134 Government Finance Statistics Manual 2014
Th ese payments are recorded as capital grants to
other general government units (2632) or as capi-
tal transfers not elsewhere classifi ed (2822).- Transfers to households (oft en called “subsidies”)
but intended to supplement household income
or defray household expense: Th ese do not relate
to production activities and should therefore be
included in the relevant category of social ben-
efi ts (27). - Increases in equity in corporate enterprises of
general government: Th ese are recorded as trans-
actions in the fi nancial instrument equity and
investment fund shares (3205) if an eff ective fi -
nancial claim is acquired (see Box 6.3). - Transfers made by a general government unit that
has assumed responsibility for pension claims on
public enterprises: Th ese payments are recorded
as capital transfers not elsewhere classifi ed (2822).- Payments made by general government to mar-
ket producers to pay entirely, or in part, for goods
and services that those market producers provide
directly and individually to households in the
context of social risks or needs and to which the
households have a right: Th ese payments are re-
corded as social benefi ts (27).
- Payments made by general government to mar-
Grants (26)
6.92 Grants (26) are transfers payable by govern-
ment units to other resident or nonresident govern-
ment units or international organizations and that do
not meet the defi nition of a tax, subsidy, or social con-
tribution (see paragraph 3.10). Grants are normally
payable in cash, but may also take the form of provi-
sion of goods or services (in kind). Grants payable are
classifi ed fi rst by the type of unit receiving the grant
and then by whether the grant is current or capital.Owners may inject signifi cant fi nancial support to capitalize or recapitalize a corporation. Such fi nancial support may
take various legal forms and its economic substance may also vary (see Figure A3.2). These payments from a government
unit, often referred to as “capital injections,” could be recorded as:- An expense, either as a subsidy or capital transfer, or
- A transaction in fi nancial assets/liabilities, either as an addition to equity or an issuance of a loan or securities
other than shares.
Recorded as an expense
If the enterprise is publicly controlled and runs a recurrent defi cit each year as a matter of government economic or
social policy objectives, and the defi cit is covered by a regular transfer receivable from government to match this defi cit,
the payment is regarded as a subsidy (see paragraph 6.89). If the payment from government is to cover large operating
defi cits accumulated over two or more years or exceptional losses due to factors outside the control of the enterprise, it
is recorded as a capital transfer (see paragraph 6.124). Similarly, if government makes an investment in a public corpora-
tion without a reasonable expectation of a realistic rate of return on the investment, or without receiving anything of
equal value in exchange, this is also recorded as a capital transfer. The latter includes investments in quasi-corporations
with negative imputed equity (see paragraph A3.53).Recorded as transactions in fi nancial assets/liabilities
There may be cases where the owners agree to make new fi nancing available to permit expansion, and where such
fi nancing establishes an effective claim on the public corporation. Such fi nancing could consist of funds for use by the
enterprise according to its need, including purchasing fi xed assets, accumulating inventories, acquiring fi nancial assets,
or redeeming liabilities. Where evidence of a contractual fi nancing agreement exists, these could constitute the issuance
of a specifi c fi nancial asset, such as loans, for government and the incurrence of a corresponding debt instrument by
the public corporations. Without evidence of a specifi c fi nancing agreement, such payments are to be included as the
acquisition of equity in the public corporation even if no new shares are issued in response to the fi nancial contribution.
In such a case, government, acting in the same capacity as a private shareholder, provides funds while receiving contrac-
tually something of equal value in exchange (i.e., increased value of its equity) and expecting to earn a suffi cient rate of
return on its investment, in the form of dividends (as a return on equity). Treatment of these payments as the increase in
equity depends on evidence of the corporation’s profi tability and its ability to pay dividends in future.Box 6.3 Transactions with Public Corporations