Appendix 2B Interest and miscellaneous investment income in the income and outlay accounts of the institutional sectors

2B.1 Most of the items that appear in the income-based and expenditure-based GDP tables are easily identifiable in the income and outlay accounts of the institutional sectors. Interest and miscellaneous investment income, one of the income aggregates used in calculating GDP, is an exception. The table below shows that reconciliation must be done by assembling information on interest income and outlays, dividends and other investments in all the institutional sectors.

2B.2 Dividends are not explicitly identified as an income-based component appearing in the calculation of GDP. Dividends are treated as a redistribution of the income (corporation profits) to the shareholders of corporations. However, unlike loan capital, which generates interest, capital in the form of shares does not give rise to a liability that is fixed in monetary terms, and it does not entitle holders of shares of a corporation to a fixed or pre-determined income.¹ This is why it is considered a current transfer. In the income and outlay accounts of the institutional sectors, dividends net out across sectors. Dividends are paid by corporations and government business enterprises and by non-residents to the other institutional sectors.

2B.3 Interest on public debt appears twice. This item, which represents the commitments of the government sector, constitutes a government expenditure ($76,491 million in 2000). The same item appears as income of the corporations and government business enterprise sector but the amount is lower, corresponding to the domestically paid portion of interest on the public debt. The non-domestic portion is included in the income of non-residents as interest, dividends and miscellaneous receipts. The equality between the expenditures and income related to interest on public debt shows that the latter is considered a current transfer. This treatment differs from the treatment of other interest payments in the economy, which are considered productive. There are two reasons for the special treatment reserved for interest on public debt. First, government borrowings are mainly used to finance current spending rather than capital. Second, the shifting financing policies of governments should not affect GDP. If service of the public debt were considered productive (and were hence included in GDP), governments could then increase or reduce GDP at will by switching between financing through income taxes (which is a transfer) and financing through borrowing.²

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• 3 Wages, salaries and supplementary labour income

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• Appendix 2A The presentation of product and output in the Canadian System of National Accounts Input-Output Tables
• 2 Concepts and definitions

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Notes

1. Based on paragraph 7.113 of the System of National Accounts 1993.

2. On this subject, see the articles of Crozier, Robert B., The treatment of Interest on the Public Debt in the National Accounts, Canadian Journal of Economics and Political Science, Volume 25, November 1959, pp. 501-503 (1959) and Sunga, P. (1967, 1984) and Sunga, P., An Alternative to the Current Treatment of Interest as a Transfer in the United Nations and Canadian System of National Accounts, Review of Income and Wealth, Volume 30, December 1984, pp. 385-402, and The Treatment of Interest and Net Rents in the National Accounts Framework, Review of Income and Wealth, Volume 13, March 1967, pp. 26-35.