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Methodological reform of national accounts: integration of supply and use tables 2003 (2/2003)

Introduction

The current revision is connected with a review of the European System of Accounts, which concerns the member states of the European Union and other European countries and from which initial results were published in 1999, and time series for 1975 to 1998 in 2000. The review was based on the recommendation of the global System of National Accounts SNA93. The compilation method of Finnish national accounts has been revised so that it is now largely based on so called supply and use tables. The tables have been calculated for 1995 to 1999 at current prices. This compilation process has altered national accounts data. Other adjustments affecting the whole set of time series have also been performed in the same context.

In addition to economic monitoring, the EU uses national accounts data widely for the needs of Community administration. A regulation relating to national accounts was passed in 1996.

Brief description of the compilation process

The compilation of supply and use tables for 1995 to 1999 forms the basis of this revision. The preliminary data for 2000 and 2001 have been calculated using the old system, but by making adjustments for the 1995 to 1999 levels.

The supply and use tables also rely heavily on the work that was necessary even prior to this for the calculation of annual accounts. Their compilation is organised into some 30 activities by statistical topic, such as industry or sector. The data are first calculated for these statistical topics following the concepts and classifications of national accounts. The used data sources are partly those of the statistical topics to be described (e.g. industrial statistics, financial accounts of the State, insurance company statistics), and partly sources common to several areas (e.g. Business Register, business structures statistics, Labour Force Survey). The data on the statistical topics form the basis for the supply and use tables. Further data sources used in the compilation of these tables include manufacturing commodity statistics, foreign trade statistics and taxation data. The data sources for national accounts cover the majority of the statistics produced by Statistics Finland and a wide array of material supplied by data producers outside Statistics Finland.

As their names imply, supply and use tables examine the supply and use of products. To this aim, data by industry on output and intermediate products are divided between products and statistics on industrial and foreign trade products are utilised. Data on taxes on products and trade and transport margins are essential in the compilation of supply and use tables, that is, in the price formation process. The underlying principle in the compilation of supply and use tables is systematic treatment of the flow of products from supply to use. In order to obtain a balance between supply and demand, the source estimates calculated on the basis of the source materials must be altered, the data in the source materials must be amended and the correct data for the whole have to be searched by combining several data sources. The compilation of the tables produces a balanced product account, which at the same time constitutes the national balance of demand and supply, and in which supply equals use so that no statistical discrepancy appears.

When calculating data by statistical topic, the correctness of the data is viewed in several different ways. Different data describing the same topic are compared to ensure exhaustiveness, and the correctness of annual changes. For several accounting variables, or transactions, the data are calculated both at the nominal prices of the reference time and at the prices of the base year. This enables comparisons of value, volume and price changes between different points of time. In that case, the equation: value change = volume change x price change, holds true. Change in the productivity of labour is measured by the ratio between volume change in the value added of an industry and change in labour output, and the development of the earnings level of an industry calculated by the ratio between wages and employees or changes in labour input. The key parameters also include savings ratio and net lending. Savings ratio, or the proportion of savings in disposable income, is particularly interesting for the household sector, while net lending describing the financial position of a sector is especially significant for general government.

Balanced supply and use tables replace the previously used macro level summarising system in the compilation of final figures for product flows. They produce data on the national supply and demand. In addition, receipts and expenditure and capital account items by sector are balanced, making these data compatible with those on the national supply and demand.

Thus far, supply and use tables have only been compiled at current prices. The constant price system is still based on the old industry/statistical topic-based method. Calculations at constant prices have been performed according to the new base year (2000 = 100). Work on the designing of supply and use tables at constant prices is ongoing. The calculation of preliminary figures at current prices is also still based on the old method, that is, on macro-level summarising rather than on supply and use tables. For this reason, preliminary figures also show a statistical discrepancy between demand and supply at current prices.

The data sources and calculation methods of national accounts are described in a report Methodological description of Finland's gross national income (6/2003) .

The description has not been updated as yet to comply with this revision. The updating will be done during spring 2003.

Main changes in the reform

Classifications

Product classification

The final figures are calculated using a classification comprising 952 products. The classification is based on the Classification of Products by Activity (CPA) of the European Union.

Industrial classification

• Data by industry are published separately at the character level irrespective of size (e.g. B, P)
• The division of agriculture and forestry into sub-classes has been revised to correspond with the industrial classification.
• Post and telecommunications has been divided into post and courier activities (641) and telecommunications (642).
• Computer and related activities (72) are shown separately within business services (KB)
• Wholesale of wood has been moved from forestry to wholesale trade.

Classification of producer types

• Market producers
• Producers for own final use
• Other non-market producers

Classification of investment goods

Costs of transfers of ownership (except of land) have been moved to building construction investments. These were previously included in the value added of land and other nonproduced assets.

Classification of sectors

In the examination by industry, the production accounts and generation of income accounts of non-financial corporations and households are presented together: Non-financial corporations and Households (S111+S14). However, sector accounts are compiled separately for non-financial corporations and households as before.

With housing corporations, only compensation of employees paid by housing companies (and the corresponding output) is allocated to them. All other transactions of housing companies have been divided among the sectors that own housing company shares. Residential real estate companies are included in the housing corporations sector as before.

Only one sectoral perspective

Up to now, two different sectoral perspectives, functional and institutional, have been adopted in Finnish national accounts. The concept of functional sector has now been abandoned and the accounts are only presented from the perspective of the institutional sector. At the same time, the concepts of market production and non-market production have been abandoned and replaced by producer types, which are market producer, producer for own final use and other non-market producer.

The change gives clarity to the examination of the public sector, in particular. The institutional sector is defined on the basis of decision-making units as before. Each institutional sector is divided further into industries determined on the basis of establishments. In practice, this means that whereas previously the production of e.g. the construction industry or the housing service industry was described in market production under one industry, it is now divided between several sectors according to producer type. Thus, for example, own-account construction of general government is now treated as production of general government.

Principal and secondary production

In supply and use tables, the output of a number of industries not only contains the principal production that is characteristic to the industries concerned but also production that is characteristic to other industries, which is then treated as secondary production. The renting of dwellings or real estate property and construction are examples of such secondary activity.

In practice this means that the dwellings owned by central or local governments are no longer included in the industry of letting and operation of dwellings but come under the industry of e.g. public administration. In other words, the industry of letting and operation of dwellings no longer necessarily contains all housing services as before. The output of all housing services can be found in the detailed supply and use tables under the product concerned. The same also concerns the activities of construction or letting of real estate, among others and, in principle, all industries.

Changes in calculations by industry

Agriculture

The timing for the use of feed in agriculture has been revised. Previously, feed were presumed to be used during the calendar year in which they were produced, but now some of them are assumed to be used in the next year.

The treatment of subsidies in agriculture has also been revised. See the chapter on subsidies in agriculture below.

Forestry and fishing

The calculation methods used for these industries have been revised. Statistics Finland's data on enterprises have been introduced as one source of data for forestry. At the same time, industry delineations complying with the Standard Industrial Classification 1995 have been introduced in the classification of forestry units.

Insurance

The calculation method applied to the industry has been revised in respect of the treatment of holding gains , among other things, and the data from different years have been calculated using congruent methods.

Real estate activities

Within real estate activities, the transactions of housing companies have been removed from the sub-class 7032 Management of real estate on a fee or contract basis, and will no longer be cycled via it. The change lowers output and intermediate consumption.

Consumption of fixed capital: review of service lives

The service lives of railways and waterways have been shortened. The change increases the value added of general government.

Purchases of customer services for direct public consumption

Goods and services purchased on the markets for intermediation on to households (purchases of customer services) are recorded direct into the final consumption of general government, whereas previously these were cycled via the intermediate consumption of local and central government. The change reduces the output and intermediate consumption of general government but has no impact on government consumption.

Exports and imports

Foreign trade in construction services is not recorded under exports or imports, because according to the SNA and the ESA construction always constitutes production of the country of location. At this point national accounts deviate from balance of payments statistics.

Subsidies and capital transfers in agriculture

The delineation of subsidies on products and other subsidies on production in agriculture has been changed so that the subsidies on livestock that were previously included in subsidies on production are now treated as subsidies on products.

Subsidies on production have also been reallocated to other financial transactions:

• Subsidies on the conservation of forests are now treated in the intermediate consumption of central government as purchases of services from market producers (Forest Centres, Tapio)
• Subsidies on first-time drainage and on afforestation of arable land are now treated as capital transfers to households.

Church tax of corporations

Church taxes paid by corporations were previously regarded as income transfers from different sectors to non-profit institutions, but are now treated as income taxes that central government receives and then pays on to non-profit institutions (the church) as income transfers, because

• Church tax is a compulsory, tax-like fee, which corporations cannot escape, and
• Only general government is entitled to collect taxes (gratuitous compulsory charges).

Church taxes paid by households continue to be regarded as income transfers from households to non-profit institutions and not as a taxes.

Financial transaction between Finland and the EU

Corrections in the cash flows between Finland and the EU have been made to the entries relating to subsidies and to current and capital transfers. The prevailing rule is that in national accounts these cash flows are not shown on the accounts of the intermediator, or central government, but only on the accounts of the rest of the world and the final recipient or payer sectors.

Treatment of housing companies

Financial transactions relating to dwellings in housing companies have now been divided among the sectors that own the dwellings. Previously, some of them were shown on the accounts of the sectors owning shares in housing companies (imputed income from owner-occupied dwellings in operating surplus), and some in the housing corporations sector (gross fixed capital formation, or housing investments and consumption of fixed capital and other financial transactions). Besides the housing corporations sector, the change affects especially the household sector, where among other things, consumption of fixed capital increases, reducing operating surplus, disposable income and saving. Growth of gross fixed capital formation reduces net lending. Reverse changes take place in housing corporations.

In financial accounts, the change means that shares in housing companies are no longer described as financial assets of the sectors, but all dwellings irrespective of form of tenure constitute fixed assets of the owner sector.

Level revisions checks

In addition to other revisions, so called level revisions have been performed on the data wherever cause for it has emerged in e.g. construction, financial intermediation and insurance activity, operation of dwellings, real estate activities and private health and social work activities. Detected errors have also been corrected. Entrepreneurial income of households from forestry is smaller and, correspondingly, operating surplus of non-financial corporations from forestry is larger than previously.

Year 2000 the new base year for calculations at constant prices

Year 2000 is the new base year for national accounts calculations at constant prices.

Calculations at constant prices are not yet based on balanced supply and use tables, but on the old method where constant price series are calculated by industry/demand item. Each series is calculated for each year genuinely at base year prices and aggregates at constant prices are summed up from sub-items. A yearly changing base year, which will be the year preceding the current one, will be introduced in calculations at constant prices, but the exact point of time when this will take place has not been decided upon as yet.

Summary of the effects of the reform

Gross domestic product

Calculations made in accordance with the Finnish National Accounts 2000 (FNA2000) put Finland's gross domestic product slightly higher than before in the years 1995 to 1998 and slightly lower than before in the years 1999 to 2001. The swing upwards is the biggest at approximately EUR 0.4 billion, or 0.4 per cent, in 1998, while the greatest swing downwards occurred in 2000, when the value of Finland's gross domestic products was EUR 130.2 billion, which is EUR 0.9 billion and 0.7 per cent below previous calculations.

The changes are a consequence from the methodological reform whereby the compilation of national accounts is based on the balancing of supply and use tables. The new method also ascertains intermediate consumption in different industries more precisely than before. This affects value added by industry and, consequently, gross domestic product. The level revisions , especially those in construction and real estate activities, have also had a bearing on gross value added. The changes concerning the year 2001 have also been caused by the fact that most of the source data used last summer were preliminary.

Development of the volume of gross domestic product

The development of the volume of gross domestic product in different years also altered somewhat. The rate of gross domestic product growth fell from previous estimates in all years except for 1997. The changes were the greatest in 1999 and 2000, when revised calculations put the rate of growth at 3.4 and 5.5 per cent, as against the previously calculated respective percentages of 4.1 and 6.1.

The changes are largely due to changes in the relative proportions of different industries that occurred when the year 1995 was replaced by 2000 as the base year for national accounts calculations. The decreases in the growth figures for the years 1998 to 2000 were mostly caused by fallen growth figures of manufacturing industries. The largest single influence has been a decline in prices in the manufacture of electrical equipment, which has meant that the weight of this industry in the year 2000 is now lower than the previous constant price calculations put it for the same year. Decrease of the weight of a rapidly growing industry like this below previous calculations slows down the growth in all manufacturing and in the national economy.

Sector accounts

The reform improved general government net lending for nearly all the examined years. Local government net lending improved especially in the years 1995 to 1999. The reason for this was contraction in consumption expenditure, which occurred for several different reasons, among them changes to the types of output from new building and renovation building. These activities were previously regarded as other non-market output, which was recorded in consumption expenditure, but now they are viewed as output for own final use. Revisions were also made to the distribution of rental expenditure and rental income between internal and external rentals, as well as to calculations concerning the letting of dwellings.

General government net lending was improved in 2001 by new data from employment pension institutes. The weakening of central government's net lending in 1995 resulted from a correction to the system of double recording value added tax revenue.

Households' disposable income, savings ratio and net lending are lower than before, largely due to two reasons. First, shares in housing companies were divided among their owner sectors, which means that the majority of them became assigned to households. This put households' consumption of fixed capital up by some EUR 600 to 1,100 million, which in turn lowered their imputed income from owner-occupied dwellings, disposable income, and saving. Households' net lending was reduced by the recording of acquisition of housing company shares as households' real investments, which went up by EUR 900 to 2,200 million. Corresponding opposite sign entries were made in the housing corporations sector account, which improved their net lending so that it now only shows a slight deficit.

A second factor that lowered the household sector's income significantly was the redivision of income from forestry between the sectors of non-financial corporations and households. Households' proportion of the income from forestry had previously been recorded as excessively large and this now diminished it by EUR 400 to 700 million.

Households' consumption expenditure also fell by EUR 300 to 800 million. This was due to various reasons of which the main ones were reviews of expenditure on housing and insurance.

The treatment of the church tax of corporations as a tax and not as an income transfer raised the rate of taxation by 0.1 percentage points. Apart from this, the rate of taxation was also influenced by revisions of statutory social insurance contributions and gross domestic product.

Publication

Tables compiled according to this revision can be found in the publication National Accounts 1995-2001 (Statistics Finland/National Accounts 2003:2).

Main aggregates

GDP, gross domestic product at market prices is the final result of the production activity of resident producer units. It can be defined in three ways: as the sum of gross value added of the various institutional sectors or the various industries plus taxes and less subsidies on products; as the sum of final uses of goods and services by resident institutional units (consumption and gross capital formation, plus exports and minus imports); as the sum of incomes (compensation of employees, taxes on production and imports less subsidies, gross operating surplus and gross mixed income). (ESA 8.89)

By deducting the consumption of fixed capital from the gross domestic product, we obtain the net domestic product at market prices, NDP.(ESA 8.90.)

Value added (gross) refers to the value generated by any unit engaged in a production activity. In market production it is calculated by deducting from the unit's output the intermediates (goods and services) used in the production process and in non-market production by adding up the compensation of employees, consumption of fixed capital and possible taxes on production and imports. (ESA 8.11.)

GNI, gross national income represents total primary income receivable by resident institutional units: compensation of employees, taxes on production and imports less subsidies, gross operating surplus or gross mixed income and property income. It equals GDP minus primary income payable by resident units to non-resident units plus primary income receivable by resident units from the rest of the world. National income is an income concept, which is more significant if expressed in net terms, i.e. after deduction of the consumption of fixed capital. (ESA 8.94.)

Primary income is the income which resident units receive by virtue of their direct participation in the production process, and the income receivable by the owner of a financial asset or other such assets in return for providing funds to another unit. The income can contain compensation of employees, taxes on production and imports less subsidies, operating surplus or mixed income and property income. (ESA 8.22.)

Operating surplus, net is obtained when the compensation of employees and other taxes less subsidies on production and consumption of fixed capital are deducted from the value added. It is the surplus or deficit on production activities before interest, rents or charges and corresponds to the income which the units obtain from their own use of their production facilities. (ESA 8.18.)

Mixed income represents the balancing item of unincorporated enterprises in the households sector corresponding to remuneration for work carried out by the owner or members of his family including profits gained as entrepreneur. (ESA 8.19.)

Final consumption expenditure consists of expenditure incurred by resident institutional units on goods or services that are used for the direct satisfaction of individual needs or wants, or the collective needs of members of the community. Final consumption expenditure may take place on the domestic territory or abroad. Final consumption expenditure is incurred by households, non-profit institutions serving households and general government. Non-financial corporations, financial and insurance corporations do not have final consumption expenditure. (ESA 3.74.-3.80.)

Actual final consumption consists of goods or services that are acquired by the institutional units mentioned directly above for the direct satisfaction of human needs, whether individual or collective. Some of the goods and services may be provided as social transfers in kind.

Actual final consumption of households comprises goods and services acquired by households themselves and goods and services obtained from non-profit institutions or general government as social transfers in kind. The latter includes health, educational and social services.

Actual final consumption of general government comprises collective services provided by general government for all members of a community or of a certain group. Examples of these are general administration, national defence and environmental protection. (ESA 3.81.-3.88.)

Gross fixed capital formation consists of resident producers' acquisitions, less disposals, of fixed assets. 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. (ESA 3.102.)

Changes in inventoriesare measured by the value of the entries into inventories less the value of withdrawals and the value of any recurrent losses of goods held in inventories. The inventories may consist of materials and supplies, work-in-progress, finished goods and goods for resale. (ESA 3.117.-3.119.)

Exports of goods and services consist of transactions in goods and services (sales, barter, gifts or grants) from residents to non-residents. (ESA 3.128.)

Imports of goods and services consist of transactions in goods and services (purchases, barter, gifts or grants) from non-residents to residents. (ESA 3.129.)

Disposable income is the balancing item of the current income in the secondary distribution of income account. It is obtained for each sector by adding current transfers receivable to primary income and by deducting all current transfers payable. It can be used for consumption or saving. (ESA 8.31.)

Adjusted disposable income is a corresponding item in the redistribution of income in kind account.

Saving is the balancing item in the use of income accounts. It is the positive or negative amount resulting from current transactions which establishes the link with accumulation. If saving is positive, non-spent income is used for the acquisition of assets or for paying off liabilities. If saving is negative, certain assets are liquidated or certain liabilities increase. (ESA 8.42.-8.43.)

Net lending/borrowing corresponds to the amount available to a unit or sector for financing, directly or indirectly, other units or sectors, or a net borrowing corresponding to the amount which a unit or sector is obliged to borrow from other units or sectors. (ESA 8.47.)

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Last updated 15.6.2007