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Appendix 2

Classification category definitions for the Statistical Classification for Institutional Sectors (SCIS)

1 Non-financial business enterprises

This sector consists of resident business enterprises that produce goods and non-financial services to sell at competitive market prices that are sufficient to generate a profit or surplus in the long term. These units operate in markets where purchasers are free to buy, or not, depending on the price offered, so a sale only occurs when there is a mutually beneficial exchange. The influence of government in this sector is limited to general regulation and the use of monetary and fiscal incentives and restraints, so initiative rests with those who control the units. Three categories of non-financial business enterprises are recognised for analytical purposes:

  • NPIs, which are distinct mainly due to profit distribution characteristics 
  • non-corporate businesses, which are specifically defined to align with household-owned unincorporated business 
  • other ‘corporate’ businesses, which include units that may or may not be legally incorporated.         

        11 Corporate business enterprises 
                111 Corporate business enterprises

This subsector consists of all resident corporate business enterprises, and notional institutional units, that are mainly engaged in producing goods and/or non-financial services that may be a source of profit or other financial gain to the owners. A corporate business enterprise is collectively owned by shareholders who have the authority to appoint directors responsible for its general management. It is usually a legal entity established under the Companies Act 1993, or other similar legislation.

Examples of the types of entities classified as corporate business enterprises are: 

  • registered private companies 
  • publically listed companies 
  • branches of non-resident corporate business enterprises 
  • head offices with mainly non-financial business enterprises as subsidiaries 
  • state-owned enterprises 
  • market-orientated council controlled organisations.

Government-owned unincorporated enterprises that engage in market production, and operate in a similar way to incorporated business enterprises, are included in this subsector. Unincorporated branches of non-resident units are also included in this subsector, because they behave like other corporates.       

        12 Non-corporate business enterprises 
                121 Non-corporate business enterprises

Non-corporate business enterprises are not distinct legal entities, but they function in all (or almost all) respects as if they were incorporated. A non-corporate business enterprise must have its own value added, saving, assets, and liabilities. It must be possible to identify and record any flows of income and capital between the business and its owner. New Zealand tax law requires these enterprises to keep adequate financial statements to record income for taxation purposes, so appropriate accounting records are usually available.

The main kinds of non-corporate business enterprise are: sole proprietorships, partnerships, and trusts owned by households that operate as if they were privately owned corporate business enterprises. Units in the subsector are usually controlled by households, so it aligns with the household sector. 

        13 Non-profit business enterprises 
                131 Non-profit business enterprises

Some units with a non-profit structure choose to operate in the market. While they may not distribute profit to the units that control them, they share similar objectives, adopt similar production techniques, and compete with businesses for customers openly in the market. In principle, some of these non-profit units may be involved in financial services, although most would be providing non-financial services. Non-profit units that are financed and controlled by business units and are mainly providing services to these businesses are included here. For example, chambers of commerce; agricultural, manufacturing, or trade associations; employers’ organisations; and other organisations or institutions with activities of common interest or benefit to the group of units that control and finance them.

Some non-profit business enterprises are financed by contributions or levies. This income is treated as payment for services rendered and these non-profit business enterprises are classed as market producers. Other types of non-profit business enterprises, for example gaming trusts and racing clubs, are companies under the Companies Act 1993. However, they are subject to criteria that restrict their ability to generate income and while they attempt to earn profits, they are required to distribute those profits for ‘authorised purposes’. These units cannot distribute surpluses to their owners/members, although in all other respects they operate in a similar manner to any other non-financial corporation.

2 Financial business enterprises

This sector consists of all units that provide mainly financial services, including financial intermediation, financial risk management, liquidity transformation, and various supporting activities.

Most units in this sector help accumulate capital within the economy, by organising the financial transactions that allow institutional units to incur financial liabilities and acquire financial assets. They collect funds from lenders and match them to borrowers’ requirements by transforming or repackaging the funds. These units help other institutional units to manage their financial risks by rebalancing their portfolios of assets and liabilities, and by allowing lenders to choose asset instruments with appropriate risk and term, and borrowers to choose appropriate forms of debt.

Units in this sector are subject to regulatory scrutiny by the Reserve Bank or the Financial Markets Authority.

Holding companies and market non-profit units that engage in financial intermediation or supply of auxiliary financial services are also included in this sector. 

        21 Central bank 
                211 Central bank

 The central bank is the national financial institution that controls key aspects of the financial system. The Reserve Bank of New Zealand is the central monetary authority. The Reserve Bank issues banknotes and coins and holds international reserves. It also has liabilities in the form of demand or reserve deposits of other depository corporations, and government deposits.

The Debt Management Office manages debt securities for central government; it is directly controlled and managed by government, as policy. It operates as a division of The Treasury and remains classified in group 311 – central government (excluding funded social insurance schemes).   

        22 Deposit-taking corporations except the central bank

This subsector consists of financial corporations, except the Reserve Bank of New Zealand, whose principal activity is financial intermediation. They have liabilities, in the form of deposits that may be readily transferable or financial instruments, such as short term certificates of deposit, which are close substitutes for deposits.                 

                221 Registered banks

This subsector consists of all resident financial corporations that are registered under the Reserve Bank of New Zealand Act 1989 to operate as banks. They have liabilities in the form of deposits or deposit substitutes.

                222 Other depository institutions

Other depository institutions are defined as significant deposit acceptors or significant issuers of other comparable forms of liquid assets. This subsector consists of all approved depository institutions other than those categorised as registered banks. It includes some deposit taking M3 organisations, as defined by the Reserve Bank of New Zealand, building societies and credit unions.

        23 Investment funds 
                231 Investment funds

Investment funds involve investors pooling funds for investment in financial or non-financial assets. They are usually established as legal entities, such as trusts or companies, and raise funds by issuing shares or units to investors wanting to spread their risk across all instruments in the fund. The funds raised are invested predominantly in financial assets, such as money market instruments, shares, and other transferable debt instruments, or in non-financial assets (usually real estate).

Money market funds (MMF) and non-money market funds (non-MMF) are both classified to this subsector. MMF only invest in money market instruments with a residual maturity of under one year, are often transferable, and are often regarded as close substitutes for deposits. Non-MMF typically invest in longer-term financial assets and real estate. They are not transferable and are usually not regarded as substitutes for deposits.

        24 Other financial intermediaries excluding insurance and pension funds 
                241 Other financial intermediaries excluding insurance and pension funds

This subsector includes financial enterprises engaged in providing financial services by incurring liabilities, in forms other than currency, deposits, or close substitutes for deposits. A feature of these units is that transactions on both sides of the balance sheet are carried out in open markets. This subsector’s composition is: 

  • units that securitise assets by pooling assets such as mortgages, commercial property loans, and credit card debt, to package them as security for bonds, or asset-backed securities, that are then sold to investors 
  • clearing organisations that provide clearing and settlement transactions in securities and derivatives, involving themselves in the transaction and mitigating counterparty risk 
  • units that raise funds on behalf of finance associates or retailers who may be involved in providing consumer credit, commercial finance, or financial leasing 
  • specialised units that provide merchant banking services, including funding for mergers and acquisitions, export/import finance, and factoring services 
  • venture capital and development capital firms.

        25 Insurance corporations 
                251 Insurance corporations

Insurance corporations consist of incorporated, mutual, and other entities whose principal function is to provide life, health, or other forms of insurance and reinsurance to individual institutional units or groups. Insurance companies are financial intermediaries, because they can act to channel savings from policy holders to borrowers, and act as an intermediary between policy holders by sharing risk.

        26 Pension funds 
                261 Pension funds

This subsector consists of pension funds that are constituted so they are separate institutional units from the units that create them. They are established to provide benefits on retirement for specific groups of people. They have their own assets and liabilities and engage in financial transactions in the market on their own account. Some funds are organised and directed by private or government employers, and employees and/or employers make regular contributions. Other funds are established to independently hold and manage assets that become available at retirement.

Private pension funds, KiwiSaver, and the Government Superannuation Fund are in this subsector.

        27 Financial auxiliaries

Financial auxiliaries are resident, market-oriented units that serve financial markets, but do not own the financial assets or incur the liabilities they handle. They can be either incorporated or unincorporated. These units are classified to the subsector: 

  • enterprises whose principal function is to guarantee bills and similar instruments by endorsement 
  • managers of pension funds and mutual funds (but not the funds they manage) 
  • foreign exchange bureaux 
  • head offices of financial enterprises engaged in controlling other financial enterprises, but which do not themselves provide financial services 
  • insurance brokers 
  • insurance and pension consultants 
  • salvage and claims adjusters 
  • loan and securities brokers 
  • investment advisers 
  • enterprises that arrange derivative and hedging instruments, such as options, swaps, and futures (without issuing them) 
  • enterprises providing infrastructure for financial markets (eg clearing and settlement facilities) 
  • enterprises providing stock and insurance exchange 
  • non-profit institutions operating independently but serving financial enterprises 
  • supervisory authorities of financial intermediaries and financial markets provided they are separate institutional units (eg the Financial Markets Authority).

                271 Corporate financial auxiliaries

This group comprises units that are legally incorporated under the Companies Act 1993 and related legislation. Unincorporated units that behave like other corporate financial auxiliaries are also included.

                272 Non-corporate financial auxiliaries

Only non-corporate financial auxiliaries that keep financial statements adequate for taxation purposes are included.

        28 Captive financial institutions 
                281 Captive financial institutions

This subsector consists of institutional units that provide financial services, where most assets or liabilities are not transacted on open financial markets. Units included are those providing financial services exclusively from their own funds, or funds provided by a sponsor, to a range of clients. They incur the financial risk of the debtor defaulting. Holding companies whose activities are restricted to owning controlling levels of equity in a group of subsidiary businesses are also included. These financial entities are classified to this subsector:

  • legal entities, such as trusts, that invest in financial assets on behalf of their owner (excludes trusts classified to the household sector) 
  • holding companies that do not undertake any activities other than owning the assets of the group – they do not administer or manage other units 
  • other units that might raise funds on open markets, but only exist to supply the funds to fellow corporate members.

3 General government institutions

The general government sector consists of resident central and local government units and funded social insurance schemes controlled by those units. Government units are entities established by political processes that give them legislative, judicial, or executive authority over other institutional units. Their decisions are based on government policy, not market prices that reflect consumer demand.

The central government institutions sector includes NPIs engaged in non-market production that are controlled by government units.

The sector does not include state-owned enterprises or market-orientated council-controlled organisations, even when all their equity is owned by government units. These are classified to sector 1 or 2.

        31 Central government institutions 
                311 Central government institutions excluding funded social insurance schemes

This subsector classifies organisational units of central government responsible for functions such as taxation, law and order, defence, and those responsible for advancing the economic and social well being of the country in other ways. Examples from this subsector are:

  • government departments 
  • offices of parliament 
  • crown entities excluding Accident Compensation Corporation (ACC) and the Earthquake Commission (EQC) 
  • Debt Management Office, a division of The Treasury 
  • NPIs that serve groups of government organisations (eg New Zealand School Trustees Association).

Although the crown is a single legal entity, government departments are treated as separate institutional units, because they have their own governance arrangements and maintain their own financial statements.

                312 Funded social insurance schemes

These schemes are financed independently of government general revenue, through levies on households, employers, or the self-employed. This financial independence means they are classified in group 312 rather than in group 311, central government institutions. Organisations administering these schemes are established by statute to provide benefits for the general public, or a substantial section of it. ACC and EQC are Included in this subsector.

        32 Local government institutions 
                321 Local government institutions

Local government consists of territorial authorities and regional councils, as well as the other non-market units and NPIs they control. They are responsible for functions such as town planning, providing local infrastructure, libraries, museums, and sports grounds.

Local government institutions have statutory powers to raise revenue through rates or a levy, and/or have another source of income independent of central government. They may receive grants from central government, but the proportion received should not mean central government has control of the institution’s activities and policy.

4 Non-profit institutions serving households

This sector consists of resident non-market institutional units that deliver goods or services to fulfil a social need or community interest. People form these units because they have a common objective they wish to accomplish. Some provide goods or services specifically for their household members. Units in this sector are partially or wholly funded from subscriptions, donations, or grants, so they can provide goods and services to households free or for a nominal charge. Other NPIs serving households, created for philanthropic purposes, are financed mainly from donations or government grants.

Such organisations have a legal structure that prevents their members and owners from distributing any operating surpluses among themselves, through dividends or equivalent financial payments.

        41 Non-profit institutions serving households excluding tangata whenua governance organisations 
                411 Non-profit institutions serving households excluding tangata whenua governance organisations

This subsector includes organisations that provide goods or services to their members, or to other households, without charge or at prices that are not economically significant. The two main kinds of organisations included are:

  • community and social groups, such as trade unions, professional or learned societies, consumers’ associations, political parties, churches or religious societies, and social, cultural, recreational, and sports clubs 
  • philanthropic organisations, such as charities, and relief and aid organisations, financed by voluntary transfers in cash or in kind from other institutional units.

        42 Tangata whenua governance organisations     
                421 Tangata whenua governance organisations

Tangata whenua governance organisations provide services such as development, social services, and advocacy for a particular iwi (tribe), hapü (subtribe) or whänau (family). They have features of non-profit organisations, but also characteristics that may cause them to exhibit different economic behaviour. These features may include:

  • owning and controlling large areas of land that cannot be sold – because they are held in trust for future generations 
  • managing of collective assets held on behalf of a wider community group 
  • having cultural obligations and an organisational structure that links very closely to iwi social structure.

Tangata whenua governance organisations are embodied through a consultation process and represent iwi (tribes) of a takiwä (area where iwi members are tangata whenua (people of the land)). Such organisations have governance functions outside (and sometimes alongside) the crown and may or may not have legal standing.

There are two main types of tangata whenua governance organisations: those mandated by legislation (eg Ngäi Tahu Runanga); and those mandated by iwi through cultural factors (incorporated societies, charitable trusts or Mäori trust boards).

5 Households 
        51 Households 
                511 Households

Households are New Zealand resident individuals, families, whänau, hapü, and marae in their role as final consumers and as owners of production factors. Householders in their capacity as owner occupiers of dwellings are included in this sector.

This sector includes trusts set up as passive holders of the family home and, possibly, an assortment of financial assets. These trusts (and their trustees) are not active portfolio managers but passively hold financial assets from which they earn interest and dividends. They hold assets on behalf of individuals and families, and are classified to households.

Where the trust has a trading operation (ie it is registered for GST or records business income on its tax return), it should be treated in the same way as a self-employed sole trader (ie as an unincorporated business enterprise owned by a household). Trusts with business income are classified to sector 1, non-financial business enterprises.

Trusts holding rental properties are considered to be actively managing an asset and are classified to sector one.

6 Rest of the world 
        61 Rest of the world 
                611 Rest of the world

The rest of the world consists of all non-resident institutional units that enter into transactions with resident units, or have other economic links with resident units. Complete sets of economic accounts do not have to be compiled for this sector, although it is often convenient to describe the rest of the world as if it were a sector. The rest of the world includes certain institutional units that may be physically located within the geographic boundary of a country; for example, foreign enclaves such as embassies, consulates or military bases, and also international organisations.

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