purchases of services and included in household consumption expenditure. |
7. Classification of household final consumption expenditure
| 9.63. | Household final consumption expenditure is typically a large aggregate covering a wide range of goods and services. It is thus usually desirable to break down the figure. The Central Product Classification (CPC) may be used for a breakdown by type of good or service. The Classification of Individual Consumption by Purpose may be used for a breakdown by purpose or function, e.g., food, health and education services. Chapter XVIII briefly describes this classification and how its inclusion in the System facilitates several kinds of analyses. |
8. Timing and valuation of household final consumption expenditure
Timing
| 9.64. | In accordance with the general principles adopted in the System, expenditures should be recorded when the payables are created, that is, when the purchaser incurs a liability to the seller. This implies that expenditure on a good is to be recorded at the time its ownership changes while expenditure on a service is recorded when the delivery of the service is completed. |
| 9.65. | Expenditures on a good under a hire purchase or similar credit agreement (and also under a financial lease) should be recorded at the time the good is delivered even though there is no legal change of ownership at this point. De facto, the purchaser exercises the rights and responsibilities of ownership from the time the good is delivered under a hire purchase agreement, financial lease or similar method of financing. A change of ownership is therefore imputed at the time of delivery. The purchaser must also be shown in the financial accounts as incurring a liability to the hire purchase or finance corporation. |
Valuation
| 9.66. | Household expenditure is recorded at the purchasers' prices paid by households including any taxes on products which may be payable at the time of purchase. As defined in chapter VI, paragraphs 6.216 to 6.218, the purchaser's price of a good is the amount payable to take delivery of a unit of the good at the time and place required by the purchaser. It includes any transport charges incurred by the purchaser not already included in the seller's invoice price. |
| 9.67. | Different households may pay different prices for identical products because of market imperfections. Price differences may persist because households may not be aware of them, or they may have imperfect information because the costs of searching for the retail outlets selling at the lowest prices may be too great. Even when households are aware of the price differences, it may be too inconvenient or costly to visit the outlets selling at the lowest prices. Another reason for the persistence of price differences is that many service producers deliberately practice price discrimination by charging different households different prices for identical services - e.g., by charging lower prices or fees to pensioners or people with low incomes. As services cannot be retraded, price discrimination is extremely common, or even prevalent, among service producers. Household expenditures are nevertheless recorded at the prices actually paid, even though this may mean that goods and services may not be valued uniformly. |
| 9.68. | Apparent price differences between the same goods or services are often not genuine price differences as they may be due to differences in quality, including differences in the terms or conditions of sale. For example, lower prices are often charged for bulk purchases of goods or off-peak purchases of services. Such expenditures must, of course, be recorded at the prices actually paid; that is, after deducting from the standard or list prices or charges any discounts for bulk or off-peak purchases. |
Valuation of purchases on credit
| 9.69. | The purchaser's price does not include any interest or service charges that may be added when the seller arranges for credit to be provided to the purchaser. Similarly, the purchaser's price does not include any extra charges which may be incurred as a result of failing to pay within the period stated at the time the purchases were made, such charges being effectively interest payments on the credit extended by the seller. |
Expenditures by resident and non-resident households
| 9.70. | Resident households make expenditures while travelling abroad, while non-resident households may make expenditures inside the economic territory of a country. Household final consumption expenditure in the System refers to the expenditure incurred by resident households, whether that expenditure is incurred within the economic territory or abroad. |
| 9.71. | In order to calculate total household final consumption expenditure it may be convenient to calculate the total expenditure made by all households, whether resident or not, within the economic territory and to adjust this figure by adding expenditures by residents abroad and subtracting expenditures by non-residents within the economy territory. Expenditures by residents abroad constitute imports, while expenditures by non-residents are exports. However, while the total expenditures by all households within the economic territory may be used for calculation in this way, it is not an aggregate recognized within the System. |
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