Part D - Institutional sectors

2.46.

An institutional sector groups together similar kinds of institutional units according to the nature of the economic activity they undertake. The Australian economy is divided into five mutually exclusive sectors, which are described in Table 2.1 below. Of these five institutional sectors that together make up the total economy, only some units in the first three sectors listed in Table 2.1 are part of the total public sector and therefore in scope for GFS.

2.47.

The institutional sector classification (INST) used in Australia's GFS system is a standard classification which defines institutional sectors that are also included in the SESCA. The INST is shown in Table 2.2 below:

2.48.

Non-financial corporations (INST 100) are defined in paragraph 2.114 of the IMF GFSM 2014 as all resident corporations whose principal activity is the production of non-financial goods and / or nonfinancial services at economically significant prices. These are known as market producers (see paragraphs 2.58 to 2.63 of this manual for the definition). Non-financial services are any services that do not qualify as financial intermediation or auxiliary financial services.

2.49.

All resident non-financial corporations controlled by general government units or other public corporations are part of the public non-financial corporations sector. Public non-financial corporations include corporations such as state water corporations and port authorities. This category could also include public non-profit institutions engaging in market production (such as hospitals, schools, or colleges) if they are separate institutional units and charge economically significant prices (see paragraph 2.59 of this manual for the definition).

2.50.

Financial corporations (INST 200) are defined in paragraph 2.115 of the IMF GFSM as all resident corporations that are principally engaged in providing financial services (including insurance and pension fund services) to other institutional units. These are known as market producers (see paragraphs 2.58 to 2.63 of this manual for the definition). All resident financial corporations controlled by general government units or other public corporations are part of the public financial corporations subsector. In the GFS system, the public financial corporations sector includes:

• Public deposit-taking corporations (central bank and public deposit-taking corporations except the central bank); and
• Other public financial corporations.

2.51.

Financial corporations include three types named financial intermediaries, financial auxiliaries, and captive financial institutions and money lenders. Paragraph 2.54 of the IMF GFSM 2014 identifies these as:

• Financial intermediaries - institutional units which incur liabilities on their own account for the purpose of acquiring financial assets by engaging in financial transactions on the market. The assets and liabilities of financial intermediaries are transformed or repackaged with respect to maturity, scale, risk, and the like, in the financial intermediation process. The financial intermediation process channels funds between third parties with a surplus of funds and those with a demand for funds. A financial intermediary not only acts as an agent for these other institutional units, but places itself at risk by acquiring financial assets and incurring liabilities on its own account. Financial intermediation is limited to acquiring assets and incurring liabilities with the general public or specified and relatively large groups thereof. Where the activity is limited to small groups, no intermediation takes place. Financial intermediaries include deposit-taking corporations, insurance corporations, and pension funds.
• Financial auxiliaries - financial corporations that are principally engaged in activities associated with transactions in financial assets and liabilities or with providing the regulatory context for these transactions but in circumstances that do not involve the auxiliary taking ownership of the financial assets and liabilities being transacted. They include brokers, managers of pension funds, mutual funds, etc. (but not the funds they manage), foreign exchange bureau, and central supervisory authorities.
• Captive financial institutions and money lenders - institutional units providing financial services other than insurance, where most of their assets or liabilities are not available on open financial markets. These entities transact within only a limited group of units (such as with subsidiaries) or subsidiaries of the same holding corporations or entities that provide loans from own funds provided by only one sponsor. Captive insurance corporations are the exception and are classified as insurance corporations.

2.52.

Public financial corporations include institutions that undertake a central bank role, including monetary policy development, issuing national currency, acting as custodian of international reserves, and providing banking services to government. In Australia, the Reserve Bank of Australia has responsibility for monetary policy, issuing bank note currency, holding Australia's international reserves, holding reserve deposits and providing banking services to the Commonwealth. The Reserve Bank of Australia is Australia's central bank and is therefore included as a public financial corporation for GFS purposes. Also treated as public financial corporations are various housing finance schemes established by state Governments to assist first home buyers.

2.53.

A central borrowing authority (CBA) would be a resident artificial subsidiary unit (see paragraphs 2.50 and 2.51 of this manual for the definition) established by government if its purpose was to borrow funds on the market and lend only to other general government units. Because such CBAs merely facilitate government borrowing, they would not qualify as separate institutional units and would be classified to the parent government unit in the general government sector.

2.54.

In Australia, CBAs have been established by some state and territory governments primarily to provide finance for public corporations, quasi-corporations and other units owned or controlled by the government, and to arrange investment of their surplus funds. Although the CBAs’ lending is often confined to the public sector in their jurisdiction, in Australia they also engage in financial intermediation activity for investment purposes and participate in the financial management activities of the parent government. Therefore, the CBAs of each Australian state and territory government are treated as public financial corporations and not as artificial subsidiaries in the general government sector. The exception is the Australian Capital Territory’s CBA which does not qualify as a separate institutional unit and is treated as part of the general government sector.

2.55.

The general government (GG) sector (INST 300) is defined in paragraph 2.58 of the IMF GFSM 2014 as consisting of resident institutional units that fulfil the functions of government as their primary activity. These institutional units perform the principal economic functions of government, in addition to fulfilling their political responsibilities and their role of economic regulator. The GG sector consists of all the government units at the national level of government (in Australia this consists of the Commonwealth Government and control not further defined units), each state and territory government, and all local government authorities and NPIs engaged in non-market production that are controlled by government units.

2.56.

The GG sector includes courts, government departments, and the Governor General's Office. Excluded from the GG sector are government owned corporations and quasi-corporations (see paragraphs 2.32 and 2.33 of this manual for definition) engaged in market production. However, paragraph 2.59 of the IMF GFSM 2014 states that unincorporated enterprises owned by government units that are not quasicorporations remain integral parts of those units, so they must be included in the GG sector. For further information on general government units, see paragraphs 2.43 to 2.49 of this manual.