Monitoring GNI for own resource purposes

Planned article update: December 2018

The European Union (EU) has its so-called 'own resources' to finance its expenditure. Own resources are of three kinds:

This article takes a closer look at GNI and the way in which it is used and monitored to finance the EU own resources.

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Introduction

The GNI own resource is a uniform percentage rate applied to the GNI of each Member State (Article 2(1c) of Council Decision 2014/335 on the system of the European Communities’ own resources (Own resource decision)). It has become the largest source of revenue and today accounts for around three quarters of total EU revenue.

GNI data used for own resource purposes are governed by Council Regulation (EC) No 1287/2003 of 15 July 2003 on the harmonisation of gross national income at market prices (GNI Regulation), which lays downs the definition and calculation of GNI and the provisions for the providing of the data and additional information by Member States to the Commission (Eurostat). The GNI Regulation also establishes the procedures to facilitate the verification, and where necessary the improvement, of the comparability, reliability and exhaustiveness of Member States’ estimates of gross national income (GNI). A new GNI regulation that will along with the mentioned Own resource decision constitute the new legal framework for the own resources of the EU is being prepared.

Article 2(7) of the Own resource decision states that GNI shall be defined in accordance with the European system of national and regional accounts (ESA 2010). GNI represents total primary income receivable by resident institutional units: compensation of employees, taxes on production and imports less subsidies, property income (receivable less payable), gross operating surplus and gross mixed income. It corresponds to the better known gross domestic product minus primary income payable by resident units to non-resident units, plus primary income receivable by resident units from the rest of the world.

Together with a report on the quality of GNI, each Member State returns an annual questionnaire including its GNI to the Commission by 22 September for the preceding year and any changes made to the figures for previous years. These annual GNI returns are checked by Eurostat officials and are then formally presented for examination to the GNI Committee, which is composed of representatives of the Member States and chaired by Eurostat, at its late October meeting (the Committee generally meets two times per year). The GNI Committee adopts a formal opinion on the appropriateness of the data as a basis for the determination of GNI-based budget contributions.

Furthermore, Eurostat verifies the sources and methods used by the Member States to calculate GNI and is assisted in this task by the GNI Committee. Eurostat takes its decisions as regards the processes, methods, standards, procedures, contents and timing of the verification activities independently, while the Directorate-General for Budget (DG BUDG) of the Commission is informed about the verifications. Although the responsibility for monitoring the Member States' GNI data and calculation methods is vested in the Commission, it should be underlined that this requires full cooperation from the respective national authorities who control the production of the GNI data, in particular with regard to the need for them to fully report on any major changes to sources and methods used for the compilation of the national accounts.

Verification activities by Eurostat and the GNI Committee

According to Article 5(1) of the GNI Regulation, Eurostat shall verify the sources and methods used by Member States to calculate GNI.

Eurostat's verification of GNI for own resource purposes is based on two pillars:

  • verification of the procedures and basic statistics used to calculate GNI;
  • verification of the data transmitted in the GNI Questionnaires and the Quality Reports.

These main pillars of verification are described below.

Verification of the procedures and basic statistics used to calculate GNI

The new ESA 2010 verification cycle

The ESA 95 verification cycle led to placing more than four hundred reservations on EU Member State's GNI data. The Commission finalised in cooperation with the EU Member States most of the work related to the ESA 95 verification cycle end of 2016. Only one GNI (ESA 95) reservation for one Member State is still open.

Framework documents for the new ESA 2010 verification cycle were prepared by Eurostat and approved by the GNI Committee. For the ESA 2010 verification cycle an enhanced control approach based on a two-step risk analysis is applied. The Outline of the control approach and related framework documents are available here.

GNI Inventories

Article 3 of the GNI Regulation foresees that Member States provide Eurostat with an up-to-date inventory of the sources and methods used to calculate GNI and its components according to ESA (the GNI Inventories). These inventories are one of the main instruments enabling Eurostat to assess the comparability, reliability and exhaustiveness of the Member States’ GNI data. The inventories also include Process Tables showing all stages of the national accounts compilation process, from the statistical sources to the published national accounts data.

Member States are required to draft their GNI Inventories and Process Tables according to an agreed structure approved by the GNI Committee in order to ensure that their contents are fully comparable. Since the sources and methods for compiling final GDP and GNI data do not change significantly every year, but only during major revisions at longer intervals, it is not necessary to rewrite the GNI Inventories every year. As a general rule, countries update their GNI Inventories within one year of a major benchmark revision, or, where no benchmark revision policy exists, at least every five years. Changes to GNI figures and the changes made to sources and methods used for the final national accounts estimates are presented in the annual GNI returns.

Eurostat checks the GNI Inventories and Process Tables using a GNI Inventory Assessment Questionnaire (GIAQ) approved by the GNI Committee. The purpose of the GIAQ is to ensure a systematic, consistent and fair approach to the assessment of the quality of GNI data. Areas of national accounts identified in the risk analysis as high risk for all EU Member States are subject to cross country analyses.

GNI information visits

Article 6 of the GNI Regulation foresees joint GNI information visits to be carried out in Member States by the Commission's services and representatives from other Member States. The representatives from other Member States are invited to participate in the GNI information visits in order to ensure full transparency.

The visits aim at collecting additional information that is necessary to identify possible weaknesses of the GNI Inventory, of the statistical sources and methods used to calculate GNI and its components. In this context information is also collected on the supervisory and control systems of national statistical institutes. In preparation to an information visit, Eurostat transmits a list of questions for clarification to the Member State concerned. The national statistical institute (NSI) is asked to answer the advance questions preferably in written before the mission. Issues that need further clarification are then discussed in the meetings with the NSIs.

Direct verification is a supplement to the verification of the countries' GNI Inventories and Process Tables and carried out at the premises of the NSI. The principal objectives of direct verification are to verify whether the descriptions of sources and methods in the GNI Inventory adequately reflect the compilation practices actually applied and whether the basic data as shown in the sources have been transformed in an appropriate way into the national accounts figures provided by the Member States for the GNI own resource. Direct verification meets guidelines approved by the GNI Committee. These guidelines give principles on the selection of areas for direct verification, on the construction of a verification trail from the selected national account component down to the source data, and on organisational aspects. The guidelines also lay down the requirements for documentation of the direct verification exercises.

Mission reports and action points

The result of a GNI information visit is a report with action points for the country to introduce methodological changes, or to clarify or supplement the information contained in the GNI Inventory. Mission reports (together with the timetable for the implementation of action points) are agreed between Eurostat and the NSIs and are submitted to the GNI Committee for information and discussion. Action points are broken down into the following three categories:

  • action points "A": possible improvement of methodology required;
  • action points "B": submission of new information, clarification or correction of already existing information in the GNI inventory;
  • action points "C": points to be implemented by Eurostat.

The list of action points agreed at the mission is not a final list of action points, nor a list of reservations. Further action points can be added at any time resulting from the verification work.

Reservations

Reservations are points on which the Commission has notified a Member State that changes to the methodology underlying the GNI figures should be made, so that these figures are improved in a certain respect.

Verification of the data transmitted with the GNI Questionnaires and Quality Reports

Article 2(2) of the GNI Regulation stipulates that the Member States provide Eurostat with figures for GNI and its components for the preceding year and any changes made to the figures for previous years before 22 September of each year (the GNI Questionnaires). Article 2(3) states that the Member States transmit a report on the quality of the GNI data to Eurostat when they communicate the data (the Quality Reports). The main purpose of the annual GNI quality reports is to provide information on cases where there have been significant changes to and revisions of the Member States’ GNI calculations. The quality report is therefore intended to give a brief and concise update on a Member State’s methodology, sources and results where necessary.

The structure and format of the GNI Questionnaires and Quality Reports to be transmitted by the countries is approved each year by the GNI Committee. Member States must meet approved guidelines for the GNI Questionnaires and Quality Reports to ensure that comparable information is notified.

The verification by Eurostat is based on a checklist addressing the formal and numerical correctness of the tables delivered, the consistency of the data over time and the consistency of the data with otherwise published national account data and the work on GNI reservations and action points. The NSIs can be asked to provide any clarifications on the data and on the Quality Report and to send corrections.

Article 5(2) of the GNI Regulation provides for the GNI Committee to examine each year the data transmitted by the Member States and to give an opinion on the appropriateness of the data for own resource purposes with respect to reliability, comparability and exhaustiveness. A document that includes the transmitted data and Quality Reports as well as comments on the revisions is presented at the end of October of each year to the GNI Committee for a full discussion and examination. The opinion of the GNI Committee is annexed to the minutes of the Committee meeting.

The annual GNI data and the opinion of the GNI Committee are then transmitted to DG BUDG for the purpose of budgetary calculations.

Examination of the Commission’s controls by the European Court of Auditors

The Commission’s work on controlling and verifying the Member States’ GNI data is thoroughly examined by the European Court of Auditors on an annual basis. A detailed account of the Court’s activities with respect to the GNI own resource can be found in its Annual Reports on the Implementation of the Budget.

GNI data in 2017

The following table shows the data submitted by Member States in 2017 and approved by the GNI Committee in November 2017. Data revisions compared to 2016 are also included.:

It should be noted that the GNI data for own resources differs from the GNI data published in Eurostat’s database:

In the first instance and in accordance with the existing law, GNI for own resources for the years until and including 2013 is still compiled using the European System of National Accounts ESA 95, whilst the published series uses ESA 2010.

Second, under the rules of own resources, revisions can only be made to data for the past four years, unless such revisions are made in the context of work aimed at lifting reservations placed by the Commission on various aspects of the GNI calculations. So, for example, revisions due to improved statistical sources introduced in 2016 must be applied to the GNI own resource data for years 2012 to 2015 only, unless the matter is under reservation, whilst they can be included in the published series for previous years as well.

It should be mentioned that the impact of the allocation of Financial Intermediation Services Indirectly Measured (FISIM) to user sectors are taken into account for own resource purposes only from 1 January 2010 (see Council Decision of 16 March 2010 on the allocation of financial intermediation services indirectly measured (FISIM) for the establishment of the gross national income (GNI) used for the purposes of the European Union's budget and its own resources (2010/196/EU, Euratom)).

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