The Classification of the Functions of Government, COFOG
The Classification of the Functions of Government, COFOG, is meant for describing transactions in the public sector. The classification is included in the global description system of national accounts SNA - the System of National Accounts confirmed by the UN. The Classification of the Functions of Government is one of the four basic national accounts classifications where expenditure is classified according to purpose.
The main group level (2-digit codes 01 ... 10) of the hierarchical classification is meant to describe general government's social objectives. The next level, groups (3-digit codes 01.1 ... 10.9) describes services produced by general government, which are classified in more detail on the lowest class level (4-digit codes 01.1.1 ... 10.9.0).
The classification rests on two basic concepts, function and purpose, which are used for classifying government expenditure according to the social objective they serve. These functions serving social objectives are such as:
• Functions related to social infrastructure, which can also be described as collective consumption services. Such are defence, public order and safety, economic affairs, environmental protection, etc.
• Functions related to business activities, such as economic affairs, research and development, business subsidies and loans directed to individual enterprises, business subsidies for agricultural entrepreneurs, etc.
• Basic services provided to the households sector (individual persons or groups of persons) financed wholly or partially by general government. These are health, education, recreation and cultural services.
Transactions included in general government consumption expenditure are defined according to the principles of national accounts. General government total expenditure include:
Consumption expenditure includes: intermediate consumption + compensation of employees + consumption of fixed capital - payments/compensations received from sale of goods/services.
The significance of the COFOG is based primarily on that the COFOG enables describing of general government expenditure by social function without the result being influenced by the division of labour between organisations and changes in them or by the actual producer organisation of the service. With the help of the COFOG, it is also possible to make comparisons between countries on how the public sector takes part in economic and social functions in different countries.
Key classification principles:
The units of classification are in principle individual transactions. This means that each purchase, wage payment, transfer, loan disbursement or other outlay should be assigned a COFOG code according to the function that the transaction serves.
When the use of the transaction as the unit of classification is not possible, the individual general government unit is used as the unit of classification (agency, institution, etc.). Then the COFOG code is given to agencies, offices and other such units. It may be possible to apportion outlays of multifunction bodies among COFOG functions by reference to the proportion of work-months devoted to the different functions or to assign all outlays by multifunction units to whichever purpose appears to account for the largest part of total outlays.
The identification of functions does not usually cause problems. Sometimes consideration is needed for solving some function class, for example, when classifying subsidies and loans given to enterprises or institutions. A main objective behind such government support may be, for example, to assure capacity to build naval vessels considered vital to national defence or to provide employment for workers in underutilised hospitals or schools. The political objectives connected to such cases should not be used as the classification criterion in identifying general government functions: a government subsidy to shipyards is classified under manufacturing, loans to farmers are classified under agriculture, and grants to hospitals or schools are classified under health care or education.
Exceptions to this rule are programmes, subsidies, loans or grants that are designed to reduce discrimination based on gender or bias against disabled persons on the labour market or to increase employment in economically disadvantaged or underdeveloped regions, etc. Such programmes do not typically focus on any single industry identified in the COFOG, so they are classified under General labour affairs.
The breakdown of environmental protection is based upon the Classification of Environmental Protection Activities (CEPA) as elaborated in the European System for the Collection of Economic Information on the Environment (SERIEE).
Environmental protection expenditure should be allocated correctly despite it often being present as minor items in the expenditure of administrative bodies that have quite different functions. For example, a ministry of agriculture may monitor the impact of chemical pesticides on the environment, a department of transport may carry out a study on the consequences for the environment of a new road development or an energy ministry may appoint a committee to study emissions of greenhouse gases.
Administrative expenditure must be allocated to as detailed classification level as possible. If administrative expenditure is joint expenditure of two or more operating units, they should be divided between these units. If this is not possible, they should be allocated to that class that accounts for the largest part of the total expenditure. Administrative expenditure that cannot be divided into classes is included in the “expenditure not elsewhere classified” group/class of the division in question.
In March 1999, the United Nations Statistical Commission confirmed four basic classifications of the revised national accounts (System of National Accounts 1993, SNA), where expenditure is classified according to purpose:
• The Classification of the Functions of Government, COFOG, which is used for classifying government consumption expenditure, gross fixed capital formation and capital and current transfers.
• The Classification of Non-Profit Institutions Serving Households COPNI is used to classify consumption expenditure, gross capital formation and capital and current transfers of NPISHs.
• The Classification of Individual Consumption According to Purpose COICOP is used to classify individual consumption expenditure of households. The COICOP also contains as own main categories for the consumption expenditure of Non-Profit Institutions Serving Households (NPISHs) and General Government for individual households.
• The Classification of the Outlays of Producers According to Purpose COPP is used to classify intermediate consumption and capital outlays of financial and non-financial enterprises.
The classifications above are described in a separate publication (United Nations: Classifications of expenditure according to purpose, New York 2000). The Classification of the Functions of Government is also applied in the EU Member States.
The structures and definitions of these classifications have been prepared in collaboration between the United Nations Statistical Division and the OECD. The classifications examine the transactions of general government, producers and households as payables, that is to say, money paid or due for the acquisition of current and capital goods or labour and other services, for the acquisition of financial assets or for the repayment of financial debts.
The Classification of the Functions of Government, COFOG is based on the Classifications of the Functions of Government (COFOG) confirmed by the United Nations Statistics Division.
The Statistical Office of the European Union, Eurostat, has also confirmed the COFOG standard into Community use (Commission Regulation (EU) No 113/2002).
The Classification of the Functions of Government is a national application of the COFOG, which was compiled with attention to Finnish national characteristics without breaking the structure and principles of the classification standard confirmed by the UN. The terminology of Eurostat’s official translation was followed in the national version. However, there were some differences mainly because the national version applied further Finnish terms and the vocabulary of budget practices.