Moving from the Financial Management System to Government Finance Statistics

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The government finance statistical program is designed to measure and analyze the economic dimensions of the public sector of Canada. The economic dimensions measured are: revenue, expenditures and the resulting surplus or deficit, assets and liabilities, net worth or net debt position.

Since government financial statements and reports are based on the organizational structures and on the accounting and reporting practices of individual governments, there is a lack of consistency across jurisdictions and over time. For example, one government may discharge a function through a departmental structure, while another uses a crown corporation, and another employs a board, a commission, or an agency. Also, among governments, similar departmental titles do not necessarily mean identical responsibilities, and an individual government may regard a given operation as contributing to one or several functions. Organizational structures change as new programs are introduced, existing ones amended, and responsibilities are assigned or reassigned.

Given this lack of uniformity in reporting practices, over the last 65 years, Statistics Canada, in cooperation with representatives of all levels of government and with the academic and business communities, developed the Financial Management System (FMS). The Financial Management System was an analytical framework designed to produce statistical series which were both consistent and comparable. It encompassed the financial transactions recorded in the public accounts and other government documents and the employment data of the public sector in Canada. The application of the FMS has been the means by which government finance statistics from a multitude of public sector entities were rendered consistent and consolidation made possible.

The FMS was founded on a modified-cash based system of accounting. Recently, Canadian governments have decided to move from that modified-cash based accounting system to an accrual based accounting system. In addition, an internationally accepted Government Finance Statistics (GFS) manual has been developed. The GFS 2001 is an internationally accepted accrual accounting framework for government finance statistics. The GFS 2001 is also fully integrated with the United Nations (UN) System of National Accounts (SNA) framework. Given these changes, the Canadian statistical system underlying government finance statistics must also change. Statistics Canada has decided to move towards reporting government finance statistics on a Government Finance Statistics 2001 (GFS 2001) basis.¹

While it will take a number of years to be able to derive detailed GFS based statistics directly from government financial information, Statistics Canada has decided to release quarterly GFS data using Canada's System of National Accounts (CSNA) government sector data and a bridging model that maps these data to the GFS framework. The CSNA (consistent with the United Nations' system) already compiles some government data on an accrual basis and therefore offers an excellent foundation to produce preliminary estimates of government data on a GFS basis. The remainder of this note highlights the new quarterly data, the mechanics behind the mapping as well as the limitations in the data.

Canada's System of National Accounts -mapped Government Finance Statistics quarterly data

The core of the GFS analytic framework is a set of four financial statements. These are (1) the Statement of Government Operations; (2) the Statement of Other Economic Flows; (3) the Balance Sheet; and (4) the Statement of Sources and Uses of Cash to provide key information on liquidity. Each of these statements is described below:

1. The Statement of Government Operations summarizes all transactions and derives important analytic balances from this information. Revenue minus expense equals the net operating balance, which is a summary measure of the effect of the government's transactions on net worth. The subsequent deduction of the net acquisition of non-financial assets from the net operating balance produces a balance called net lending/borrowing, which measures the extent to which government either provides financial resources to the other sectors of the economy and the rest of the world (net lending) or uses financial resources generated by the other sectors (net borrowing). Net lending/borrowing, also, is equal to the government financing requirement derived as the net of transactions in financial assets and liabilities. It is a measure of the financial impact of government activity on the rest of the economy.
2. The Statement of Other Economic Flows presents information on changes in net worth that arise from flows other than transactions. These flows are classified as either changes in the value (revaluations, or holding gains or losses) or in the volume of assets and liabilities. The balancing item of this statement is the change in net worth resulting from other economic flows.
3. The Balance Sheet presents the stocks of assets, liabilities, and net worth at the end of the accounting period. The government's net worth is defined as the difference between total assets and total liabilities. Another balancing item that can be derived from the Balance Sheet is net financial worth, which is defined as total financial assets minus total liabilities.
4. The Statement of Sources and Uses of Cash shows the amounts of cash generated and used in operations, transactions in non-financial assets, and transactions involving financial assets and liabilities, excluding cash itself. The balancing item, net change in the stock of cash, is the sum of the net cash received from these three sources of cash flows.

At this time, the CSNA-mapped quarterly GFS data includes estimates of the Statement of Government Operations and the Balance Sheet. The Canadian System of National Accounts does not publish a revaluation and other changes in assets account and therefore a mapping to the GFS Statement of Other Economic Flows could not be developed. Data for the Statement of Sources and Uses of Cash will be developed at a later date.

The GFS framework requires that data be produced for all levels of government as well as a consolidated general government category. The CSNA-mapped quarterly GFS data is produced for the federal, provincial, territorial and local levels of government as well as the Canada Pension Plan and the Quebec Pension Plan. These categories correspond to the GFS nomenclature as shown in the following table.

Levels of government
IMF	Canada
Central	Federal (F)
State	Provincial (P)
Local	Local (L)
Social security	Canada Pension Plan and Quebec Pension Plan (SS)
General	∑F+P+L+SS - inter-sector transactions

The detailed categories as well as the CSNA–to-GFS bridge table are provided in Appendix A and a glossary of terms in Appendix B. For ease of use, the International Monetary Fund (IMF) categories description and code structure is presented alongside the CSNA category description, as well as its Statistics Canada's socio-economic database (CANSIM) series identifier.²

Differences between Government Finance Statistics and Canada's System of National Accounts

In order to best understand the mapping process it is important to review how government finance statistics are compiled at Statistics Canada. Government data, as noted above, originate from the public accounting system. This information is then fitted into the Financial Management System (FMS) framework. The public accounts information is also passed along to the Canadian System of National Accounts (CSNA) and is incorporated into such things as the Income and Expenditure Accounts, the Financial Flow Accounts, the National Balance Sheet and the Input-Output Tables. Finally, a mapping between the CSNA and GFS is performed to arrive at the quarterly estimates. As the data transition from FMS to CSNA to GFS, certain conceptual adjustments are made. The conceptual adjustments along with general user notes are listed below.³

1. The GFS framework requires that revenues, expenses, assets and liabilities of non-autonomous public sector pension plans at the federal (Central) and provincial (State) government levels be included in the GFS Statement of Operations and the GFS Balance sheet. For the CSNA-mapped GFS quarterly data, these pension plans incomes and expenses are not included. In the CSNA, these pension plans' liabilities are treated as liabilities of the government sector and are assets of the household sector while incomes and expenses of these pension plans are captured in the household sector accounts.
2. The GFS framework requires the elimination of all inter and intra-government transactions between components of government in order to avoid double-counting. These revenue and expense transactions include transfers, interest flows, taxes paid and received, and purchases and sales of goods and services. In the CSNA, all inter and intra-governmental transfers are eliminated in calculating total government sector income and outlay. Also, transactions (interest flows, taxes paid and received, purchases and sales of goods and services and transfers) between budgetary operations (departments/ministries) and special funds are being eliminated. The new quarterly GFS submission reflects this CSNA presentation. Interest flows, taxes paid and received purchases and sales of goods and services between governments are not eliminated in calculating total government sector income and outlay as the necessary information, especially on a quarterly basis, is not available.
3. For the financial flows and balance sheet, the elimination of inter and intra-governmental transactions is not performed in the CSNA except for transactions between budgetary operations and special funds. For this quarterly GFS data, inter and intra-governmental transactions (for total government) are eliminated for Treasury Bills and bonds only. As a result, the GFS series will differ from the corresponding series within the CSNA.
4. In the CSNA balance sheet, the valuation of residential and non-residential structures and machinery and equipment are depreciated at replacement cost. Inventory estimates are the accumulation of the value of physical change estimates for the federal (Central) government in the income and outlay accounts (the CSNA does not currently calculate value of physical change for other government sub-sectors). Land estimates are derived using land to structure ratios.
5. The CSNA mapped GFS balance sheet data is on a market value basis. Book value and market value estimates of financial assets and liabilities are the same except for bonds, shares and foreign investment. Market value estimates of these categories are derived using market to book factors obtained from various sources. The market valuation basis is also used in the CSNA annual financial accounts submissions to the Organization of Economic Co-operation and Development (OECD).
6. For most financial categories of the balance sheet, the change in balance sheet values between two periods will not be equal to the estimates of financial flows for the period. The measure of this difference is due to many factors including foreign currency changes and market revaluations, allowances and write-offs, and additional data information. These are referred to as other economic flows and as noted above the CSNA does not currently compile an other change in assets account.

The CSNA-mapped quarterly GFS data is Statistics Canada's first step in providing government data consistent with the GFS framework. With the upcoming historical revision of the CSNA, to be published in 2014, the framework will be more fully implemented. In addition, the government data contained in the CSNA will be consistent with the GFS framework.

Appendix A: Statement of Government Operations - Revenue and Expenses
Appendix B: Glossary

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Notes :

1. Statistics Canada will begin publishing Public Sector Statistics based on the GFS2001 manual in calendar year 2014.
2. CANSIM is Statistics Canada's key socioeconomic database. Updated daily, CANSIM provides users with access to a large range of the latest statistics available in Canada through its Website (www.statcan.gc.ca). Series within the CANSIM database are identified by a unique vector number (V-number). The V-numbers that correspond to the CSNA data mapped to the GFS framework are provided in the appendix to this document.
3. It should be noted that once the GFS is implemented the data will be consistent with the Canadian System of National Accounts and the conceptual difference between the two sets of data will disappear.