The 2002-2005 revisions of the Income and Expenditure Accounts

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Introduction

Revised estimates of the Income and Expenditure Accounts (IEA) covering the period 2002 to 2005 have been released along with those for the first quarter of 2006. 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. Revised estimates of the national balance sheet are released about two weeks later. 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 2002 were first released in May 2002. The first revision to these estimates occurred when the second quarter estimates were released in August 2002, further revisions occurred when the third and fourth quarter 2002 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 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 2002 and preliminary 2003 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 or updated projectors to the new levels received from the Input-Output Accounts.

GDP at current prices (Table 3) was revised downward on an annual basis for 2002 and 2003 and upward for 2004 and 2005. The downward revision to GDP in 2002 is a result of revisions to the 2002 Input-Output tables. This is the last time 2002 will be revised in a normal revision schedule as it is now fully reconciled with the revised and final Input-Output Accounts. The downward revision to current dollar GDP for 2002 was $1,299 million, in 2003 was $2,783 while the upward revisions for 2004 and 2005 were $603 million and $2,699 million, respectively. Chart 1 compares the value of the previous estimate to the revised estimate of nominal GDP on a quarterly basis.

Chart 1: Gross domestic product
Chart 1: Gross domestic product

As can be seen in the following table, the downward revisions to GDP in 2002 and 2003 were mostly a result of revisions to weaker than projected estimates of surplus in the Input-Output Tables. The upward revisions in 2004 and 2005 stem mainly from large upward revisions in wages and salaries and non-residential business investment in 2004 which were carried forward into 2005. On a quarterly basis, current dollar GDP was revised down for all quarters in 2002 and 2003 except for the first quarter of 2002 and the third quarter of 2003. In contrast, in 2004 and 2005 it was revised up for all quarters with the exception of the third quarter of 2004.

Table 1 Selected components (current revisions)
 
2002
2003
2004
2005
millions of dollars
Gross domestic product
-1,299
-2,783
603
2,699
Income components
Wages, salaries and supplementary labour income
615
3,250
7,924
9,225
Surplus
-1,631
-4,889
-6,892
-8,196
Corporation profits before taxes
-611
-2,771
-3,825
-4,481
Interest and miscellaneous investment income
-469
-544
-1,324
-837
Capital consumption allowances
-437
-1,337
-2,504
-4,105
Government business enterprise profits before taxes
136
660
666
1,111
Inventory valuation adjustment
-250
-897
95
116
Taxes less subsidies, on factors of production
-103
-293
-293
1,441
Taxes less subsidies, on products
-365
-647
-738
-855
Expenditure components
Personal expenditure on consumer goods and servies
-627
-1,303
-1,366
-1,582
Government current expenditure on goods and services
523
2,761
1,245
1,873
Business investment in residential structures
-61
-213
-585
-494
Business investment in non-residential structures
672
542
4,461
5,668
Business investment in machinery and equipment
125
205
44
-250
Business investment in inventories
-1,373
-2,304
-1,542
1,689
Exports of goods and services
1,114
390
1,998
1,424
Imports of goods and services
622
2,146
2,617
3,643

Estimates of real GDP (see table 3), were revised downward for 2002 and 2003 and upward for 2004 and 2005, with the largest revision of $-3.6 billion occurring in 2003. The revisions to 2004 and 2005 are low by historical standards.

Chart 2: Growth rates of real GDP, annual
Chart 2: Growth rates of real GDP, annual

Viewed from a historical perspective over two decades the revisions to the annual growth rate of current dollar GDP for 2003 and 2005 fall in the low to medium range of revisions. The cumulative revision to the growth rate (as shown in Table 4) is measured by the taking the difference between the current growth rate and the initial growth rate. For 2003, there is no cumulative revision, for 2005 it is 0.1%, while the cumulative revision for 2004 is slightly higher at 0.3%. Similar to 2004, the cumulative revision to the 2002 growth rate is large by historical standards, settling in at -0.6% as the Input-Output Table benchmarking exercise pulled the initial estimate down for a second consecutive year.

Estimates to quarterly real GDP growth were mostly revised upward or unchanged for 2002, 2003 and 2004. Most of the 2003 annual revision occurred in the first quarter which was revised by -0.3%. Revisions were also large in the first quarter of 2004 (+0.4%). For 2005, the revisions were mixed with the first quarter revised upward, the second and third quarter downward and the fourth unchanged.

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

Table 2 provides a history of the revisions to GDP for the period 1994-2005. As noted earlier, each annual estimate is subjected to four different annual revision cycles as well as periodic historical revision processes. Table 2 provides the published level and growth rate of GDP for a given year for each of these revision cycles. The largest revisions to GDP occur with the third revision cycle, in which the Income and Expenditure Accounts are benchmarked to the Input-Output Tables. The average upward revision to GDP is +0.2 percentage points and the average downward revision is -0.4 percentage points following the first revision cycle. This increases to +0.5 and a -0.3 with the second, and +0.7 and -0.4 with the Input-Output benchmarking process (the third and fourth revision cycle combined).

The implicit chained price index for GDP had marginal revisions. In 2002, it was unchanged, in 2003 it was revised up 0.1, unchanged in 2004 and up by 0.2 in 2005. As part of this revision process, the revised Machinery and Equipment Price Index (MEPI) has been incorporated into various components of the machinery and equipment deflators from 2002 to 2005. Prior to May 31st, 2006, the MEPI's were on a 1986=100 basis. These price indexes have now been rebased to 1997=100. The rebasing of the MEPI also resulted in a re-weighting of the elementary prices, with a greater weight given to import prices.

Revisions to income aggregates (Table 5)

Estimates of wages, salaries and supplementary labour income were revised upwards in 2002 and 2003, due to revisions to employers' contributions to pensions. These upward revisions resulted from the incorporation of benchmark data from Income Statistics Division, which showed substantial increases in special payments for unfunded liabilities (CANSIM Table 280-0026 ). A very large special payment of over 1 billion dollars occurred in the government sector in 2003. Other special pension payments occurred in the business sector, and as corporate expenses they reduced surplus, particularly corporate profits.

The substantial upward revision in 2004 was as a result of the receipt of tax data from the Canada Revenue Agency (CRA). The largest upward revisions to wages and salaries occurred in Quebec, Ontario, Alberta, and British Columbia. Supplementary labour income was also revised upward, but not to the same extent as 2003. Upward revisions were carried forward into 2005 for both wages and salaries and supplementary labour income.

Within the System of National Accounts surplus is defined as the income corporations obtain from their own production facilities—value added less compensation of employees less taxes on production payable plus subsidies received. It represents the last balancing item in the input-output tables and is calculated for each industry. As part of the annual benchmarking to the input-output tables, estimates of surplus are produced by incorporating the latest annual business and institutional survey's as well as various administrative data into the input-output framework. Once these benchmark estimates of surplus are derived, the revisions are incorporated into the Income and Expenditure Accounts. In the Income and Expenditure Accounts surplus includes the following income components: corporation profits before taxes, government business enterprise profits before taxes, interest and miscellaneous investment income, inventory valuation adjustment, capital consumption allowances. Table 1 shows the revisions to surplus for 2002 to 2005 as well as how the revision was distributed among its various income components noted above.

Corporation profits before taxes was revised down in all four years, by $611 million in 2002, $2,771 million in 2003, $3,825 million in 2004 and $4,481 million in 2005. The revisions in 2002 and 2003 reflect the benchmarking to the Input-Output Accounts which take into account the latest annual business survey data as well as updated annual corporate income tax returns for 2003. In 2003, the special payment made to supplementary labour income due to under-funding in pension funds created a significant offsetting downward revision to corporate profits. New estimates from the preliminary Financial and Taxation Statistics for Enterprises including the General Index of Financial Information (GIFI) schedules were incorporated for 2004. These new estimates resulted in downward revisions to 2004 which were carried forward to 2005 using revised estimates from the Quarterly Financial Statistics for Enterprises.

Interest and miscellaneous investment income was revised downward in all four years. In 2002 the downward revision was $469 million, in 2003 it was $544 million, in 2004 it was $1,324 million, and in 2005 it was $837 million. Revisions to this series reflect new and revised interest payment and receipt information and royalty payments of corporations.

Capital consumption allowances (CCA) was revised downward in all four years. In 2002 the downward revision was $437 million, in 2003 it was $1,337 million, in 2004 it was $2,504 million and in 2005 it was $4,105 million. Updated annual corporate income tax returns, together with additional depreciation estimates led to these revisions. Additional data sources were used to calculate estimates of capital consumption allowance. In the past the estimates were derived using data from the Annual Financial Survey, however, with this annual revision process, estimates of Capital consumption allowances are also taken from the Investment and Capital Stock Division's perpetual inventory model.

Accrued net income of farm operators from farm production was revised upward for all four years. In 2002 and 2003, the most significant revision was due to a downward revision in farm operating expenses (mainly in commercial feed expenses). In 2004, the combined effect of a downward revision in farm operating expenses with an upward revision to the Canadian Agricultural Income Support payments resulted in an overall upward revision of $390 million to accrued net farm income. In 2005 a downward revision in crop receipts was more than offset by an upward revision in livestock receipts and program payments.

Net income of non-farm unincorporated business, including rent was revised upwards in 2002 by $32 million. From 2003 to 2005 there were downward revisions, with 2003 revised downward by $144 million, 2004 by $199 million and 2005 by $166 million. The 2002 and 2003 revisions reflect benchmarking to the Input-Output Accounts by industry, while the 2004 revisions incorporate new administrative data coming from the Canada Revenue Agency on the net income of non-farm unincorporated business.

The estimate of taxes on factors of production, less subsidies was revised downward in 2002 by $103 million and by $293 in 2003. It was revised upwards in 2004 by $620 million and in 2005 by $1,441 million. Local taxes on production accounted for most of the revision. Taxes on products, less subsidies was revised downward in 2002 by $365 million, in 2003 by $647 million, in 2004 by $738 million and in 2005 by $855 million. Most of the revision occurred in the federal Goods and Services Tax (GST) as a result of recognizing the change in the rebate to municipalities from 50% to 100%. Revisions to both series also incorporate new public accounts and other financial information for the different government sub-sectors.

Revisions to expenditure aggregates at current prices (Table 6)

Personal expenditure on consumer goods and services was revised downward by $627 million in 2002, $1,303 million in 2003, $1,366 million in 2004 and $1,582 million in 2005. In 2002 and 2003, revisions reflect benchmarking to Input-Output Accounts, with services accounting for the majority of the downward revision, specifically health related expenses.

For 2004 and 2005, the overall revision to personal expenditure on consumer goods and services was downward. Goods were revised downward in all categories, which more than offset the upward revision to services. The quarterly retail commodity data based on the NAICS 2002 classification were made available in the Fall of 2005 for the period prior to 2004 and the annual Retail Trade for 2004 was released in March 2006. Both these data sources have been incorporated into the personal expenditure estimates on consumer goods.

Personal expenditure on services was revised upward using results from the Survey of Household Spending for 2004, as well as surveys of service industries. Gross paid and imputed rent were revised up in 2005 due to an upward revision to the average rent paid. This revision reflects the inclusion of CMHC average rent data published last December.

Government current expenditure on goods and services was revised upward by $523 million in 2002, $2,761 million in 2003, $1,245 million in 2004 and $1,873 million in 2005. These revisions reflect new data from federal and provincial public accounts as well as the latest local government information. Survey results for 2003 from the Canadian Institute for Health Information (CIHI) and the Culture, Tourism and the Centre for Education Statistics were also incorporated and carried forward to 2005. In 2003, a $1 billion special pension contribution by local governments was included. For 2004 and 2005, revisions reflect a resumption of pension contributions under Ontario Municipal Employees Retirement System by various Ontario municipalities.

Revisions to investment in residential structures were downward in each of the years from 2002 to 2005. The downward revisions were $61 million in 2002, $213 million in 2003, $585 million in 2004 and $494 million in 2005. Revisions are based on administrative data and results from the 2004 Survey of Household Spending and the Survey of Real Estate Agents and Brokers.

Business investment in non-residential construction and machinery and equipment recorded upward revisions in all four years. In 2002 the revision was upward by $797 million, in 2003 by $747 million, in 2004 by $4,505 million and in 2005 by $5,418 million. Investment in machinery and equipment was revised upward in 2002,2003 and 2004 while non-residential investment was revised upward in all four years. 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 2004 was largely due to revised estimates of investment by the oil and gas and utilities industries. As well, revisions occurred due to the incorporation of MEPI on a 1997 = 100 basis, supplied by Prices Division, for the deflation of the M&E components of GDP.

Revisions to investment in inventories were downward in 2002 by $1,373 million, by $2,304 million in 2003 and by $1,542 in 2004. In 2005 there was an upward revision of $1,689 million. Non-farm inventories revisions reflect the incorporation of new benchmark information as well as information coming from the latest annual surveys. Adjustments also reflect the outcome of the commodity balancing process that is integral to the development of the Input-Output Accounts, to which the Income and Expenditure Accounts are benchmarked.

Investment in farm inventories remained virtually unchanged in 2002 and 2003, but was revised upward in 2004 and 2005, mainly for grain inventories held on farms (wheat, soybeans, corn and canola). Grain inventories are now well above their 10-year average following two years of strong production with lower than normal quality (particularly for wheat).

Exports of goods and services was revised upward by $1,114 million in 2002, $390 million in 2003, $1,998 million in 2004 and $1,424 million in 2005. In general, the revisions to services are related to the incorporation of annual survey and administrative data. Commercial services experienced the largest upward revision primarily due to an increased use of tax data in calculating trade in commercial services. Estimates of imports of goods and services were revised upward in all four years. In 2002, they were up $622 million, in 2003 by $2,146 million, in 2004 by $2,617 million and in 2005 by $3,643 million. Commercial services, once again, played a major part in the upward revisions.

Tables

  1. Selected components (current revisions)
  2. Revisions to gross domestic product, historical perspective
  3. Revisions to gross domestic product
  4. Revisions to gross domestic product (growth rates)
  5. Revisions to income aggregates at current prices
  6. Revisions to expenditure aggregates at current prices