Appended Note 3-3 Two Key Points of Estimation

This estimation has two key points. One is an improvement in preparation of tangible fixed asset data and the other is booking of future liabilities that the government should shoulder. The future liabilities are for public pensions and retirement allowances.

First, we would like to discuss the improvement in preparation of stock data for tangible fixed assets. The 93SNA, used the benchmark year method with data for the end of 1970 based on the "1970 National Wealth Survey," adopted as the benchmark to estimate the stock data . The improvement has been made in two points. First, due considerations are given to the connection of data before 1990 to the 93SNA-based data in and after 1990. Available data before 1990 have been based on the 1968 System of National Accounts (68SNA). Second, we estimate tangible fixed asset stock values for the central government and local governments, since available 93SNA-based stock data are only for the whole of the public sector and the general government. Published data specify only the stock value of tangible fixed assets and fail to give any breakdown (e.g., for the central government and local governments). We make some supplements to the published data through estimation to complete a matrix of component-by-component and asset-by-asset data. This means that we specify what kind of fixed assets are held by each of public sector components including the central government and local governments.

The second key point of this estimation is calculation of future public pension and retirement allowance payments.

Public pension liabilities are estimated each for the employee, national and mutual aid pension schemes. (The mutual aid pension scheme covers central and local government employees, private school employees, and agricultural and forestry workers.) For each scheme, current-price pensions (total future pensions in current prices) are estimated and broken down into government contributions, reserves and future premium income.

Estimated future pension liabilities vary depending on how much commitment the government should make to payments. In this estimation, we base financial resources on the government' s share of pension liabilities. This means that future premiums are to be contributed by employers and insured people and should be separated from the government' s liabilities. Only public pension reserves and relevant future national treasury disbursement are booked as the government' s liabilities. For central and local government employees, however, the government as their employer will have to contribute half the premiums. These contributions are also booked as liabilities of the government. Based of the MOF (2000), we have presumed four cases for the government' s contributions and estimated the government' s outstanding pension liabilities for each case (see Appended Note 3-5).

Two ways are conceivable for calculation of retirement allowances.

In the first way, we presume each public sector component to be liquidated immediately.

This means that we estimate retirement allowance payments that are required as all employees in each component quit their jobs for personal reasons at the time for preparation of the stock data. The MOF (2000), the Ministry of Home Affairs (2000) and the Tokyo Metropolitan Government (2001) have used this way to calculate retirement allowance reserves. In the second way, we accumulate future payment requirements at current prices. This way is used for business accounting. The second way can unfavorably cause an estimate that varies depending on assumptions on annual employment and retirement. In the first way, however, retirement allowances are calculated for short working periods for young employees who are assumed to retire. Since young employees are expected to remain employed in future, retirement allowance liabilities can be underestimated. We have adopted the first way for this estimation.

1 The benchmark year method: The stock value (benchmark) for the benchmark year is fixed through a direct survey, inflation-adjusted capital formation in years around the benchmark year is added to or subtracted from the benchmark stock value, and fixed capital depreciation is then deducted to produce an estimate for each year. Adopted for the estimation of social infrastructure is the perpetual inventory method where past investment data are accumulated with considerations given to price changes and fixed asset depreciation, without any benchmark.