What are Economic Accounts?

The British Columbia Economic Accounts (BCEA) are the principal estimates of aggregate economic activity in the province. They translate information on income, savings, and key economic processes such as production, capital formation, and consumption into a consistent system of statistics that can be used to explain the functioning of the economy. In addition, the BCEA contain important data on price changes and the relative growth of various industries over time.

The estimates in the BCEA are based on internationally accepted principles of economic accounting developed by the United Nations. These principles are used by Statistics Canada in preparing the Canadian System of National Accounts (SNA), which includes data at both the national and provincial levels.

The Income and Expenditure Accounts Division (IEAD) of Statistics Canada is the main source of data for the BCEA. Other important data sources include the Industry Measures and Analysis Division (IMAD), various areas within Statistics Canada, and a number of other federal and provincial government agencies. Most of the quarterly estimates (both raw and seasonally adjusted) are produced by BC STATS, as are the historical annual estimates for selected components, and the annual current dollar estimates of GDP by industry for the last two years.

Information on the sources and methodology used to generate the estimates in the BCEA can be found in the publication. A quality assessment of the estimates is also included, and definitions and descriptions of the components that constitute the BCEA are contained in the Glossary of Terms.

GDP: What does it mean and how is it measured?

The size of the economy is usually reported in terms of gross domestic product (GDP), which is a measure of the value added to the economy by the current productive activities of individuals, businesses, governments and non-residents (who either purchase or sell goods and services to British Columbians). The province's GDP includes all activities that take place within its borders, regardless of whether an individual or business is resident in the province. Because GDP is a measure of the value added to the economy by current production, transactions involving the sale of previously-used goods (such as houses or automobiles) are excluded from the total. Only economic activity related to the transfer of these assets (for example, the real estate commission) is included in GDP. Similarly, transfer payments such as pensions and income assistance benefits are not included in GDP. Transfer payments do not usually involve an exchange of services, nor are they the result of economic activity arising from current production. They are viewed as a means of redistributing income from one economic agent (the government in this example) to another (the individual). In addition, some types of economic activity, such as the value of unpaid household work, non-cash transactions, and trade in illegal goods, are excluded from GDP due to the obvious difficulty in measuring them.

GDP can be calculated using any one of the following methods:

• Identifying the sources of all income earned by individuals and businesses (the Income Account);
• Tracing all the expenditures of individuals, businesses, governments
  and non-residents (the Expenditure Account); and
• Determining the contribution to the provincial economy of individual goods and service-producing industries (the Industry Account).

Although the GDP measures created in the Income and Expenditure Accounts are identical in theory, due to measurement problems, there are usually some differences between the income and expenditure data. In the BCEA, the difference is split equally between both accounts, so that total GDP at market prices is, in effect, an average of the two estimates.

In the Industry Account, GDP at factor cost differs from the Income and Expenditure Account measures of GDP at market prices because it excludes taxes paid by firms and passed on to consumers, but includes subsidies paid to industries by governments. GDP at factor cost, as reported in the Industry Account, is thus equivalent in concept to GDP at factor cost, which is reported in the Income Account. In practice, however, measurement errors result in some discrepancies between the two GDP estimates.

Gross national product (GNP) was previously used as a standard measure of economic activity. Like GDP, it measures the value added to the economy by current production. However, GNP differs from GDP in that:

• It includes economic activities of the province's residents in the rest of Canada and the rest of the world.
• It excludes the value added by the economic activities of non-residents in the province.

Estimates of GNP are no longer produced for the total economy, but the sources and disposition of personal income are calculated on a GNP basis.

Constant dollar estimates and implicit price indices

A number of the tables in this publication report estimates in real or constant dollars. These constant dollar estimates restate GDP and its components in terms of inflation-adjusted values. In the Expenditure Account, the constant dollar estimates can be viewed as measures of how much it would cost to purchase the quantity of goods or services sold in the current period if their prices had remained unchanged since 1992. The constant dollar estimates in the Industry Account measure how much the value added (i.e., output less total inputs) to the economy by an industry would have changed since the base year if the price of both the inputs used, and the outputs produced, by the industry had remained at the same level as in 1992. Thus, changes in both the types and quantities of goods and services purchased by end users or used in current production have an effect on the constant dollar values in the BCEA.

In general, constant dollar estimates are calculated by dividing current dollar data by a price index that measures changes in the prices of specific goods and services over time. Depending on the series in question, the price indices used to calculate constant dollar data come from a variety of sources, and are usually applied at a much finer level of aggregation than that reported in the tables. Price series used to calculate the BCEA estimates include component series from the Consumer Price Index (mainly used to deflate personal expenditures on goods), Industrial Product Price Indices, Construction Price Indices, Export and Import Price Indices, as well as a variety of other measures of price changes over time.

Users should note that the implicit price indices published in the Accounts are weighted-average price indices which reflect changes in both the price and quantities of the various goods and services purchased for end use or produced by industries. The implicit price indices are calculated as the ratio of current dollar estimates to the constant dollar series. For example, the implicit price index for GDP is calculated by dividing current dollar GDP by the sum of all the constant dollar components in the Expenditure Account. Implicit price indices in the Industry Account should not be confused with price indices for the products produced by each industry.

Unlike the Expenditure and Industry Accounts, which are calculated in both current and constant dollars, only current dollar estimates are reported in the Income Account. It is possible to measure changes in the unit cost of various goods and services purchased by consumers, governments, and business (the Expenditure Account), as well as changes in the value per unit of the output produced by specific industries (the Industry Account). However, it is more difficult to separate price and volume changes for components like corporate profits. For this reason, the Income Account is not deflated to produce constant dollar estimates.

How the British Columbia Economic Accounts are structured

The value of economic output can be measured using either the Income Account, the Expenditure Account or the Industry Account. The Income and Expenditure Accounts focus on four economic transactors: persons (including individuals, unincorporated businesses, and societies), businesses, governments, and non-residents. The Industry Account concentrates on what firms produce rather than on the transactors. Finally, the sources and disposition of income earned by the personal and government sectors (including transfer payments which are not considered part of GDP) are reported in the Sector Accounts. The following sections summarize how each of these accounts is structured.

The Income Account

The Income Account focuses on the various types of income generated in the course of producing the economy's output. It includes:

• The income of individuals: wages and salaries, supplementary labour income, and military pay and allowances.
• Business earnings, which consist of corporate profits before taxes, and interest and miscellaneous investment income.
• Income arising from activities that might be classified to either the business or the personal sector, but are treated as income of the personal sector. This includes: net income of farm operators from farm production, rent, and other unincorporated business income

The sum of these earnings, plus an adjustment for changes in the value of inventories held by farms and businesses, is equal to net domestic income. GDP at factor cost is calculated by adding capital consumption (or depreciation) allowances to the estimate of net domestic income. As indicated in the previous section, GDP at market prices is then derived by adding indirect taxes to, and deducting subsidy payments from, GDP at factor cost.

The Expenditure Account

The Expenditure Account traces the disposition of final output in the economy by type of user. Four types of transactors are identified in the Expenditure Account:

• Individuals, who purchase goods and services.

• Governments, which make current expenditures on goods and services, and also invest in buildings, roads and other construction, machinery and equipment, and inventories.
• Businesses, which invest in residential and non-residential construction, machinery and equipment, and inventories.
• Non-residents, who purchase a portion of total final output in the form of exports of goods and services.

Ideally, the import component of each of these expenditure items should be reported separately. However, due to measurement problems, it is not possible to specify the import component of expenditures, so the total value of imports is subtracted from exports to determine net exports.

GDP at market prices is calculated as the sum of expenditures by persons, governments, businesses and non-residents (exports less imports).

The Industry Account

The Industry Account shows the contribution of individual industries, as measured by GDP at factor cost, to the provincial economy. Industries are classified based on the North American Industry Classification System (NAICS).

The BCEA contains estimates of the GDP generated by the province's tourism sector. Tourism GDP is calculated as an aggregate of the tourism proportion of GDP in various industries providing services to tourists. Unlike other industry groupings, which are relatively homogeneous, tourism GDP includes the value added arising from many different types of activities in the service sector. BC STATS also produces estimates of GDP in the high-technology sector using a similar methodology.

Although estimates of GDP facilitate comparisons of growth and illustrate changes in industrial structure over time, other measures such as output and employment should also be considered when assessing the relative importance of an industry to the economy of British Columbia.

The Sector Accounts

Also included in the BCEA are tables reporting on the sources and disposition of income earned by the personal and government sectors. The concepts underlying these tables differ from those in the rest of the BCEA. Unlike the Income, Expenditure and Industry Accounts, no distinction is made between income earned as a result of current productive activity, and income that is received as a transfer payment from another sector. These accounts simply trace where income originates and how it is spent.

Data on the sources and disposition of personal income are calculated on a GNP basis. The estimates include income earned and expenditures made by British Columbia residents outside the province, but exclude those made by non-residents in British Columbia. For this reason, wages and salaries and various other series reported in the Personal Income Account are slightly different from those in the Income Account. Also included in personal income are transfer payments made to, and received from, businesses, governments, and non-residents.

Annual estimates of revenue and expenditure for federal, provincial and local governments, as well as for hospitals and the Canada Pension Plan, are included in this report. The government sector revenue and expenditure data provide an indication of the roles of the various levels of government within the provincial economy and, since they are on a national accounts basis, can be used to make interprovincial comparisons of government revenue and expenditure patterns.

The revenue and expenditure estimates for the government sector are reported on an SNA basis. The SNA includes a number of activities that are not treated as part of government in the provincial and national Public Accounts. These activities may be either excluded from the Public Accounts or reported separately as special funds because they operate in an arms-length relationship to the government. For example, the Workers' Compensation Board is not included in the Consolidated Revenue and Expenditure Fund estimates data in the British Columbia Public Accounts, but it is treated as part of the government sector in the SNA. Due to these inclusions, as well as other methodological issues, the government sector surplus or deficit reported in the BCEA may be quite different from the data provided by the provincial Ministry of Finance and Corporate Relations and the federal Department of Finance.