The Conversation: In defence of Statistics Canada’s request for financial data

The following appeared in The Conversation on Nov. 18, 2018 from Gregory C. Mason, associate professor of economics, University of Manitoba: 

Statistics Canada’s proposal to collect a range of detailed financial data from 500,000 Canadians has certainly touched a nerve.

Many commentators argue this invades privacy and is overreach, while only a few brave pundits defend the plan. The tide of public opinion has turned and our system of official statistics is under serious threat.

Three questions need answering.

First, why does Statistics Canada need financial transactions data?

Second, how does direct access to financial records make official statistics more reliable and efficient?

Third, are the financial data that Statistics Canada wishes to access all that different from the information already shared by the financial industry?

The origins of the census

To answer the first question, let’s go back to before Confederation. Legislation passed in 1847 specified the need for population counts and the collection of criminal statistics. It directed the government (at that time the Province of Canada) to complete a census of population and to:

“…institute inquiries and collect useful facts and statistics relating to the Agricultural, Mechanical and Manufacturing interests of the Province…to promote improvements in the Province and to encourage immigration from other Countries.”

The present-day Statistics Act closely reflects the sentiments of this initial legislation.

Official statistics, comprising the census and other “useful facts and statistics,” serve both public and private purposes.

Public purposes include diverse activities like allocating government grants for arts and sports, calibration tax revenue models, planning major infrastructure and calculating key economic indicators such as the unemployment rate and consumer price index.

Private uses include special extracts from the census to target postal codes to locate boomers or millennials in direct mail campaigns. Population projections are basic to business planning. Elsewhere, I have argued that reliable and valid official statistics are essential to combating fake news in our post-truth society.

In other words, official statistics are a public good serving Canadian society.

‘Methodological innovations’

Second, to understand why it’s important to have direct access to financial data, we need some context on the many methodological innovations that have maintained our official statistics as population grew and Canada expanded.

One notable innovation directly related to the current controversy was the Corporation and Labour Unions Returns Act of 1964 (CALURA) that replaced business surveys with direct access to corporate tax returns.

In addition to eliminating response burden, such direct access to tax data improved response rates, accuracy and timeliness of reporting.

Direct access to administrative data is the future for official statistics, including the census, as the Scandinavian countries have demonstrated. In those countries, administrative data such as tax files, health records and school enrolments are replacing census surveys — they are faster and more accurate.

Finally, what’s so special about accessing financial transactions?

Let’s be clear, arms dealers and drug cartels do not use credit unions. What Statistics Canada wants is the humdrum of everyday existence. Payments for groceries, rent, utilities and online shopping and other routine financial transactions data will supplement and perhaps eventually replace the Survey of Household Spending (SHS), an expenditure diary maintained by a small random sample of Canadians.

Market researchers have long experienced falling response rates in their private surveys, but now official surveys are encountering it, and policy-makers are worried.

The household survey underpins the consumer price index, a core economic indicator needed to set interest rates and to index many types of public and private payments. Household expenditure data also forms a basis for the proposed market basket measure of poverty. Quite simply, these are data we need to get right to support public policy.

Read more:The promise and problems of including ‘big data’ in official government statistics

Banks routinely share customer data. Those zippy ads showing millennials using an app to check their credit scores fail to mention that these scores rely on financial institutions sharing customer information with Equifax and other clearing houses.

Statistics Canada also collects our income data directly from Canada Revenue Agency for the census and without our prior consent.

Why all the turmoil?

So why the turmoil over this latest proposal? Three reasons appear plausible.

First, in the face of regular data lapses like the Equifax breach of 2017 and the recent massive cyber-attack on Facebook, Canadians are justifiably skeptical about any promise their data are secure within any system.

Second, management at Statistics Canada, despite claims of extensive consultations with the financial industry and the privacy commissioner, seems to have forgotten what sales people call the “value proposition.”

Why does Statistics Canada need such access? Who will benefit? This has not been made clear even in the request StatsCan sent to banks.

Finally, the initiative appears to be driven by government, creating for some ominous Big Brother overtones.

So where do we go from here?

First, Statistics Canada needs to press “pause” and develop a more fulsome rationale for accessing this information. It is politically tone-deaf to point to recent changes to the Statistics Act that allows Statistics Canada to compel such access.

With the banks now threatening legal action, continued doubling down threatens public trust in our official statistics. Most Canadians do not understand how Statistics Canada supports public policy or private business.

Benefits need to be explained

Specifically, it needs to show why accessing financial transactions data will improve the reliability and timeliness of its information and what benefits will result from such access. It also needs to go beyond assertion and demonstrate the highest level of data security.

This issue is now partisan, partly because Statistics Canada is an agency of government. The chief statistician reports to the Minister of Innovation, Science and Economic Development.

If the chief statistician were to report to Parliament in the same way as the auditor general, then such requests could have broader political support.

Both policy lobbyists and industry benefit from a robust system of official statistics, and it’s Parliament that offers a superior oversight capacity from a less partisan vantage.

Official statistics are a public good, benefiting all sectors of society. Their most important role is grounding intelligent public policy with facts.

Statistics Canada needs to be able maintain the pace of innovation in collecting and publishing data by accessing timely information on Canadian society. However, this must rest on clear and effective policies to manage privacy and secure data. Having StatCan report to Parliament and not a government minister may help.

Hopefully, Statistics Canada can salvage this proposal quickly without further damage being done to our system of official statistics.

Gregory C. Mason