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1993 SNA Update Information - AEG recommendations for issue:
Military expenditures

Issue description
Issue description in [English] | [French] | [Russian] | [Spanish]
The 1993 SNA divides military acquisitions into offensive weapons and their means of delivery, and all other. The former are excluded from capital formation regardless of their life length. This treatment implies that “defence” is not a service provided by government using military hardware as associated assets. Further, weapons that have already been expensed can actually be taken out of stock for use or for exports and would have to be balanced by a negative component in government final consumption. Should the line between gross capital formation and intermediate consumption be drawn differently?
AEG recommendations
Number of AEG recommendations for selected issue:2
  Corresponding meetingDate postedRecommendation
 February 200428/05/2004Following an intensive discussion, the group voted to include expenditure on military weapon systems as gross fixed capital formation. There was general agreement that defense GFCF should be presented separately from other types of GFCF.
 February 200427/04/2004The Canberra II Group examined the economic processes of production in the provision of defense services. Military weapon systems were seen to be used continuously in the production of those services, even if their peacetime use is simply to provide deterrence. The Group reach a near unanimous decision concluding that military weapon systems should be classified as fixed assets. The AEG accepted the recommendation that classification of military weapon systems as fixed assets should be based on the same criteria as other fixed assets—that is, produced assets that are themselves used repeatedly, or continuously, in processes of production for more than one year. Moreover, military weapon systems in general are seen to meet these criteria because they are used continuously in providing defense services to the nation’s residents, protecting their liberty and property. The following related recommendations were also accepted. Expendable durable military goods, such as bombs, torpedoes, and spare parts, should be treated as inventories. The classification of assets should be modified so that gross fixed capital formation (GFCF) for weapons can be separately identified and presented. The implications of the recommendation for the Balance of Payments Manual and for Government Finance Statistics also need to be examined. The AEG noted that there are important differences between military equipment and other equipment. There was general agreement that presentations of GFCF by type of asset should separately identify defense equipment. Finally, the AEG noted that it is necessary to keep in mind that the production accounts measure economic activity and not well being.
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