Main Effects of the Revision
The total revision consists of two parts:
- The implementation of new international guidelines, The European system of National and Regional Accounts, ESA 2010, in the national accounts; Balance of Payments and International Investment Position Manual 6th edition, BPM6, in the balance of payments.
- The use of improved data sources and methods
The revised national accounts and public finances have been published on September 15th 2014. The revised balance of payments has been published on October 9th 2014.
The revision was initiated in 2010 and has been carried out parallel to the regular statistical production. 2008 was chosen as the year for which the effects of the individual revisions of guidelines, data, and methods were calculated separately, as 2008 was the most recent finalised year at the time. Data for the period following 2008 were ‘preliminary’ at the start of the revision and therefore include the effects of the ongoing revision of sources, as a result of which the effect of the major revision cannot be isolated for these years. In the following the effect of the revision has been shown for 2008 for this reason.
GNP has been adjusted upwards
GNP is adjusted upwards with 2.5 per cent in 2008. This is mainly because business spending on research and development is now, following the new methodology, seen as an investment. The changes are shown for a given year (2008) in current prices. The individual changes are clarified further below the table. The effect varies between the individual years and in the entire period from 1966 and until present the increase in GDP is between 1.6 and 3.1 per cent. The effects are described in more detail below.
Gross National Product (GNP)
| GNP: | +2.5 pct. |
| Private consumption: | +1.6 pct. |
| Consumption expenditure in Non-Profit Institutions Serving Households | +104.6 pct. |
| Gross investments: | +10.4 pct. |
| Government consumption: | -2.8 pct. |
| Export: | +0.9 pct. |
| Import: | +0.6 pct. |
Private consumption
The revision of the private consumption is marginal. The largest effect of the revision of data and methods on household consumption is because the calculations now include illegal activities, i.e. expenses for narcotics, smuggled goods, and prostitution, as well as the fact that expenses for rent have been adjusted downwards.
Associations and charities (NPISH)
There has been an upwards adjustment of the consumption expenditure in NPISH, which is the English abbreviation that means Non-Profit Institutions Serving Households, and which includes e.g. sports clubs, charitable organisations, and trade unions. This is in part because private schools and boarding schools have been moved from the public sector to NPISH, and in part because new and improved information about the activities in the organizations has been collected.
Investments have been adjusted upwards
The investments have been adjusted upwards by 12.1 per cent, primarily due to the value created through research and development, which is now regarded as production and investments. These investments contribute to future income. Previously they were a part of the companies’ expenses. The changes are described in more detail below. Furthermore the military investments have increased, as expenses for military goods are no longer considered an ongoing expense for goods and services. Furthermore the investments in construction have been increased, while the investments in machines and software have been reduced.
Government consumption has been adjusted downwards
Government consumption has been adjusted downwards by 2.8 per cent. The downwards adjustment is a combined result of several opposing effects, e.g. a changed delimitation of the public sector, the new treatment of investments in research and development, the calculation of contributions to civil servant pensions, and the treatment of the military expenses. The changes are described in more detail below.
The export and import have been revised
In total the export sees a minor upwards adjustment of 0.9 per cent, and the import sees a minor upwards adjustment of 0.6 per cent in 2008. The largest part of the increase in a positive direction is associated with a change in how construction activity is treated, as this results in changes within income and services. Another significant change is associated with the treatment of processing services and the movement of goods associated with this, which results in a downwards adjustment of the export and a downwards adjustment of the import. The changes are described in more detail below.
Government consumption and government net-lending
Downwards adjustment of government consumption
Government consumption has been adjusted downwards by a total of 2.8 per cent in 2008, while the revision only has a small effect on the government net-lending (the government deficit/surplus). Thus the government surplus in 2008 has decreased from 3.3 per cent of GNP to 3.2 per cent of GNP. In the following it has been noted for specific, relevant areas if the revision has resulted in an upwards adjustment (denoted with +) or a downwards adjustment (denoted with -). For a number of the changes the effect will vary from year to year (denoted with+/-). The most significant changes are described below:
| Government consumption | Government net-lending | |
| Delimitation of the public sector, market test: | + | Limited +/- |
| Delimitation of the public sector, control test: | - | Limited +/- |
| Government expenses for research and development: | Limited +/- | 0 |
| Contributions to civil servant pensions: | +/- | 0 |
| Military investments: | Limited +/- | 0 |
Note: +/- denotes that the effect varies over the years.
Note: For an institution to be considered public, two criteria must be fulfilled: Market test: less than 50 pct. of the costs are covered by sales income; Control test: the government controls specific, central decisions of the institutions.
The delimitation of the public sector has been changed
The criteria which decide if an institution or company is a part of the public sector (general government) or a part of the private sector have changed. This has resulted in a number of institutions having changed status. Some institutions have become part of general government, while others are no longer part of the sector after the revision. In total the changes in the delimitation of the public sector have resulted in a downwards adjustment of the government consumption whereas the effect on the government net-lending has been limited.
Banedanmark, Skov- og Naturstyrelsen, and A/S Øresund have become part of the general government sector in the revised national accounts. Furthermore Danmarks Radio is included in the general government sector from 2007 and onwards. The changes have increased government consumption but only have a limited effect on the government net-lending.
Private schools and boarding schools are placed in the NPISH sector (charitable organisations, sports clubs, private relief organizations, trade unions, etc.) in the revised national accounts unlike - as previously - in the general government sector. This has reduced the government consumption, but only have only had limited effect on the government net-lending.
The public sector's expenses for research and development are now investments
The public sector's expenses for research and development in the shape of wages and purchases of goods and services are considered investments in the revised national accounts. In the former national accounts these expenses were part of government consumption. The public sector's largest areas of research are within higher education and the health sector. The effect on government consumption has been limited as the depreciation of the investments is part of the calculation of government consumption. There is no effect on the government net-lending.
Changed contributions to civil servant pensions
In the national accounts an addition is now made to the salaries of civil servants, which is meant to reflect the savings for their pension that they would have had, if their pension contributions had been an ordinary employment-related pension with deposits of contributions. In the former national accounts the convention that deposits equal payouts was used. I.e. that information about the public sector's expenses for retired civil servants has been used to express the contributions of employed civil servants. In the revised national accounts the calculation is based on information about the actual number of employed civil servants. The change has reduced government consumption in the more recent years, as the number of civil servants is decreasing. In earlier years the change has increased the public consumption. There is no effect on the government net-lending.
Military investments have been increased
In the revised national accounts, all military expenses for material in use for more than a year are considered an investment. In the former national accounts expenses for e.g. tanks and weapons systems were not considered investments but were instead regarded as purchase of goods and services. The effect on government consumption is limited because the reduction in purchases of goods and services was countered by increased depreciations. There is no effect on the government net-lending.
New calculation of public real growth
From 2008 and onwards the calculation of the real growth for the part of government production value – and thus government consumption – that concerns individual services such as e.g. public school teaching, surgeries in public hospitals, and nursing home care is calculated through indicators for the produced output (the output-method). Previously the so-called input-method was used, which focuses on the expenses the government has when the goods are produced.
New calculation of government real growth
From 2008 and onwards the calculation of the real growth for the part of government production value – and thus government consumption – that concerns individual services such as e.g. public school teaching, surgeries in public hospitals, and nursing home care is calculated through indicators for the produced output (the output-method). Previously the so-called input-method was used, which focuses on the expenses the government has when the goods are produced.
More information about the method can be found here.
The tax burden
Lower tax burden
The tax burden calculated as the total tax revenue in percentage of GNP has been adjusted downwards in the revised national accounts. This is in part because the GNP has been adjusted upwards and in part because the combined tax revenue has been adjusted downwards. In 2008 the tax burden has been changed thusly:
Tax burden before revision: 47.9 per cent of GDP.
Tax burden after revision: 45.0 per cent of GDP.
| Church tax | - |
| Subscription to unemployment fund and early retirement pension | - |
| PSO-fee | + |
| Surplus “Danske spil” | + |
| Hydrocarbon tax and oil pipeline fee | - |
| Tax or payment? | +/- |
| Green cheque | + |
| Media license | + |
A description of the most important changes follows below.
New data sources, better accruals, and changed methods
In the revised national accounts a new and better data source for some fees, e.g. property registration tax, has been used, while the accrual of the wage bill tax has been improved. The methods for the calculation of VAT and ordinary income tax have been improved as well. E.g. new information about remunerations is part of the calculation of the VAT income.
Changes between taxes and other kinds of public income
A review of the tax schemes has resulted in some types of public revenue in the revised national accounts no longer count as taxes. In other cases the revenue is now considered a tax. E.g. a review of different schemes has resulted in some schemes having been changed from taxes on products to payments for services and vice versa.
Other major changes are described below:
Church tax: Is no longer a tax but a transfer from households.
Subscription to unemployment fund and early retirement pension: Is no longer a tax but a voluntary contribution.
PSO-fee (Public Service Obligation): Is now considered a tax which is in part used for contributions for renewable energy.
Surplus from Danske Spil (gambling company): Is now considered a tax. In the former national accounts the surplus was considered a transfer to general government.
Hydrocarbon tax and oil pipeline fee: Are now longer considered taxes but resource income.
’The green cheque’: Is now considered a transfer to households. In the former national accounts the share of the “green cheque” that was within the calculated tax was considered a negative tax.
Media licence fee: Following the introduction of the media licence fee in 2007 Danmarks Radio (The Danish Broadcasting corporation) has become part of general government as the licence revenue is now regarded as a tax.
Tax revenue from company tax is solely considered a government income (central government). Up until now a part of the revenue was regarded as a municipality income (local government).
Research and development
A significant change in the revised national accounts concerns the treatment of expenses for research and development (R&D). The change is normally called “the capitalization of R&D expenses”. The reason for the change is that the R&D expenses have the characteristics of an investment in the sense that they are expected to cause an increase in revenue in the following years.
In the former national accounts the expenses for R&D were considered a part of the ongoing expenses. R&D expenses have thus not contributed to the size of the GDP. In the revised national accounts the expenses are expected to create a product (“research results”), which is invested and this way becomes an asset to the unit that paid the expenses. The accumulated R&D expenses are for that reason now a part the value of the capital stock.
In the revised national accounts both own account expenses on R&D (own account R&D) and the purchase of R&D results are acknowledged as an investment. The change includes all expenses for R&D, which includes both the expenses of companies and government expenses. The change also includes expenses for R&D which is made freely available to the public. This is especially the case for a part of government expenses for R&D, in particular including a large amount of the research results at institutions of higher learning.
The new treatment of R&D expenses has a significant effect on the GDP and other central items in the national accounts. In 2008 the change caused an increase in the GDP of 2.6 per cent. The effect on the items depends on whether it concerns own-account R&D results, or purchased R&D results. An example of the latter could be that one ordered studies on rats at a laboratory.
For further descriptions of the change, see New Principle (Danish) for the treatment of expenses for research and development.
Balance of payments
Both the current and financial accounts in the balance of payments are covered by the revision. The revision of the financial accounts is done by Danmarks Nationalbank (the central bank). The table below summarizes the effects on the balance (that is, the direction of the revision) for the most significant guideline changes of the current accounts. The effect of the revision can be seen from the tables in
| Balance of goods | Balance of services | Wage- and property income | Current account | |
| Construction | - | + | - | 0 |
| Processing of goods | + | - | 0 | 0 |
| Merchanting | + | - | 0 | 0 |
| Repairs | + | - | 0 | 0 |
| FISIM | 0 | +/- | +/- | 0 |
Construction activity
For the construction activity of Danish companies abroad, new constructions will now be treated the same way as repairs. This means that new constructions abroad will be considered export of a service as well. Previously the net value of this activity was considered an income from abroad for Denmark, and the goods that the Danish companies brought with them from Denmark were treated as export of goods. This change affected the distribution between export of goods (which has been adjusted downwards), export of services (which has been adjusted upwards), import of services (which has been adjusted upwards), and wage- and property income from abroad (which has been adjusted downwards). The balance of the current accounts has not been affected. In the case of construction activity in Denmark performed by a foreign company, the treatment is parallel.
Processing of goods abroad
Processing of a good owned by a Danish company done abroad is in the revised balance of payments treated as purchase of a service abroad. In the former balance of payments the good which was processed abroad was considered export, and following this the processed good was then reimported (at a higher value). The changes affect the export and import of goods (which have both been adjusted downwards) along with the import of services (which is adjusted upwards with the value of the processing service). In the revised calculation, import of goods also includes materials which have been bought abroad with the intent to process it abroad. The balance of the current accounts will in principle remain unchanged, but as a result of adjustments in data and method the balance has improved to a modest extend. In cases of processing in Denmark of a good owned by a foreign company the treatment is parallel.
Merchanting and repairs
Merchanting (i.e. purchase and resale of goods abroad, also termed ‘triangular trade’), which was previously treated as a service, is now treated as a trade of goods. The part of the repair that was until now treated as goods, has now been moved to services. The balance of the current accounts is not affected by these changes.
FISIM
FISIM (financial intermediation services indirectly measured) – “the interest margin” – is in the future part of accounts of services rather than, as previously, the account of property income. This brings the treatment in the balance of payments and the national accounts into agreement. The change means that export as well as import of services has been adjusted upwards, and that income as well as expenses under property income has been affected. The balance of the current accounts is not affected.
Property income to/from the rest of the world
Property income will in the future be published in more detail, in line with the division of financial instruments which can be found in the financial accounts and in Denmark’s external assets and liabilities (DAPU).
Financial transactions in the balance of payments
Until now investment fund shares have been grouped with stocks under portfolio investments. These will now be calculated separately in the financial accounts in the balance of payments and in Denmark’s external assets and liabilities (DAPU). Furthermore, as with direct investments, reinvested income for investment fund shares will be calculated, i.e. the part of the income from investment fund shares that is not allocated to the owners. In practice this has resulted in a movement from valuation adjustments to transactions, due to which the financial items will be affected by it. In the current accounts the financial transactions correspond to the property income, where both income and expenses have been affected.
Direct investments have been influenced by the fact that the banks’ branch office capital is no longer classified as a direct investment, but as a loan under other investments. This has first and foremost reduced Denmark’s outgoing direct investments, while Denmark’s lending to other countries has been adjusted upwards.
Another factor that has affected other investments is the allocation of the SDR (Special Drawing Rights) which has also become a liability item under other investments, unlike previously where only the assets were included under the currency reserve. This has first and foremost affected DAPU, as the size of the transactions is fairly small.
Capital balance
Direct investments
In the statistics for direct investments, another calculation method based on the netting of transfers of loan capital has been introduced. The new method has lowered the balance of both incoming and outgoing direct investments with between 200 and 300 mia. DKK. E.g. With the former method a transfer of loan capital of 5 mia. DKK from a Danish parent company to a foreign subsidiary company was considered an outgoing investment of 5 mia. DKK, and a transfer of loan capital of 3 mia. DKK from a foreign subsidiary company to a Danish parent company an incoming direct investment of 3 mia. DKK. In future only the difference between the two amounts is included in the statistics, i.e. an outgoing investment of 2 mia. DKK in the example above. This change has not affected the publication of the financial accounts in the balance of payments or Denmark’s external assets and liabilities.
Furthermore a supplementary series will be published in which the incoming direct investments have been calculated based on the final investor country. This makes it easier for users to recognise direct investments in Denmark done by holding companies in offshore countries.