WORKING PARTY ON NATIONAL ACCOUNTS WPNA OCTOBER 2004

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WORKING PARTY ON NATIONAL ACCOUNTS (WPNA)OCTOBER
2004

• THE TREATMENT OF LAND IMPROVEMENTS

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THE TREATMENT OF LAND IMPROVEMENTSOutline

• The current SNA treatment of land improvements
  and its rationale
• Concerns with it
• Proposals for change

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THE TREATMENT OF LAND IMPROVEMENTS Current SNA

• Land improvements are GFCF
• On the balance sheet, land improvements are
  included with land as non-produced assets
• The decline in value of land improvements is
  recorded as CFC
• COTL is treated likewise until land is sold, then
  written off

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THE TREATMENT OF LAND IMPROVEMENTS Current SNA
para 10.51

• Acquisitions that lead to major improvements in
  the quantity, quality or productivity of land, or
  prevent its deterioration, are treated as GFCF.
  They consist of acquisitions related to the
  following kinds of activities

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THE TREATMENT OF LAND IMPROVEMENTS Current SNA
para 10.51

• Reclamation of land dykes, sea walls, dams
• Clearance of forests, rocks, etc.
• Draining marshes, irrigation of deserts by dykes,
  ditches, irrigation channels
• Prevention of flooding or erosion by sea or
  rivers breakwaters, sea walls, flood barriers

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THE TREATMENT OF LAND IMPROVEMENTS Current SNA
para 10.52

• Land improvements ..are not in themselves used
  directly to produce other goods and services in a
  way that most structures are. Their construction
  is undertaken to obtain more or better land, and
  it is the land, a non-produced asset, that is
  needed for production. For example, a dam built
  to produce electricity serves quite a different
  purpose from a dam built to keep out the sea.

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THE TREATMENT OF LAND IMPROVEMENTS Current SNA
para 10.53

• Acquisitions of tunnels and other structures
  associated with the mining of mineral deposits,
  etc., are classified as GFCF and not as
  improvements to land.

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THE TREATMENT OF LAND IMPROVEMENTS -CONCERNS
WITH THE CURRENT TREATMENT

• The current SNA treatment seems odd.
• Land improvements are recorded as GFCF but are
  also recorded as non-produced assets on the
  balance sheet
• CFC is recorded in respect of a non-produced
  asset.

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THE TREATMENT OF LAND IMPROVEMENTS -CONCERNS
WITH THE CURRENT TREATMENT

• Much of the value of rural land in long-settled
  countries has been so greatly changed that it is
  felt that land improvements account for the bulk
  of the total composite value of land in many
  cases.
• Some countries are unable to obtain estimates of
  the total value of land, and they can only
  estimate land improvements.

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THE TREATMENT OF LAND IMPROVEMENTS -CONCERNS
WITH THE CURRENT TREATMENT

• It is difficult to draw a line between land
  improvements and structures. Are dams to provide
  water for animals and access roads to farms land
  improvements? Is a wind-driven water pump for
  irrigation a land improvement? The pipes that
  carry the water from the pump?
• Once a line is drawn, it is difficult to get
  accurate estimates by survey.

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THE TREATMENT OF LAND IMPROVEMENTSOPTIONS
CONSIDERED BY CII

• Leave the SNA as it is
• Classify land as either produced or non-produced
  according to how much land improvements
  contributed to total value
• Identify land improvements as produced assets and
  unimproved land values as non-produced
• Treat land improvements in the same way as
  buildings and structures. This means adopting
  option 3 where possible and option 2 where not.

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THE TREATMENT OF LAND IMPROVEMENTSOPTIONS
CONSIDERED BY CII

• The majority of Canberra II members favour option
  4.

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THE TREATMENT OF LAND IMPROVEMENTSCANBERRA
II PROPOSALS

• GFCF of land improvements should be treated like
  other GFCF and should result in a produced asset.
• Land should be valued at its present unimproved
  value.
• Where land cannot be separated adopt
  recommendations for land/structures para 13.57
  for balance sheet and para 7.131 for
  rentals/rent.
• COTL be treated as COT on other types of
  non-financial asset and be recorded as a fixed
  asset. Allocate it to land improvements.