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National Accounts Advisory Committee

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Overview of activities 2003

The National Accounts Advisory Committee (NAAC) reviews and gives advice on the concepts, methods, plans, standards as well as results associated with Statistics Canada’s System of National Accounts. The Committee meets twice a year. This year the Committee met on 5-6 May and again on 3-4 November. The Committee will meet again in the spring and fall of 2004. The following summarizes key points from our meetings this year.

Meeting of 5-6 May 2003

NAAC was informed on work at the Department of Finance to adopt accrual accounting and other classification changes in the federal government’s books. The major sources of difference between the new accrual based federal public accounts and the federal government sub-sector in the Canadian SNA (CSNA) were also outlined. Regarding the move to accrual accounting, some members expressed concerns about the assessment of aboriginal and environmental claims and putting such numbers in the Public Accounts. There were questions about when a claim should be recognized, how accurate estimates for liabilities would be, and whether putting such estimates in the Accounts would interfere with claims settlement. Support was expressed for showing certain transactions on a cash basis while maintaining full accrual as the standard across economic sectors of the CSNA. It was suggested that some of the work to put cash-based numbers on an accruals basis and to estimate depreciation on the capital stock might be better done at Statistics Canada than at Finance.

The Committee was brought up-to-date on the process for revision of the international guidelines for national accounts and the main areas for revision. The aim is to publish new guidelines (to be called System of National Accounts 1993, Rev. 1) in 2008. A number of topics are under review including, notably, the measurement of insurance, the valuation of financial services, and the measurement of non-financial assets. Discussion focused on the openness of deliberations at the international level and the involvement of users. Different views were expressed as to the role played by informal networks. Some viewed them as contributing greatly to the intellectual debate during the revision process, others felt that they tended to be marginal and ineffective.

Statistics Canada outlined the vision for a new framework for environmental information that includes a proposal for a set of expanded national accounts, to be made public in the final report (12 May 2003) of the National Roundtable on the Environment and the Economy. NAAC members were very supportive. Suggestions were made to further exploit provincial data sources, while cautions were offered about data standardization.

NAAC was brought up-to-date on recent efforts to launch an initiative to improve services price indexes. Members were generally in support of the initiative, pointing to ongoing improvements made in the U.S. It was suggested that weakness of Canadian data in this area could compromise Canada’s position in trade negotiations. One member advised that casting the price measurement issue through the “productivity lens” would help to make the case for longer term funding.

In earlier meetings, members of NAAC had suggested that it would be helpful in their deliberations if a five year strategic plan, along the lines of the one published by U.S. Bureau of Economic Analysis (see and click on “About BEA”), could be prepared outlining projects and costs. Statistics Canada drafted a plan that was discussed at the Committee’s fall 2002 meeting. A revised plan was brought back to NAAC for its spring 2003 meeting. Much of the discussion centred on the proposed update to the study of the underground economy and the topic of user-driven product developments, notably the new web-based Canadian Economic Accounts Quarterly Review. There was some question as to whether the underground economy study ought to be a priority, and one member suggested that household production ought to be higher on the list. Regarding the new publication, several members agreed this could serve as a good pedagogical tool, and a number of suggestions were made on dissemination via the publication. Members asked for a more in-depth discussion of this publication at their next meeting.

Meeting of 3-4 November 2003

The mandate, organizational structure and priorities of Input-output Division were summarized for NAAC. Members were asked for their views on what would be the best balance between (1) ensuring coherence of economic statistics, (2) improving the benchmark IO data, and (3) improving service to outside clients. The Committee was divided on the balancing of priorities. Some members were in favour of devoting more resources to dissemination of analytical output and IO modeling. Others felt that good quality data should remain top on the list of priorities. Others felt that user documentation should be a high priority. Members seemed to agree that a good way to improve program relevance would be to facilitate access to the data.

NAAC was brought up-to-date on the October 2003 meetings of the Canberra Group. This Group is considering proposed changes to the measurement of capital stocks and flows (especially of intangible assets) leading up to the forthcoming update of the international guidelines on national accounting. NAAC was consulted specifically on whether it is time to capitalize outlays for Research and Development (R&D) and if the OECD definitions of R&D should be used. Members were clearly at odds with the Canberra Group proposal to treat R&D spending as capital rather than current expenses in the core national accounts. Instead they felt that R&D ought to be left as is in the core accounts, but elaborated and explored more fully in a separate satellite account. One member noted that if other countries agree and the current proposal gets accepted, Canada will have to go with the flow for the sake of international comparability.

Regarding the proposed guidelines on financial services and non-life insurance, one of the main questions is how holding gains or losses should be treated. NAAC members were also asked for their views on (1) whether shares and bonds issued by financial institutions carry implicit service charges and (2) how should the difference between expected and actual insurance claims be handled in the national accounts. One member noted that there is a measurement problem in accruing holding gains to conform to the national accounts concept. On the first question, it was suggested that financial services be measured in total rather than by type, and that net worth not be considered as generating implicit services. On the second, it was suggested that Statistics Canada consider hypothetical situations with and without insurance to articulate more clearly the effect of introducing “expected” insurance claims into the accounts.

At its last meeting, members of NAAC had asked for a progress report on a project to update the 1992 study of the underground economy (UE). The current project aims to improve and refine the methodology, extend the coverage of underground activity, and to introduce a time series dimension. Committee was asked to consider if the UE study should be done regularly or occasionally, if the proposed framework and methodology are appropriate and whether significant efforts should be devoted to measuring illegal activity (given the difficulties of estimation) and informal activity (given its relatively small size). It was noted that some users are interested in estimates for all underground economic activity, while others are mainly interested in those activities not already covered in GDP. One member felt that an important gap in the study related to transfer pricing of exports. Several members were uneasy with the assumptions and fixed percentages used in the estimates for skimming. Statistics Canada is investigating a more direct measurement in this case. It was suggested that a sensitivity analysis be done as part of the exercise. One member recommended doing the study only occasionally and publishing only if it revealed something new. Another felt only aggregate estimates need to be published, while component estimates could be made available on request. It was also suggested that the part of the UE that is already included in GDP should be made available.

Following up on the previous meeting, NAAC was given a demonstration of the new web-based publication Canadian Economic Accounts Quarterly Review. Members were generally impressed with the new publication. Several felt it should be more prominent on Statistics Canada’s website, and others felt refining the site’s search engine to improve results ought to be a high priority. Members gave a number of suggestions on how to promote usage of and links to the publication.

Last, NAAC discussed publication of Committee records. It was noted that meeting documents are not confidential and are available to the public on request, however they would continue to be unpublished. It was suggested that NAAC should prepare an annual report of its activities which would be published on Statistics Canada’s website.

The National Accounts Advisory Committee

Current members of the Committee are: Professor Tom Wilson, University of Toronto (Chair), Mr. John Grant (University of Toronto), Mr. Steven James (Department of Finance), Mr. J. Steven Landefeld (U.S. Bureau of Economic Analysis), Professor Richard G. Lipsey (Simon Fraser University), Mr. David Longworth (Bank of Canada), Professor Doug May (Memorial University), Mr. Mike McCracken (Informetrica Limited), Professor Alice Nakamura (University of Alberta), Professor Nancy Olewiler (Simon Fraser University), Mr. Robert P. Parker (U.S. General Accounting Office), Ms. France St-Hilaire (Institute for Research on Public Policy), Professor Anthony Scott (University of British Columbia) and Mr. Stewart Wells.

Membership is by invitation from the Chief Statistician and invitees are selected based on professional qualifications. No committee member is considered to be representative of any group or institution as such. The Committee is independent in its advice and recommendations to the Chief Statistician.

Statistics Canada provides administrative support to the Committee. Mr. Philip Smith, Assistant Chief Statistician for the National Accounts and Analytical Studies Field of Statistics Canada, is an ex officio member of the Committee. Ms. Catherine Bertrand and Mr. Chris Jackson of Statistics Canada serve as secretaries to the Committee.