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The 2001-2004 revisions of the Income and Expenditure Accounts

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• Introduction
• Revision schedule
• Income and Expenditure Accounts revisions
• Impact of the revisions on Gross Domestic Product (GDP
• Revisions to income aggregates (Table 3)
• Revisions to expenditure aggregates at current prices (Table 4)
• Other notable revisions
• Tables

Introduction

Revised estimates of the Income and Expenditure Accounts (IEA) covering the period 2001 to 2004 have been released along with those for the first quarter of 2005. These revised estimates incorporate the most current source data and seasonal patterns.

Revision schedule

The annual revision process is integrated within the System of National Accounts, with revised estimates of the Income and Expenditure Accounts, Financial Flow Accounts and the Balance of International Payments compiled and released together. The integration occurs through compiling Input-Output Accounts in current prices for the first two years of the four year revision period. These data are released in the fall of each year when the full provincial Input-Output Accounts are completed. Corresponding revisions to the monthly estimates of real Gross Domestic Product by industry are released in September.

Statistical revisions are carried out regularly in the System of National Accounts in order to incorporate the most current information from censuses, annual surveys, taxation statistics, public accounts, etc. In principle, the revision schedule for the National Income and Expenditure Accounts is as follows: the first estimate for a given quarter is released approximately 60 days after the end of the reference quarter; this estimate is revised when estimates for subsequent quarters of the same calendar year are released; thereafter, the estimates are open for revision only once a year for the next four years, at the time of the release of the first quarter estimates. For example, the estimates for the first quarter of 2001 were first released in May 2001. The first revision to these estimates occurred when the second quarter estimates were released in August 2001, further revisions occurred when the third and fourth quarter 2001 estimates were released. These estimates were revised again in each of the next four years, with the last of these revisions occurring with this release.

Limited revisions are sometimes carried out for periods further back than four years and historical revisions are conducted periodically, roughly once every 10 years. Historical revisions provide an occasion to improve estimation methods, eliminate statistical breaks resulting from more limited revisions and introduce conceptual changes into the system. The most recent historical revision was completed in December 1997. Documentation related to this revision can be found at /pub/13-605-x/2003001/data-donnees/1997nefa-1997cefn/index-eng.htm

The policy of revising the estimates of previous years only once a year is adhered to throughout the System of National Accounts. The period open for revision, however, varies from one set of accounts to the other. Thus, the standard revision is four years in the Income and Expenditure Accounts and the Balance of Payments. The standard revision in the Input-Output Accounts covers one year—the first year of the four years of revision in the Income and Expenditure Accounts and the Balance of Payments. The revision of the Financial Flow Accounts usually parallels that of the National Balance Sheet Accounts and often covers more than four years to reconcile the stocks with the revised flows.

Income and Expenditure Accounts revisions

With the May 2001 release, a number of conceptual changes were implemented within the National Income and Expenditure Accounts including the introduction of the use of the Chain Fisher Volume Index, a change in valuation from factor cost to basic price, and a change related to the capitalization of software. With the May 2002 release, additional conceptual changes were implemented within the National Income and Expenditure Accounts and carried back to 1981. These included classification changes to licences and registrations, land transfer taxes, and spectrum charges and the incorporation of 1996 census results in farm inventories. Documentation related to these conceptual changes can be found at /pub/13-605-x/2003001/chrono/4066065-eng.htm

No conceptual changes have been made to the Income and Expenditure Accounts this year.

Impact of the revisions on Gross Domestic Product (GDP)

The current revisions to GDP resulted from the inclusion of the most current estimates from data sources, including survey results, administrative data and public accounts. Revised 2001 and preliminary 2002 Input-Output data are incorporated for the first two years of the four-year revision period. New benchmark information was incorporated for the more recent periods. Other series were revised due to applying existing projectors to the new levels received from the Input-Output Accounts.

As can be seen in Table 1, the current revisions resulted in minimal revisions to GDP on an annual basis for 2001, but negative adjustments to GDP for 2002 to 2004. Although the current revision to 2001 is small, the cumulative revision is 2.2%. The cumulative revision is the current estimate compared to the initial estimate for that reference period. Downward revisions to current dollar GDP for 2002, 2003 and 2004 were $3.8 billion, $2.6 billion and $3.1 billion, respectively. Expressed as a percentage of the estimate, the change for 2002 represents -0.3% of the estimate and -0.2% for each of 2003 and 2004. Downward revisions to the last three years of a four year revision cycle are relatively uncommon as GDP has traditionally been revised upward. As can be seen in the following table, these downward revisions were mostly as a result of revisions to corporate profits, indirect taxes less subsidies on products, personal and government expenditure on goods and services, and exports. On a quarterly basis, current dollar GDP was revised down for all quarters except for the first, third and fourth quarters of 2001.

Selected components - current revision

	2001	2002	2003	2004
	millions of current dollars
Gross domestic product	-152	-3,764	-2,581	-3,104
Income components
Wages, salaries and supplementary labour income	0	0	4,035	5,096
Corporation profits before taxes	453	-1,640	-3,618	-2,866
Interest and miscellaneous investment income	-388	-1,026	-1,285	-1,437
Taxes less subsidies, on factors of production	93	298	911	818
Taxes less subsidies, on products	-1,124	-1,034	-2,140	-3,045
Capital consumption allowances	-72	-142	-801	-1,854
Expenditure components
Personal expenditure on consumer goods and servies	-2,289	-953	-916	-1,396
Government current expenditure on goods and services	591	228	-1,080	-1,237
Business investment in residential structures	-7	-117	-786	-913
Business investment in non-residential structures	39	301	2,728	2,896
Business investment in machinery and equipment	-679	-2,163	-697	-470
Business investment in inventories	1,530	-733	-423	539
Exports of goods and services	-590	-1,287	-330	-1,939
Imports of goods and services	-672	-569	759	942

Viewed from a historical perspective over two decades (Table 5), the revisions to the level of current dollar GDP for 2002, 2003 and 2004 fall in the low range of revisions (not considering years of historical revisions and the revision completed in May 2001, where software capitalization had a large impact) of -0.9% to 1.4% for the preceding year, -0.7% to 1.7% for the second preceding year and -0.4% to 1.0% for the third preceding year. Over the last two decades, the mean revision for the preceding year and the second preceding year was 0.3%. The mean revision for the third preceding year was 0.2%. The revision of 0.0% for 2001 falls in the middle of the range of revisions for the fourth preceding years where the range lies between -0.2% and 0.9% and the mean is 0.1%. The revisions to the preceding period are a comparison of the GDP released at the time of the first quarter to those released at the time of the fourth quarter of the corresponding year.

In real terms (see Table 1), the annual revision to GDP was downward for 2001 to 2004, inclusively, with the largest revision of $3.9 billion occurring in 2003. Quarterly real GDP was revised down for all of 2002, 2003 and 2004. The revisions to the first quarter of 2001 was the largest upward revision over the period at 0.1%, with the revisions ranging from -0.5% to 0.1%, more variable than the revisions to the annual estimates. Chart 1 compares the value of the previous estimate to the revised estimate of real GDP on a quarterly basis.

As can be seen in the cumulative revision column in Table 1, the largest total revision to both current dollar and real GDP occurred in the first year of the four year revision cycle. This is the last time 2001 will be revised in a normal revision schedule as it is fully reconciled with the revised Input-Output Accounts.

Chart 1: Real GDP

The annual growth rate of GDP in current dollars shown in Table 2 is revised down in 2002 by 0.3%, up in 2003 by 0.1%, and unchanged in 2001 and 2004. Revisions to the annual growth, in real terms, were unchanged in 2001 and 2003, up in 2004, but down in 2002, with a change in growth rate of -0.3%. Quarterly growth rate revisions range from -0.3% to 0.2% on a current dollar basis and from -0.1% to 0.2% on a real GDP basis. The cumulative revisions to the quarterly growth rates are greater, with the largest revision to current dollar GDP growth in the first quarter of 2001. Charts 2 and 3 show the revisions to real GDP growth rates from this release compared to the previous estimate.

Chart 2: Growth rates of real GDP, annual

Chart 3: Growth rates of real GDP, quarterly percent change

The implicit chain price index for GDP was not revised in 2001 and 2002, and was revised only marginally in 2003 and 2004—up in 2003 by 0.2% and down in 2004 by 0.1%. Upward revisions to the price of government labour were recorded in 2003 and 2004. Export prices for goods were revised downward in 2003 and 2004 based on improved machinery and equipment price information.

Revisions to income aggregates (Table 3)

Estimates of wages, salaries and supplementary labour income were not revised in 2001 and 2002 but experienced significant upward revisions in 2003 and 2004, of $4 billion and $5 billion respectively. The revision to 2003 was largely due to the receipt of the Canada Revenue Agency (CRA) T4 Supplementary file for tax year 2003, which provides the annual benchmark for wages and salaries.

Wages and salaries were revised upwards by $3.4 billion in 2003, with stronger than previously published growth in Ontario, Prince Edward Island and Newfoundland and Labrador. Higher revised wages were posted in professional and personal service industries, education, health care and social assistance, manufacturing, and transportation. Yukon registered a decline, mostly as a result of trade, and professional and personal service industries. Supplementary labour income registered an upward revision of $600 million in 2003, as more current data sources were incorporated for employers’ contributions to welfare and workers’ compensation.

The revisions to both wages and salaries, and supplementary labour income for 2003 were carried forward to 2004, contributing to an upward revision of $5 billion.

Revisions to corporation profits before taxes were slightly upwards in 2001, with large downward revisions of $1.6 billion in 2002, $3.6 billion in 2003 and $2.9 billion in 2004. The revisions in 2001 and 2002 reflect the benchmarking to the Input-Output Accounts and updated annual corporate income tax returns for 2002. New estimates from the preliminary Financial and Taxation Statistics for Enterprises including the General Index of Financial Information (GIFI) schedules were incorporated for 2003. These new estimates resulted in downward revisions to 2003 which are carried forward to 2004.

Interest and miscellaneous investment income was revised down in all four years. 2001 was revised down by $388 million, whereas 2002, 2003, and 2004 were revised down by $1,026 million, $1,285 million and $1,437 million respectively. Revisions to this series reflect new and revised interest payment and receipt information and royalty payments of corporations.

Accrued net income of farm operators from farm production was revised slightly in 2001 and 2002, but more substantially in 2003 and 2004. In 2003, the most significant revision was due to farm program payments which were revised up, on an accrued basis, to take into account the new Canadian Agricultural Income Support (CAIS) Program and carried through to 2004. As well, farm operating expenses were revised down in 2003 and 2004 from the initial forecasted estimates. This downward revision to farm expenses combined with the upward revision in farm program payments resulted in significant revisions to accrued net farm income for 2003 and 2004.

Net income of non-farm unincorporated business, including rent was revised upwards in 2001 by $493 million, in 2002 by $419 million and in 2004 by $14 million. However, a downward revision to rental income in 2003 more than offset a rise in other non-farm unincorporated business income resulting in a total downward revision of $224 million. The 2001 and 2002 revisions to other non-farm unincorporated business income reflect the benchmarking to the Input-Output Accounts by industry, while the 2003 revisions incorporate new administrative data coming from the CRA on the net income of non-farm unincorporated business.

Estimates of taxes on factors of production, less subsidies were revised upwards in each of the years from 2001 to 2004 with the largest revisions in 2003 of $911 million and in 2004 of $818 million. Taxes on products, less subsidies were revised downwards throughout the period—$1.1 billion in 2001, $1.0 billion in 2002, $2.1 billion in 2003 and $3.0 billion in 2004. Revisions to both series are due to the incorporation of new public accounts and other financial information for the different sub-sectors of government. Lower GST revenues, coupled with higher subsidies, including the new Canadian Agricultural Income Support Program, resulted in the large downward revisions to taxes on products less subsidies.

Capital consumption allowances were revised downwards throughout the period: 2001 was revised down by $72 million, 2002 by $142 million, 2003 by $801 million and 2004 by $1,854 million. Updated annual corporate income tax returns, together with revised depreciation estimates, led to these revisions.

Revisions to expenditure aggregates at current prices (Table 4)

Personal expenditure on consumer goods and services was revised downwards in all four years. 2001 was revised down by $2,289 million, 2002 by $953 million, 2003 by $916 million and 2004 by $1,396 million. Large downward revisions to expenditure on services outweighed upward revisions to durable and semi-durable goods in 2002, 2003 and 2004.

Personal expenditure on services was revised downward in each of the four years, mostly due to revisions in estimates of recreational services and meals outside the home. A new business/personal split on recreational services resulted in a $1.3 billion downward revision in 2001. Changes in methodology used in the Monthly Restaurants, Caterers and Taverns Survey and in the Annual Survey of Service Industries: Food Services and Drinking Places resulted in revisions to total food service sales. These changes resulted in a downward revision of $600 million to estimates of expenditure on meals outside the home. The revisions to 2001 were carried forward to 2004.

Results from the Survey of Household Spending for 2003, as well as surveys of service industries, were incorporated in these estimates.

Government current expenditure on goods and services was revised up in 2001 and 2002 by $591 million and $228 million, respectively. Downward revisions occurred in 2003 ($1,080 million) and 2004 ($1,237 million). These revisions reflect new data from federal and provincial public accounts as well as the latest local government information. Survey results for 2002 from the Canadian Institute for Health Information (CIHI) and Culture, Tourism and the Centre for Education Statistics were also incorporated and carried forward to 2004.

Revisions to investment in residential construction were downwards in each of the years 2001 to 2004, with more significant revisions of 1.1% in both 2003 and 2004. Revisions are based on administrative data and results from the 2003 Survey of Household Spending and the Survey of Real Estate Agents and Brokers.

Business investment in non-residential structures and equipment estimates recorded downward revisions in 2001 and 2002, but large upward revisions in 2003 and 2004. Estimates for 2001 were revised down by $640 million, 2002 were down by $1,862 million, and 2003 and 2004 were up by $2,031 million and $2,426 million, respectively. The machinery and equipment component of these estimates were revised down throughout the entire period, whereas the non-residential investment component was revised up. Revisions to both series reflect benchmarking to the Input-Output Accounts as well as the incorporation of the latest estimates from the Private and Public Investment Survey. The greater increase in investment in non-residential structures in 2003 was largely due to increased investment by the oil and gas and utilities industries.

Revisions to investment in inventories were upwards by $1,530 million in 2001 and by $539 million in 2004 but were downwards by $733 million in 2002 and by $423 million in 2003. Non-farm inventories revisions reflect the incorporation of new monthly surveys on wholesale and retail trade. New mining and utilities data are also incorporated in these revisions. Adjustments also reflect the outcome of the commodity balancing process that is integral to the development of the Input-Output Accounts, on which the Income and Expenditure Accounts are benchmarked. The downward revision in farm inventories for 2003 was largely concentrated in the grain sector where grain inventories held on farms at the end of the year were not as high as originally reported.

Exports of goods and services were revised downwards for the whole revision period, down $590 million in 2001, $1,287 million in 2002, $330 million in 2003 and $1,939 million in 2004. Energy products, machinery and equipment and transportation services experienced the largest export revisions in 2004. In general, the revisions to services are related to new survey data. Estimates of imports of goods and services were revised down in 2001 and 2002 by $672 million and $569 million, and were revised up in 2003 and 2004 by $759 million and $942 million. These revisions were due mostly to machinery and equipment (2001 and 2003) and to commercial services from 2001 to 2004.

Large downward revisions of the services of Tooling, Engineering, Launching, and Obsolescence (TELO) of motor vehicle manufacturers have been made to both exports and imports of this category of commercial services for 2001 onward. These revisions follow research and discussions with motor vehicle manufacturers that led to a better understanding of the way services related to production and trade were transacted in that industry. This research revealed that some of these production costs are included in the price of cars and parts whereas they had been treated as separate services in the past.

Other notable revisions

Downward revisions were made to corporate income taxes throughout the 2001 to 2004 period, ranging from $1.4 billion in 2001 to $5.5 billion in 2004. These revisions were made to bring corporate income taxes more into line with cumulative collections and these changes contributed to the downward revision to government surplus.

Tables

1. Revisions to Gross domestic product
2. Revisions to Gross domestic product (growth rates)
3. Revisions to income aggregates at current prices
4. Revisions to expenditure aggregates at current prices
5. Revisions to Gross domestic product (historical perspective)