Final consumption expenditure

10.2    Final consumption expenditure is expenditure on goods and services that are used for the direct satisfaction of individual or collective needs or wants. It excludes expenditure on fixed assets (including dwellings), valuables and other non-financial assets. In the ASNA it is defined as:

• the total value of all expenditures on individual and collective consumption goods and services incurred by resident households, resident non-profit institutions serving households (NPISHs) and general government units.

10.3    The main expenditure aggregates are:

• Household final consumption expenditure – consists of the expenditure, including imputed expenditure, incurred by households on individual consumption goods and services, including those sold at prices that are not economically significant;
• Final consumption expenditure of NPISHs – consists of expenditure, including imputed expenditure, incurred by resident NPISHs on individual and collective consumption goods and services (however, as NPISHs are not yet treated as a separate sector in the ASNA, their final consumption expenditure is included with that of households in household final consumption expenditure in the ASNA); and
• Government final consumption expenditure – consists of expenditure, including imputed expenditure, incurred by general government on both individual consumption goods and services and collective consumption services. This expenditure may be divided into:
  • government expenditure on individual consumption goods and services; and
  • government expenditure on collective consumption services.

10.4    The distinction between collective and individual consumption expenditure is of considerable importance in the SNA. Consumption expenditures by general government and NPISHs on behalf of households (their individual consumption expenditures) are undertaken for the purpose of making social transfers in kind. They cover the non-market output of both general government and NPISHs, which is delivered to households free or at prices that are not economically significant, as well as goods and services bought from market producers and provided to households free or at prices that are not economically significant. Social transfers in kind are recorded differently from other transfers in kind.

10.5    Individual goods and services are essentially 'private', as distinct from 'public' goods and services. They have the following characteristics:

• it must be possible to observe and record the acquisition of the good or service by an individual household or member thereof and also the time at which it took place;
• the household must have agreed to the provision of the good or service and taken whatever action is necessary to make it possible; for example, by attending a school or clinic; and
• the good or service must be such that its acquisition by one household or person, or possibly by a small, restricted group of persons, precludes its acquisition by other households or persons.

10.6    The reference to a small, restricted group of persons is needed because certain services are provided to small groups of people simultaneously; for example, several persons may travel in the same bus, train, ship or plane or attend the same class, lecture, concert or live theatre performance. However, these are still essentially individual services if there is a restriction on the number of individuals who can consume them. Other members of the community are excluded and derive no benefit from them.

10.7    From a welfare point-of-view, the important characteristic of an individual good or service is that its acquisition by one household, person or group of persons brings no (or very little) benefit to the rest of the community. While the provision of certain individual health or education services (for example, vaccination or immunisation) may bring some external benefits to the rest of the community, in general the individuals concerned derive the main benefit. Thus, when a government unit incurs expenditures on the provision of individual goods or services, it must decide not only how much to spend in total but how to allocate, or distribute, the goods or services among individual members of the community. From the point of view of economic and social policy, the way in which they are distributed may be as important as the total amount spent.

10.8    Most goods can be privately owned and are individual in the sense used here. On the other hand, certain kinds of services can be provided collectively to the community as a whole. The characteristics of these collective services may be summarised as follows:

• collective services are delivered simultaneously to every member of the community or of particular sections of the community, such as those in a particular region of a locality (but not small, restricted groups);
• the use of such services is usually passive and does not require the explicit agreement or active participation of all the individuals concerned; and
• the provision of a collective service to one individual does not reduce the amount available to others in the same community or section of the community. There is no rivalry in acquisition

10.9    The collective services provided by government consist mostly of the provision of security and defence, the maintenance of law and order, legislation and regulation, the maintenance of public health, the protection of the environment, research and development, etc. All members of the community can benefit from such services. As the individual use of collective services cannot be recorded, individuals cannot be charged according to their use or the benefits they derive. There is no market to allocate collective services, and these services must be financed collectively, for example, out of taxation or other government revenues.

10.10    Expenditures incurred by governments at a national level in connection with individual services such as health and education are treated as collective when they are concerned with the formulation and administration of government policy, the setting and enforcement of public standards, the regulation, licensing or supervision of producers, etc. For example, the expenditures incurred by the departments of Education and Health and Aged Care at a national level are included in collective consumption expenditures as they are concerned with general matters of policy, standards and regulation. On the other hand, any overhead expenses connected with the administration or functioning of a group of hospitals, schools, colleges or similar institutions are included in individual expenditures. For example, if a group of private hospitals has a central unit which provides certain common services such as purchasing, laboratories, ambulances, or other facilities, the costs of these common services would be taken into account in the prices charged to patients. The same principle is followed when the hospitals are non-market producers: all the costs which are associated with the provision of services to particular individuals, including those of any central units providing common services, are to be included in the value of expenditures on individual services.

10.11    Many government expenditures benefit enterprises as much as households; examples are expenditures on the cleaning, maintenance and repair of public roads, bridges, tunnels, etc. including the provision of street lighting. These are individual services for which consumption can be monitored, and for this reason they are frequently provided on a market basis by charging tolls on road usage. However, it would be difficult to separate the services provided free to households from those provided free to enterprises and, by convention, all these expenditures are treated as collective final expenditure.

10.12    Enterprises also benefit from a number of genuinely collective services such as the provision of security by the police, fire services, etc. The use of such collective services by individual enterprises cannot be recorded, so that expenditures on such services have to be treated as government final consumption expenditure.