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THE ACCOUNTS OF EUROPEAN INSTITUTIONS Resources 19.28 The main resources of European non-financial institutions and bodies include the following:

(a) customs and agricultural duties;

(b) production charges on producers of sugar, isoglucose and inulin syrup;

(c) the value added tax resource; and (d) The gross national income (GNI) resource.

19.29 In the accounts of European institutions, these flows are recorded as resources of the 'European institutions and bodies' subsector (S.1315) and as uses of the rest of the world (S.211).

19.30 Customs and agricultural duties are levied at the external frontiers of the European Union under the common customs tariff. They are classified as 'taxes and duties on imports excluding VAT' (D.212) and include collection costs.

19.31 Production charges are levied on the sugar, isoglucose and inulin syrup quotas held by the producers. They are classified as 'taxes on products, except VAT and import taxes' (D.214) and include collection costs.

19.32 A fixed share of the amounts collected under points (a) and (b) of paragraph 19.28 is retained by Member States as collection costs. This share was 25 % in 2009. In the accounts of European institutions, these collection costs are recorded, on the uses side, as 'intermediate consumption' (P.2) of the 'European institutions and bodies' subsector (S.1315). On the resources side, they are recorded as 'imports of services' (P.72) in the rest of the world accounts (S.211).

19.33 The value added tax resource is calculated by applying a fixed percentage rate, known as the VAT rate of call, to the harmonised VAT assessment base of each Member State. The VAT base is capped in relation to gross national income. The capping of the VAT base means that, if the VAT base of a Member State exceeds a given percentage of this Member State's GNI assessment base, then the VAT rate of call is not applied to the VAT base but to the latter percentage of the GNI assessment base. The value added tax resource includes payments for the current year as well as balances from previous years, corresponding to revisions of past VAT bases, when they are due to be paid. The value added tax resource is classified as 'VAT- and GNI-based EU own resources' (D.76).

19.37 Interests payable on loans granted by the European Investment Bank, after deduction of financial intermediation services indirectly measured (FISIM), are classified as 'interest' (D.41). In the accounts of European institutions, they are recorded as uses of the rest of the world (S.2) and resources of the 'other financial intermediaries, except insurance corporations and pension funds' (S.125).

19.38 Interests payable on loans granted by the European Central Bank are classified as 'interest' (D.41). In the accounts of European institutions, they are recorded as uses of the rest of the world (S.2111) and resources of the 'central bank' (S.121) subsector. Uses 19.39 Payments made by European non-financial institutions and bodies consist of the following:

(a) transactions related to their activities as non-market producers, mainly: 'intermediate consumption' (P.2), 'gross fixed capital formation' (P.51) and 'compensation of employees' (D.1);

(b) distributive transactions related to the transfers from European institutions to Member States. They take mainly the form of 'subsidies on products' (D.31), 'other subsidies on production' (D.39), 'current international cooperation' (D.74), 'other miscellaneous current transfers' (D.759), 'investment grants' (D.92) and 'other capital transfers' (D.99); and (c) payments of the European Development Fund to third countries which are classified as 'current international cooperation' (D.74).

19.40 The accounts of European institutions record the payments made by European non-financial institutions and bodies as uses of the 'European institutions and bodies' subsector (S.1315) and resources of the rest of the world (S.211 or S.22).

19.41 Payments made by European non-financial institutions and bodies are generally recorded on the basis of the expenditure statements provided by the Member States. Advance and ex-post payments are recorded in the financial accounts of the European institutions as 'other accounts receivable/payable, excluding trade credits and advances' (F.89).

19.42 Payments made by European financial institutions and bodies consist of the following:

(a) transactions related to their activities as market producers of financial services, mainly: 'intermediate consumption' (P.2), 'gross fixed capital formation' (P.51) and 'compensation of employees' (D.1);

(b) interest payments (D.41). As the subscriptions of Member States to the capital of the European Investment Bank are not considered as foreign direct investment, there is no imputed flow of reinvested earnings (D.43) to be recorded in its accounts.

19.43 The accounts of European institutions record the payments made by European financial institutions and bodies as uses of the 'other financial intermediaries, except insurance corporations and pension funds' (S.125) subsector and resources of the rest of the world (S.211 or S.22). Consolidation

19.44 In European accounts, flows between Member States and European institutions are normally not consolidated, among resources and uses, within the 'general government' sector (S.13). However, in the case of 'current international cooperation' (D.74), the payments of Member States to the European institutions to finance, e.g. the European Development Fund, are consolidated and recorded, in European accounts, as uses of national 'central government (excluding social security)' (S.1311) and resources of the rest of the world (S.22). CHAPTER 20 THE GOVERNMENT ACCOUNTS INTRODUCTION 20.01 The activities of government are presented separately from those of the rest of the economy because the powers, motivation, and functions of government are different from those of other sectors. This Chapter presents general government sector accounts and a government finance statistics (GFS) presentation that gives an integrated picture of government economic activities: revenue, expenditure, deficit/surplus, financing, other economic flows and balance sheet.

20.02 Governments have powers to raise taxes and other compulsory levies and to pass laws affecting the behaviour of economic units. The principal economic functions of government are as follows:

(a) to provide goods and services to the community, either for collective consumption such as public administration, defence, and law enforcement, or individual consumption such as education, health, recreation and cultural services, and to finance their provision out of taxation or other incomes;

(b) to redistribute income and wealth by means of transfer payments such as taxes and social benefits;

(c) to engage in other types of non-market production.

20.03 The GFS presentation of general government economic activities presents the usual sequence of accounts in a manner that is more suitable for government finance analysts and policymakers. The GFS presentation uses aggregates and balancing items defined in terms of the ESA concepts, definitions, classifications, and accounting rules so that they are measured consistently with other macroeconomic variables, and with the same measures in other countries. Items such as saving and net lending/net borrowing are already available in the sequence of accounts. Other items, such as total revenue, total expenditure, the tax burden and total debt, are not shown explicitly.

20.04 Additional rules on some more difficult issues of classification and measurement for the general government sector are given in the section 'Accounting issues relating to general government'. DEFINING THE GENERAL GOVERNMENT SECTOR 20.05 The general government sector (S.13) consists of all government units and all non-market non-profit institutions (NPIs) that are controlled by government units. It also comprises other non-market producers as identified in paragraphs 20.18 to 20.39.

20.06 Government units are legal entities established by political process which have legislative, judicial or executive authority over other institutional units within a given area. Their principal function is to provide goods and services to the community and to households on a non-market basis and to redistribute income and wealth.

20.07 A government unit usually has the authority to raise funds through compulsory transfers from other institutional units. In order to satisfy the basic requirements of an institutional unit, a government unit must have funds of its own either raised by income from other units or received as transfers from other government units, and must have the authority to disburse such funds in the pursuit of its policy objectives. It must also be able to borrow funds on its own account. Identification of units in the government Government units