IX. THE USE OF INCOME ACCOUNT
F. Consumption expenditures incurred by general government and NPISHs (P.3)
| 9.75. | The treatment of consumption expenditures incurred by general government and NPISHs serving households is the same so that it is convenient to describe them together. Expenditures on a wide range of consumption goods and services are incurred by general government or by NPISHs, either on collective services or on selected individual goods or services. The government expenditures are financed principally out of taxation or other government revenues while those of the NPISHs are financed principally out of subscriptions, contributions or donations or property income. |
| 9.76. | The consumption expenditures of general government and NPISHs can be classified in several ways. In particular, they may be classified:
(a) According to whether the goods or services have been produced by market or non-market producers;
(b) According to whether the expenditures are on collective services or individual goods or services;
(c) By function or purpose according to the classification of the functions of government (COFOG);
(d) By type of good or service according to the CPC. |
1. Expenditures on the outputs of market and non-market producers
| 9.77. | Expenditures on the outputs of non-market producers that are provided free, or at prices that are not economically significant, to individual households or the community account for most of the final consumption expenditure by governments and NPISHs. It is therefore appropriate to take them first. |
Expenditures on the outputs of non-market producers
| 9.78. | It is important to distinguish between expenditures made by general government or NPISHs on the outputs of non-market producers - i.e., the goods, individual or collective services they actually produce - and the intermediate expenditures and other costs incurred by non-market producers owned by general government or NPISHs in the course of producing those goods or services. The distinction between the inputs to, and outputs from, non-market processes of production needs to be emphasized because the final consumption expenditure made by general government or NPISHs must be incurred on the outputs. The values of these expenditures are equal to the imputed values of the non-market outputs less the values of any receipts from sales. These receipts may be derived from sales of some goods or services at prices that are not economically significant or from sales of a few goods or services at prices that are economically significant (sales of secondary market output). |
Expenditures on consumption goods or services produced by market producers
| 9.79. | Government units and NPISHs also purchase consumption goods and services produced by market producers that are supplied directly to households. The role of the government unit or NPISH is confined to paying for the goods or services and ensuring that they are distributed to households as social transfers in kind. The government unit or NPISH does not engage in any further processing of such goods or services and their expenditures are treated as final and not intermediate. The values of the goods or services distributed in this way are also recorded under social benefits in kind, including social assistance benefits in kind. |
2. Expenditures on individual and collective goods and services (P.31/P.32)
| 9.80. | The consumption expenditures incurred by government units and NPISHs have to be divided into those incurred for the benefit of individual households and those incurred for the benefit of the community as a whole, or large sections of the community. |
Individual goods or services
| 9.81. | Individual goods and services are essentially "private", as distinct from "public" goods. They have the following characteristics:
(a) It must be possible to observe and record the acquisition of the good or service by an individual household or member thereof and also the time at which it took place;
(b) The household must have agreed to the provision of the good or service and take whatever action is necessary to make it possible - for example, by attending a school or clinic;
(c) The good or service must be such that its acquisition by one household or person, or possibly by a small, restricted group of persons, precludes its acquisition by other households or persons.
The reference to a small, restricted group of persons is needed because certain services are provided to small groups of people simultaneously; for example, several persons may travel in the same bus, train, ship or plane or attend the same class, lecture, concert or live theatre performance. However, these are still essentially individual services if there is a restriction on the number of individuals who can consume them. Other members of the community are excluded and derive no benefit from them. |
| 9.82. | From a welfare point of view, the important characteristic of an individual good or service is that its acquisition by one household, person or group of persons brings no (or very little) benefit to the rest of the community. While the provision of certain individual health or education services (for example, vaccination or immunization) may bring some external benefits to the rest of the community, in general the individuals concerned derive the main benefit. Thus, when a government unit or NPISH incurs expenditures on the provision of individual goods or services, it must decide not only how much to spend in total but how to allocate, or distribute, the goods or services among individual members of the community. From the point of view of economic and social policy, the way in which they are distributed may be as important as the total amount spent. |
Collective services
| 9.83. | Most goods can be privately owned and are individual in the sense used here. On the other hand, certain kinds of services can be provided collectively to the community as a whole. The characteristics of these collective services may be summarized as follows:
(a) Collective services can be delivered simultaneously to every member of the community or of particular sections of the community, such as those in a particular region of a locality;
(b) The use of such services is usually passive and does not require the explicit agreement or active participation of all the individuals concerned;
(c) The provision of a collective service to one individual does not reduce the amount available to others in the same community or section of the community. There is no rivalry in acquisition. |
| 9.84. | The collective services provided by government consist mostly of the provision of security and defence, the maintenance of law and order, legislation and regulation, the maintenance of public health, the protection of the environment, research and development, etc. All members of the community can benefit from such services. As the individual usage of collective services cannot be recorded, individuals cannot be charged according to their usage or the benefits they derive. There is market failure and collective services that must be financed out of taxation or other government revenues. |
| 9.85. | The services provided by NPISHs are often confined to the members of the associations that control them, although they may also provide individual goods or services to third parties. Many NPISHs are only concerned with protecting the interests or welfare of their members or providing recreational, sporting or cultural facilities which households or persons cannot otherwise easily obtain for themselves acting individually. Although NPISHs may provide services to their members in groups, the services are essentially individual rather than collective. In general, persons other than their members are excluded and derive no benefit from the services provided. Therefore, as already noted, all the services provided by NPISHs are by convention treated as individual. |
The borderline between individual and collective services
| 9.86. | Expenditures incurred by governments at a national level in connection with individual services such as health and education are to be treated as collective when they are concerned with the formulation and administration of government policy, the setting and enforcement of public standards, the regulation, licensing or supervision of producers, etc. For example, the expenditures incurred by Ministries of Health or Education at a national level are to be included in collective consumption expenditures as they are concerned with general matters of policy, standards and regulation. On the other hand, any overhead expenses connected with the administration or functioning of a group of hospitals, schools, colleges or similar institutions are to be included in individual expenditures. For example, if a group of private hospitals has a central unit which provides certain common services such as purchasing, laboratories, ambulances, or other facilities, the costs of these common services would be taken into account in the prices charged to patients. The same principle must be followed when the hospitals are non-market producers: all the costs which are associated with the provision of services to particular individuals, including those of any central units providing common services, should be included in the value of expenditures on individual services. |
The classification of individual and collective government expenditures
| 9.87. | The classification of the functions of government is a classification of transactions designed to apply to general government and its sub-sectors. This classification, which is described briefly in chapter XVIII, distinguishes between expenditure by government on individual services and collective services. By convention, all government final consumption expenditures under each of the following headings should be treated as expenditures on individual services except for expenditures on general administration, regulation, research, etc.:
07 Health
08.1 Recreational and sporting services
08.2 Cultural services
09 Education
10 Social protection. | | | | |  This paragraph has been revised. Click here to see the original version |
Non-market services to enterprises
| 9.88. | Many government expenditures benefit enterprises as much as households; expenditures on the cleaning, maintenance and repair of public roads, bridges, tunnels, etc. including the provision of street lighting are examples. These are individual services whose consumption can be monitored and for this reason they are frequently provided on a market basis by charging tolls on road usage. However, it would be difficult to separate the services provided free to households from those provided free to enterprises and, by convention, all these expenditures are treated as collective final expenditure. |
| 9.89. | Enterprises also benefit from a number of genuinely collective services such as the research and development undertaken by non-market producers, the provision of security by the police, fire services, etc. The usage of such collective services by individual enterprises cannot be recorded, so that expenditures on such services have to be treated as government final expenditure. |
|
