Comparison of local government net lending and the annual margin in the profit and loss statement of local government, EUR billion 1)

  2005 2006 2007* 2008*
A Annual margin in the Statistics of Activities and Finances of Municipalities and Joint municipalities 1,5 2,1 2,4 2,4
1 Tax differential due to source 0,0 0,1 0,2 -0,1
2 Property income from enterprises outside the sector 0,3 0,3 0,4 0,4
3 Annual margin effect of enterprises outside the sector -0,7 -0,8 -0,8 -0,8
4 Annual balance of Åland and other units not included in the Statistics of Activities and Finances of Municipalities and Joint municipalities 0,0 0,0 0,0 0,0
5 Investments -2,4 -2,4 -2,5 -2,8
6 Net effect of capital transfers 0,1 0,1 0,1 0,1
7 Other adjustment items, incl statistical discrepancy 0,1 0,1 -0,1 0,3
B Adjustment items, total = 1+2+3+4+5+6+7 -2,6 -2,6 -2,7 -2,8
C Net lending in the accounts (EMU-surplus/deficit) = A+B -1,1 -0,5 -0,3 -0,4
1) * Preliminary
The table presents a comparison of municipalities’ and joint municipal boards' annual margin and local government net lending in national accounts for the four previous years. The data corresponds to the data in the EDP notification table 2C.
The table presents a comparison of the municipalities’ and joint municipal boards' annual margin and the national accounts local government net lending for the four previous years. The starting point for the comparison calculations of the national accounts and the concepts of its basic data is the annual margin in municipalities’ and joint municipal boards’ profit and loss account, which is conceptually clear and the most followed key figure in local government accounts. The annual margin indicates the difference of the revenue and expenditure from the local government’s actual activities, i.e. how much of the annual revenue remains after all costs and expenditure from usual activities have been covered. In the long term, the annual margin should be sufficient to cover depreciations\investments.
As national accounts and local government accounts are independent systems operating with their own classifications and concepts, there are differences between the annual margin and the local government deficit (net lending) in national accounts. These differences can be outlined as follows:
1) Timing. In national accounts, income taxes are recorded on an accrual basis whereas local government accounts use the cash basis. Hence a timing adjustment must be made in the comparison calculations (adjustment 1).
2) Definition of sectors. Municipal financial statements use the so called ”consolidated municipality” principle, which means that all municipal enterprises are included in the annual margin. The income and expenditure flows between a municipality and a municipal enterprise have been consolidated from the annual margin. By contrast, national accounts take the "sectoral view", in which a part of the enterprises are classified as enterprises (adjustment 3), and they therefore affect local government net lending only through the compensation paid to the municipality or joint municipal board for the basic capital (adjustment 2).
3) Coverage. In addition, the calculations must be adjusted for the effect on the net lending of the local government sector of items not included in the annual margin. The most significant of all adjustments to the annual margin are the investments included in these items. In addition, capital transfers and the annual margin of the Regional Government of Åland must be taken into account (adjustments 4, 5 and 6).
Other adjustments (adjustment 7) include the effect of revaluations included in the annual margin, the effect of the reinvested earnings from investment funds entered as property income as well as statistical discrepancies that cannot be explained.

Source: General government deficit and gross debt according to EMU criteria, 2008, Statistics Finland

Inquiries: Mika Sainio (09) 1734 2686, Matti Okko (09) 1734 3341, rahoitus.tilinpito@stat.fi

Director in charge: Ari Tyrkkö


Updated 30.09.2009

Referencing instructions:

Official Statistics of Finland (OSF): General government deficit and debt [e-publication].
ISSN=1799-5914. 2008, Comparison of local government net lending and the annual margin in the profit and loss statement of local government, EUR billion 1) . Helsinki: Statistics Finland [referred: 19.4.2019].
Access method: http://www.stat.fi/til/jali/2008/jali_2008_2009-09-30_tau_005_en.html