Overview of the System of National Accounts (Chapter 1 of the Esa 2010 Gni Inventory)

OVERVIEW OF THE SYSTEM OF NATIONAL ACCOUNTS (CHAPTER 1 OF THE ESA 2010 GNI INVENTORY)

THE CZECH REPUBLIC

REFERENCE YEAR 2012

following the agreed recommendations as laid down in document GNIC/280 rev. 2 EN - "ESA2010 GNI Inventory Guide".

VERSION MAY 2016 ESA 2010 GNI INVENTORY CZECH REPUBLIC 2012

Prague, May 2016 Contents LIST OF ABBREVATIONS:

"D" Code for distributive transactions "RS" Budgetary classification "S" Code for institutional sector ANA Annual National Accounts BC Budgetary classification BoP Balance of Payments BR Business Register CD 94/168/ 94/168/EC, Euratom: Commission Decision of 22 February 1994 on EC measures to be taken for the implementation of Council Directive 89/130/EEC, Euratom on the harmonisation of the compilation of Gross national product at market prices CFC Consumption of Fixed Capital CID Cadastre Information System CIF Cost-Insurance-Freight CKA Czech Consolidation Agency CNB Czech National Bank COFOG Classification of the Functions of Government COICOP Classification of Individual Consumption by purpose COPNI Classifications of expenditure according to purpose for non-profit institutions CR Czech Republic CSSA Czech Social Security Administration CZ-CPA A national version of the CPA (also referred to as SKP - Standard classification of products) CZK Czech crown - koruna CzNA Czech National Accounts CZ-NACE Variant of NACE adjusted for statistical needs in the Czech Republic CZSO Czech Statistical Office DTC Direct Trading Costs E&M Extrapolations and Models EAA Economic accounts for agriculture ECB European Central Bank EDP Excessive Deficit Procedure ERR External reference (interest) rate ESA European System of Accounts EU Euroepan Union FADN Farm Accountancy Data Network FAP Financial assests and liabilities FDI Foreing direct invetment FIFO First in - first out FISIM Financial intermediation service indirectly measured FKSP Fund of cultural and social demands in CR FMI Forest Management Institute FOB Free-on-Board GDC General Directorate of Customs GDP Gross Domestic Product GFCF Gross Fixed captial formation GNI Gross National Income GNP Gross National Product GO Gross Output GVA Gross Value Added HBS Household budget survey HFCE Household final consumption expenditure IC Intermediate Consumption ICO Identification number IHC Individual Housing Construction ILO International Labour Organisation IRR Internal reference (interest) rate ITRS International Transaction Reporting System KAU Kind-of Activity Unit LFS Labour force sample survey LIFO Last-in first-out LKAU Local Kind-of Activity Unit MF CR Ministry of Finance of Czech Republic MFI Monetary Financial Institutions MoD Ministry of Defence MoF Ministry of Finance MPS Material Product System NACE General Industrial Classification of Economic Activities within the European Communities NF National Fund NFA Non-financial assets NOE Non-observed economy NoT Nature of Transaction NPISH Non-profit institutions serving households NRF Non-resident financial intermediaries NRNF Non-resident non-financial enterprises P&L Profit and Loss Statement PHARE Program of EU for assistance of economic restructuralisation and political changes PIM Perpetual inventory method PPE Pilot Project of Exhaustiveness R&D Research and development RaM Reconstruction and modernisation RIR reference interest rate RoW Rest of the World SAD Single Administrative Document SAIF State Agricultural Intervention Fund SAPARD One of preaccession funds of EU for agricultural politics SBS Strustural Business Statistics SNA-NT System National Accounts – new technology (PC program) SO Tables Summarisation of rows from SS Tables by industry SS Tables Cross sector by industry Tables SUT Supply Use Tables TLC Total Labour cost VAT Value added tax VAT ID Value added tax identification number (VAT ID) VUZE Institute for Research in Agriculture WAR Weighted average rate (of VAT) CHAPTER 1 OVERVIEW OF THE SYSTEM OF ACCOUNTS

Chapter 1 is a "overview" of the entire description of calculating GDP / GNI in Chapters 2- 11, while it is possible to read it independently of the other, more detailed Chapters. As such, it may therefore be published separately from the rest of the description. It is with these Chapters in full compliance. SubChapters of the Chapter 1 follow the structure of the entire description.

1. Introduction

Basic methods 1. Gross domestic product (GDP) is calculated by production, income and expenditure approach in the Czech national accounts. The resulting balancing of GDP is made in the system of supply and use tables. Chapters 3, 4 and 5 explain to what extent these three calculation methods provide independent and credible results. From these results, gross national income (GNI) is then derived in accordance with ESA 2010. The procedures and methods of transition from GDP to GNI are described in Chapter 8.

2. The production method of calculating GDP is based on a thorough vetting of the individual data sources, analysis of credibility to major changes in the time series and comparing the ratios between the various (sub)sectors and 120 industries by CZ-NACE.

3. The income method of calculating GDP cannot be considered as a completely independent method in the Czech national accounts because operating surplus and mixed income are not estimated separately. They are calculated as balancing items between value added calculated by production method and other value-added income components calculated by income approach. However, the credibility of all the other income components of added value is reviewed in a manner similar for data on output and intermediate consumption. Moreover, data on wages are compared with those of Labour Statistics, employers' social contributions are confronted with administrative data of the social insurance system and data on taxes and subsidies are compared with the administrative data of the Ministry of Finance.

4. The expenditure method of calculating GDP is based on a thorough vetting of many sources of data, credibility analyses of major changes in the time series and balancing commodity flows within the supply and use tables. Flows of commodities are balanced in a detailed breakdown on the three-digit level of CPA.

5. Process on national accounts compilation begins with quarterly accounts and estimating GDP and its components by production, expenditure and income approaches. In recent years improvement in the completeness and quality of the quarterly estimates were achieved, with emphasis on the production method. Quarterly indicators are also used to estimate full-year indicators and their sum as the first annual data.

6. The annual accounts of the full breadth as a preliminary set of annual accounts is completed and published six months after the end of the reference year. The publication takes the form of an updated database on the website of the Czech Statistical Office.

Geographic coverage 7. Czech economic territory consists of a geographical area managed by the Czech Republic. The economic territory also includes: a free zone under Czech customs control, national airspace and territorial enclaves abroad (e.g. embassies, military bases, etc.) used by the Czech government on the basis of political agreements with governments in whose territories are located.

8. Conversely, the economic territory does not include those parts of the Czech geographical area (e.g. foreign embassies, etc.) used by government institutions of other countries, the institutions of the European Union or other international organisations (based on treaties and agreements).

Organisation and division of responsibilities within the Czech Statistical Office (CZSO) 9. Czech Statistical Office is an independent institution led by the chairman, who is appointed by the President of the Czech Republic on the proposal of the government. Chairman of the CZSO attends government meetings without voting rights.

10. Organisationally, the Czech Statistical Office is divided into two parts, each of which is managed by a vice-chairman. One of them controls the regional offices and second one all statistical sections, including: Section of macroeconomic statistics, General Methodology and Registers, Production statistics section, Section of demographics and social statistics.

11. Besides this division, there are 5 departments that are directly managed by the chairman of the CZSO. In addition to the Office of President, the Department of Security and Crisis Management, Department for human resources and payroll, Department of International Cooperation, Department of External Communication and Information Services Department are concerned.

12. Macroeconomic section includes four departments, the two engaged in compiling national accounts and price statistics department and the department of foreign trade. Two departments of the national accounts are divided into six units (see Box 1.1). At present, two departments of the national accounts total of 52 workers, all with higher education, particularly of an economic nature. Distribution of personnel in key areas of national accounts is shown below.

13. Sector accounts unit plays an integral role in the process of drawing up the annual and quarterly sector accounts for the total economy. It compiles the complete sequence of non-financial accounts, financial accounts, and other changes accounts and the balance sheet for the (sub)sectors of non-financial corporations, and the households sector. This unit also compiles complete sequence of accounts for non-residents. Production accounts and generation of income for the national economy as well as all relevant (sub)sectors are compiled by kind of activity. It also participates in the preparation of annual surveys, the selection of survey characteristics, describes these indicators as well as surveys for non-financial corporations. The unit estimates are made for the completeness of the economy and estimates of housing services, estimates of indicators of employment and the balance of non-produced assets. Also regional accounts are compiled there.

14. Unit of input-output Tables compiles supply and use tables at current and constant prices and also symmetric input-output Tables. It performs estimates of final consumption expenditure of households, balancing commodity flows within the supply and use tables, respectively plays a crucial role in balancing the goods and services account and the final verification of data on output and intermediate consumption on the sector level. It also participates in the preparation of annual surveys to define requirements for the commodity structure. Furthermore, it compiles balance of fixed capital, inventories, valuables and Tables GFCF in a three-breakdown: by (sub) sector x by industry x by commodity. It calculates the consumption of fixed capital in the desired structure. It balances the acquisition and transfer (sale) of used fixed assets. It makes estimates and balances the purchase and stock of fixed assets acquired through financial leasing. It also participates in the preparation of annual surveys, the selection of survey indicators of non-financial assets, a description of these indicators on the survey form.

15. Unit of quarterly estimates produces quarterly estimates of generation and use of GDP at current and constant prices, seasonally adjusted, including the respective time series. In the unit, in works associated with the capture of imports and exports in the national accounts are concentrated.

Box 1.1 Organisation scheme of National Accounts Departments

16. Unit of government accounts compiles a complete set of annual and quarterly non-financial and financial accounts, accounts of other changes and the balance sheet for the general government sector (broken down by subsector); it is responsible for the EDP notifications of government deficit and debt (notification Tables, questionnaire Tables, a comprehensive overview of sources and methods, etc.).

17. Financial accounts unit plays a crucial role in balancing the flows and stocks of financial assets and liabilities. It compiles the complete sequence of non-financial accounts, financial accounts, other changes accounts and the balance sheet for the (sub) sectors of financial institutions. It also participates in the preparation of annual surveys, the selection of survey characteristics, describes these indicators as well as surveys for financial institutions.

18. Unit of non-market economy provides a basis for the government's accounts and ensures coordination and cooperation with the Ministry of Finance. It acquires accessible administrative and statistical data for all government units. In this unit, accounts for non-profit institutions serving households (NPISH) are also compiled. The unit is also involved in compiling the indicators in the framework of the European Comparison Programme - Expenditure on GDP and it calculates the weighted average rate of VAT.

The control system of compiling national accounts

Monitoring data sources for national accounts 19. Almost all data sources are supplied to the national accounts by other departments of the CZSO or external institutions such as the Ministry of Finance, the Czech National Bank and the Ministry of Labour and Social Affairs. Data from some state funds are sent directly to departments of the national accounts. Using statistics data from each statistical survey is governed by detailed technical projects and since 2008, there have been signed mutual agreements between the departments of national accounts and the national accounts data suppliers (SLA). Taking over administrative data is also subject to formalised agreements, which are moreover covered by agreements between institutions Handover protocols 20. Since 2010, moreover, according to signed contracts for the most important data sources, together with data taken over, also the protocols on quality have been received, structured by CZ- NACE (NPISHs according to legal forms). These data transfer protocols cover the current and prior periods, and quantification of changes in indices of indicators according to corporate accounting data. Also comments of any significant changes in specific groups of units should be part of the protocol.

Verification of data 21. The quality and completeness of the information is verified at the department of national accounts in two steps – first relations among the indicators are verified within each sector and a data source itself by sub-sector, then a verification of flows and stocks follows in the process of balancing (balancing commodity flows, income transactions flows, used fixed assets, flows and stocks of financial assets).

22. The first step after taking over a data source is verifying mutual relations between indicators, depending on the individual sectors within a data source and subsector. Newly evaluated data for each data source are incorporated into standardised source Tables of national accounts (i.e. SS Table - combinations of a sequence of accounts for a data source, according to three -digit industry). In these Tables "SS", the discrepancy between financial and non-financial accounts (B.9-net lending / borrowing) is examined followed by verification in „SO Tables“ (accounts of production and generation of income for 120 individual sub-divided industry according to CZ-NACE). These Tables are analysed based on the inter-annual changes and different ratio indicators (e.g. the average wage, labour productivity, etc.). In the event of significant changes, top-down analysis is done:

A comparison of the sum of the collected data and calculations broken down into the three- digit industry; A comparison of annual changes to individual data in the sector - excluding the impact of changes in the sector and industry classification; Suspected an error in the individual data leads to comparisons with the available administrative data (tax returns from the Ministry of Finance, Annual Reports of the Business Register and the Annual Report on the websites of the unit); in some cases, reporting entity is directly queried; In case of suspicion an error in individual data or in grossing up, comparing the data for the imputed units with the sum of turnovers for these units (individual data of the Ministry of Finance from tax returns, Annual reports from the Business Register or Annual reports from the websites of the unit in question) is done, in some cases, reporting unit is directly queried. Then these differences are discussed with the Department of Business Statistics. Appropriate repairs are entered into the system of Tables. 23. The next step of data verification is verification in the process of balancing (balancing commodity flows, income transactions flows, used fixed assets flows, flows of financial assets, and stocks), which uses the relationships in the system of national accounts. Balancing supply and use tables is an important tool for the final estimate of GDP and its components. Documentation of this process is very important. For detailed information about balancing see Chapter 6. Risk Analysis 24. Risk analysis as an integrated document does not yet exist.

Quality assurance by management of NA 25. The process of preparing ANA is standardised by annual work plan and standardised patterns of work Tables and accounts. The annual work plan is a very detailed description of work and timeTable for their implementation for each version of ANA (preliminary, semi and final). It covers all takeover of data sources, compilation process, editing and balancing process (including deadlines, responsibilities and controls). Standardised patterns of account worksheets s allow inspection of all items of national accounts in the time series and the internal consistency of the whole system of national accounts (national accounts preparers check items of NA in principle, no items of business accounting). Process tables are the most important tool for controlling the compiling system in spread sheets.

26. The system checks when balancing the supply and use tables. Annual national accounts are prepared systematically so as to ensure consistency between the sector accounts and supply and use tables. There is close cooperation between units within the Department of National Accounts, as well as the units of Department of government and financial accounts.

27. Because of many reasons, observed data for the balance of supply and use are not equal. Even if methodological adjustments and error analysis are made, the data of national accounts are not balanced before joining the input-output Tables unit, which assembles supply and use tables. This is a normal situation, which occurs in practice. Commodity flow analysis is used in the supply and use tables for balancing transactions in products. The following procedure describes this process:

Step 1. The data are taken from data sources (statistics SBS, family accounts ...) and modifications to the national accounts are carried out in the framework of both departments. Step 2. Supply and use tables are compiled at current prices. Commodity balancing process starts. Step 3. Balancing of commodities takes place simultaneously at current and constant prices, using specialised software (SNA-NT). All adjustments are recorded in a separate, self-balancing system protocols (see below). Step 4. The data are relayed back to the relevant units (sector accounts unit, unit of financial accounts), and final analysis is made prior to the takeover of balancing adjustments. 28. Described Procedure briefly displays general approach to balancing GDP. For detailed information on balancing see Chapter 6.

29. After progress has been made in compiling supply and use tables, a new approach to balancing was adopted. So called Balancing team was established (for the data of final annual accounts for 2005 and semi- final data of the annual accounts for 2006) at the beginning of 2008. It contained five people from the unit of input-output Tables. Since 2009, the team has been further strengthened; currently, it includes seven people.

30. Balancing decentralised system means that the Head of input-output Tables unit has primarily a coordinating role and checks the modifications made by team members. Before balancing, approximate confidence intervals are determined by the person responsible for compilation of value added (based on the quality reports from the section of Business Statistics). When a balancing adjustment is made, especially with the crossing of the confidence interval, it is reviewed and discussed with the team leader. Documentation for finding balance adjustment is performed in the so- called "balancing protocols." Team Leader coordinates systems of balancing every working day on short regular meetings, where the numbers are discussed. Separate meetings with other departments of statistics are conducted if needed (e.g. with industrial statistics, external trade). If necessary, data are also discussed directly with individual companies.

31. The main objective of the balancing protocol is to have a record on the purpose of adjustment and on it itself. This does not mean that all balancing adjustments have any meaning. An important part of balancing adjustments cannot be explained, because the data can hide mismatch problem. When it is necessary make a significant adjustment, which due to lack of time cannot be explored in depth investigation is conducted only after the accounts are done and the results of this survey will be included in the next annual national accounts. Therefore balancing protocols are to help the Department to navigate through from past adjustments and assumptions and confront them with new information. There are five types of protocols and the two main classifications for records on balancing adjustments:

A1.1 Output (CZ-NACE), A1.2 Intermediate consumption (CZ-NACE), A1.3 Final consumption expenditure of households (CZ-CPA), A1.4 Gross fixed capital formation (CZ-CPA), A1.5 Change in inventories (CZ-CPA). 32. Data recorded in the protocol are about balancing and they are accompanied by commentary that describes:

a) Date of change, b) Who edited a number, c) Value of the adjustment itself, d) CZ-CPA, COICOP or CZ-NACE related to the adjustment, e) Reason of the adjustment. 33. Balance team will soon be further expanded; our goal is to meet its key experts from different units of department of ANA, and unit heads. Before the team expands, experts must be familiar with the methodology of input-output framework (particularly the supply and use tables, as described in the manual from Eurostat).

Internal audits 34. Since 2003, the CZSO has conducted in an ongoing audit. Audit teams are established for various statistics separately from internal and external independent experts. The final reports and conclusions are discussed in the headquarter of the Czech Statistical Office. The internal audit of the annual national accounts was carried out in 2004.

35. Based on experience and recommendations from the Eurostat workshop - Supervisory and control systems for national accounts purposes (December 8 to 9, 2009, Luxembourg), we are preparing a new policy management system of supervision and control. We plan to create a permanent internal audit team consisting of 2-3 senior experienced persons for supervision to verify any changes in the methods and procedures used for compiling the national accounts. 2. The revisions policy and the timetable for revising and finalising the estimates; major revisions since the last version of the GNI Inventory

The revisions policy and the timetable for revising and finalising the estimates 1. Revision policy of national accounts in the Czech Republic is based on a European revision policy. The aim is to fulfil the needs of both home users and binding deadlines arising from the transmission program (Annex B, EU Regulation No. 549/2013).

2. Since 2015, the main publication date for the annual national accounts has been until late June. At this date, all versions of annual reports - preliminary, semi-final and final – have been published. It is generally admitted that the fourth routine revision is made but it happens only in exceptional cases.

3. A preliminary version of the annual accounts is published six months after the reference period and is still primarily based on quarterly data. For the first time, however, the balancing sources and uses of GDP fully utilise supply and use tables.

4. Semi-final annual accounts are published 18 months after the end of the reference period and they are fully based on the annual final data sources.

5. As part of the final report of annual accounts published 24 months after the end of the reference period is only used for the incorporation of various analyses results and any errors detected after publishing semi-final version. Changes between versions are minimal.

6. All work is governed by a pre-approved schedule, which did not change much in recent years. It derives mainly from the dates on which results of processing main sources of data are available. In the plan of work is sufficient space for different kinds of analysis and validation has been included.

7. In the event of outage of the partial underlined data, these documents are operatively reimbursed in the form of extrapolating the results of the previous year, or quarterly estimates are used. The system of four revisions of the current year data provides for a gradual refinement of the results.

8. All results are published primarily in the form of internet publication. Most of the data produced in the various breakdowns is available on the Internet at the link: http://apl.czso.cz/pll/rocenka/rocenka.indexnu

Major revisions due to the transition from ESA 1995 to ESA 2010 9. Major revision of national accounts was caused by the transition to the new European standard ESA 2010, but had a broader scope. Besides the changes in national accounts methodology the revision also included some changes in the data sources and improved methods of calculations and estimates leading to greater convergence of compilation processes in all EU member states. It was mostly about the methodological improvements required by the GNI and the EDP mission, but also other occasional methodological improvements. In parallel, there was a reconciliation of quarterly national accounts with the revised annual national accounts.

10. Changes were made retroactively to the time series, depending on the importance and availability of additional information to provide users with a comparable number of national accounts to the maximum possible length of the time series. Any methodological change therefore affected the structure and volume of multiple items of national accounts. Most of the changes were balanced (with a total resource use), but some minor adjustments were made only on one side or the other. Therefore, all product flows and income and financial flows had to be newly balance for all the years. It was also made the new deflation by standard way.

11. In accordance with the calendar of national accounts publications, the results of this occasional revision of national accounts were published 1. 10. 2014. At that date we published a new time series of annual and quarterly national accounts (included annual financial accounts and balance sheets) for the period 1993-2013, and also two quarters of 2014. For the period 1993 to 2010 there was a revision in the form of explicit changes to the previous time series, including the transition from ESA 1995 to ESA 2010. For the years 2011 to 2013 national accounts were compiled directly by ESA 2010. Changes for of these years have included alongside impacts associated with major revision also routine changes connected with the gradual refinement and replenishment of source data.

12. In September 2014 the semi-final set of Annual National Accounts for 2012 was finalised and published, therefore, in accordance with the principles of our revisions policy, the works on national accounts for this year continued, especially on some refinement of calculations and on eliminating detected errors. The cumulative impact of changes in GDP and GNI for 2012 divided to three groups is shown in the Table 1.1. There are quantified changes for both stages of the work, however, for the overall assessment of the impact of the transition to ESA 2010 and the related occasional revisions are important changes representing the difference between the final data published by the ESA 2010 (definitive set of annual national accounts published in June 2015) and the latest data published in the ESA 1995 (preliminary annual figures published in September 2013).

Table 1.1 Stages of the major revision and impact on GDP and GNI, 2012 GDP GNI GDP GNI

CZK mil. Change in % Preliminary data at 30. 9. 2013 3 845 926 3 560 995 100.0 100.0 Transition to ESA 2010 153 389 143 740 4.0 4.0 Changes between Semi- GNI Reservations 64 559 98 317 1.7 2.8 final and Preliminary versions Other improvements -16 199 -10 322 -0.4 -0.3 TOTAL 201 749 231 735 5.2 6.5 Semi-final data at 30. 9. 2014 4 047 675 3 792 730 105.2 106.5 Transition to ESA 2010 -6 860 -170 -0.2 0.0

Changes between Final GNI Reservations -6 162 -53 233 -0.2 -1.5 and Semi-final versions Other improvements 6 957 48 831 0.2 1.4 TOTAL -6 065 -4 572 -0.2 -0.1 Final data at 30. 6. 2015 4 041 610 3 788 158 105.1 106.4 Transition to ESA 2010 146 529 143 570 3.8 4.0

Changes between Final GNI Reservations 58 397 45 084 1.5 1.3 and Preliminary versions Other improvements -9 242 38 509 -0.2 1.1 TOTAL 195 684 227 163 5.1 6.4

Adjustments made due to transition from ESA 1995 to ESA 2010 13. The Manual on the Changes between ESA 95 and ESA 2010), identified 11 methodological changes with an impact on GDP/GNI. In the Czech National Accounts we found only seven of them: (1a) Capitalisation of research and development created by market producers (1b) Capitalisation of research and development created by non-market producers (3) Non-life insurance - Output, claims due to catastrophes, and reinsurance (4) Capitalisation of weapon systems, (6) Government, public and private sector classification, (7) Capitalisation of small tools and (8) VAT-based third EU own resource.

14. Another three topics were already included in the old Czech National Accounts and therefore they were not included in the major revision. These are the following themes: (2) Valuation of output for own use for market producers, (10) Calculation and allocation of output of the central bank and (11) Land improvements recognised as a separate asset.

15. For the topic (9) Indexed debt instruments we did not identified any relevant case and the topic (5) The decommissioning cost for large capital assets have not yet been addressed. Given the general lack of clarity of the new procedures we have not yet made any estimate, therefore it will be dealt with in future years.

16. On the other hand, our adjustments made due to the transition from ESA 1995 to ESA 2010 include two other themes: (20) Goods sent abroad for processing and (21) Merchanting. These methodological changes have no impact on GDP, but have a great impact on its components - exports and imports.

17. A detailed description of the adjustments is in the SubChapter 2.2, the impact of individual changes on GDP / GNI and its components is shown in the Table 1.2.

Table 1.2 Adjustments due to transition to ESA 2010, 2012 GDP GNI GDP GNI Adjustments CZK mil. Change in % Capitalisation of research and development created by market 39 499 34 501 1.0 1.0 producers Capitalisation of research and development created by non-market 16 571 16 571 0.4 0.5 producers Non-life insurance - Output, claims due to catastrophes, and 7 159 2 792 0.2 0.1 reinsurance Capitalisation of weapon systems 5 084 5 084 0.1 0.1 Government, public and private sector classification 241 241 0.0 0.0 Capitalisation of small tools 77 975 79 393 2.0 2.2 VAT-based third EU own resource 0 4 988 0.0 0.1 Goods sent abroad for processing 0 0 0.0 0.0 Merchanting 0 0 0.0 0.0 TOTAL 146 529 143 570 3.8 4.0

Adjustments made due to GNI reservations 18. In order to increase comparability GDP and GNI among all member countries European Commision identified eight transversal reservations related to the calculation of GDP and GNI, which require coordinated solution in more countries. Each country also has placed several specific reservations. At the date of the occasional revision 2014 the Czech Republic has placed six transversal reservations: (R1) The treatment of cross-border property income (R2) The calculation and allocation of financial intermediation services indirectly measured (FISIM), (R5) The treatment of cooperative dwellings, (R6) The inclusion of illegal activities in national accounts, (7) The recording of the vehicle registration tax, (8) The calculation of IC for actual and imputed rentals in the estimation of the production of housing services. Another two reservations (R3 - The treatment of entities with little or no physical presence (SPE) and R4 - The treatment of car scrap schemes) have been lifted for the Czech Republic as they were not considered relevant for the Czech National Accounts. All the GNI reservations have been lifted for Czechia by now.

19. The first transversal reservation R1 (cross-border property income) is further divided into four thematic areas by type of property incomes or valuations: (R1a) Reinvested earnings on direct foreign investment, (R1b) Interest and dividends received by mutual funds from the investments, (R1c) Withdrawals of income from quasi-corporations and (R1d) Recording of taxes on property income.

20. In addition to transversal reservations the Czech Republic was addressed two specific reservations (RS.1) Imputed rentals (the sources and methods used for the calculation of dwelling services need to be reviewed in order to assess the related national accounts estimates and (RS.2) Tips. Special reservation RS.1 concerned more accurate calculations of imputed rentals in connection with the transition to the new method of calculating and the new census data. Special reservation RS.2 was listed at the date of the occasional revision 2014 because it was solved under the occasional revision 2011.

Table 1.3 Adjustments due to GNI reservations, 2012 GDP GNI GDP GNI Adjustments CZK mil. Change in % Reinvested earnings on direct foreign investment 0 -9 754 0.0 -0.3 Interest and dividends received by mutual funds from the 0 -186 0.0 0.0 investments Withdrawals of income from quasi-corporations 0 34 0.0 0.0 Recording of taxes on property income 0 0 0.0 0.0 The calculation and allocation of FISIM 3 159 -248 0.1 0.0 The treatment of cooperative dwellings 3 438 3 438 0.1 0.1 The inclusion of illegal activities in national accounts 381 381 0.0 0.0 The recording of the vehicle registration tax 605 605 0.0 0.0 The calculation of IC for actual and imputed rentals 17 562 17 562 0.5 0.5 Imputed rentals 33 252 33 252 0.9 0.9 TOTAL 58 397 45 084 1.5 1.3

Other improvements 22. In addition to improvements coordinated by Eurostat there were realised a number of further refinements in the calculation of GDP and GNI, mainly due to identification of omissions and refinement of some estimation methods. It was especially (a) estimates for non-observed economy, (b) estimates of emission allowances, (c) new procedures for consolidation, (d) new rerouting of flows, (e) recording of re-exports and (f) margins of financing dealers.

Table 1.4 Changes due to other improvements, 2012 Reason of GDP GNI GDP GN I Expenditur Productio Expenditur change Production Income Income e n e CZK mil. Change in % Changes in -7 108 12 089 8 251 54 405 -0.2 0.3 0.2 1.5 data sources Non-observed -14 153 9 548 -14 153 -12 556 -0.4 0.2 -0.4 -0.4 economy Rerouting 0 0 0 0 0.0 0.0 0.0 0.0 Exports and 0 1 223 0 1 223 0.0 0.0 0.0 0.0 imports Other and balancing 12 019 -32 102 -3 340 -4 563 0.3 -0.8 -0.1 -0.1 adjustments TOTAL -9 242 -9 242 -9 242 38 509 -0.2 -0.2 -0.2 1.1

Planned actions for improvements 24. For the next period, two major revisions are planned to be carried out - ad hoc one in 2017 and regular one in 2020. Irrespective of these large revisions, it is expected to build new parts of the Czech system of national accounts.

25. Ad hoc revision of 2017 is caused by Eurostat requirements to bring forward a new definition of the general government sector and more accurate calculation of government debt, and it will also include other significant changes in addition.

26. Regular revision 2020 will cover the accumulated changes in the whole time series, which cannot be performed during standard compilation of national accounts at regular revisions for open years, because that would undermine the comparability of outcomes from national accounts in the time series.

3. Outline of the production approach

Introduction 1. The production approach used to calculate gross domestic product (GDP) in Czech national accounts relies on a thorough screening of source data, credibility analysis of big changes in the time series, and comparison of data between individual sub-sectors at the level of CZ-NACE reduced three-digit activity. Therefore, the production approach can be taken for the fundamental approach in the Czech national accounts.

2. The production approach to GDP estimate is recorded in the production account, which shows the transactions relating to the production process proper. This account is drawn up in combined breakdown by institutional sectors and the industry. Its principal items are output (P.1) in resources and intermediate consumption (P.2) in uses. The balancing item of this account is gross value added. Gross value added at basic prices is equal to the total of gross added values by industry. Definitive figures are calculated and balanced in the supply and use tables. The addition of taxes less subsidies on products enables to calculate gross domestic product (GDP) in market prices as a principal macroeconomic aggregate. Table 1.5 Main components of GDP by institutional sector - production approach, 2002, CZK million Non- Finan- General National financial cial House- govern- NPISH* economy corpora- institu- holds ment tions tions S.1 S.11 S.12 S.13 S.14 S.15 P.1 Output 9 614 583 7 298 083 300 506 676 232 1 295 424 44 338 P.2 Intermediate consumption 5 976 541 5 042 813 145 325 197 824 567 076 23 503 B.1g Gross value added 3 638 042 2 255 270 155 181 478 408 728 348 20 835 D.21 Taxes on products 485 181 D.31 Subsidies on products (-) 81 613 B.1*g Gross domestic product 4 041 610 * Non-profit institutions serving Households

3. The compilation procedure for the national accounts for the year 2012 can be briefly described in four stages:

Acquisition of source data into the system of national accounts, Extrapolation of missing data and models, Conceptual adjustments, Exhaustiveness adjustments, Data validation and balancing adjustments. 4. The basis for defining the population and sample of statistical units to be involved in statistical surveys is the (statistical) business register (BR). The quality of the business register is therefore a fundamental factor for a credible and exhaustive calculation of GDP using the production approach. Full coverage of the population and correct information on the registered units are essential, both to enable representative samples to be selected for statistical surveys and to enable the figures to be grossed up correctly to cover the total population.

Calculation of output and intermediate consumption and data sources 5. The calculation of output (classified by market output, output for own final use and other non-market output) and intermediate consumption is described in detail in the Chapter 3. There are significant differences between particular data sources, thus the calculation of output and intermediate consumption is always introduced with reference to the relevant data source.

6. Considering the share of gross value added annual statistical sample survey in business of production industries (questionnaire P 5–01) is the most important. This survey covers economic subjects (businesses) with principal activity in agriculture, forestry, fishery, mining, manufacturing, energy, construction, trade, transportation, market services and some non-bank financial institutions. Detailed description of this questionnaire is given in Chapter 10.

7. Market output (P.11) of businesses, which are included in this survey, is calculated as the sum of the following main items of the P 501 questionnaire: sales of own products, sales of services, sales of goods net of cost on goods sold, change in stocks of inventories of own production. Output for own final use (P.12) is calculated as the sum of capitalisation of intangible and tangible fixed assets. The capitalisation of intangible fixed assets and tangible fixed assets represents the own- account gross capital formation in national accounts. Intermediate consumption (P.2) is calculated as the sum of the most significant items of P 5-01 questionnaire: consumption of material, energy, services, expenses on repairs and maintenance, total other services and other production-related costs. The intermediate consumption of businesses includes costs of using rented fixed assets (operational leasing).

8. The calculation of gross value added (it means calculation of output and intermediate consumption) from all other data sources is described in the Chapter 3, in the framework of description each NACE section.

Valuation 9. The market output (P.11) is valued in basic prices in the major part. From business accounting, the source of data we obtain as sales, valued in prices receivable by the producer from the purchaser for goods or services produced as output. To provide the valuation in basic prices in compliance with ESA definition, the output calculated from sales is adjusted by subsidies on products. Sales of products are recorded in business accounting in moment of selling, not in moment of production; in view of this it is necessary to adjust the amount of output by holding gains and losses, which resulted from changes in the market prices.

10. The valuation in basic prices is not adopted primarily on output for own final use (P.12), which is valued in principle at own costs not including profits. According to the ESA, the output for own final use should be valued at the basic prices of similar products on the market including net operating surplus or mixed income. In the Czech national accounts, this requirement is fulfilled only for some components of output, i.e. own-account production of fixed assets, own-account production of agricultural products by households and imputed rent for housing services provided to themselves by owner-occupiers.

11. Other non-market output (P.13) is in accordance with ESA requirements valued at the total costs of production, i.e. the sum of: intermediate consumption (P.2), compensation of employees (D.1), consumption of fixed capital (P.51c) and other taxes on production (D.29) less other subsidies on production (D.39). Only non- market output of non-market producers is included into this calculation.

12. Intermediate consumption (P.2) is valued in purchasers’ prices and is recorded at the time, when particular products and services used in intermediate consumption really enter the process of production. Similarly like for output time lag between a moment of manufacture and selling can exist, there can be time lag between purchases of materials or supplies and real enter of these materials or supplies into the production process, therefore adjustment by holding gains and losses is practised.

Transition from private accounting and administrative concepts to ESA 2010 national accounting concepts 13. Some conceptual adjustments have to be made after acquisition of source data into the system of national accounts. The reason of these adjustments is differences between business and national accounting rules.

14. The most important adjustments comprise: calculation of holding gains and losses from inventories, estimation of financial leasing repayments, adjustments in foreign trade, estimation of wages and salaries in kind and the adjustment in recording of travel expenses of employees, calculation of non-life insurance and pension entitlements, calculation of financial intermediation services indirectly measured, excluding of internal turnover – calculation of capitalisation of internal services and capitalisation of material and goods, consolidation in energy branches, capitalisation of small tools and capitalisation of military equipment.

The roles of direct and indirect estimation methods 15. Production method relies mainly on direct surveys where the questionnaire P5-01 has a crucial role. The shares of surveyed figures in final national accounts indicators are for gross output 95.7% and for intermediate consumption 107.9%. The final estimate of intermediate consumption is lower mainly due to conceptual adjustments made.

16. The most important indirect methods comprise estimates of consumption of fixed capital for non-market producers (see section 4.12).

17. There are a few important cases in production method when benchmarks and extrapolations play important role. They represent 12.61% of total gross value added in 2012.

18. The most important adjustments comprise: estimation of imputed rent for housing services provided to themselves by owner-occupiers, estimation of consumption of fixed capital (CFC) for other non-market producers (e.g. government units), estimation of natural growth of standing timber – increase in wood substance, estimation of mark-up factor for operating surplus of own-account production of fixed assets, incorporating of the value of entertainment, literary and artistic originals.

The main approaches taken with respect to exhaustiveness 19. The production approach is the key compilation method in Czech national accounts. Therefore the production approach is the most elaborated as for both availability of data sources and execution of methodological adjustments on the one hand, and estimates for exhaustiveness on the other hand.

20. Following types of exhaustiveness adjustments are distinguished in CzNA: producers deliberately not registering – underground (moonlighting), producers deliberately not registering (illegal activities), producers not required to register (under-threshold occasional production activities, own-account production of agricultural products by households and own-account gross fixed capital formation by households, registered entrepreneurs not surveyed (free jobs), producers deliberately misreporting and other statistical deficiencies (tips and wages in kind not recorded in business accounts).

4. Outline of the income approach

Introduction 1. The calculation of GDP by income approach includes the estimation of compensation of employees, taxes on production an imports, subsidies on production () and consumption of fixed capital. Operating surplus and mixed income represent difference item between GDP calculated by production approach and other items of income approach.

2. The structure of compilation of income components of GDP is similar to the compilation of components of GDP by production approach. It starts with different types of data sources as input and includes series of adjustments to the basic data – conceptual, exhaustiveness and balancing.

Main classifications used 3. For the estimation of GDP by income approach is used broken down by institutional sectors and industries (according to CZ-NACE).

Main data sources used 4. Statistical surveys and other administrative sources, especially in tax area are used for the estimation of GDP by income approach. The structure of compilation of income components of GDP is similar to the compilation of components of GDP by production approach.

5. Compensation of employees (D.1). The basic data source for estimation wages and salaries (D.11) and employers’ social contributions (D.12) are data from enterprise reporting. The Person Income tax return and a Total Labour Costs survey, which is the data source for calculating wages in kind and employers’ imputed social contributions are other significant data source.

6. Other taxes on production (D.29) and Other subsidies on production (D.39). Data on other taxes and subsidies on production are available both from the side of recipients, from their financial statements of central and local government, and from the side of payers too (from their statistical questionnaires or financial statements). Other taxes are on the side of payers matched up by the amount of taxes collected, adjusted to the accrual level.

7. Operating surplus (B.2) and Mixed income (B.3). They are not estimated independently on the basis of surveyed data, but has been derived as balancing item, i.e. difference between values added calculated by production approach and the other income components of GDP. The exception is the operating surplus of owner-occupied dwellings, calculated as one of the components of imputed rental.

8. Consumption of fixed capital (P.51c). It is calculated by PIM for non-residential buildings, machinery, transport equipment and software, and by quantitative method for dwellings and other buildings (roads, highways, railways).

Independence from other approaches of calculating GDP 9. In Czech national accounts, the income approach to estimating GDP is not entirely independent, since operating surplus and mixed income are computed as balancing items between value added by production approach and the other income components of value added

The borderline cases 10. When calculating GDP by income approach, ontentious cases can be considered because of differences in enterprise accounting and ESA 2010 methodology or it is related to the way of calculating of implicitly captured items in the CzNA. It concerns items, which enterprise accounting does not classify to wages and salaries but, for example, in intermediate consumption.

11. A borderline case of calculating GDP by income approach, capturing wages in kind can be considered. Another case related to distinguishing between gross operating surplus or mixed income on the one hand, or intermediate consumption on the other hand, treatment of small tools can be considered. 12. Borderline cases can also be found in other taxes on production. This is either the fees classified in the NA as payments for government services or wrongly included costs by grossing-up. These taxes are deducted from other taxes on production and added to intermediate consumption.

Valuation 13. Valuation of wages and salaries recorded in national accounts is based on the valuation used in business accounting. Data sources of government statistics at the level of cash receipts are time- adjusted to accrual basis principle. On accrual basis principle are valued employers' social contributions and a significant volume of taxes, while local taxes and subsidies are accounted for on a cash payment.

14. Consumption of fixed capital is calculated by PIM. The results are dependent on the valuation of stock of fixed assets. It means that the result is strongly influenced by price indices.

15. The value of operating surplus of owner-occupiers producing dwelling services (component of imputed rent) is calculated from the net replacement value of flats and houses lived in by owners and market value of land associated to buildings . Calculation depends on the valuation of houses and land, i.e. appropriate application of price indices.

Transition from private accounting and administrative concepts to ESA 2010 national accounting concepts 16. The differences between enterprise accounting and ESA 2010 methodology primarily result from the different conceptual treatment of some economic categories concerning all income components of value added. Conceptual adjustments relate to the form of quantification and recording of wages and salaries that are implicitly included in CzNA and other items not included.

17. Conceptual adjustments of other taxes on production from the payer side and other subsidies on production are both balancing and detail concerning (taxes/subsidies are reported aggregated in business accounting).

The roles of direct and indirect estimation methods and of benchmarks and extrapolations 18. For the compilation of Czech National Accounts, especially direct estimation methods are used. The exception is the estimate of the consumption of fixed capital, which is calculated by PIM and operating surplus and mixed income, which are not estimated independently on the basis of surveyed data, but they are calculated as difference between GDP by production approach and other components of GDP by income approach.

19. Indirect estimation methods relate with conceptual adjustments, exhaustiveness adjustments or balancing and they concern all items of income approach GDP.

20. Extrapolation methods and models are made annually, unless an appropriate direct data source is ensured in individual cases.

The main approaches taken with respect to exhaustiveness 21. Exhaustiveness adjustments cover only three items of income approach – wages and salaries, operating surplus and mixed income. The last two items are the difference between GDP by production approach and other components of GDP by income approach. 22. Given the fact that the income approach to GDP estimates uses the same data sources and non-response estimation procedures as the production approach, the provision of exhaustiveness of national economy by the income approach has the same pros and cons as the production approach.

23. Exhaustiveness adjustments are divided to seven categories and include producers deliberately not registering, illegal economy, producers not required to register, registered entrepreneurs not surveyed, producers deliberately misreporting, wages in kind and tips.

Overview 24. Total overview on main components of GDP by income approach and by institutional sectors in 2012 provides the following Table 1.6.

Table 1.6 Main components of GDP by income approach, 2012, CZK mil. Non- Financia General Total financial l House- govern- NPISH economy corpora- corpora- holds ment tions tions S.1 S.11 S.12 S.13 S.14 S.15 Compensation of D.1 1 663 468 1 221 057 60 021 286 692 79 194 16 504 employees B.2g Gross operating surplus 1 546 511 1 062 462 90 633 190 794 198 391 4 231 B.3g Gross mixed income 455 601 0 0 0 455 601 0 D.29 Other taxes on production 22 251 12 325 4 539 922 4 365 100 Other subsidies on D.39 49 789 40 574 12 0 9 203 0 production (-) B.1g Gross value added 3 638 042 2 255 270 155 181 478 408 728 348 20 835 D.21 Taxes on products 485 181 D.31 Subsidies on products (-) 81 613 B.1g Gross domestic product 4 041 610 25. The overview on direct and indirect methods of estimating GDP by income approach is presented in the following Table 1.7.

Table 1.7 The structure of compilation of income components of GDP, 2012, CZK million D.1 B.2g B.3g D.29 D.39 B.1g Other Other Compensa- Gross Gross Gross taxes on subsidies % tion of operating mixed value produc- on produc- employees surplus income added tion tion (-) Surveys & Censuses 1 168 043 943 757 0 44 918 81 053 2 075 665 5 Administrative 7 386 440 10 757 248 456 6 110 3 128 648 635 1 Records 7 Combined Data 47 596 –21 697 0 135 0 26 034 0 Extrapolation and . 2 638 450 336 3 674 2 111 0 458 759 1 Models 2 Data validation –1 184 –9 787 –52 59 –633 –10 331 – Conceptual 0 17 856 88 502 –13 912 –31 082 –33 759 95 123 2 adjustments . Exhaustiveness 44 946 78 921 215 390 0 0 339 257 9 adjustments . Balancing –2 867 5 722 2 045 0 0 4 900 0 . Total adjustments 58 751 163 358 203 471 –31 023 –34 392 428 949 2 4 Final estimate 1 663 468 1 546 511 455 601 22 251 +49 789 3 638 042 1 0

26. The role of extrapolation methods and models in income approach to estimating GDP is limited as well as in production approach. Indirect calculating methods represent 24.4% of GVA, it was 429 bn. CZK in 2012. GVA is by 75.6% based on surveyed data grossed up to the universe of active economic subjects. Compensation of employees is by 96.3% based on surveyed data. Extrapolation methods and models have the largest share on indirect methods estimating GDP, they represent 12.6% GVA. Exhaustiveness adjustments amounted 9.3% of GVA. Conceptual adjustments represent 2.6% of GVA.

5. Outline of the expenditure approach

1. Overview of GDP and expenditure components can be found in the following Table 1.8.

Table 1.8 Expenditure approach to GDP, 2012 Sector Indicator S.1 S.11 S.12 S.13 S.14 S.15 Final consumption expenditure 2 780 580 0 0 782 666 1 970 568 27 346 Gross fixed capital formation 1 052 110 685 422 27 829 156 213 177 826 4 820 Net acquisition of valuables 6 010 53 -867 158 6 662 4 Changes in inventories 3 115 3 293 289 1 246 -1 773 60 Export 3 097 248 Import 2 897 453 Gross domestic product 4 041 610

2. Expenditure components are compiled independently. Reconciliation with production and income approaches is done within supply and use tables where commodity flows are balanced.

3. Various data sources are employed in order to estimate expenditure components of GDP. The main sources for final household consumption expenditure are household budget survey, retail trade statistics, energy statistics and administrative data sources (amount of money bet and won in gambling). Integral Information System of the State Treasury, data of social insurance companies and statistical surveys represent the main data sources for compilation of final government consumption expenditure. Compilation of final consumption expenditure of NPISH is based on statistical surveys.

4. Data sources for gross fixed capital formation are statistical surveys, especially in sector S.11, S.12 and S.15. Administrative data source (Integral Information System of the State Treasury) is used for government sector, tax statements on income tax are used for households. is Foreign trade statistics based on Intrastat, Extrastat and tax statements on value added tax are the main data source for compilation of Exports and Imports. Statistical survey ZO 1-04 and balance of payment statistics serve as data sources for Export and Import of services compilation.

5. 1.0.5 Concept of indicators in data sources is usually different to definition that is required by ESA 2010. Therefore several adjustments are carried out (conceptual, adjustment to exhaustiveness) in order to produce final estimate in line with ESA 2010.

6. Data on dwelling services, purchases of residents abroad, expenditure of financial services and institutional households are added within extrapolation and models to final household consumption expenditure. Conceptual adjustments include following items in final household consumption expenditure: FISIM, wages in kind, insurance services, pension entitlements, car registration fee and expenditure on toll. Adjustments to exhaustiveness consist of: N2 (prostitution, drugs), N3 (agriculture self-supply, household services produced by employing staff), N6 (misreported personal consumption of entrepreneurs), and N7 (wage in kind).

7. Final consumption expenditure of NPISH is quite small (less than 1 % of GDP) in the Czech Republic. The most important adjustments are extrapolations and consumption of fixed capital that is a part of other non-market output.

8. Number of adjustments to final government consumption expenditure is limited. The most important extrapolation is consumption of fixed capital that is estimated within PIM. No adjustment to exhaustiveness is carried out as all units are covered by administrative data sources or statistical surveys.

9. More adjustments are performed in gross fixed capital formation as the concept of investment in business accounting is different to definition of GFCF in ESA 2010. The most important extrapolations are Research and Development (60 583 mil. CZK), own account produced software (22 696 CZK mil.). Concerning conceptual adjustment the most important is small tools (81 739 CZK mil.). Acquisition of these small tools is considered as gross fixed capital formation in national accounts but current costs in business accounting. Individual housing construction (N3) is included in adjustments to exhaustiveness only. Net acquisition of valuables is not significant in the Czech Republic. Its estimate is based on commodity flow method.

10. Changes of inventories are not surveyed directly. Stocks of inventories are surveyed. They are subsequently transformed from business accounting concept to national account concept. This transformation means revaluation to current prices of particular period and estimate of holding gains / losses. Inventories of standing timber are added within extrapolations.

11. The main source for exports and imports of goods is foreign trade statistics. Goods for processing and goods for operational leasing are excluded within conceptual adjustments. Merchanting (trading activity abroad) is added. Adjustments to exhaustiveness include exports of drugs and tobacco products. Following conceptual adjustments are done to exports of services: processing services, FISIM and insurance services. Purchases of non-residents on business and study trips are estimated within extrapolation. Adjustment to exhaustiveness includes exports of prostitution (N2).

12. Imports of goods is compiled similarly to exports of goods. The main data source is foreign trade statistics; goods for processing and goods purchased on operational leasing are subtracted. Merchanting, undedelivered shipments and goods purchased in ports and airports are added. Imports of illegal products (N2) are also added: fuels, tobacco products, drugs and goods with copyright. Adjustments to imports of services are similar to adjustments to exports of services.

6. The balancing or integration procedure, and main approaches to validation

1. Gross domestic product is estimated by production, expenditure and income approach in the Czech Republic. Production and expenditure approach is estimated independently. Balancing difference is solved within balancing of commodity flows in supply and use tables. Income method is estimated when production approach is compiled. It means that income approach is dependent on production approach and net operating surplus and mixed income are balancing items.

2. Supply and use tables are compiled for each version of annual national accounts. Time series of supply and use tables have been available since 1990 in the Czech Republic. Supply and use tables for preliminary version and extraordinary revisions are prepared within programme MS Excel. Commodities are divided into 88 product groups (CPA 2 digit level), number of industries is the same as in sector accounts (120). Next version of supply and use tables is compiled using SNA-NT software that is based on ORACLE database. The main advantage is almost no limit for number of product groups. About 200 product groups are used, for selected product groups more detailed breakdown is applied due to deflation (e.g. processing services, merchanting, agriculture self-supply, imputed rent).

3. Structure business statistics, transformation keys among classifications and model calculation are applied in order to compile supply and use tables. When supply and use tables are compiled balancing differences between supplies and uses for each product group are identified. During balancing process values of macro aggregates are adjusted in order to settle balancing differences. Industrial production index, trade statistics, energy statistics, transportation statistics etc. are used as auxiliary data sources.

4. Iterative method RAS is applied to intermediate consumption only. No other macro aggregates are changed using iterative methods. All macro aggregates may be adjusted by manual balancing. Balancing adjustments are incorporated to sector accounts. It means that sector accounts are fully consistent with supply and use tables.

5. Balancing of SUTs is carried out by balancing team whose leader is Head of Input-Output Tables Unit. Each member is responsible for balancing of groups of products (industries) that are assigned to him / her. Leader of the team coordinates balancing process. Balancing adjustments are recorded in balancing protocols.

6. Revaluation of GDP and its components to constant prices is carried out in supply and use tables. Chain-linked method is applied; supply and use tables are revaluated to previous year’s prices by year-on-year price indices. Supply and use tables at purchasers’ prices are transformed to basic prices in which deflation is carried out. Subsequently, deflation of valuation sets (VAT, taxes on products other than VAT, subsidies on products and margins) is one separately. Finally, supply and use table at previous year’s prices, purchaser’s prices are estimated, see the following scheme:

Scheme 1.1 Compilation process of supply and use table at previous year’s prices, purchaser’s prices

7. Gross value added is deflated within double deflation method, i.e. output and intermediate consumption are deflated separately. Volume indices of GVA are compared to volume indices in industrial statistics, construction statistics, statistics of services etc. Potential inconsistency is discussed with our colleagues responsible for business statistics.

8. Income approach is compiled when supply and use tables are balanced. Balancing adjustments to GVA are based on balancing of supply and use tables. Balancing adjustments to other components are not carried out with exception of compensation of employees. Data from business accounting (statistical and administrative) and data from sample total labour cost survey are used. Balancing adjustments are mainly allocated to non-financial corporations and household sectors. 9. When gross fixed capital formation is compiled it is necessary to verify the equality between the acquisition and disposal of used fixed assets. Balancing of used assets consists of two parts: balancing of purchases and sales of used fixed assets and more important balancing capital transfers in kind. Balancing is carried out for each type of asset separately. Balancing adjustments are allocated to sectors and industries in which shares of grossed-up data are higher.

10. Last type of validation is cross-checks between different data sources. The first type of cross-checks are performed between different types of administrative data, the second one between statistical data sources and the last type of cross-checks are carried out between administrative and statistical data sources. Currently, some of cross-checks are performed irregularly. Cross-checks will be extended when new technological environment is implemented.

7. Overview of the allowances for exhaustiveness

1. The Czech statistical office has been compiling its national accounts with the aim to create consistent, reliable and exhaustive national accounts fully in compliance with ESA 2010.

2. During 1990’s exhaustiveness of the national accounts became an important issue in European Union (EU). The legal basis for the work on exhaustiveness is the Commission Decision on Exhaustiveness, of 22 February 19941. EU pays big attention to exhaustiveness not only because it is a key element of statistical quality but also because a lack of exhaustiveness in the national accounts, in particular in the main aggregates, GDP and GNP, has important consequences for EU resources and for the allocation of EU structural and regional funds.

3. Since 1996 Eurostat worked closely also with EU Candidate Countries on the improvement of exhaustiveness of their national accounts. The most important activity concerning exhaustiveness undertaken by Eurostat with the Candidate Countries, in which the Czech republic participated, has been the Pilot Project on Exhaustiveness, 1998 (PPE) and the Candidate Country Exhaustiveness Project, 2002 (the Project). These projects were focused on the measurement of all components of the non-observed economy (NOE), to achieve exhaustiveness of the national accounts in the Candidate Countries by improving the quality and reliability of the regular statistical processes underlying the national accounts and of the exhaustiveness adjustments that are a necessary complement to estimates resulting from such processes2.

4. The tabular approach to exhaustiveness is a suiTable tool for exhaustiveness depiction in CzNA, and it became the integral part of the annual process of compiling GDP estimates in the Czech Republic.

5. The tabular approach is based on the division of all productive activities according to their potential for non-exhaustiveness, a standard set of non-exhaustiveness types labelled N1 to N7 was created for analytical reasons. The breakdown of the N1 to N7 types is suited best to estimates compiled by the output approach but can be applied to analysis by the income and expenditure approach as well.

1 The Decision states that GNP and GDP are exhaustive when they cover not only production, primary income and expenditure that are directly observed in regular statistical surveys or administrative files, but also include production, primary income and expenditure which are not directly observed via these sources.

2 Candidate Country Exhaustiveness Project, 2002, General Guidelines, s. 4. 6. The set of non-exhaustiveness types is defined as follows:

N1. Producers deliberately not registering –underground. Producer deliberately fails to register as legal entity or as entrepreneurship in order to avoid tax and social security obligations N2. Producers deliberately not registering – illegal. Producer deliberately fails to register as legal entity or as entrepreneurship because it is involved in illegal activities. N3. Producers not required registering. Producer is not required to register because it has no market output + Producer has market output but at such small scale that it is below the level at which it is expected to register as an entrepreneur. N4. Legal persons not surveyed (updating statistical register). The legal person is of type that is systematically excluded from the business register + the legal person should in principle be included in business register but is not actually included + the legal person is in the business register but not subject to survey because classification data (activity code, size code, geographic code) are incorrect + a part of legal person is not subject to survey because profiling data concerning producing units into which the legal person is divided (e.g., establishments) are incorrect + the legal person is in the business register with correct classification and profiling data but excluded from survey frame. N5. Registered entrepreneurs not surveyed. The statistical office does not conduct a survey of registered entrepreneurs + the registered entrepreneur is not in the list of registered entrepreneurs available to the statistical office + the registered entrepreneur is in a list of registered entrepreneurs available to the statistical office but is systematically excluded from any survey of entrepreneurs + the entrepreneur is in principle in scope for a survey of entrepreneurs but in practice is excluded from the survey frame because the classification data (activity code, size code, geographic code) are incorrect. N6. Producers deliberately misreporting. Gross output is under-reported and/or intermediate consumption is over-reported in order to evade income tax, value added tax (VAT) or other taxes, or social security contributions. N7. Other statistical deficiencies. As a minimum, data sources and compilation methods in the following areas should be investigated for possible non-exhaustiveness: handling of non-response + production for own final use by market producers + tips + wages and salaries in kind + secondary activities.

Production approach 7. The production approach is regarded in CzNA as the key compilation method referring to the availability of data sources and execution of methodological adjustments and estimates for exhaustiveness. Ensuring exhaustiveness the following types of possible non-exhaustiveness in Table 1.9 have been identified.

8. The group of producers who are deliberately not registered (N1) in Czech conditions consists of small producers with annual income above certain threshold level. The estimate of the output of such producers is based on results of the balance of labour, the results of LFS and on the analysis of commodity flows in the supply and use tables.

9. We have recognised and estimated four types of illegal activities (N2): prostitution, production and consumption of drugs, alcohol and tobacco, sales of stolen goods and smuggling, tax evasion and production, fraud with fuels and copyright infringement. All estimations are included in the Czech national accounts. The sources employed for the estimation of illegal activities comprise crime statistics on stolen cars processed by the police and statistics of foreign trade and Custom Service and both external and internal studies.

10. The category Producers not required registering (N3) concerns three types of activities - informal sector (under-threshold occasional production activities in agriculture and household personnel services), individual housing construction and own-account production of agricultural goods.

11. The estimate for the category Legal persons not surveyed (N4), which comprises active units not surveyed due to an insufficiently up-to-date register, is no longer prepared in CzNA, as the Czech Business register is regularly updated using different kinds of information and is supposed to be sufficiently updated.

12. The category Registered entrepreneurs not surveyed (N5) includes units showing some kind of economic activity for which they do not need to be registered in the Business Register but are registered elsewhere. The estimate is based on personal tax returns data (DS.15) and on model for estimate dwelling services in rented households dwellings (see N05A in Annex 1).

13. The estimation of deliberately misreporting (N6) of officially reported data (underreporting of income and overstatement of expenses) is based on a special survey aimed on accountants, tax and financial advisors and auditors. Within this category it takes into account undeclared work, which is based on labour productivity in particular sector.

14. Other statistical deficiencies (N7) in the Czech national accounts relate to wages and salaries in kind and tips.

Table 1.9 Overview of adjustments by production approach, 2012, mil. CZK %

Gross value o Production Intermediate % B1.g of total added f (P.1) consumption (P.2) exhaustiveness (B.1g) G D P Type of non- 0 exhaustiveness . N1 17 213 3 449 13 764 4.06 adjustment 3 4 0 . N2 32 140 8 033 24 107 7.11 6 0 0 . N3 130 579 94 510 36 069 10.63 8 9 N4 0 0 0 0.00 0 . 0 0 0 . N5 35 948 10 897 25 051 7.38 6 2 5 . N6 162 156 -62 509 224 665 66.22 5 6 0 . N7 15 601 0 15 601 4.60 3 9 8 . Total 393 637 54 380 339 257 100.00 3 9

Income approach 15. The income approach to GDP estimates makes use of the same data sources and non- response estimation procedures as the production approach; therefore the same non-exhaustiveness types are appropriate. However, as GDP estimate using the income approach is not independent in CR, the exhaustiveness adjustments for the income approach do not provide much additional information.

16. To ensure exhaustiveness of individual income components of GDP, increased attention was paid to estimates of wages and salaries in kind, tips, wages of household personnel and of wages in the framework of intentional distortion of reported data.

Expenditure approach 17. Similarly to the previous two approaches to measuring GDP, appropriate estimates to ensure exhaustiveness in the expenditure approach are prepared as well. The same types of non- exhaustiveness (N1-N7) are used. However, as the division of non-exhaustiveness types is based on breakdown of producers, in cases where the data sources for an expenditure component are different from production approach is difficult to determine what are to be regarded as basic data and what are regarded as adjustments.

18. The estimate of Household final consumption expenditure (HFCE) is based primarily on household budgets statistics. These data are in some cases supplemented or completely replaced by data from other sources or expert estimations, if these are considered to be more precise and reliable. Such adjustments are mostly regarded as exhaustiveness adjustments; this applies to the following areas:

Illegal services – prostitution (N2) – the estimation is based on special research. Production of agricultural products for own final consumption (N3) - the estimation is derived from three data sources: household budgets statistics, Farm Accountancy Data Network and the Forestry report published by Ministry of Agriculture. Private consumption of entrepreneurs (N6) is based on calculation of hidden economy, in this case namely on estimation of over-reported material and service costs. Consumption of products received as wage in kind (N7). 19. The treatment of Gross fixed capital formation in CzNA is dependent to a large extent on the treatment of this concept in business accounting. Mostly the same data sources like those used for the calculation of output and intermediate consumption are also used for the compilation of acquisition of non-financial assets account.

20. For gross fixed capital formation the adjustments for individual housing construction, including reconstructions (N03B) have been made only.

21. To ensure exhaustiveness in the field of exports and imports of goods and services, exports and imports of prostitution services (N02A), exports and imports of drugs (N02B), exports and imports of illegal tobacco (N02C), imports of illegal alcohol (N02D) and illegal import of fuels are estimated.

8. The transition from GDP to GNI

Introduction 1. Gross National Income (GNI) is the sum of Gross Domestic Product (GDP) and the balance of primary incomes of residents with non-residents. Individual items of primary incomes are recorded on the External account of primary incomes and current transfers, which means that the transition from GDP to GNI in practice is carried out through the data of the Rest of the World sector (S.2).

2. Balance of primary income of residents with non-residents, or net primary income (or net cross-border flows of primary income) is calculated as the sum of: the difference between the compensation of employees receivable by Czech residents from abroad and vice versa payable by Czech residents to non-residents, the difference of subsidies receivable from the EU institutions and taxes payable to the institutions of the EU and the difference between property income receivable from non-residents, respectively payable to non-residents.

3. An overview of these cross-border flows recorded in the National Accounts representing a transition from GDP to GNI for the year 2012 is shown in the Table 1.10; and the detailed structure is in the Table 8.1. The process of estimating these items is described in sections 8.1 to 8.4.

Table 1.10 Transition from GDP to GNI, 2012, CZK mil. Gross Domestic Product 4 041 610 Rec Primary incomes, total (receivable) 152 830 eiva Compensation of employees receivable from the RoW 27 968 ble Subsidies receivable from the institutions of the EU 31 688 fro m Property income receivable from the Rest of the World 93 174 non Interest 46 326 - Distributed income of corporations 11 969 resi dent Reinvested earnings on direct foreign investment 34 879 s Other investment income 0 Primary incomes, total (payable) 406 282 Pay Compensation of employees payable to the RoW 23 298 able Taxes on production and imports payable to the EU 6 378 to non Property income payable to the Rest of the World 376 606 – Interest 61 054 resi Distributed income of corporations 219 193 dent s Reinvested earnings on direct foreign investment 95 721 Other investment income 638 Balance of primary incomes -253 452 Gross national income 3 788 158 4. Several data sources are used by CZSO for compiling the accounts for the RoW, respectively cross-border flows of primary income. Each source is described along with the appropriate heading. There is very close cooperation between the CZSO and the Czech National Bank (CNB) in the compilation of accounts for the sector RoW. Competences of both institutions in this area are clearly defined – CZSO is responsible for compiling the entire sequence of accounts and non-resident sectors CNB is responsible for the compilation of the whole balance of payments (BoP) and international investment position (IIP). Close cooperation covers every item. For more information see Chapter 8.

5. Despite the close cooperation between the CZSO and the CNB in this area, it failed to fully align the outcomes of the two systems, neither in content nor in terms of revisions policy, although the both international methodological standards, SNA 2008 BOPM6, are in compliance. The reason of both is in essentially different requirements of international institutions (Eurostat vs. ECB) and the resulting different emphasis on different aspects, e.g. territorial structure, completeness capture, counterparty. More about the differences is in Chapter 8.

Compensation of employees 6. Cross-border flows of compensation of employees represent the total wages and salaries both money and in kind and employers’ social contributions, which resident employers provide to non- resident employees.

7. Non-residents are both economic subjects working in resident economy less than one year and cross-border workers. According to ESA 2010, this category includes seasonal workers, frontier workers, students and non-residents operating in foreign country for short time in order to obtain employment and wage.

8. Foreigners working in the resident economy for longer than one year are considered residents. The money they sent to their country of origin are considered remittances and recognised only as a secondary distribution of income account in the item D.75.

9. The estimates of the compensation of employees received from the RoW as well as the compensation of employees paid to the RoW are madeby the CZSO and the results are transmitted to the balance of payments to the CNB. By agreement between the CZSO and CNB, the CZSO makes a complex estimate including territorial structure. The estimate is based on data on the number of workers and average wages. This is so called indirect method of estimating the compensation of employees.

10. The compensation of employees received from the RoW is estimated using a quantitative approach as a product of the number of Czech workers abroad and their average wage. The calculation is done by the main countries where Czech residents work, and also distinguishing residents employed legally and illegally.

11. The principal sources of data to estimate the number of residents working for non-residents is the Labour Force Survey (LFS), broken down by country. The average salary of Czech residents working abroad is based on OECD statistics on monthly earnings of employees in each country. Average wages given in national currencies are converted into CZK by average exchange rate. Percentage of employers' social contributions (for legal employment) is taken as the same as domestic one. 12. Compensation of employees paid to non-residents by domestic employers is also estimated by quantitative methods as a product of the number of employees and average wages. Employers' social contributions are estimated at percentage according to the law of wages paid (only for legally employed). The whole calculation is carried out in a detailed structure by group of residents according to the economic activity, broken down by legal and illegal employment and country of origin residents.

13. The estimated number of residents working for the Czech residents is based on a combination of several different administrative sources. Data on average gross wages by citizenship are taken from the company's publication of TREXIMA respectively from their Information System on Average Earnings (ISPV).

Taxes on production and imports paid to the Institutions of the EU 14. The activities of EU institutions are partly funded by taxes charged by member states (first, second and third own source of funding consist from duties, sugar levies and VAT). However, the third EU own resource, derived from VAT, is calculated on the basis of collected taxes and calculated average rate of taxation; and in line with ESA 2010 is captured on secondary distribution of income account under heading D.761.

15. Customs duties are levied on behalf of the EU by the Czech customs administration; 75% is transferred to the EU budget, and the remaining 25% is revenue of the state budget intended to cover the costs associated with the collection of customs duties. In the national accounts, the transfer of duties to the EU institutions is recorded in the gross concept and 25% of the calculated amount is recorded as exports of services.

16. Sugar levies are collected by the State Agricultural Intervention Fund on behalf of the EU common agricultural policy. The prescribed amount of these levies is paid to the EU budget. They are recorded similarly as duties in the National Accounts.

Subsidies granted by the Institutions of the EU 17. The subsidy policy of the EU institutions is realised through a more funds. This is particularly the European Social Fund (ESF), European Regional Development Fund (ERDF), the Solidarity Fund (FOS), the Cohesion Fund (CF), the European Agricultural Guidance and Guarantee Fund (EAGGF). However, only a part of these flows are subsidies (D.3) within the meaning of the ESA 2010. Other parts of these flows are recorded in other items than D.3, i.e. in D.74, D.75 and D.92. Moreover, in most cases there is no direct flow between the EU subsidy provider and the final beneficiary. Mediator is the general government sector. So, proper quantification and classification of individual flows is very important for the correct calculation of the balancing indicators, both GDP and GNI, as well as the general government deficit.

18. Quantification of individual flows and their classification are carried out by the Czech Statistical Office in cooperation with government institutions that are intermediaries between EU funds and the final beneficiaries of subsidies.

Cross-border property income 19. Cross-border flows of property income arise from the ownership of financial assets and and leasing natural resources to non-residents, respectively if these assets and resources are given to be available to non-resident units. On cross-border flows of income from the use of financial assets (interest, dividends, withdrawals from income of quasi-corporations, reinvested earnings on direct foreign investment, property income attribuTable to insurance policy holders, investment income arising from accumulated pension entitlements and investment income attribuTable to shareholders of collective investment funds) and non-financial assets / natural resources (rent).

20. Due to the large direct investments of non-residents in the Czech economy in recent years the cross-border flows of property income are currently very important factor influencing the level of the Czech national disposable income.

21. Interest includes income from deposits, loans and securities other than shares and other equity (bills, bonds, debentures, etc.). Total figures on interest received from or paid to the rest of the world are taken from the primary income account, which is part of balance of payment compiled by CNB. Total amount of interest is sum of interest recorded in direct investments, portfolio investments, other investments and reserve assets.

22. Cross-border flows of interest for the year 2012 do not correspond to the amount of the Balance of Payments for two reasons: (a) CZSO took over into the final national accounts data from the non-revised Balance of Payments and (b) a different definition of financial institution sector and the related calculation of cross-border financial flows services indirectly measured (FISIM).

23. Distributed income of corporations includes dividends and withdrawals from income of quasi-corporations; the dividend represents absolute amount.

24. Dividends are a form of property income received by owners of shares. As owners of shares they are entitled to this income as a result of use of their capital by companies, in which it was placed. The source of information on dividends received from non-residents and paid to non-residents is balance of revenues in detailed structure. This balance of revenues is a part of the current account of Balance of Payments compiled by the CNB. Total amount taken over from the Balance of Payments is compiled as the sum of dividends on direct investments, dividends from portfolio investments and dividends paid by investment funds. But dividends recorded in the NA are different from dividends paid to non-residents recorded in the Balance of Payments due to the exclusion of super-dividends and "dividends" arising from the deliberate misreporting of income and expenditure.

25. Withdrawals from the income of quasi-corporations are an important item arising from two types of quasi-corporations, and foreign affiliates of resident companies and notional units created for the dwelling and land owned by non-residents. CZSO estimates are carried out on the basis of raw data from the survey (foreign affiliates) and data from the Cadastre (notional units).

26. Reinvested earnings on foreign direct investment represent retained net profit from foreign direct investments, respectively undistributed net disposable income resulting from the FDI. Data on reinvested earnings from foreign direct investment by residents or received from abroad are taken without any modification of the Balance of Payments (based on data from company accounts). Reinvested earnings on foreign direct investment by non-residents in the Czech Republic (payable abroad) are calculated by the CZSO based on the final national accounts data and information on the ownership structure. The Balance of Payments data are different based on the concept of corporate accounting.

27. Other income from investments in financial assets includes property income attributed to insurance policy holders, investment income arising from accumulated pension entitlements and investment income attribuTable to shareholders of collective investment funds. These flows of income from abroad are not included in national accounts for the year 2012. Estimates of property income attributed to insurance policy holders and investment income attribuTable to shareholders of investment funds have been carried out, but only after the deadline of the final version of National Accounts for that year. Calculation of Investment income arising from accumulated pension entitlements is not carried out due to lack of information on the involvement of non-residents into the pension schemes in the Czech Republic and the involvement of residents of the Czech residents in pension schemes abroad.

28. Rent on land and subsoil assets includes the royalties that accrue to owners of land and mineral or fossil fuels (coal, oil or natural gas) from tenants for access to natural resources. However, these cross-border flows are not estimated due to the absence of these flows. We assume that the tenant of land and other natural resources can only be residents (we assume that non-resident in the role of the tenant is resident).

9. Main classifications used

1. All classifications and nomenclatures used for compilation of the CzNA for 2012 are fully compatible with the international standards required by new European methodology of National Accounts ESA 2010. The most important classifications and nomenclatures are primarily Nomenclature of institutional sectors and subsectors (S), Nomenclature of income transactions (D), and Classification of economic activities CZ-NACE (fully compatible with classification NACE Rev.2) and, Statistical classification of products CZ-CPA, which were introduced from 1. 1. 2008. Other important classifications are Classification of individual consumption by purpose CZ-COICOP, Classification of function of government CZ_COFOG, Classification of services of non-profit organisations serving households CZ-COPNI.

2. More detailed information about using of all classifications and nomenclatures for compilation CzNA is described in the Chapter 9.

10. Main data sources used

1. For compiling the annual national accounts for the year 2012, a total of 88 different data sources were used. But only 44 of them are major sources used to calculate GDP by one of three methods or for the transition from GDP to GNI, see Box 1.2.

Box 1.2 The main sources of data used for calculating GDP and GNI Used for Code Source PRO INC EXP GNI OTH sectors S.11, S.125, Annual statistical survey in business units DS01 SH SH SH SP S.126, S.127, (P5-01) and S.13 statistical survey SH SH SH S.13,S.11001 S.11,S.126, statistical survey SH SH SH S.15 statistical survey SH SH SH S.112 SH S.13 S.121,S.122 SH SH SH S.122, S.124, S.125, S.126 AP S.126 SH SH SH S.128 SH SH SH S.129 SP S.11 SH S.1311, S.1 SH SH SH S.1314 SH S.1 S.11, S.12, AH AH S.14 AH S.2 AH S.2 AH AH AH S.1313 AH AH AH AH S.1311 S.1311, AH AH AH AH S.1313, S.11001 S.1311, AH S.1313, S.11001 S.1311, Note of financial statement AH AH AH S.1313, S.11001 AH AH AH S.1311 AH AH AH S.1311 AH S.1311 AH AH AH S.1311 AH AH AH AH S.1311 AP S.1311 S.13,S.11001 AH AH AH (and others) AH S.1311 AH S.1311 AP AP S.1311 AP S.1311 AP S.1311 AP S.1314 AP S.1314 AH AH AH S.1311 AP S.1311 AH S.1, S.2 AH S.121, S.122 AH S.121,S.122 AH S.122 AH S.122 AH S.122 AH S.122 AP S.122 AH S.122 AH S.123 AP S.123 AH S.123 AH S.129 AH S.128 AH AH AH S.129 AH AH AH S.128 S.1 AH AH AH AH S.1, S.2 SH S.14 SH SH S.1, S.2 AH S.1311 AH AH AH S.1311 AH S.1311 AH S.1 AH AH AH S.13 AH AH AH S.13 AH AH AH S.12 AH S.12 AP S.1 AP AH AH AH S.121 AP S.124,S.128 AH AH AH S.129 AH S.129 AH S.128 AH AH AH S.128 S.13, S.1001, SP SP SP SP (other S.1) AH S.13110 AH S.13110 AP AP AP S.128 SP S.11 S.11, S.12, SP S.13 SP S.1 SH SH S.13110, S.2 AP S.2 SP S.2 AP S.2 SP S.2 AP S.2

2. In recent years, some data sources disappeared, others are newly appeared, that is why the list of them has not a logical order. The letters in individual columns of different methods of calculating GDP or the transition from GDP to GNI generally characterise the source and its use. The data sources that have statistical nature are marked with the letter "S" (measured according to the Law on Statistics), while the data sources of an administrative nature are indicated by the letter "A". The second letter "H" indicates that it is a major source of data.

3. Deeper characterisation of each source of data is given in Chapter 10 of the Inventory, in a standardised format for the main and auxiliary sources. 11. Annex – overview of adjustments and methods

1. Annex 1 includes a detailed description of all conceptual adjustments, extrapolations and model calculations, and all adjustments made to ensure the exhaustiveness of the economy in the NA.

2. The reason for inclusion of all adjustments to a separate Annex 1 is their complete clarification. Methodical scope of individual adjustments is obviously more spread than is required in the individual Chapters 3 to 5, 7 and 8. Therefore, the reason of the adjustment is always just explained there and then its impact on the relevant indicators is quantified, but always with reference to the complete description of adjustments in the Annex 1.

3. Annex 1 is divided into three parts depending on the nature of the adjustments – conceptual adjustments (codes C), extrapolation and model calculations (codes E) and the adjustments made to ensure the exhaustiveness of the economy in the National Accounts (codes N).

Conceptual adjustments 4. In the first stage of the NA compilation the individual items in the national accounts are simply filled by data transferred from business accounts. In many cases, these data do not correspond conceptually to national accounts methodology, and there is need to adjust them in the next step, so we're talking about conceptual adjustments. Each of these adjustments are essentially treated separately in the required format, broken down into institutional sectors and subsectors, in the industries and commodities), and then transferred to the appropriate Tables of the entire system of annual national accounts - for example, to the sector Tables (SEK), industry Tables (SO and GFCF) and balance (BZ, BFK and BNA).

5. Conceptual adjustments are usually internally in balance, i.e. they do not cause imbalance (e.g. adjustment of wages in kind), but only unless they are partly already implemented in the data source taken from company accounts.

6. Overview of all conceptual adjustments made during the compilation of National Accounts for the year 2012 is shown in the Box 1.3. This list may not be fixed over the coming years, may change depending on changes in the methodology of corporate accounting.

Box 1.3 List of conceptual adjustments Code Name of adjustment C01A Holding gain/loss on inventories C02A Financial leasing C03A Goods sent abroad for processing C03B Processing services C03C Merchanting C03D Operating lease and other movements without change of ownership C03E Other adjustments of good C03F Overlap between goods and services due to outward processing C03G Re-routing C03H Export of administrative services C03I Margins by financial dealers C04A Wages and salaries in kind C04B Employee stock options (adjustment of benefits) C05A Travel expenses C06A Subsidies on production / on products C06B Real estate transfer tax C06C Subsidies from EU funds C06D Subsidies on the reduction of mining C06E Taxes - levy on lottery revenues C06F Highway fees and toll C06G Other taxes on production – the adjustment to the collected taxes C06H Car registration tax C06I Accrualisation of taxes C07A Insurance and reinsurance C07B Export Guarantee and Insurance Corporation – EGAP C07D Pension entitlements C08A Financial intermediation service indirectly measured C09A Capitalisation - exclusion of interior turnover C10A Adjustment for emission permits C10B Consolidation in the energy industries C11A Capitalisation of small tools over CZK 20 000 C11B Capitalisation of small assets to CZK 20 000 C12A Treatment of multi-territory enterprises C12B Capitalisation of weapons systems C12D Military inventories C13B Agency workers C13C Income from collective investment funds C13D Demonetisation of gold C13E Allocation of CNB output

7. Individual conceptual adjustments are grouped into thirteen groups. These groups were originally created systemically, but over the years, there were additional filling or cancelling adjustments in connection with changes in the methodology of corporate and national accounting, as well as the growth of knowledge of both.

Extrapolation and models 8. For some economic activities or transactions, it is impossible or very difficult to obtain data directly from statistical surveys or administrative data sources (such as imputed rentals, or the natural growth of standing timber). In these cases, the models are used. They are based on indirect information or extrapolation of the old data or on a combination of both approaches.

9. All these extrapolations and models are processed in the required format, broken down into institutional sectors and subsectors, and within industries, and also taking into account the commodity structure of supply and use tables. Final calculations are then transmitted to the appropriate Tables within the entire system of Annual National Accounts. 10. All model calculations are, by definition, balanced, i.e. they do not cause an imbalance.

11. Overview of extrapolation and model calculations made during the compilation of national accounts for the year 2012 is shown in the Box 1.4. This list may not be fixed over the coming years, it may change depending on changes in the data sources and access to them.

12. Individual extrapolation and model calculations are grouped into thirteen groups. Like conceptual adjustments, these groups were originally created systematically, but over the years the procedures previously used were additionally replaced or cancelled mainly due to changes in data sources and new requirements of national accounts, for example extended concept of assets.

Box 1.4 List of extrapolations and models Code Name of adjustment E01A Consumption of fixed capital E02A Output of dwelling services in owner-occupied dwellings – imputed rental E02B Intermediate consumption of dwellings E02C Output of dwelling services in dwellings rented – the rental paid E02D Housing cooperatives Benchmark extrapolations (missing data sources from annual survey of non-profit institutions NI 1- E03A 01) E03B Producers of renewable energy sources E03C Output of association of owners of units E04A Mineral exploration E04B Estimate of acquisition less disposals of valuables E06A Entertainment, literary or artistic originals E06B Mark-up factor for operating surplus E06C Capitalisation of software produced on own-account E06D Database and other specific types of fixed assets E07A Capitalisation of expenditures on research and development E08A Natural growth of forests (standing timber) E08B Damages on inventories E09A Privatisation of municipality and co-operative dwellings – transactions E09B New dwellings purchased by households from developers E09C Notional units –the land and dwellings in the economy on the Czech territory owned by non-residents E09D Notional units – dwellings and land owned by Czech residents abroad E10A Natural disasters E10B Households of non-residents E10C Pensions from abroad E10E Estimates of reinvested profits from foreign direct investment (FDI) E10F Foreign workers E10G CFC of land improvements E10H Other costs on ownership transfer E10I Opening balance sheet stocks of non-produced assets E10J Model estimates of items non-produced assets E10K Purchases by tourists E10L Institutional organisation consumption

Exhaustiveness adjustments 13. Data taken from surveys or administrative sources, even after grossing up to complete sets of units do not include the whole economy, neither all of their activities and nor all economically active units. Similarly as conceptual adjustments, the exhaustiveness adjustments are based on model estimates to reach entire economy. However, exhaustiveness adjustments are more focused on production and income approaches to estimate GDP. These adjustments help to the balancing of the whole system of national accounts.

14. All adjustments to ensure the completeness of economy are made in the required format, broken down into institutional sectors and sub-sectors, and within industries, and also taking into account the commodity structure of supply and use tables. Final calculations are then transmitted to the appropriate Tables within the entire system of Annual National Accounts.

15. Overview of all exhaustiveness adjustments made in the compilation of national accounts for the year 2012 is shown in the Box 1.5. Methods for estimating non-observed economy is coordinated by Eurostat and also the UNECE and the OECD, and therefore the list of adjustments corresponds, in principle, to their recommendations.

Box 1.5 List of exhaustiveness adjustments Code Name of adjustment N01A Producers deliberately not registering-underground N02A Illegal economy – prostitution N02B Illegal economy - drug trade N02C Illegal economy - tobacco products N02D Illegal economy - alcohol N02E Illegal economy - trafficking of fuel N02F Illegal economy - copyright infringement N02G Illegal economy - sales of stolen cars N03A Informal sector - Household services produced by employing paid staff N03B Individual Housing Construction N03C Informal sector - Agricultural self-supplying N03D Occasional under-threshold agricultural output of households N04A Business register updating N05A Registered entrepreneurs not surveyed N06A Producers deliberately misreporting N07A Other (Wages and salaries in kind) N07B Tips 16. The results of the non-observed economy estimates for 2012 are described in summarised form in Chapter 7.