Income and Expenditure Accounts Technical Series
Best practices for defining the Canadian Public Sector

1. Introduction

The ultimate goal of Government Finance Statistics (GFS) compilation is to disseminate data to policymakers and other users in order to assess government financial performance/position, and the impact of fiscal policy on the economy. To achieve this goal, the data should be:

1. Comprehensive (coverage in terms of institutions, stocks, and flows);
2. Reliable (accuracy and integrity);
3. Accessible (availability, frequency, and timeliness);
4. Coherent (consistency and comparability over time and between jurisdictions);
5. Intelligible (usability, metadata).

Strong compilation and dissemination practices ensure the overall quality of fiscal reporting, which in turn supports fiscal transparency and sound policies.

Typically, institutional and instrument coverage have the greatest impact on data quality and comparability.^{Note 1} The Government Finance Statistics Manual 2014 (GFSM 2014) states that in practice, GFS should cover all entities that materially affect fiscal policies.^{Note 2} This is to provide data users with a complete picture of public sector fiscal operations. Because of differing administrative arrangements across countries or over time, GFS data are only fully comparable at the consolidated general government level, thus reinforcing the importance of comprehensive institutional coverage.

The Canadian public sector produces a large number of fiscal reports that lack standardization. Finance and other departments at the federal and provincial-territorial levels, extrabudgetary^{Note 3} units, public corporations^{Note 4} including the central bank, cities, and research institutes produce a wide variety of reports in the form of public accounts, budgetary estimates, fiscal updates and outlook, financial statements, etc. Although useful, this information is based on the organizational structures and on the accounting and reporting practices of individual entities, resulting in a lack of consistency and uniformity across jurisdictions, and over time. It is not uncommon that for the same administration, institutional coverage changes from one period to another, making temporal analysis of fiscal policy very difficult. Similarly, most governments in Canada present their public accounts on a consolidated basis.^{Note 5} This can greatly affect the comparability of data across jurisdictions and complicate the analysis of fiscal operations and financial position of governments.

Statistics Canada^{Note 6} is mandated to compile and/or disseminate data for the core macroeconomic statistical frameworks.^{Note 7} The Agency has adopted and implemented at various stages and at different times the revised internationally recognized guidelines, including the System of National Accounts 2008 (2008 SNA), the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) and the GFSM 2014.

Institutional units are the building blocks of macroeconomic statistical systems. The identification and sector classification of units on a consistent and internationally comparable basis is crucial for the compilation and dissemination of coherent and meaningful macroeconomic statistics. In the next few sections of this paper, we will discuss some useful best practices and guidelines implemented at Statistics Canada for the delineation of the government sector and its subsectors.

2. Size matters

Data table for Chart 1



Chart 1
Table summary
This table displays the results of Chart 1. The information is grouped by Year (appearing as row headers), Canada's government spending as a percentage of gross domestic product, calculated using percent units of measure (appearing as column headers).

Year	Canada's government spending as a percentage of gross domestic product
	percent
1926	9.26
1927	9.33
1928	9.06
1929	10.19
1930	12.15
1931	14.03
1932	14.64
1933	12.84
1934	12.49
1935	12.49
1936	11.62
1937	11.83
1938	12.58
1939	12.30
1940	16.27
1941	19.77
1942	35.69
1943	37.20
1944	41.32
1945	29.80
1946	14.97
1947	11.59
1948	11.93
1949	12.42
1950	12.70
1951	15.79
1952	17.37
1953	17.42
1954	17.71
1955	17.02
1956	16.87
1957	17.20
1958	17.69
1959	16.99
1960	17.36
1961	19.17
1962	19.05
1963	18.57
1964	18.28
1965	18.62
1966	19.43
1967	20.38
1968	20.78
1969	20.75
1970	21.97
1971	22.60
1972	22.16
1973	21.31
1974	21.64
1975	23.06
1976	22.51
1977	23.04
1978	22.57
1979	21.62
1980	21.71
1981	25.13
1982	26.84
1983	26.38
1984	25.72
1985	25.89
1986	25.72
1987	24.94
1988	24.55
1989	24.88
1990	26.31
1991	27.70
1992	28.05
1993	27.34
1994	26.15
1995	25.00
1996	23.91
1997	22.75
1998	22.68
1999	22.33
2000	22.02
2001	22.65
2002	22.97
2003	23.08
2004	22.67
2005	22.50
2006	22.79
2007	23.01
2008	23.67
2009	26.58
2010	26.33
2011	25.52
2012	25.25
2013	24.55
2014	23.92
2015	24.73
2016	24.82
2017	24.60
2018	24.94
Source: Statistics Canada, tables 36-10-0202-01 and 36-10-0222-01. Government spending includes final consumption expenditure plus gross investment in nonfinancial assets.

Governments weigh heavily on the Canadian economy, contributing to around 25% of GDP in recent years (Chart 1).  Spending on social protection programs, combined with the universal health-care system and the public education system are contributing factors. The general government sector in Canada is complex;^{Note 8} there are three levels of government (federal, provincial (10) and territorial (3) and its subsectors, and local governments), several large national and sub-national social security schemes,^{Note 9} and over 5,700 institutional units for which GFS data must be compiled (Table 1).

Provincial and territorial governments represented the largest subsector in 2018 for all GFS main aggregates (revenue, expense, assets and liabilities). This subsector is characterized by extended responsibilities in the areas of health, education, social services, economic affairs and the management of natural resources. The consolidated general government revenues and expenses were around 40% of GDP, 122% for all assets and 106% for total liabilities. The most notable contribution of public corporations in Canada is in the management of government assets and liabilities, adding on a consolidated basis around 20% of GDP for both aggregates.



Canada has a strong and well-organized institutional setting that has been implemented over the years to support and develop the compilation of comprehensive GFS. This is important given the size and fiscal importance of the public sector and its subsectors in Canada. A complete set of GFS and COFOG^{Note 10} data (unconsolidated and consolidated) is disseminated for all levels of government and its subsectors, by province/territory,^{Note 11} including public corporations for all levels, and by industry classification.

The Canadian GFS program’s foundation is a diligently maintained register of public sector units, using consistent and internationally recognized sector classification rules. Identifying and classifying institutional units is of crucial importance for the definition of the government perimeter (and other sectors), as well as for data comparability with other countries and for data consistency with the other macroeconomic data sets.

In Canada, GFS is a legislated input for the administration of the Fiscal Arrangement Act. The Canadian federal government provides significant financial support to provincial and territorial governments to assist them in the provision of programs and services^{Note 12} through four main transfer programs:

1. The Canada Health Transfer;
2. Canada Social Transfer;
3. Equalization Payments; and
4. Territorial Formula Financing.

In 2018, those transfers amounted to CAD $75.4 billion, or CAD $2,038 per capita.^{Note 13} The Equalization program enables less prosperous provincial governments to provide public services that are reasonably comparable to those in other provinces, at reasonable comparable levels of taxation (fiscal capacity). Equalization takes into account GFS taxes, dividends (from public corporations), and rent revenues (from natural resources). The comprehensiveness of the GFS institutional coverage, as well as the sectorization of the institutional units can affect the calculation of the provinces’ fiscal capacity. Considering the importance of fiscal arrangements in Canada, it is not a surprise that the GFS estimates and the sector classification of public sector units are closely scrutinized by data users. This is magnified by the fact that the institutional coverage of GFS data may vary considerably from that in fiscal reports published by government units.

3. Best practices

3.1 Institutional arrangements and legal framework

The Public Sector Statistics Division^{Note 14} (PSSD) at Statistics Canada has been the central GFS compiler for more than 50 years. The core mandate of the division is to compile and disseminate public sector financial information and to produce the legislated input for the administration of the Fiscal Arrangement Act. In 2014, PSSD released its first set of statistics, from source data, under the GFSM 2001/2014 standards. The activities conducted by PSSD are covered and supported by the Statistics Act.^{Note 15}

There are significant data quality gains to be made by grouping the compilation of core macroeconomic statistics under the same direction. PSSD is part of the Canadian System of Macroeconomic Accounts (CSMA^{Note 16}) and works closely with the SNA and balance of payments compilers. GFS annual and sub-annual estimates are important inputs for the compilation of the government sectoral accounts and for the GDP calculation.

Significant efforts have been made to improve the integration and the harmonization of government data since the implementation of GFSM 2014 and 2008 SNA in the CSMA. This applies to concepts, classifications, methodologies, but also, to institutional units sector classification. The alignment between PSSD and the CSMA is also characterized by several working groups, committees, joint projects and research activities, data sharing agreements and tools,^{Note 17} etc. Similarly, comprehensive (historical) data revisions^{Note 18} are implemented in a standardized and simultaneous manner.

3.2 Resources and operations

In the CSMA, there is a team (‘the classification unit’) dedicated to updating, maintaining, classifying, and disseminating the public sector universe^{Note 19} PSU). This dedicated team of frame specialists and advisors is hosted in PSSD. All entities in the PSU are reviewed through a classification process based on the following concepts and criteria:

1. Residence;
2. Institutional unit test;
3. Control;
4. Market vs nonmarket producer (of goods and services).

The legal authority, mandate, operating structure, financial transactions and any other special circumstances of each entity are examined to ensure that it meets the inclusion criteria for a public sector unit.  Such a classification process has been in existence in PSSD since 1969. It has evolved over the years into a detailed, systematic, and consistent process, in line with the prescriptions of the SNA/GFSM.

All public sector entities’ classification and sectorization decisions are documented in a standardized template.^{Note 20} The template discloses the important information used to justify the underlying entity classification on the basis of the criteria ((i), (ii), (iii), (iv)) listed above. Each decision also provides other useful and relevant information for other statistical programs in Statistics Canada, such as the industrial^{Note 21} and SNA sectoral classification. All classification decisions are peer-reviewed and need to be approved by the proper designated authority. Different types of event can justify the need for a (new or updated) classification decision for an entity: creation, amalgamation, significant change in the mandate or activities, dissolution, and historical statistical revisions. The classification templates represent important metadata on the methodology used for the PSU as well as for the sector classification of the entities at the base of the Canadian GFS.

Figure 1
The Public Sector Universe sector classification process

Description for Figure 1

Is this entity a resident?

• Yes (continue)
• No
  • Rest of the World External Sector
    But
    • Is the entity a non-resident special purpose entity (SPE) of government?
      • No
        • Rest of the World Sector
      • Yes
        • Classify the entity as a non-resident institutional unit (external sector) and impute fiscal transactions of SPE in general government sector

Is the entity an institutional unit?

• No
  • Classify the entity as an integral part of the institutional unit that controls it
• Yes (continue)

Is the unit controlled by government?

• No
  • Households, not for profit institutions serving household (NPISH) or private corporation
• Yes (continue)

Public Sector Unit

• Yes (continue)

Is the unit a market producer?

• No
  • Is there a market establishment within the nonmarket producer that meets the definition of an institutional unit? (Not currently applied)
    • No
      • Is the unit a financial auxiliary?
        • No
          • General government
        • Yes
          • Public financial corporation
    • Yes
      • Classify the market establishment (unit) as a quasi-corporation (Not currently applied)
      • Classify the unit in the public corporations sector
• Yes (continue)

Classify the unit in the public corporations sector

• Yes (continue)

Does the unit produce financial services

• No
  • Public nonfinancial corporation
• Yes (continue)

Public Financial Corporation

The PSU at Statistics Canada is the one-stop shop for the official list of all public sector entities operating in the country. As the gatekeeper of the frame, the classification unit is responsible to maintain up-to-date the institutional coverage in the GFS production system (Keynes)^{Note 22} and the Business Register System (BRS). The BRS, developed internally, is a centralized repository of all businesses across Canada. The system is the main source of information^{Note 23} for the production of data on Canadian businesses (incorporated and unincorporated), including public corporations, and other organizations (such as government units). It is also used to record ownership relationships between institutional units within Canada and also with those in the rest of the world. It is imperative that the information between the two databases (Keynes and BRS) are synchronized for the PSU. This allows for consistency and comparability to all users of the public sector frame.

Figure 2
The Business Register system

Description for Figure 2

The Business Register is the centralized common frame of private and public institutional units (or entities) used by Statistics Canada’s business and economic statistics programs. The system feeds two primary components: The Business and Social Surveys which include business financials such as revenues, expenses, profits, etc., capital expenditures, research and development expenditures and cannabis sales; and The Canadian System of Macroeconomic Accounts which includes International Accounts and Trade Division, Industry Accounts Division, National Economic Accounts Division and The Public Sector Statistics Division.

The Public Sector Universe (PSU) is the frame of public institutional units within the Business Register System used for compiling Government Finance Statistics (GFS). It defines the perimeter of government within the Canadian System of Macroeconomic Accounts (CSMA). Public institutions are included in various business and economic statistical programs, and the integrated Business Register System is the infrastructure that supports data integration and comparability of units to properly measure activity in the Canadian economy.

The integrated BRS and PSU establishes one centralized common frame for surveys and administrative data that feeds the compilation of the main CSMA aggregates.^{Note 24} This integrated and comprehensive statistical infrastructure improves the overall data consistency within the accounts. To illustrate this integration and the interaction between the centralized frame and the compilation of macroeconomic statistics, it would be useful to use a practical example. The gross fixed capital formation (GFCF) in the CSMA is compiled using the Capital and Repair Expenditures Survey (CAPEX). This survey collects data on capital and major repair expenditures in Canada. The public and private investments reported in the survey based on the BRS-PSU frame feeds the Fixed Assets and Investment Program (GFCF) in the CSMA. The program values the consumption of fixed capital (CFC) at the average price of the period using the Perpetual Inventory Method (PIM). In turn, the program provides PSSD^{Note 25} with the three important measures for the GFS program (for public sector entities): CFC, net acquisitions of nonfinancial assets and the stock of nonfinancial assets valued at market prices.

3.3 Dissemination

As part of best dissemination practices, GFS statistics should be accompanied with relevant metadata. The concepts, definitions, classifications, and methodology should be documented, accessible to all data users and disseminated at regular intervals. For the institutional coverage and sectorization of the public sector units, PSSD provides the following information:

• The PSU list of entities (figure 3), which is disseminated (and updated) annually in conjunction with the annual release of GFS estimates. The list of entities is available to the general public on the Statistics Canada website. The annual update of the PSU list is officially released in The Daily, the Agency’s statistical bulletin. The PSU list is also circulated in advance to the main GFS stakeholders (federal and provincial-territorial Ministries of Finance and statistics offices). This advance release gives the opportunity to primary users to validate the list prior to official release;
• General metadata information for the Canadian GFS program is housed in Statistics Canada’s Integrated Metadatabase (IMDB);
• The Chapter: Overview of the Canadian Government Finance Statistics, in the CSMA publication Latest Developments in the Canadian Economic Accounts;
• PSSD also considers to re-publish the Guide to the Public Sector of Canada, which discusses in detail, among other things, the concepts and methodology behind public sector statistics;
• Canada’s National Summary Data Page (NSDP for SDDS+).

Figure 3
The Canadian Public Sector Universe ‘to the world’

Description for Figure 3

The Public Sector Universe tool on the Statistics Canada website allows users to generate a list of Public Sector institutional units. It features buttons for additional information, including the PSU delineation diagram, the decision tree, and instructions. The tool is available via, Public Sector Universe, 2018, Catalogue no. 68-516-X.

3.4 Canada’s Public Sector: main deviations from GFSM 2014

Compiling and disseminating comprehensive, comparable and high quality GFS is key to improving fiscal transparency and ensuring the proper use of fiscal data by policymakers and other users. Transparency is also a commitment to improve the data and its usefulness based on data users’ feedback (to meet their needs and be user oriented) and international organizations such as the IMF. PSSD is committed to strengthening its collaboration and dialogue with the national and international community of GFS compilers and users. As such, PSSD is always willing to share best practices with other countries and consult on methodological and practical issues.

In the continuous process of improving the quality of GFS, it is important to document and identify any significant deviation from the internationally accepted standards. Minor revisions to address those issues are usually implemented in the normal CSMA revision cycle.^{Note 26} Larger data revisions are processed as part of comprehensive (historical) revisions to maintain the consistency of time series. In the Canadian GFS, the following revisions pertaining to the institutional coverage and sectorization of public sector units will be implemented as part of future CSMA comprehensive revision:

1. The reclassification of the financial supervisory authorities^{Note 27} from the general government sector to the (other) public financial corporations sector (GFSM 2014 2.121); and
2. The inclusion of the public pension funds administrators^{Note 28} (GFSM 2014 2.121) in the (other) public financial corporations;

Start of text box

Summary of best practices in Canada: coverage and sectorization of the Public Sector

Institutional arrangements and legal framework

• GFS compilation is covered and supported by the Statistics Act
• PSSD is the central compiler of GFS
• GFS compilation is integrated with the other macroeconomic statistical systems (CSMA)
• Close collaboration among the GFS, SNA, BOP, and MFS compilers

Resources and operations

• Team of experts dedicated to the classification and sectorization of public sector entities
• All public sector entities reviewed through a systematic classification process harmonized with the 2008 SNA/GFSM 2014 (residence, institutional unit, control, market vs nonmarket producer)
• All classifications decisions documented in a standardized template
• One list of public sector entities (PSU) maintained by PSSD and used for all statistical programs
• PSU and BRS integrated as one centralized common frame for surveys and administrative data

Dissemination and other

• PSU released to the general public and updated annually
• Advanced release of the PSU to the main GFS stakeholders
• Classification and sectorization principles and methodology available in metadata
• Collaboration and consultation with the international community of GFS compilers/users

End of text box

Appendix 1. Canada’s Public Sector

Figure A1-1
Canada’s public sector

Description for Figure A1-1

• Public Sector
  • General Government¹
    • Federal government
      • Government
        • Ministries and departments, non-autonomous funds, pension plans and organizations
        • Autonomous funds and organizations
    • Social Security Funds
      • Canada Pension Plan
      • Quebec Pension Plan
    • Provincial and territorial government
      • Government
        • Ministries and departments, non-autonomous funds, pension plans and organizations
        • Autonomous funds and organizations
      • Universities and colleges
        • Universities
        • Colleges, vocational and trade institutions
      • Health and social service institutions
        • Health boards
        • Social service organizations and community boards
        • Other health and social service organizations
    • Local government
      • Government
        • Municipalities and quasi-municipalities, non-autonomous funds and organizations
        • Autonomous funds and organizations
        • School Boards
    • Indigenous government
      • Government
        • Indigenous governments
  • Government business enterprises²
    • Federal government business enterprises
    • Provincial and territorial government business enterprises
    • Local government business enterprises

1. The general government sector is composed of all governments as well as the non-profit entities created by public administrations to deliver services for the benefit of society. Adhering to the sectoring system of the Canadian System of National Accounts (CSNA), the general government sector is partitioned into sub-sectors, components and sub-components in order to group different types of government activity. Sub-sectors distinguish units by the government of control. Within the sub-sectors, the component category groups units by type of activity, specifically, general government, universities and colleges, school boards, and health and social service institutions. Sub-components isolate the constituents of the components to provide groupings for the lowest level of measurement. Examples of these categories are ministries, municipalities, universities, hospitals and residential care facilities.

2. Government business enterprises are also part of the public sector domain. They operate in the market place, often in competition with privately owned organizations. Since they are profit-oriented entities, they must be included in the sectors that reflect their primary economic activity. Therefore, government business enterprises are classified to either the non-financial corporations sector or the financial corporations sector depending on the nature of their activities. They are identified as publicly controlled non-financial or financial corporations according to the naming conventions of the Canadian System of National Accounts. However, in the public sector, they are collectively recognized as government business enterprises (public corporations) with either non-financial or financial characteristics.

Appendix 2. Federal support to provinces and territories



4. Recapitulation

Figure A3-4
GFSM 2014 Decision Tree for Sector Classification of Public Entities

Description for Figure A3-4

The Public Sector Universe sector classification process

This diagram shows the decisions made to classify public entities

Is this entity a resident?

• Yes (continue) (selection followed)
• No
  • Rest of the World
    But
    • Is the entity a non-resident special purpose entity (SPE) of government?
      • No
        • Rest of the World sector (stop)
      • Yes
        • Classify the entity as a non-resident institutional unit and impute fiscal transactions of SPE in general government sector and rest of the world (stop)

Is the entity an institutional unit?

• No
  • Classify the entity as an integral part of the institutional unit that controls it (continue)
• Yes (continue) (selection followed)

Is the unit controlled by government?

• No
  • Households, not for profit institutions serving household (NPISH) or private corporation (stop)
• Yes (continue) (selection followed)

Public Sector Unit?

• Yes (continue)

Is the unit a market producer?

• No (selection followed)
  • Is there a market establishment within the nonmarket producer that meets the definition of an institutional unit?
    • No (selection followed)
      • Is the unit a financial auxiliary?
        • No
        (selection followed)
        • (arrived at) General government (stop)
        • Yes
          • Public financial corporation (stop)
    • Yes
      • Classify the market establishment (unit) as a quasi-corporation
      • Classify the unit in the public corporations sector (continue)
• Yes (continue)

Classify the unit in the public corporations sector

• Yes (continue)

Does the unit produce financial services?

• No
  • Public nonfinancial corporation (stop)
• Yes (continue)

Public Financial Corporation (stop)

Figure A3-5
Sector classification

Description for Figure A3-5

Sector classification hierarchy

• PS = Public sector
  • GG = General government
    • FG = Federal general government
      • BG = Ministries and departments, non-autonomous funds, pension plans and organizations (budgetary government)
      • EXB = Autonomous funds and organizations (extrabudgetary government)
    • SSF = Social security funds
    • PTG = Provincial and territorial governments
      • BG = Ministries and departments, non-autonomous funds, pension plans and organizations (budgetary government)
      • EXB = Autonomous funds and organizations (extrabudgetary government)
      • UC = Universities and colleges
      • HSS = Health and social services institutions
    • LG = Local government
      • BG = Ministries and departments, non-autonomous funds, pension plans and organizations (budgetary government)
      • EXB = Autonomous funds and organizations (extrabudgetary government)
      • SCB = School boards
    • IG = Indigenous government
  • GBE = Government business enterprises
    • FG = Federal general government
    • PTG = Provincial and territorial governments
    • LG = Local government
    • IG = Indigenous government

Appendix 4. Acronyms and abbreviations