If Alberta's premier and finance minister are looking for some last minute advice, several economists have pointers to help the province use this week's budget to overcome a looming $7-billion revenue shortfall because of plunging oil prices.
The guidance from just about every economist is something the government won't act upon. The fact is, it's hard to find an economist who does not think introducing a provincial sales tax (PST) is necessary for Alberta to stabilize its finances and wean itself off oil and gas royalties.
One expert says a sales tax makes much more sense than raising corporate taxes because that would be self-defeating in a struggling economy.
Alberta's Finance Minister Robin Campbell will deliver the budget on Thursday, what's described as a game-changing budget and 10-year financial plan. Premier Jim Prentice even promised the budget will fundamentally restructure how the province spends and saves money to insulate it from future swings in oil prices.
Months ago, Prentice and Campbell said all options were on the table to increase revenue. But eventually, they began ruling out increases to corporate taxes or oil royalties. Still under consideration are hikes to income taxes, re-introducing health care premiums and user fees to cover the revenue shortfall.
Just last week, TD Bank warned the government of Alberta could be facing a long-term deficit situation for reasons beyond the temporary plunge in oil prices. TD called it a mistake for the government to rule out a PST.
Besides the revenue challenges, economists also suggest Alberta will have to cut expenses. Public sector unions are angry and worried over the way unions have been targeted by the premier. Many capital projects such as new roads, bridges and hospitals are under review and could be delayed or cut back in size.
No matter the changes proposed in the upcoming budget, the price of oil will still weigh heavily on how much money the government will have to spend or save. That's why many economists will watch what oil price forecast the government will use in its budget. Predicting the price of crude is fraught with risk, but essential.
