User Guide to the Finances of the Nation REAL data

Michael Smart
Nicholas Mahoney

November 2020

Introduction

The Finances of the Nation Government Revenue and Expenditure (REAL) data report disaggregated annual data on revenues and expenditures of federal and provincial/territorial governments for the period from 1965/66 to the most recent available year. These data give a consistent picture of government revenues and expenditures, and permit comparisons across jurisdictions and over time. 

Other efforts exist to provide data on government finances over time, e.g. Kneebone and Wilkins (2016), Milligan (2017), and Department of Finance (2019). Compared to these efforts, the FON REAL data project strives to be more comparable over time and across jurisdictions, by relying on standardized fiscal data released by Statistics Canada, rather than the national accounts or public accounts sources used in other studies. 

The public accounts of different governments in Canada do not use a uniform convention about what functions are part of government. For example, funds collected or spent by a government department in one province may reside with an off-budget agency or Crown corporation in another province, making accurate comparisons between provinces impossible. Statistics Canada has long been addressing these issues, presenting fiscal data of different governments on a comparable accounting basis. The FON REAL data project aims to assemble various Statistics Canada data sources and make them comparable over time in turn.

As well, the REAL data offer more detailed coverage of revenue sources than existing efforts, currently comprising 35 separate subcategories of revenue. In contrast, we have little detail on the expenditure side. The REAL data report total expenditure and total operating expense of governments, but currently offers no functional categorization of spending (into health, education, social services, etc.)  Users interested in functional categorization of provincial spending should consult Kneebone’s and Wilkins’s data based on public accounts sources, and available from https://www.policyschool.ca/publication-category/research-data/.

A list of REAL data revenue categories is provided at Appendix Table 1. Observe that not all categories have data for all years. Data for some categories is available only for the federal or for the provincial governments. In some cases, this reflects the division of tax powers: provinces do not levy taxes on imports or on payments to non-residents, for example. In other cases, this reflects the more limited coverage of provincial than federal revenues in our data sources. Finally, in some cases, it was not possible to match measurement concepts between data sources from different time periods, so that the series for some categories begin in 1989 or in 2009, rather than in 1966. (By convention, we refer to fiscal years by the calendar year in which the fiscal year ends; thus 1966 means 1965/66, and so on.)

Concepts, data sources and methods 

The primary sources of data are three publications of Statistics Canada:

1.	Public Finance Historical Data (PFHD), 1966-1992, Catalogue 68-512. 
2.	Federal, provincial and territorial general government revenue and expenditures (FPRTE), 1989-2009, Tables 10-10-0039 and -0040.
3.	Canadian government finance statistics, 2009-present, Tables 10-10-0016, and -0017.

Each of these publications uses accounting conventions that are comparable across governments and over time within the periods of time that each of them cover, but there are differences in accounting conventions between the three. (PFHD is based on the 1984 Financial Management System [FMS] framework, FPTRE the 1997 FMS framework, and GFS the 2008 Canadian System of Macroeconomic Accounts framework.) We have made certain changes to the source data to render them more consistent over time. To check consistency, we compare the resulting data from two sources in overlap years at the “splice points,” i.e. 1989 (for the PFHD-to-FPTRE splice) and 2009 (for the FPTRE-to-GFS splice). Discrepancies between the two sources are generally less than 5% (and often much smaller). However, users are cautioned that data may not be fully comparable across the splice points in some cases.

To render data consistent at the splice points, and to provide more detail in some categories, we rely in certain cases on supplementary data from other sources. In particular:

-	Quebec abatement: Under “opting out” arrangements offered by the federal government in the 1960s and 1970s, Quebec chose receive certain federal grants as tax point transfers rather than cash payments. As a result, federal income tax rates and federal cash grants are lower in Quebec than in other provinces. In the raw Statistics Canada data, the amounts are recorded as provincial personal income tax revenues of Quebec. To make provincial income tax revenues comparable across provinces, we obtained estimates of the value of the Quebec Abatement in each year from the Major Federal Transfers database (https://financesofthenation.ca/transfers/ ) and before 1981, by applying the QA tax point rates to federal income tax revenues in Quebec from Table 36-10-0316. We deducted these amounts from Quebec’s personal income tax revenues, adding them to Quebec’s intergovernmental transfer revenues. We made compensating adjustments to federal revenues and total expenditures. For users who prefer the other approach, we have included the annual value of the Quebec Abatement as a “memorandum item” in the data.
-	Provincial capital taxes: From 1989 to 2006, the federal government levied a tax on the capital of large corporations. Many provinces followed suit, levying their own capital taxes. (The federal government and some provinces continue to levy a tax on capital of financial institutions.) In the Statistics Canada data, federal capital tax revenues are included with corporation income tax revenues, whereas provincial capital tax revenues are included with property tax revenues. To distinguish capital taxes from real property taxes, we obtained data on capital tax revenues of each province from the annual Equalization workbooks of the federal Department of Finance. We deduct these from total property tax revenues and create two new series: “Capital taxes [1910]” and “Other property taxes [1920]”.
-	Provincial alcohol and tobacco revenues: The Statistics Canada sources report the sum of alcohol and tobacco tax revenues of provinces, but not the two components.  To deal with this, we obtained provincial tobacco tax revenues from the Equalization workbooks of the federal Department of Finance since 1972/73, permitting disaggregation of this category. As well, much of the revenue from alcohol sales in most provinces comes from taxes and markups charged by provincial liquor authorities, which are not reported consistently in each province’s own public accounts. Statistics Canada sources do capture remitted profits of provincial liquor authorities, but they were treated as Investment income up to 1989, and as Consumption taxes thereafter. We obtained a time series on the net income of provincial liquor authorities for all years from Statistics Canada Tables 10-10-0028, which we use to reallocate these revenues to Consumption taxes in all years. We also add profits to taxes to create a new category “Alcohol and tobacco revenues [1220]” which is a component of “Consumption taxes [1200]”. The Net income of provincial liquor authorities for all years is included in the dataset as a memorandum item.
-	Payroll taxes and contributions: Payroll taxes and Social contributions are both taxes levied on employer payrolls. Social contributions are defined in the Government Finance Statistics (GFS) as payroll taxes that finance a benefit that may be available to the payor, and include federal Employment Insurance and provincial Workers Compensation Board levies, as well as certain smaller social insurance benefits, including the Quebec régime québecoise d’assurance parentale, Ontario’s Pension Benefits Guarantee Fund, Saskatchewan Extended Health Care Plans, and Alberta Long Term Disability Benefit Fund. To create a consistent series over time, we matched “Social contributions” in the GFS to “Contributions to social security plans” in the FPTRE and to “Health and social insurance levies” in the PFHD. However, the latter category included payroll taxes under Quebec’s Health Services Fund/Fonds des Services de Santé (HSF) which are now classified as payroll taxes. To render these categories consistent over time, we obtained estimates of HSF revenues from public accounts sources and deducted them from Health and social insurance levies in the PFHD data. Since the distinction between payroll taxes and contributions is somewhat arbitrary, we also created a new category “Payroll taxes and contributions [1500]” which is the sum of the two categories.
-	Provincial resource revenues: Despite its importance to government finances in some provinces, Statistics Canada did not report aggregate resource revenues in its publications during the 1993-2004 period, instead subsuming it within government’s property or investment income. As well, Ron Kneebone pointed out to us substantial differences in Statistics Canada and public accounts resource revenues for Alberta before 1993, suggesting some possible inconsistency in how Statistics Canada was then treating resource revenues and investment income of the Alberta Heritage Savings Trust Fund. To deal with these problems, we created a new series “Natural resource revenues [1920]” since 1972/73, based on revenue data in the federal Equalization workbooks. This comprises provincial revenues from royalties and taxes on oil and gas and mining, sales of Crown leases, forestry stumpage charges and taxes, and water power rentals. (Unlike the current federal Equalization system, our measure of resource revenues excludes the remitted profits of electricity companies.) 
-	Total expenditure: Our FMS data (up to 2008) were based on a modified accrual system of accounting, in which acquisition of capital assets by government was treated on a cash basis and included in total expenditure. In contrast, GFS uses full accrual accounting, in which existing capital stocks owned by government are amortized as part of operating expense, and capital acquisition and disposition is ignored. Total expense should equal Total expenditure on average over time, but tends to be smaller in years where public investment is high, and conversely. Since a consistent measure of actual cash spending by governments is a useful thing to have, we estimate Total expenditure in the GFS years by deducting amortization from Total expense and adding the change in Non-financial assets from public accounts sources. We include Total expense in the GFS years as a memorandum item. We also report “Program expenditure [2100]” defined as Total expenditure less Debt charges.
-	Surplus or deficit: With the adoption of full accrual accounting in the GFS, Statistics Canada also stopped calculating the annual cash surplus or deficit of governments, reporting instead the Net operating balance, defined as the difference between Total revenue and Total expense. We have reconstructed the cash “Surplus (+) or deficit (-)  [3000]” series in the FON data as the difference between Total revenue and Total expenditure. Net operating balance for the GFS years is included as a memorandum item.

Normalizations

To facilitate comparisons of the data across provinces and territories and over time, the FON data include separate series in which the nominal dollar figures are expressed as a percentage of provincial GDP and in real dollars per provincial resident. Real values are created by dividing by national CPI for All items. GDP at market prices data are taken from Statistics Canada Tables 36-10-0325 (1966-80) and 36-10-0222 (1981-current). Statistics Canada’s provincial GDP estimates typically lag the GFS data by a year or more. For the latest years, we estimate provincial GDP by multiplying the most recent available value by the growth rate of real provincial GDP at basic prices and by the national CPI inflation rate.

Future data releases

The FON data will be updated annually, based on annual releases of the Statistics Canada GFS data and our other data sources as they become available. 

As well, we plan to extend the dataset to include local government, consolidated provincial-local government sectors, and consolidated general government for all of Canada.

Our data currently provide considerable detail on sources of revenue, but no detailed information on the uses of funds, other than “Total expenditure [2000]”, “Debt charges [2200]”, and “Program expenditure [2100]” (the difference between the two). Under the Financial Management System retired in 2009, Statistics Canada did release a functional classification of total expenditure, including such categories as Health, Education, Social Services, and so on. Since 2009, Statistics Canada has released functional spending data under the Classification of Functions of Government (COFOG). Unlike FMS, COFOG does not attempt to functionalize acquisition or amortization of capital assets, rendering the two series fundamentally inconsistent. Moreover, unlike FMS, COFOG functionalizes government grants: for example, the Canada Health Transfer is included in federal health expense, rather than a separate grant spending category. We anticipate that future releases of Statistics Canada data will address these issues, and we will be able to provide a consistent series on the uses of government funds over time. Until that happens, users are referred to the Kneebone-Wilkins data, based on provincial public accounts sources. 

Acknowledgements

For their comments and help with the data, we would like to thank Ron Kneebone and Trevor Tombe of University of Calgary, Luc Godbout and others from the Chaire de recherche en fiscalité et en finances publiques at the University of Sherbrooke, as well as Gaétan Garneau and Philippe Samborski of Statistics Canada.  

References

Department of Finance (2019). Fiscal Reference Tables. Downloaded from https://www.canada.ca/en/department-finance/services/publications/fiscal-reference-tables.html
Kneebone, Ron and Margarita Wilkins (2016). Canadian provincial government budget data, 1980/81 to 2013/14. Canadian Public Policy, 42(1), pp.1-19.
Milligan, Kevin (2017). “Data on Government Revenue in Canada: Sources and Trends”, Canadian Tax Journal Vol. 65(3), 693-709.

Appendix Table 1.  The structure of revenue and expenditure categories

Total revenue [1000]	
Income taxes [1100]	
Personal income taxes [1110]	
Corporation income taxes [1120]	
Taxes on payments to non-residents [1130]	
Consumption taxes [1200]	
General sales tax [1210]	
Alcohol and tobacco revenues [1220]	
Tobacco taxes [1221]	
Liquor profits [1222]	
Other liquor taxes [1223]	
Gasoline and motive fuel taxes [1230]	
Air transportation tax [1240]	
Other excise taxes [1250]	
Remitted profits on gaming and other fiscal monopolies [1260]	
Motor vehicle taxes and licences [1271]	
Other licences and fees [1272]	
Custom duties [1300]	
Payroll taxes and contributions [1500]	
Contributions to social security plans [1510]	
Employment insurance contributions [1511]	
Workers' compensation board contributions [1512]	
Payroll taxes [1520]	
Property and related taxes [1700]	
Capital taxes [1720]	
Other property taxes [1730]	
Other revenue [1900]	
Grants from other levels of government [1910]	
Natural resource revenues [1920]	
Oil and gas royalties [1921]	
Mineral royalties [1922]	
Forestry royalties [1923]	
Water power royalties [1924]	
Sales of goods and services [1930]	
Other own source revenue [1940]	
Total expenditure [2000]	
Program expenditure [2100]	
Debt charges [2200]	
Surplus (+) or deficit (-) [3000]