Institutional units: distinction between market, for own final use and other non-market

3.27 . For the institutional units as producers, the distinction between market, for own final use and other non market is summarised in Table 3.1. The implications for the classification by sectors are also shown.

The table shows that in order to determine whether an institutional unit should be classified as a market producer, a producer for own-final use or an other non-market producer several distinctions should be applied subsequently.

3.28 . The first distinction is that between private and public producers. A public producer is a producer that is controlled by the general government. In case of NPIs, a public producer is an NPI that is controlled and mainly financed by the general government. All other producers are private producers. Control is defined as the ability to determine the general (corporate) policy or programme of an institutional unit by appointing appropriate directors or managers, if necessary. Owning more than half the shares of a corporation is a sufficient, but not a necessary, condition for control (see paragraph 2.26.).

3.29 . As Table 3.1 shows, private producers are found in all sectors except the sector general government. In contrast, public producers are only found in the corporations sectors (non-financial corporations and financial corporations) and in the general government sector.

3.30 . A specific category of private producers are the unincorporated enterprises owned by households. These are always market producers or producers for own final use. The latter occurs in case of the production of services of owner-occupied dwellings and the own-account production of goods. All unincorporated enterprises owned by households are classified to the household sector. An exception should only be made for quasi-corporate enterprises owned by households. These are market producers and classified to the non-financial and financial corporations sectors.

3.31 . For the other private producers, a distinction should be made between private non-profit institutions and other private producers.

Definition:

A NPI is defined as a legal or social entity created for the purpose of producing goods and services whose status does not permit them to be a source of income, profit or other financial gains for the units that establish, control or finance them. In practice, their productive activities are bound to generate either surpluses or deficits but any surpluses they happen to make cannot be appropriated by other institutional units.

All the other private producers that are not NPIs are market producers. They are classified to the non-financial and financial corporations sectors.

3.32 In order to determine the type of producer and the sector for the private NPIs, a 50% criterion should be applied:

1. if more than 50% of the production costs are covered by sales, the institutional unit is a market producer and classified to the non-financial and financial corporations sectors;
2. if less than 50% of the production costs are covered by sales, the institutional unit is an other non-market producer and classified to the sector NPISH. But other non-market NPIs that are controlled and mainly financed by general government are classified to the general government sector.

1. sales cover the sales excluding taxes on products but including all payments made by general government or the Institutions of the European Union and granted to any kind of producer in this type of activity, i.e. all payments linked to the volume or value of output are included, but payments to cover an overall deficit are excluded.

   This definition of sales corresponds to that of output at basic prices except that:

   (1) output at basic prices is only defined after it has been decided on whether the output is market or other non-market: sales are only used in valuing market output; other non-market output is valued at costs;

   (2) the payments made by general government to cover on overall deficit of public corporations and quasi-corporations are part or other subsidies on products as defined in paragraph 4.35 c. As a consequence, market output at basic prices includes also the payments made by general government to cover an overall deficit.

2. production costs are the sum of intermediate consumption, compensation of employees, consumption of fixed capital and other taxes on production. For this criterion other subsidies on production are not deducted. To ensure consistency of the concepts sales and production costs when applying the 50% criterion, the production costs should exclude all costs made for own-account capital formation.

   The 50% criterion should be applied by looking over a range of years: only if the criterion holds for several years or holds for the present year and is expected to hold for the near future, it should be applied strictly. Minor fluctuations in the size of sales from one year to another do not necessitate a reclassification of institutional units (and their local KAUs and output).

3.34 Sales may consist of various elements. For example, in case of the health care services provided by a hospital sales may correspond to:

1. purchases by employers to be recorded as income in kind paid to their employees and final consumption expenditure by these employees;
2. purchases by private insurance companies;
3. purchases by social security funds and general government to be classified as social benefits in kind;
4. purchases by households without reimbursement (final consumption expenditure).

Only other subsidies on production and gifts (e.g. from charities) received are not treated as sales.

Similarly, the sale of transport services by an enterprise may correspond to intermediate consumption by producers, income in kind provided by employers, social benefits in kind provided by the government and purchases by households without reimbursement.

3.35 Private non-profit institutions serving businesses are a special case. They are usually financed by contributions or subscriptions from the group of businesses concerned. The subscriptions are treated not as transfers but as payments for services rendered, i.e. as sales. These NPIs are therefore market producers and are classified in the non-financial and financial corporations sectors.

3.36 In applying the 50% criterion to the sales and production costs of private or public NPIs, including in sales all the payments linked to volume of output may be misleading in some specific cases. This can apply e.g. to the financing of the output of private and public schools: the payments by the general government can be linked to the number of pupils but be the subject of negotiation with the general government. In such a case, these payments need not be regarded as sales though they have an explicit link with the volume of output, e.g. with the number of pupils. This implies that a school mainly financed by such payments is an other non-market producer. When the school is a public producer, i.e. when it is mainly financed and controlled by the government, it should be classified in the sector general government. When the school is a private other non-market producer, it should be classified in the sector NPISHs.

3.37 Public producers can be market producers or other non-market producers. If the 50% criterion decides that the institutional unit should be regarded as a market producer, it is classified in the non-financial and financial corporations sectors. The 50% criterion decides also when a government unit should be treated as a quasi-corporation owned by the government: only when it meets the 50% criterion, a quasi-corporation should be created. If the institutional unit is an other non-market producer, it is classified in the sector general government. The distinction between NPIs and other producers is thus irrelevant for classifying public producers.