Download 3. definitions and explanations[1]

INTRODUCTION
1.
GENERAL
This publication presents a set of data that specify and summarise the expenditure and
revenue of the general government sector in the years 1995-2003. The government sector
includes the institutional units and bodies that produce and provide public and community
non-market services, and are mainly financed by compulsory payments levied on institutional
units belonging to other sectors. The general government sector includes the government
ministries, the National Insurance Institute, national institutions, local institutions, and public
non-profit institutions. The summaries are based on specific and detailed data for each year.
Estimates for previous years have been adjusted after receipt of updated figures and
specifications, and as a result of the continued adjustment of accounts to the new System of
National Accounts (SNA93).
For the entire general government sector, and for each of its sub-sectors separately,
summaries are presented according to a combination of two types of classification:
1.
Classification by economic category of expenditure – consumption,
subsidies, interest, current transfers, gross capital formation, and other
expenditures. This classification indicates the share of each sub-sector
in the demand for goods and services, supply of services, and
allocation of revenue.
2.
Classification by function – general public services, defence, public
order, financial services, environmental protection, housing and
community services, health, culture and religion, education, and social
protection. These summaries allow for examination of the purpose of
all general government expenditures and of each of its each subsectors.
The concentration of expenditures according to a combination of the two types of
classification above indicates how expenditure for a specific function is divided among the
different types of expenditure on the one hand, and how the expenditure by economic type is
divided among the various services provided by the government on the other.
Tables 1 and 2 present data on the total expenditure of the general government sector, by
function and type of expenditure, as a percentage of the total and as a percentage of the
Gross Domestic Product.
Tables 3 and 4 present data on consumption in the general government sector, by function
and type of expenditure, as a percentage of the total and as a percentage of the Gross
Domestic Product.
Tables 5 and 6 present the quantitative changes in general government sector consumption,
by function and type of expenditure.
Tables 7 and 8 display data on total expenditure and consumption in the general government
sector in a combined classification, by function and type of expenditure as well as by subsectors: the government, the National Insurance Institute, local authorities, non-profit public
institutions, and national institutions.
Table 9 summarises the quantitative changes in general government consumption
expenditure in a combined classification, by function and type of expenditure.
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Table 10 presents the individual and collective consumption expenditure of the general
government in a combined classification, by type of expenditure and by function.
Table 11 presents data on internal transfers between the different units (sub-sectors) in the
general government sector.
Tables 12-14 present a summary of income and expenditures in the general government
sector, by segments: current account, capital account, as well as a breakdown by subsectors.
Table 15 presents the full account of the different types of sources and uses in the
government sector, in a format set by the international System of National Accounts (SNA93).
2.
MAIN FINDINGS
2003
In 2003, general government expenditures amounted to NIS 268.3 billion (about 53.4% of the
GDP). Of that amount, about 56% was consumption expenditure, and the rest of the
expenditure was for transfer payments, subsidies, interest payments, fixed capital formation,
etc.
Of the total general government expenditure, 17.6% was for defence, 24.8% was for social
protection, 14.8% was for education, and the rest was for other purposes.
General government revenue amounted to NIS 234.7 billion in 2003 – a nominal decline of
over 5% compared with the previous year.
Revenue from taxes that year was about 82% of the total general government expenditure
(38.4% of the GDP).
The total deficit of the general government sector, which is defined as revenue less
expenditure in the current account and capital account, amounted to NIS 29.8 billion in
2003 – about 6.7% of the GDP, following a deficit of 4.3% of the GDP in 2002.
General government consumption expenditure declined by 2.3% in 2003 in quantitative
terms, compared with an increase of 5% in 2002. In 2003, general government consumption
expenditure comprised about 56% of the total general government sector expenditure
(29.9% of the GDP).
Of the general government consumption expenditure, about 48% was for compensation of
employees, about 44% was for purchase of goods and services, and the rest was for taxes
on production and consumption of fixed capital (imputed).
The output of the general government sector in 2003 was about NIS 164 billion.
Trends
Between 1995 and 2003, general government consumption in constant prices increased by
about 23.8%, whereas the GDP rose by 25% during the same period.
The share of payments for wages out of the total general government consumption declined
gradually, from over 52% in 1995 to less than 48% of the total consumption in 2003.
Individual consumption expenditure comprised 48%-49% of the general government
consumption expenditure throughout the last decade.
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There has been considerable fluctuation in the general government deficit over the years.
The amount of the deficit ranged from about 2% of the GDP in 2000, to 6.7% in 2003 – the
highest deficit in the last decade in terms of the percentage of the GDP.
The total general government expenditure over the last decade ranged from 51% to 55% of
the GDP. Analysis of the general government sector expenditure by function reveals a
continuous rise in the share of expenditure for social protection over the years – from 21% to
about 25% of the total expenditure. At the same time, there was a decline in expenditure for
housing and community services, and relative stability in the rest of the expenditure items,
including defence (about 17% of the total expenditure), education (about 15%), and health
(about 10.5%).
The share of income from taxes in the GDP has remained stable since 1995. Over the years,
this revenue has amounted to 39%-40% of the GDP.
3.
DEFINITIONS AND EXPLANATIONS1
General government consumption expenditure includes consumption expenditure by the
Government sector: the government, the National Insurance Institute, local authorities,
national institutions and non-profit institutions, where the above mentioned bodies financed
the major part of their expenditure.
General government consumption expenditure is equal to the value of its intermediate
consumption of goods and services, compensation of employees, taxes on production
(including tax on wages and employers’ tax), consumption of fixed capital. Compensation of
employees includes imputed expenditure, which reflects the government’s obligation to pay
pensions to its staff after retirement.
General government consumption expenditure can be divided into two main categories:
a) The value of individual general government final consumption expenditure;
b) The value of collective government final consumption expenditure.
Collective consumption expenditure includes expenditure on defence, public order,
general public administration, research and development, environment protection, etc.
Individual consumption expenditure includes expenditures intended to provide services
that can be attributed to specific individuals, such as education services, health services,
cultural services, etc.
Compensation of employees include all direct payments to employed persons (wages and
salary) as well as the employers’ contributions to employed persons’ pension plans,
provident funds, National Insurance Institute, etc.
Imputed pension payments are equal in value to the sums that should have been
transferred to provident funds in order to insure the de facto entitlements to the social
benefits they accumulate.
1
The definitions are based on the new System of National Accounts (SNA 93), which was prepared
by five international organizations: The United Nations, the International Monetary Fund, the World
Bank, OECD, and EUROSTAT. The new system is presented in: the System of National Accounts
1993, Commission of the European Communities, International Monetary Fund, Organization for
Economic Cooperation and Development, United Nations, World Bank, Brussels/Luxembourg, New
York, Paris, Washington D.C. 1993.
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Other taxes on production: all taxes except taxes on products that enterprises incur as a
result of engaging in production such as taxes on payroll, recurrent taxes on land and
buildings, business licenses, stamp taxes, taxes on international transactions, etc.
Intermediate consumption/purchases of goods and services: the value of goods and
services consumed as inputs in the production process, excluding fixed assets whose
consumption is recorded as consumption of fixed capital. The goods and services may be
either transformed or used up during the production process.
Consumption of fixed capital: represents the reduction in the value of the fixed assets
whose economic life has not yet ended, as a result of physical deterioration, normal
obsolescence and accidental damage.
Current transfers: transfers from the current income of the payer, which are added to the
current income of the recipient for the purpose of current purchases (e.g., for consumption
expenditure). Transfers received from abroad or paid abroad are converted into Israeli
currency at the official exchange rate.
Current transfers in kind: goods and services for individual consumption produced or
purchased by government units and non-profit institutions serving households, and provided
to households by these institutions free of charge.
Subsidies consist of all grants on current account given by the government and the local
authorities to private industries and public corporations, as well as operation deficits of
government enterprises. In addition to the direct current subsidies, this item also includes the
subsidy component in loans, for financing of current activities such as loans which are
granted by the government to the producers under preferred conditions (lower than market
interest rates) On the other hand, the subsidy component embodied in non-recurrent loans or
in loans that are not given on a regular basis, is not included in this item. The grant
components in these loans are defined as capital transfers.
Subsidies on products: subsidies payable per unit of goods or services produced, sold,
imported, or otherwise used; and calculated as a specific amount of money per unit of
quantity, as a specific percentage of the price per unit or as the difference between a specific
target price and the market price actually paid by other buyer, etc.
Gross fixed capital formation: expenditures (purchases and self production) of industries,
general government and non-profit institutions, for the addition of new durable goods to their
stocks of fixed assets. Included are acquisitions of durable goods (except land and mineral
deposits) for civilian use, work-in-progress on construction projects, major improvements;
outlays on the improvement to land and fruit plantations. Also included are intangible assets
(mainly expenditures for acquisition and production of software and expenditures for oil and
gas exploration). Excluded are government expenditures for buildings and equipment for
military use.
Capital transfers: transfers intended to finance investments and whose origins are the
capital or savings of the donor, or which are non-recurrent for either party to the transaction.
Investment grants: capital transfers, in cash or in kind, made by the government to other
resident or non-resident institutional units to finance part or all of the costs for acquiring fixed
assets.
Taxes on income include current levies by the government, the National Insurance Institute
and local authorities:
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a)
On income from wages, property, capital gains, from entrepreneurship and from
pensions, as well as levies on financial assets, on net-wealth of enterprises, and on
ownership of goods.
b)
Payments to the National Insurance Institute - both by the insured and by the
employer. From 1995, also includes health tax paid by households.
c)
Mandatory payments for Israeli passports, court fees, etc.
Taxes on production and imports consist of taxes on goods and services when they are
produced, transferred, delivered, or otherwise used of by the producers or the importers.
Taxes and duties on imports are paid when the goods cross the border to Israel, or when
services are delivered by non-resident units.
Taxes on products: taxes that are payable per unit of goods or services. The tax is specific
per unit of quantity of goods or services when they are produced, sold, imported, exported,
transferred or used for own capital formation. Examples of taxes on products: V.A.T., sales
tax, gasoline tax, and customs.
Capital taxes: taxes levied at irregular and infrequent intervals on the values of the assets or
net worth owned by institution units or on the values of assets transferred between
institutional units as gifts, legacies, or other transfers.
Market output: output that is intended to be marketed at an “economically significant” price,
i.e., sold at prices intended to cover at least half of the cost of production.
Non-market output: goods and services produced by the government or by non-profit
institutions and are supplied free of charge or at prices that are not intended to at least half of
the cost of production.
Net value added: the balancing item in the production account: the value of output less the
value of both intermediate consumption and consumption of fixed capital. Value added is
intended to measure the additional value created by the production process.
Non-produced non-financial assets: non-financial assets that are needed for production
but have not themselves been produced.
Primary income: accrued income of institutional units as a result of their involvement in the
production process or as a result of the ownership of assets that may be used for that
process.
Net lending is the net amount a unit or sector has, which can be used to finance, directly or
indirectly, other units or other sectors. It is a balancing item in the capital account and is
defined as: (Net saving plus capital transfers receivable minus capital transfers payable)
minus (the value of acquisitions less the value of disposals of non-financial assets, less
consumption of fixed capital). Negative net lending may also be described as “net
borrowing”.
Net saving of the general government: in the current account it is the difference between
current receipts and current expenditures of the general government.
Government gross disposable income: the balancing item in the secondary distribution of
income account. It is derived from the balance of primary income account of the general
government sector plus current taxes on income and wealth, social protection contributions,
and all current transfers, (except social transfers in kind, received), and less all such
transfers paid.
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DEFINITIONS OF WAGES AND LABOUR COMPENSATION
A.
Wages and salaries: Wages and salaries are defined as remuneration in cash or in
kind by the employer to the employee for work carried out during the period of the
report, including wages based on units of work-time or on a monthly basis.
Wages and salaries include all types of gross payments, as specified below:
1. Basic wages, cost of living allowances, seniority payments, back pay, advance
payments, overtime, on-call and shift allowances.
2. Bonuses and special allowances such as education and proficiency allowances, “13th
month” salary, retirement pay, compensation for unused sickness day quota, etc.
3. Transportation allowance, vacation allowance, car
compensation, per diem expenses, clothing allowance, etc.
allowance,
telephone
4. Payments in kind (only subject to income tax), such as: meals, housing services,
holiday gifts, etc.
B.
Supplementary expenses for wages and salaries/employers’ social contributions
include social contributions payable by employers, such: actual contributions to the
National Insurance Institute, to pension plans, provident funds, study funds, etc. In
addition, these expenses include imputed contributions to pension expenses for
employees, which derive from the employer’s obligation to pay the workers’ retirement
pensions instead of contributing to pension funds, for example, imputed contributions to
budgetary pension schemes for civil servants.
C.
Taxes on wages and salaries: Taxes levied on employers for wage and salary
expenses, such as payroll tax and employers’ tax.
D.
Other components of labour cost: Expenses for vocational training, welfare, recruiting
workers, and providing work clothes, maintaining a cafeteria, payments to professional
organizations, etc.
E.
Compensation of employees: Compensation of employees is defined as the total
expenditure for wages and salaries and supplementary expenditures for wages and
salaries (items A + B).
F.
Labour Cost: Labour cost includes compensation of employees, taxes on wages and
salaries, and other components of labour cost (items E + C + D). There may be cases in
which reported labour costs include only compensation of employees and taxes on
wages and salaries (items C + E). In those cases, it is recommended to classify the item
as a labour cost for employees as well.
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CLASSIFICATION OF THE FUNCTIONS OF GOVERNMENT – COFOG1
01
General public services
01.1 Executive and legislative organs, financial and fiscal affairs, external affairs
01.2 Foreign economic aid
01.3 General services
01.4 Basic research
01.5 R&D general public services
01.6 General public services n.e.c.
01.7 Public debt transactions
01.8 Transfers of a general character between different levels of government
02
Defence
02.1 Military defence
02.2 Civil defence
02.3 Foreign military aid (CS)
02.4 R&D defence
02.5 Defence n.e.c.
03
Public order and safety
03.1 Police services
03.2 Fire-protection services
03.3 Law courts
03.4 Prisons
03.5 R&D public order and safety
03.6 Public order and safety n.e.c.
1
United Nations, Department of Economic and Social Affairs, Classification of the Functions of
Government.
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04
Economic affairs
04.1 General economic, commercial and labour affairs
04.2 Agriculture, forestry, fishing and hunting
04.3 Fuel and energy
04.4 Mining, manufacturing and construction
04.5 Transport
04.6 Communication
04.7 Other industries
04.8 R&D economic affairs
04.9 Economic affairs n.e.c.
05
Environmental protection
05.1 Waste management
05.2 Waste water management
05.3 Pollution abatement
05.4 Protection of biodiversity and landscape
05.5 R&D environmental protection
05.6 Environmental protection n.e.c.
06
Housing and community amenities
06.1 Housing development
06.2 Community development
06.3 Water supply
06.4 Street lighting
06.5 R&D housing and community amenities
06.6 Housing and community amenities n.e.c.
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07
Health
07.1 Medical products, appliances and equipment
07.2 Outpatient services
07.3 Hospital services
07.4 Public health services
07.5 R&D health
07.6 Health n.e.c.
08
Recreation, culture and religion
08.1 Recreational and sporting services
08.2 Cultural services
08.3 Broadcasting and publishing services
08.4 Religious and other community services
08.5 R&D recreation, culture and religion
08.6 Recreation, culture and religion n.e.c.
09
Education
09.1 Pre-primary and primary education
09.2 Secondary education
09.3 Post-secondary non-tertiary education
09.4 Tertiary education
09.5 Education not definable by level
09.6 Subsidiary services to education
09.7 R&D education
09.8 Education n.e.c.
10
Social protection
10.1 Sickness and disability
10.2 Old age
10.3 Survivors
10.4 Family and children
10.5 Unemployment
10.6 Housing
10.7 Social exclusion n.e.c.
10.8 R&D social protection
10.9 Social protection n.e.c.
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4. SOURCES OF THE DATA AND METHODS OF CALCULATION
General government consumption expenditure is estimated by the analysis of the
Accountant General’s reports, and of the budget provisions, also using complementary data
received from the Ministries of Finance and of Defence. The estimate of expenditures by
local authorities, national institutions, and non-profit institutions is based on data obtained
from analysis of financial and budget accounts.
The estimate of consumption of non-profit institutions (labour expenditures and
purchases of goods and services), at current prices, is based on findings of a survey of
expenditures of non-profit institutions. This survey summarises consumption expenditures
from financial reports of the institutions or from special questionnaires sent to them. For
those years in which reports had not yet been received, the value of services in the last year
for which data were available was extrapolated according to changes in wages as reported to
the National Insurance Institute. The estimates for labour expenditures of non-profit
institutions at constant prices, were obtained by extrapolating according to the change in the
number of work hours of employees in each type of institution. Purchases of goods and
services, at constant prices, were calculated using price indices adjusted for the composition
of the purchases made by the institutions.
Estimates of gross capital formation in fixed assets are based mainly on data obtained
from government ministries, local authorities, and government institutions, or on analysis of
the financial reports of those institutions.
Regarding years for which the above-mentioned information has not yet been received,
extrapolation was conducted using the following indicators:
a)
Data on imports of transport equipment, machinery and other equipment;
b)
Reports on revenue from sales of domestically produced investment goods;
c)
Quarterly estimates on areas of building begun and completed;
d)
Financial data on investment in residential building carried out by the Ministry of
Construction and Housing.
Estimates at constant prices
The estimates are calculated each year, at the prices of the previous year, and are presented
in the tables as chained estimates at 2000 prices, to allow comparisons between nonconsecutive years. Because of the chaining, estimates for each category of the consumption
components do not add up to the total expenditure for consumption.
For general government consumption expenditure estimates, quantitative changes in the
expenditure on wages were computed according to the change in labour inputs. Other
current expenditures were usually deflated by the wholesale price index of manufacturing
output, which was weighted in accordance with the characteristic production industries of the
various expenditure items.
The estimates of gross capital formation, at constant prices, was based on the price indices
of construction costs and on the price indices of equipment in Israel and in the main
countries from whom Israel imports.
Estimates of the changes in the number of employed persons, employees, and work hours
are usually based on findings from the Labour Force Survey in Israel and on data from the
National Insurance Institute.
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The following are some additional explanations regarding the methods of calculating
the various series:
5.
1)
The classification of the functions of the central government and other public
institutions is based on the manual of the United Nations Statistical Office. The
expenditure was classified by the typical function of each type of expense, without
considering the administrative unit in which the financial reports were recorded.
2)
Estimates of the expenditure for defense consumption were conducted in 1995 on
the basis of a new classification of the expenditure items for defence, according to
budget performance records of the Ministry of Defence.
3)
In the general government sector accounts, the calculation of the general
government sector deficit has included capital protection components on nominal
interest.
4)
In the series on government transfer payments, rent subsidies for residents of
public housing (Amidar, Amigur, and other public housing companies) were
imputed. Additionally, the series on income from property and income from capital
accounts were adjusted following the new classification of the items included in
those series.
5)
Health institutions whose main income derives from sale of services to the
government or to households not included in the general government sector.
6)
Expenditures deriving from the government’s obligation to pay pension to its
workers after they retire were imputed.
7)
The expenditure includes interest payments, but does not include payments on
account of principal, which are also included as expenditures in the report of the
accountant general. Interest payments were not classified in the various functions,
and appear in the item “other functions”.
COMPARISON WITH PREVIOUS PUBLICATIONS
In contrast with the data presented in previous publications, the data here were presented
according to the new international system of national accounts – SNA93. Therefore, the
presentations and definitions of income and expenditure in this publication are substantially
different from those in previous publications. In addition, several revisions were made in the
estimates as of 1995, following updated details and data. In addition to these updates,
several methodological changes were introduced in accordance with the above explanations,
in order to adjust the general government sector accounts of Israel to internationally
accepted requirements.
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