Part D - The classification of expenses

As is previously noted, expenses are decreases in net worth resulting from transactions. In the Australian GFS, expenses are classified by type of expense using the classification codes in the economic type framework (ETF). Expenses are further classified by purpose of the expense using an appropriate code in the classification of the functions of government - Australian (COFOG-A), and by destination using an appropriate code in the source destination classification (SDC). Note that all payments connected with own-account capital formation are reported as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A) as part of acquisitions of non-financial assets, with a further breakdown using an appropriate category in the supplementary information under own-account capital formation (ETF 76, TALC, COFOG-A) (see Appendix 1 Part B). Further discussion on expenses can be found in Chapter 5 of this manual. The detailed classification of expenses is shown in Table 7.1 below

Superannuation expenses (ETF 121) record data on expenses relating to employment-related superannuation schemes provided by government units to employees. In the GFS system, superannuation expenses (ETF 121) are further classified as:

• Superannuation expenses - defined contribution scheme (ETF 1211, COFOG-A, SDC);
• Superannuation expenses - defined benefit scheme (ETF 1212, COFOG-A, SDC); and
• Imputed employers' contribution - defined benefit scheme (ETF 1213, COFOG-A, SDC).

Superannuation expenses - defined contribution scheme (ETF 1211, COFOG-A, SDC) record the expenses accrued under a defined contribution public sector superannuation scheme. Under such a scheme, the benefits payable to the employee on retirement are determined by the funds that have accumulated from employer and employee contributions over the working life of the employee, together with income and capital gains / losses arising from the investment of the accumulated funds. This item includes amounts payable by employers to defined contribution superannuation schemes, in respect of services provided by employees in the current period, to finance future superannuation payments. This item excludes amounts arising from actuarial reviews and reassessments which are treated as an other change in the volume of assets, and amounts relating to services not provided by employees in the current period.

Superannuation expenses - defined benefit scheme (ETF 1212, COFOG-A, SDC) record the expenses accrued under a defined benefit public sector superannuation scheme. Under such a scheme, the benefits payable to the employee on retirement are determined by a formula, usually based on a combination of final salary (or final average salary), age at retirement and the number of years of membership in the scheme. This item includes amounts payable by employers to defined benefit superannuation schemes, in respect of services provided by employees in the current period, to finance future superannuation payments. This item excludes amounts arising from actuarial reviews and reassessments which are treated as an other change in the volume of assets, and amounts relating to services not provided by employees in the current period.

Imputed employers' contribution - defined benefit scheme (ETF 1213, COFOG-A, SDC) consists of the amount of employer contributions to defined benefit superannuation schemes that would be needed to secure the de-facto entitlements to the benefits accumulated by their employees. Some employers provide benefits directly to their employees, former employees or their dependants from their own resources without involving an autonomous superannuation fund and without creating a special fund or segregated reserve for the purpose. This type of situation is uncommon however, as superannuation is compulsory in Australia.

Some funded defined benefit pension schemes may have financial assets that exceed the liabilities of the scheme to present and past employees. The defined benefit superannuation scheme is said to be 'overfunded' in such a case. Under these circumstances, it is possible for the employer to take a 'contribution holiday' and not make actual contributions for part of a period or one or more periods while the scheme remains over-funded. Nonetheless, an imputed contribution by the employer should be calculated and recorded.

Other employee expenses (ETF 122) record the compensation of employees other than superannuation expenses. Paragraph 6.9 of the IMF GFSM 2014 defines compensation of employees as the total remuneration (in cash or in kind) payable to an individual in an employer / employee relationship in return for work done by the employee during the reporting period. In the international GFS standards, the concept of compensation of employees differs to that of the 2008 SNA because compensation of employees related to work done on own-account capital formation is excluded. In Australian GFS, although the concept of compensation of employees is aligned with the international GFS standards, to facilitate reporting under the ASNA 2012 employee payments relating to work done on own-account capital formation is recorded in the GFS system as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A) as part of acquisitions of non-financial assets, with a further break down classified to the appropriate category in own-account capital formation (ETF 76) as part of supplementary information (see Appendix 1 Part B).

The major part of employee expenses is made up of wages, salaries and supplements. Allowances for overtime, shift work, living away from home and travel are included, as are in-kind payments such as accommodation, vehicles and clothing provided by employers. Employee expenses also include salary sacrifice expenses, and accrued expenses for the period relating to workers' compensation premiums, fringe benefits tax expenses (FBT), employee sick leave, employee annual leave, employee long service leave, and expenses relating to retirement and redundancy of employees. Payments charged to capital works (e.g. wages and salaries, or employee superannuation expenses relating to own-account capital formation) are excluded from this category and are recorded separately as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A) as part of acquisitions of non-financial assets, with a further break down classified to the appropriate category in own-account capital formation (ETF 76) as part of the supplementary information (see Appendix 1 Part B). Taxes paid on employers’ payroll and labour force are not included as employee expenses but are recorded as tax expenses (ETF 1255, COFOG-A, TC, SDC). Expenses relating to usage of labour hire agencies are also excluded from employee expenses and are classified as use of goods and services (ETF 1233, COFOG-A, SDC).

In the GFS system, other employee expenses (ETF 122, COFOG-A, SDC) are further classified as:

• Wages, salaries and supplements in cash (ETF 1221, COFOG-A, SDC);
• Wages and salaries in kind (ETF 1222, COFOG-A, SDC);
• Fringe benefits tax (FBT) expenses (ETF 1223, COFOG-A, SDC);
• Workers' compensation expenses (ETF 1224, COFOG-A, SDC); and
• Other employee expenses not elsewhere classified (ETF 1229, COFOG-A, SDC).

Wages, salaries and supplements in cash (ETF 1221, COFOG-A, SDC) record employer expenses relating to employee wages and salaries payable in cash, or any other financial instruments used as means of payments, to employees in return for work done. The use of the term 'cash' here should not be viewed as denoting the cash basis of recording, but rather denotes monetary remuneration. Paragraph 6.13 of the IMF GFSM 2014 includes the following kinds of remuneration included as wages, salaries and supplements in cash:

• Basic wages or salaries payable at regular weekly, monthly or other intervals, including payments by results and piecework payments; enhanced payments or special allowances for working overtime, at nights, on weekends or other irregular hours; allowances for working away from home or in disagreeable or hazardous circumstances; expatriation allowances for working abroad; etc.;
• Supplementary allowances payable regularly, such as housing allowances or allowances to cover the costs of travel to and from work, but excluding social benefits payable by the employers;
• Wages or salaries payable to employees away from work for short periods, for example, on vacation or as a result of a temporary halt to production, except during absences due to sickness, injury, annual leave etc.;
• Annual supplementary pay, such as bonuses and '13th month' pay;
• Ad hoc bonuses or other exceptional payments linked to the overall performance of the enterprise made under incentive schemes; and
• Commissions, gratuities, and tips received by employees: these should be included in payments for services rendered by the unit employing the worker, even when they are payable directly to the employee by a third party. They are thus regarded as being paid by the employer to the employee. Amounts directly paid to the employee should be rerouted to be included in revenue of the employer related to the service provided, and then expensed as wages and salaries.

Excluded from the concept of wages, salaries and supplements in cash (ETF 1221, COFOG-A, SDC) are wages and salaries charged to capital works (e.g. wages and salaries, or employee superannuation payments relating to own-account capital formation). These are recorded as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A) as part of acquisitions of non-financial assets, with a further break down classified to own-account wages, salaries and supplements in cash (ETF 7621, TALC, COFOGA) as part of the supplementary information (see Appendix 1 Part B). Taxes paid on employers’ payroll and labour force are not included as employee expenses but are recorded as tax expenses (ETF 1255, COFOGA, SDC, TC). Expenses relating to the usage of labour hire agencies (e.g. for contractors or non-ongoing staff) are also excluded from employee expenses and are classified as use of goods and services (ETF 1233, COFOG-A, SDC).

Wages, salaries and supplements in cash (ETF 1221, COFOG-A, SDC) also exclude reimbursement of costs incurred by employees in order to enable them to carry out their work. Paragraph 6.15 of the IMF GFSM 2014 notes the following exclusions:

• The reimbursement of travel, relocation, or related expenses made by employees when they take up new jobs or are required by their employers to move their homes to different parts of the country or to another country; and
• The reimbursement of costs incurred by employees on tools, equipment, special clothing, or other items that are needed exclusively, or primarily, to enable them to carry out their work. To the extent that employees, who are required by their contract of employment to purchase tools, equipment, special clothing, etc., are not fully reimbursed, the remaining expense they incur should be deducted from the amounts they receive in wages and salaries and the government’s use of goods and services increased accordingly.

Paragraph 6.16 of the IMF GFSM 2014 notes that wages and salaries in cash also exclude social benefits payable by governments to their employees in the form of children’s, spouse’s, family, education, or other allowances in respect of dependants (classified to other employee expenses not elsewhere classified (ETF 1229, COFOG-A, SDC)); payments made at full, or reduced, wage or salary rates to workers absent from work because of illness, accidental injury, maternity leave, annual leave, etc. (classified to other employee expenses not elsewhere classified (ETF 1229, COFOG-A, SDC)); and severance payments to workers or their survivors who lose their jobs because of redundancy, incapacity, accidental death, etc (classified to other employee expenses not elsewhere classified (ETF 1229, COFOG-A, SDC)).

Wages and salaries in kind (ETF 1222, COFOG-A, SDC) record employer expenses relating to employee wages and salaries in kind that are payable in the form of goods, services, interest forgone, and shares issued to employees in return for work done. This category consists of goods and services provided without charge, or at reduced prices. When provided at reduced prices, the value of the wages and salaries in kind is derived from the difference between the full value of the goods and services and the amount payable by the employees. These goods and services provided in kind by the government to its employees are not necessary for work. They could be used by employees in their own time, and at their own discretion, for the satisfaction of their own needs or wants, or those of other members of their households.

Almost any kind of goods or services may be provided as wages and salaries in kind, however in kind amounts connected with own-account capital formation are excluded from this item and recorded as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A, SDC) as part of acquisitions of non-financial assets, with a further break down classified to own-account wages and salaries in kind (ETF 7622, TALC, COFOG-A) as part of the supplementary information (see Appendix 1 Part B). Paragraph 6.17 of the IMF GFSM 2014 notes the most common types of goods and services provided to employees without charge, or at reduced prices, as:

• Meals and drinks provided on a regular basis, including any subsidy element of an office canteen (for practical reasons, it is unnecessary to make estimates for meals and drinks consumed as part of official entertainment or during business travel);
• Clothing or footwear that employees may choose to wear frequently outside of the workplace as well as while at work;
• Housing services or accommodation of a type that can be used by all members of the household to which the employee belongs;
• Vehicles or other durables provided for the personal use of employees;
• Goods and services produced by the employer, such as free travel on government airplanes or trains;
• Sports, recreation, or holiday facilities for employees and their families;
• Transportation to and from work, free or subsidised employee parking;
• Childcare for the children of employees;
• The value of the interest forgone by employers when they provide loans to employees at reduced or even zero rates of interest for purposes of buying houses, vehicles, furniture, or other goods or services. The value of interest forgone may be estimated as the amount the employee would have to pay if the market equivalent interest rates were charged minus the amount of interest actually payable, however, the sums involved may be too small and too uncertain to be worth estimating; and
• In the case of public corporations, wages and salaries in kind can also include bonus shares or stock options distributed to employees. Under a stock option agreement, the employer gives an employee the option to buy stocks or shares at a specified price at a future date.

Fringe benefits tax (FBT) expenses (ETF 1223, COFOG-A, SDC) record the employers' FBT expenses. FBT is a tax levied on employers for non-cash benefits provided to employees. In Australia, fringe benefits tax (FBT) is calculated at the highest marginal income tax rate plus the medicare levy. The Australian Taxation Office website (www.ato.gov.au) indicates that employer benefits provided to employees include rights and privileges such as:

• Use of a work car for private purposes;
• Below market loans to employees;
• Employee’s private health insurance costs;
• Cleaning services for an employee’s private residence;
• Reimbursement of non-business expenses incurred by an employee (such as school fees); or
• Entertainment by way of food, drink or recreation.

The Australian Taxation Office website (www.ato.gov.au) lists a number of items that are exempt from fringe benefits tax (FBT). They include (among others), work related items such as mobile phones, laptops and protective clothing. Also exempt from fringe benefits tax (FBT) are living away from home allowances and employee relocation expenses.

Workers' compensation expenses (ETF 1224, COFOG-A, SDC) record the expenses of the employer regarding the provision of workers' compensation benefits to employees for national accounting purposes. Workers' compensation is a type of insurance that is compulsory for employers, which provides benefits to employees who are injured in the ordinary course or their employment. Benefits include the payment of the employee’s medical expenses relating to the injury (including rehabilitation), and wage replacement. Information about what types of benefits may be claimed under workers' compensation may be found at Safe Work Australia (www.safeworkaustralia.gov.au), which is the government body that is set up to coordinate and develop national policy and strategies regarding workers' compensation.

Other employee expenses not elsewhere classified (ETF 1229, COFOG-A, SDC) record employee expenses other than wages, salaries and supplements in cash (ETF 1221, COFOG-A, SDC), wages and salaries in kind (ETF 1222, COFOG-A, SDC), Fringe Benefits Tax (FBT) expenses (ETF 1223, COFOG-A, SDC), or workers' compensation expenses (ETF 1224, COFOG-A, SDC). This item includes accrued expenses for the period relating to sick leave, annual leave, long service leave, retirement and redundancy.

Non-employee expenses (ETF 123) record operating expenses that are not related to the compensation of employees. In the GFS system, non-employee expenses (ETF 123) are further classified as:

• Production tax expenses (ETF 1231, COFOG-A, SDC);
• Social benefits to households in goods and services (ETF 1232, COFOG-A, SDC);
• Use of goods and services (ETF 1233, COFOG-A, SDC); and
• Other non-employee expenses not elsewhere classified (ETF 1239, COFOG-A, SDC).

Production tax expenses (ETF 1231, COFOG-A, SDC) record all taxes on production, known as indirect taxes. Taxes on production exclude taxes on products, and are imposed on a producer as a result of the unit engaging in the production of goods and services. Production taxes are payable irrespective of the profitability of the production process. They may be payable on labour, non-financial produced assets and land used in the production process.

Social benefits to households in goods and services (ETF 1232, COFOG-A, SDC) record the expenditure by government units on goods and services produced by market producers that are provided directly to households as social transfers in kind. This item includes medical and pharmaceutical benefits, telephone rental concessions, concessional railway fares, rental subsidies, reduced utility charges, etc. In the national accounts, this item is included in the measure of final consumption expenditure by government but not in actual government consumption. The difference between government transfer payments and the purchase of goods and social benefits to households in goods and services is discussed in Chapter 13 Part O of this manual.

Use of goods and services (ETF 1233, COFOG-A, SDC) record the value of goods and services used for the production of market and non-market goods and services. These consist of the cost of inexpensive durable goods (such as small / hand tools) when purchased regularly, and are small in value when compared with the costs incurred for the acquisition of machinery and equipment; amounts payable to labour hire agencies, contractors, self-employed outworkers, and other workers who are not employees of general government or public sector units; and the cost of goods and services used by a donor government unit to produce non-market goods and services consumed by other governments and international organisations. The boundary between use of goods and services and transfers, employee expenses, and the acquisition of non-financial assets are discussed in Chapter 13 Part P, Part Q, and Part R of this manual.

In the GFS system, the value of use of goods or services is recorded on a gross basis when the goods or services are actually used, rather than when they were acquired or paid for. Paragraph 6.28 of the IMF GFSM 2014 states that in practice, these events often coincide for inputs of services but not for goods, which may be acquired some time in advance of their use. The value of goods purchased and held for resale is recorded as use of goods and services when they are sold. Paragraph 6.30 of the IMF GFSM 2014 states that any fees or charges collected for goods and services provided by general government units should be shown as revenue rather than deducted from expense.

Included in the concept of use of goods and services (ETF 1233, COFOG-A, SDC) are:

• Cost of medical or dental treatments for households, surgery, hospital accommodation, and home care;
• Value of goods purchased and held for resale when they are sold;
• Amounts payable to labour hire agencies, contractors, self-employed out-workers and other workers who are not employees of general government or public sector units;
• Goods and services used by employees where such use is mandatory in order to enable employees to carry out their work whether purchased by the employer or purchased by employees who are then subsequently reimbursed by the employer;
• Tools or equipment used exclusively, or mainly, at work whether purchased by the employer or purchased by employees who are then subsequently reimbursed by the employer;
• Clothing or footwear of a kind that ordinary consumers do not choose to purchase or wear and which are worn exclusively, or mainly, at work such as protective clothing, overalls or uniforms whether purchased by the employer or purchased by employees who are then subsequently reimbursed by the employer;
• Accommodation services at the place of work of a kind that cannot be used by the households to which the employees belong such as barracks, cabins, dormitories and huts;
• Special meals or drinks necessitated by exceptional working conditions while travelling for business reasons, or meals or drinks provided to employees while on active duty whether purchased by the employer or purchased by employees who are then subsequently reimbursed by the employer;
• First aid facilities, medical examinations or other health checks required because of the nature of the work;
• Travel, relocation or related expenses when employees take up new jobs or are required by their employers to move their homes to different parts of the country or to another country whether purchased by the employer or purchased by employees who are then subsequently reimbursed by the employer;
• Goods and services acquired so that government employees can conduct relief operations in a foreign country after a natural disaster;
• Membership dues and subscription fees if there is an exchange of a payment for some form of a service such as payments by public corporations of membership dues or subscriptions to market non-profit institutions serving businesses such as chambers of commerce or trade associations;
• Goods and services consumed for the ordinary maintenance and repair of non-financial produced assets;
• Expenditure on military goods such as single-use weapons and spare parts once they have been used;
• Goods and services used in research and development where it is clear that the activity does not create any future economic benefit for the owner;
• Materials to produce coins or notes of the national currency or amounts payable to contractors to produce the currency;
• Payments by the lessee for rental of a non-financial produced asset under an operating lease; and
• Explicit fees for financial services. Note that implicit fees for financial services (known in macroeconomic statistics as financial intermediary services indirectly measured or FISIM) remain included in interest expenses for GFS purposes.

Excluded from the concept of use of goods and services (ETF 1233, COFOG-A, SDC) are depreciation (classified to ETF 124, TALC, COFOG-A) and goods and services used in own-account capital formation. These are recorded as transactions in own-account capital formation (ETF 4113, TALC, COFOG-A, SDC) as part of acquisitions of non-financial assets, with a further break down classified to own-account use of goods and services (ETF 7631, TALC, COFOG-A) as part of the supplementary information. For further information, see Appendix 1 Part B of this manual.

Non-employee expenses not elsewhere classified (ETF 1239, COFOG-A, SDC) consists of non-employee expenses that cannot be classified to production tax expenses (ETF 1231, COFOG-A, SDC, TC), social benefits to households in goods and services (ETF 1232, COFOG-A, SDC), or use of goods and services (ETF 1233, COFOG-A, SDC).

Depreciation (ETF 124) is the term used to describe the decline in the current value of the stock of produced assets owned by public sector units over their useful life, due to physical deterioration, normal obsolescence, or accidental damage. Depreciation records the value of accounting processes by which the cost of assets are written off over time, and relates to non-financial, tangible produced assets. The IMF GFSM 2014 and the 2008 SNA use the concept of consumption of fixed capital rather than depreciation. Depreciation may deviate considerably from consumption of fixed capital because under general accounting principles, depreciation is calculated using a mixture of valuations (including the current replacement cost of non-financial produced assets), whereas consumption of fixed capital is calculated using the current market value of assets only. Although it is standard practice to value all aspects of assets and liabilities at the current market value in Australian GFS, depreciation (as recorded in the financial records of public sector units) is used to record the decline in the current value of the stock of produced assets, in agreement with providers of Australian GFS data. The use of depreciation in the Australian GFS instead of consumption of fixed capital has no impact on GFS net lending (+) / net borrowing (-).

Depreciation relates only to fixed, tangible, produced, non-financial assets. The reduction in value of intangible produced, non-financial assets (eg. the depletion in the value of patents over time) is referred as amortisation. Amortisation of intangible produced, non-financial assets is not classified as transactions. It is classified as an other change in volume (ETF 5212 TALC 14). These matters are further discussed in paragraph 11.167 to paragraph 11.173 of this manual.

In the GFS system, depreciation (ETF 124) is further classified as:

• Depreciation of fixed produced assets (non-defence) (ETF 1241, TALC, COFOG-A); and
• Depreciation of fixed produced assets (defence) (ETF 1242, TALC, COFOG-A).

Depreciation of fixed produced assets (non-defence) (ETF 1241, TALC, COFOG-A) records amounts charged to current operations in respect of the depreciation (or consumption) of non-current tangible assets not related to defence weapons platforms.

Depreciation of fixed produced assets (defence) (ETF 1242, TALC, COFOG-A) records amounts charged to current operations in respect of the depreciation (or consumption) of non-current tangible assets related to defence weapons platforms.

Current transfer expenses (ETF 125) records the cost of regular payments that are current in nature, and where no economic benefits are received in return for payment. In the GFS system, current transfer expenses (ETF 125) are further classified as:

• Current grant expenses (ETF 1251, COFOG-A, SDC);
• Subsidies on products (ETF 1252, COFOG-A, SDC);
• Other subsidies on production (ETF 1253, COFOG-A, SDC);
• Current monetary transfers to households (ETF 1254, COFOG-A, SDC);
• Tax expenses (ETF 1255, COFOG-A, SDC, TC);
• Premiums, fees and current claims related to non-life insurance and standardised guarantee schemes (ETF 1256, COFOG-A, SDC); and
• Current transfer expenses not elsewhere classified (ETF 1259, COFOG-A, SDC).

Current grant expenses (ETF 1251, COFOG-A, SDC) record the cost of voluntary unrequited transfers intended to finance the current activities of the recipient. The time at which a grant is recorded is when all requirements and conditions for receiving it are satisfied, and the donor unit has an unconditional obligation to provide the grant to the recipient. This classification category includes grants for current purposes to private non-profit organisations serving households, grants made to foreign governments and organisations including grants made for aid projects, and current grants from one level of government to another (e.g. Commonwealth to state) and between units within the same level of government (e.g. budget sector to non-budget sector).

Grants are normally payable in cash, but may also take the form of provision of goods or services (in kind). Grants in kind should be valued at current market prices. If market prices are not available, then the value should be the explicit costs incurred in providing the resources or the amounts that would be received if the resources were sold.

Subsidies are defined as current, unrequited payments that government units make to enterprises such as public corporations, private enterprises, or other sectors on the basis of the level of their production activities or the quantities or values of the goods or services they produce, sell, export, or import. Paragraph 6.84 of the IMF GFSM 2014 states that in GFS, subsidies are payable to producers only (not to final consumers), and are current transfers only. Subsidy expenses are further identified as either subsidies on products or other subsidies on production.

Subsidies on products (ETF 1252, COFOG-A, SDC) are paid by general government units to producers per unit of a good or service. Subsidies on products usually become payable to producer units when a good or service is produced, sold, exported, or imported, but it may also be payable in other circumstances, such as when a good is transferred, leased, delivered, or used for own consumption or own-account capital formation. Subsidies on products include:

• Direct foreign trade subsidies, such as subsidies on imported or exported goods and services that become payable when the goods cross the frontier of the economic territory or when the services are delivered to resident institutional units (import subsidies) or to non-resident units (export subsidies);
• Subsidies payable to resident producers in respect of their production that is used or consumed within the economic territory;
• Regular transfers paid to public corporations and quasi-corporations that are intended to compensate for persistent losses (that is, negative operating surpluses) incurred on their productive activities as a result of charging prices that are lower than their average costs of production as a matter of deliberate government economic and social policy; and
• Subsidies resulting from the central bank accepting interest rates lower than prevailing market rates.

Other subsidies on production (ETF 1253, COFOG-A, SDC) record subsidies that producer units receive as a consequence of engaging in production, but are not related to specific products. Paragraph 6.90 of the IMF GFSM 2014 includes the following as other subsidies on production:

• Subsidies on payroll or workforce, which are payable on the total wage or salary bill, the size of the total workforce, or the employment of particular types of persons such as physically handicapped persons or persons who have been unemployed for long periods. The subsidies may also be intended to cover some or all of the costs of training schemes organised or financed by enterprises; and
• Subsidies to reduce pollution, which are transfers intended to cover some or all of the costs of additional processing undertaken to reduce or eliminate the discharge of pollutants into the environment.

Current monetary transfers to households (ETF 1254, COFOG-A, SDC) record the cost of social benefits in cash to Australian residents. Current monetary transfers to households record payments by government to individuals or households, who are not required to provide any significant amount of goods or services in return (e.g. old age pensions and unemployment benefits). 'Work for the dole' schemes are included in the concept of current monetary transfers to households (ETF 1254, COFOG-A, SDC), as the main purpose of such schemes is the transfer of monetary benefits and acquisition of employment skills. Also included in this category are personal benefit payments to Australian citizens resident overseas.

Tax expenses (ETF 1255, COFOG-A, SDC, TC) record the value of direct tax expenses (e.g. the taxes on income) of public sector units. These differ to production tax expenses which are taxes levied on the production of goods and services. Tax expenses may be reflected in the financial accounts as transfers to provisions. Tax expenses also include all tax expenses of general government units such as state / territory government payroll taxes. This item excludes the indirect tax expenses of public enterprises that should be recorded as production tax expenses (ETF 1231, COFOG-A, SDC, TC).

Premiums, fees and current claims related to non-life insurance and standardised guarantees (ETF 1256, COFOG-A, SDC) record the value of expenses payable in respect of premiums, fees, and current claims related to non-life insurance and standardised guarantees. Paragraph 6.125 of the IMF GFSM 2014 states that this category includes non-life insurance premiums payable to insurance schemes / corporations to secure entitlement to insurance against risks, current claims payable by insurance schemes to beneficiaries, as well as fees payable to obtain standardised guarantees. Also included are non-life insurance premiums and fees for standardised guarantees payable to insurance schemes and corporations to obtain cover against various events or accidents and non-life insurance claims payable by insurance schemes operated by a general government unit or public insurance corporation in settlement of claims that become due during the current reporting period. Claims become due when the eventuality occurs that gives rise to a valid claim, whether or not paid, settled, or reported during the reporting period.

Current transfer expenses not elsewhere classified (ETF 1259, COFOG-A, SDC) record the value of transfer expenses other than current grant expenses (ETF 1251, COFOG-A, SDC); subsidies on products (ETF 1252, COFOG-A, SDC); other subsidies on production (ETF 1253, COFOG-A, SDC); current monetary transfers to households (ETF 1254, COFOG-A, SDC); tax expenses (ETF 1255, COFOG-A, SDC, TC); or premiums, fees and current claims related to non-life insurance and standardised guarantee schemes (ETF 1256, COFOG-A, SDC). Included are gifts and transfers of a current nature (other than current grant expenses, subsidies on products, or other subsidies on production). These transfer expenses may be in cash or in kind, e.g. contributions of food, blankets, and medical supplies for relief purposes. This is further discussed in paragraph A1A.1.

Capital transfer expenses (ETF 126) record the cost of voluntary unrequited transfers intended to finance the capital activities of the recipient. In the GFS system, capital transfer expenses (ETF 126) are further classified as:

• Capital grant expenses (ETF 1261, COFOG-A, SDC);
• Assets donated ( ETF 1262, COFOG-A, TALC, SDC);
• Capital claims related to non-life insurance and standardised guarantee schemes (ETF 1263, COFOG-A, SDC); and
• Capital transfer expenses not elsewhere classified (ETF 1269, COFOG-A, SDC).

Capital grant expenses (ETF 1261, COFOG-A, SDC) record the cost of unrequited payments by government to finance the acquisition of non-financial assets by the recipient, or compensate the recipient for damage or destruction of non-financial assets, or increase the financial capital of the recipient. Capital grants include transfers of assets (other than inventories and cash), and the cancellation of a liability by mutual agreement between a creditor and debtor. This classification category includes grants for capital purposes to private non-profit organisations serving households, to foreign governments and organisations including grants made for aid projects, and capital grants from one level of government to another (e.g. Commonwealth to state) and between units within the same level of government (e.g. budget sector to non-budget sector). This classification category further includes capital transfers paid to public nonfinancial corporations, public financial corporations, other entities such as non-profit institutions operating on a non-market basis; and the value of assets donated to public non-financial corporations, public financial corporations, and other entities.

Assets donated (ETF 1262, COFOG-A, TALC, SDC) record the value of assets that are donated by government. Assets may be donated for a variety of reasons (including cultural reasons or other such reasons) and are included in the GFS system by imputation of equivalent transactions when they are of an economic nature, and where valuations are realistically obtainable.

Capital claims related to non-life insurance and standardised guarantee schemes (ETF 1263, COFOG-A, SDC) record the value of exceptionally large insurance settlements payable in the wake of a catastrophic event or disaster. Paragraph 6.125 of the IMF GFSM 2014 indicates that for these exceptionally large claims payable (such as those following a catastrophe), some part of the claims may be recorded as capital transfers rather than as current transfers. It may be difficult for the parties to identify these events consistently, so as a simplifying convention, all non-life insurance claims are classified as current transfers unless it is necessary to record a capital transfer according to the nature of the claim.

Capital transfer expenses not elsewhere classified (ETF 1269, COFOG-A, SDC) record the value of transfer expenses other than capital grant expenses (ETF 1261, COFOG-A, SDC); assets donated (ETF 1262, COFOG-A, SDC), and capital claims related to non-life insurance and standardised guarantee schemes (ETF 1263, COFOG-A, SDC).

Interest expenses (ETF 127) record the value of interest payable by government during the reporting period. In the GFS system, interest expenses (ETF 127) are further classified as:

• Accrued interest on defined benefit superannuation (ETF 1271, COFOG-A, SDC); and
• Interest expenses not elsewhere classified (ETF 1279, COFOG-A, SDC).

Interest is defined as a form of investment income that is receivable by the owners of certain kinds of financial assets (such as SDRs, deposits, debt securities, loans, and other accounts receivable) for putting these financial (and other) resources at the disposal of another institutional unit. Paragraph 6.63 of the IMF GFSM 2014 defines interest expenses as the value of interest that is payable by units that incur liabilities by borrowing funds from another unit. Interest is the expense that the debtor unit incurs for the use of the principal outstanding which represents the economic value that has been provided by the creditor.

In GFS, interest is recorded as accruing continuously over time to the creditor on the amount outstanding. Paragraph 6.64 of the IMF GFSM 2014 states that depending on the contractual arrangements, the rate at which interest accrues can be a percentage of the amount outstanding, a predetermined sum of money, a variable sum of money dependent on a defined indicator, or some combination of these. Interest normally is not payable until the expense has accrued. That is, if interest on a loan is payable monthly, the amount paid is usually the expense that has accrued during the previous month. Under the accrual basis of recording, as interest accrues the debtor’s total liability to the creditor has increased by the amount of interest expense accrued but not yet paid. What are commonly referred to as interest payments, are reductions of the debtor’s existing liability, part of which was created by the accrued interest expense.

In Australian GFS, interest expenses are valued using the creditor approach. The creditor approach assumes that the future interest expense of financial assets is recalculated each time there is a change in the market interest rate. An increase in the interest rate leads to a decrease in the market value of the instrument and a holding gain for the debtor. At this point, a financial instrument is treated as a new instrument that was issued at a discount. If there are no further changes in the interest rate, then the gradual increases in the market value of the instrument over the remaining period will be treated as interest expense.

In Australian GFS, interest expenses also include financial intermediation services indirectly measured (FISIM). FISIM represents an implicit service charge contained within the interest rates set by financial intermediaries for depositors and borrowers, to defray the costs of providing its services to its depositors and borrowers without explicit fees. FISIM is measured as the difference between the interest rates on loans and deposits and a pure or reference rate of interest, multiplied by the level of loans and deposits, respectively. FISIM is indirectly formulated by the ABS, and is deducted from the value of the GFS measure of interest expenses for national accounting purposes.

Accrued interest on defined benefit superannuation (ETF 1271, COFOG-A, SDC) records the value of interest accrued during the period on defined benefit superannuation liabilities. Superannuation expenses in a period represent the increase in superannuation liability due to services provided by employees in that period. The liability so generated by the employer (the government in this case), is therefore an asset attributed to the household sector (the employees). The government is viewed as compulsorily ‘borrowing’ from employees the value of the increase in superannuation liability each period. In doing so, it sustains an additional cost for the use of these ‘borrowed’ funds which is an interest expense. The cost of these ‘borrowed’ funds is included here as interest. This classification category also records the value of accrued interest flows when the funded defined benefit superannuation fund is under-funded, that is, the superannuation entitlements exceed the financial assets held by the superannuation fund, leading to a claim of the superannuation fund on the employer. In this case, the accounts should record an accrued interest flow from the employer to the superannuation fund equal to the discount rate that is used in calculating the superannuation entitlements times the claim of the superannuation fund on the employer.

Interest expenses not elsewhere classified (ETF 1279, COFOG-A, SDC) record the value of requited transfer payments for the use of money. This item includes interest on advances, loans, overdrafts, bonds and bills, deposits and the interest component of finance lease repayments. This item is also inclusive of financial intermediation services indirectly measured (FISIM) which is derived by the ABS for national accounting purposes. For further information on FISIM, see paragraph 7.60 of this manual.

Other property expenses (ETF 128) record the value of expenses payable to the owners of financial assets or natural resources when they put them at the disposal of other institutional units. In the GFS system, other property expenses (ETF 128) are further classified as:

• Income transferred by public enterprises (ETF 1281, COFOG-A, SDC);
• Withdrawal from income of quasi-corporations (ETF 1282, COFOG-A, SDC);
• Land rent and royalty expenses (ETF 1283, COFOG-A, SDC);
• Dividends to shareholders (ETF 1284, COFOG-A, SDC);
• Reinvested earnings on foreign direct investment (ETF 1285, COFOG-A, SDC);
• Property expenses for investment income disbursement (ETF 1286, COFOG-A, SDC); and
• Other property expenses not elsewhere classified (ETF 1289, COFOG-A, SDC).

Income transferred by public corporations as dividends (including tax equivalents) (ETF 1281, COFOGA, SDC) record the value of that part of the income of public enterprises that is transferred to their parent bodies as dividends, income tax equivalents, and wholesale sales tax equivalents. This item includes dividends paid to parent governments or parent public enterprises, but excludes other dividends paid to private sector shareholders recorded as dividends to shareholders (ETF 1284, COFOG-A, SDC). This item excludes transfers such as income tax and other forms of taxation.

Withdrawals of income from quasi-corporations (ETF 1282, COFOG-A, SDC) record the value of that part of distributable income that the owner withdraws from an entity. Excluded from this concept are withdrawals of funds realised from the sale or other disposal of the quasi-corporation’s assets such as inventories, nonfinancial produced assets, land or other non-produced assets (classified as transactions in financial assets (net) (ETF 3111, TALC 424, SDC)); and withdrawals of funds realised from the liquidation of large amounts of accumulated retained earnings or other reserves (classified as transactions in financial assets (net) (ETF 3111, TALC 424, SDC)).

Land rent and royalty expenses (ETF 1283, COFOG-A, SDC) record the value of rent for the use of nonproduced assets such as land and subsoil assets. Land rent and royalty expenses include royalty payments for the right to exploit natural resources. This item excludes rentals on produced assets such as for the use of buildings or the right to use copyrights, patents, trademarks, etc. recorded under use of goods and services (ETF 1233, COFOG-A, SDC).

Rent is defined in paragraph 5.122 of the IMF GFSM 2014 as the expense payable to the owners of a natural resource (the lessor or landlord) for putting the natural resource at the disposal of another institutional unit (lessee or tenant) for use of the natural resource in production. Rent is payable on land, and on subsoil resources and other natural resources as royalty expenses. Rent accrues continuously to the asset’s owner throughout the period of the contract. The rent recorded for a particular reporting period is, therefore, equal to the value of the accumulated rent that becomes payable over the reporting period and may differ from the amount of rent that becomes due for payment or is actually paid during the period.

Paragraph 5.131 of the IMF GFSM 2014 indicates that rent may be payable in cash or in kind, and the term 'rent' should not be confused with the term 'rental' which is payment for the use of produced assets, such as a government’s use of a building as a tenant. Paragraph 5.132 of the IMF GFSM 2014 states that in some circumstances, a single payment may cover both rent and rentals. If there is no objective basis on which to split the payment between rent on land and rental on the buildings, it is recommended to treat the whole amount as rent when the value of the land is believed to exceed the value of the buildings and as a rental otherwise.

Rent may be payable by general government units or public corporations to the owners of subsoil assets, permitting them to extract such deposits over a specified period of time. While payments for test drilling are included in rent, the actual outlays on drilling and other exploration are treated as the acquisition of a non-financial asset. Other types of rent include payments for the right to cut timber on non-cultivated land, or to exploit bodies of unmanaged water for recreational or commercial purposes (including fishing).

Dividends to shareholders (ETF 1284, COFOG-A, SDC) record the value of dividends to private sector shareholders who are minority owners of public enterprises. This item excludes dividends paid to parent government which are treated as income transferred by public corporations as dividends (including tax equivalents) (ETF 1281, COFOG-A, SDC).

Dividends are defined as a form of investment income to which shareholders and owners of corporations become entitled as a result of placing funds at the disposal of a corporation. Paragraph 6.109 of the IMF GFSM 2014 notes that public corporations obtain equity funds from general government units, other public corporations (and possibly other units), and they may pay dividends to those units. Dividend payments are usually not required; the board of directors or other managers of the corporation must declare a dividend payable on their own volition. Distributions of profits by public corporations may take place irregularly and may not be explicitly labelled as dividends. Nevertheless, dividends include all distributions of profits by public corporations to their shareholders or owners. The time of recording of dividends is the point at which the share price starts to be quoted on an ex-dividend basis rather than at a price that includes the dividend.

Paragraph 6.110 of the IMF GFSM 2014 draws specific attention to circumstances when dividends are disproportionately large relative to the recent level of dividends and earnings. Such disproportionately large withdrawals (often referred to as super-dividends), are often based on accumulated reserves, privatisation receipts and other sales of assets, or holding gains. Any dividends declared greatly in excess of the recent level of dividends and earnings should be treated as a financial transaction, specifically, the withdrawal of owners’ equity from the corporation.

Reinvested earnings on foreign direct investment (ETF 1285, COFOG-A, SDC) record the value of expenses relating to reinvested earnings on foreign direct investment. Paragraph 6.121 of the IMF GFSM 2014 states that public corporations may have non-resident direct investors, and distributions to such investors are made in the form of dividends or withdrawals of income from quasi-corporations. However, macroeconomic statistics also require the retained earnings of a foreign direct investment enterprise to be recorded as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity in the enterprise, and then reinvested by them by means of additions to equity. This treatment assumes that the decision to retain some earnings within the enterprise represents a deliberate investment decision on the part of the foreign direct investor.

Property expenses for investment income disbursement (ETF 1286, COFOG-A, SDC) record the value of property expenses attributed to insurance policyholders and holders of investment fund shares. Paragraph 6.113 of the IMF GFSM 2014 states that public corporations may take the form of insurance enterprises which hold technical reserves in the form of reserves against outstanding risks in respect of non-life and life insurance policies, as well as reserves to provide for the entitlement of benefits for policyholders and calls under standardised guarantee schemes. The reserves are liabilities toward the policyholders or beneficiaries. Any income receivable from the investment of the corresponding assets should be attributed as the property income of the policyholders or beneficiaries and therefore a property expense is recorded to reflect the increase in liabilities.

Paragraph 6.114 of the IMF GFSM 2014 states that if general government units operate an insurance scheme and they maintain separate reserves, the property expense attributed to insurance policyholders are recorded in the same manner as for a public corporation. If the general government unit does not maintain separate reserves, then no investment income is generated and so no property expense is attributed to the policyholders.

Paragraph 6.115 of the IMF GFSM 2014 indicates that for government units operating a standardised guarantee scheme against fees, there may also be investment income earned on the reserves of the scheme and this should be shown as a property expense being distributed to the units paying the fees (which may not be the same units that stand to benefit from the guarantees).

Other property expenses not elsewhere classified (ETF 1289, COFOG-A, SDC) record the value of property expenses other than those classified to income transferred by public corporations as dividends (including tax equivalents) (ETF 1281, COFOG-A, SDC); withdrawal from income of quasi-corporations (ETF 1282, COFOG-A, SDC); land rent and royalty expenses (ETF 1283, COFOG-A, SDC); dividends to shareholders (ETF 1284, COFOG-A, SDC); reinvested earnings on foreign direct investment (ETF 1285, COFOG-A, SDC); and property expenses for investment income disbursement (ETF 1286, COFOG-A, SDC).