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National Accounts Advisory Committee

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Overview of Activities 2004

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 3-4 May and again on 22-23 November. The Committee will meet again in the spring and fall of 2005. The following summarizes key points from our meetings this year.

Meeting of 3-4 May 2004

A range of items were on the meeting agenda, including: an update on the services price index initiative; methodology and first results for a proposed index of natural capital; accounting for the environment in Canadian productivity measures; future directions and budget implications for the environment statistics program; a discussion of measurement problems due to exchange rate changes; issues regarding vehicle insurance and the CPI; and an update on the writing of a history of the Canadian SNA.

The NAAC was updated on a proposed initiative to expand the measurement of prices for business services. Since it would be difficult to proceed on all fronts at once, a method was developed to prioritize services according to a number of criteria. The Committee provided input on the approach to setting priorities, on how to make an effective case for funding, and on conceptual, methodological, and data quality issues. Members recommended preparing an initial report on a few high profile or complex services as a way to demonstrate the importance of the overall initiative. The priority given to this area in the United States and its significant impact on US GDP and productivity growth was seen as a strong argument for undertaking this work in Canada.

Methodology and preliminary findings for a proposed index of natural capital were presented to the Committee. Feedback was sought on the relevance of the index, the appropriate index form and whether further work should be pursued given the limitations of available source data and measurement techniques. Committee members expressed a range of views on the relative merits and inherent difficulties in measuring natural resource wealth. Some felt that determining resource reserves and their appropriate valuation was highly problematic, while others felt the work, however limited, was fundamental. Some participants questioned the usefulness of an aggregate index, while others thought developing summary indicators would raise the profile of the overall issue. The Committee suggested a number of areas to emphasize in further development of the index.

The Committee was informed of experimental proposals to broaden the existing productivity framework to integrate environmental statistics and develop “eco-efficiency” indicators. Shadow prices for environmental goods would be part of the expanded framework. The NAAC was asked for input on the potential demand for the information, the appropriate frequency of publication and whether shadow prices, derived in multi-resource productivity calculations, should be published. Members expressed interest in the proposal and emphasized a need to communicate key messages effectively to the public. Questions on the impact of including natural resource stocks in productivity calculations were debated by the group.

The NAAC was updated on the outcome of the federal budget on funding of sustainable development indicators in Statistics Canada’s Environmental Accounts and Statistics Division. Funding was confirmed for national indicators on air quality, water quality and greenhouse gas emissions, to be developed for late 2005. The Committee was invited to share ideas on how to raise effectively the profile of environmental statistics and for feedback on the overall program direction at Statistics Canada. They expressed support for recent changes in the dissemination strategy to focus on more frequent thematic releases, and encouraged Statistics Canada to continue to improve the timeliness and frequency of major outputs.

The Committee provided feedback on recent measurement problems related to the rapid appreciation of the Canadian dollar. Under these circumstances, double currency conversions required in the methodology for Canadian exports to the US resulted in an artificial reduction in their value, and significant upward corrections were required. Assumptions inherent in the current method, along with a range of data coherence issues were discussed by the NAAC. They provided advice on whether to expand price measurement for international trade, and offered a number of suggestions for further research. While some members felt strongly that improvements in price measurement were required, others felt one-time adjustments were sufficient if rapid exchange rate changes were infrequent. The NAAC recommended collecting data from survey respondents in US dollars (and doing the conversion at Statistics Canada) in cases where company books are recorded in US currency.

Recent measurement issues, primarily relating to vehicle insurance in the CPI, were outlined for the Committee. Timing problems in the reporting of premium rate increases were mitigated by efforts to improve respondent relations. The CPI treatment of property and casualty insurance, which focuses on gross premiums for a fixed basket of insurance services, was contrasted with that of the SNA, where an implicit service charge approach is used. The Committee debated conceptual and methodological issues relating to the appropriate measurement.

The NAAC was informed of the work of an internal Task Force to find a suitable candidate to write an in-depth history of the Canadian SNA. Duncan McDowall, professor of history at Carleton University, was introduced to the group. He has accepted a two-year posting at Statistics Canada to undertake this work. The history will target a broad audience and be written in an accessible style. It will highlight Canada’s important role in the field of national accounting. The Committee shared insights on areas to emphasize and key messages to convey in the research.

Meeting of 22-23 November 2004

Several items were on the agenda for the meeting, including: a strategic overview of the productivity program; an update on the proposed index of natural capital; findings and future directions for the Satellite Account of Nonprofit Institutions and Volunteering; an update on the CSNA history project; the measurement of government non-market output; and a report on a feasibility study to measure the market value of residential properties.

The NAAC was given an overview of Statistics Canada’s productivity program and asked for advice on overall strategic directions and future priorities for research. Committee members generally applauded the program for its recent advancements and for the breadth, quality and importance of the analytical work undertaken. In terms of areas for future emphasis, a range of suggestions was put forward. Several members expressed support for measurement of productivity in the public sector as well as back-casting the NAICS-based estimates. Additional support was offered for further qualitative research on firm practices and the nature of their activities and behaviour having an effect on productivity. It was suggested that an emphasis on human capital and skills as well as “competitiveness” would provide a useful link to current policy debates. Several members felt there was a need to communicate more effectively the importance and utility of productivity estimates both to policy and business decision-makers.

Several questions on the proposed index for natural capital arising from the last meeting were addressed. In particular it was noted that due to confidentiality constraints, provincial/territorial details would only be possible at the top level of the index. And while the index could be expanded to agricultural land, other types of land would need to be reviewed more closely. NAAC was given an outline of the vision of the ideal index, and next steps for the project. Several members counseled Statistics Canada to develop a constituency of support for the proposed index. However, concerns were once again expressed about data gaps and the intended uses of the index at the overall level. Some members felt the real value of the index would be in its underlying components. Others saw the overall index as providing a useful reference for policy discussions.

The Committee was briefed on findings from the Satellite Account of Nonprofit Institutions and Volunteering released on 20 September 2004, and asked for advice on the presentation of results with respect to large nonprofit institutions with close ties to government, and on future priorities for further development. NAAC members were generally impressed by the work and satisfied with the presentation of results. On priorities for future work, several members felt that efforts to develop a regional dimension would be important. It was suggested as well to make comparisons between nonprofits and their private sector, commercial counterparts.

Members were provided with an update on the CSNA history project. The national archives and archives of the Bank of Canada and Finance Canada have been researched. A number of personal interviews have been conducted as well. The Committee commended the work to-date and expressed enthusiasm for the project. A number of suggestions were offered including addressing the introduction of computers and how this enabled fundamental advancements in the accounts.

The Committee was presented with an overview of the issue of measuring government output with a special emphasis on the education sector. Current measurement principles and practices were reviewed, and the pros and cons of changing the standard approach were discussed. It was noted that fruitful debate in this area is inhibited by confusion over “outputs” and “outcomes”. The NAAC was asked for advice on how government outputs should be measured and whether quality adjustments should be made. A number of Committee members expressed discomfort with adopting output indicators for the public sector without careful consideration, experimentation and debate. It was suggested that priority be given to defining the concepts as a first step. Introduction of estimates via satellite accounts was recommended at a later stage. Some participants favoured the status quo, noting that cost-based estimates of output were safer and more easily interpreted. Others felt that the zero productivity growth in the public sector implied by the cost of inputs approach was not plausible.

A presentation was made on a feasibility study to improve capital stock estimates used in the property tax base in the federal/provincial equalization formula. The estimates have come under criticism in recent years, leading Finance Canada to approach Statistics Canada to develop some options as to how to improve them. Several options have been considered, the most promising of which is to hire appraisers to assess current residential market values in a nation-wide probability sample. NAAC was briefed on the challenges and initial findings in the feasibility study to date. It was noted that comparability across provinces and territories is critical as billions of dollars are at stake in terms of the impact on allocations under the equalization formula. Several members agreed that comparability was important, and it was suggested that a simulation of the appraisal process (through the use of hedonic pricing functions) could be a more effective way of ensuring standardization. Some members questioned the need to undertake a survey and felt that utilization of existing data sources from multiple listing services and municipal assessments might be a better way to go. Members were concerned about validating the results from the study, and suggested ways this might be done. It was observed that there would be many advantages to implementing the proposed program, and enormous value if Statistics Canada were to certify the results.

The National Accounts Advisory Committee

Current members of the Committee are: Professor Tom Wilson (University of Toronto, Chair), Ms. Agathe Coté (Bank of Canada), 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), 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 Van Rompaey and Mr. Chris Jackson of Statistics Canada serve as secretaries to the Committee.