An Alternative To The Current Treatment Of Interest As Transfer In The United Nations And Canadian Systems Of National Accounts

The United Nations (SNA) and the Canadian (CSNA) Systems of National Accounts treat interest as a factor return to capital. The difficulties arising from the use of this concept cast doubt upon the basic premise. For example if the usual method of measuring value added by the summation of primary inputs is applied to industries mainly engaged in the lending of money, the results show negative production. This has led to the necessity of imputing bank interest in order to avoid negative income originating in the banking industry. Arguments are being put forward to extend this practice to certain other financial non‐bank areas as well to offset the negative product emerging with increasing frequency as a result of higher levels of interest transactions. The proposed alternative is based on the contention that interest paid and received for the borrowing and lending of money should be treated in the same manner as the purchase and sale of other services. For the production accounts, for example, this would mean that interest paid by business would be treated as an intermediate expense of the paying industry and as revenue of the receiving industry. The adoption of this approach would therefore eliminate the need for the imputation of banking services and clear up the ambiguities encountered in treating interest on the public and consumer debt, issues which are also not unrelated to the present treatment of interest.