By Fabian Mayer, January 22 2015 —
Economic think-tank Conference Board of Canada (CBOC) said Alberta will likely fall into a recession this year in a forecast published Jan. 16. The report blames the price of oil, which currently sits at $46.39 per barrel.
CBOC senior vice-president and chief economist Glen Hodgson said in a statement that their forecast makes “the reasonable assumption” that oil prices will stabilize at $63 per barrel at the end of the year.
The forecast predicts Alberta will spend $12 billion less in 2015 than planned in the previous budget.
“This investment pullback represents a significant loss to the Alberta economy,” Hodgson said. “A sharp reduction in investment spending will have a negative knock-on effect for the province — for employment, incomes and business profits, resulting consumption and savings, and for specific sectors, such as housing.”
At a media scrum in Calgary, Alberta Premier Jim Prentice rejected CBOC’s forecast, arguing their opinion is an “outlier.”
“I didn’t find [the Conference Board’s] analysis to be particularly cogent, to be frank. The opinion that they’ve put forward is an outlier amongst all of the other opinions that have been put forward by every one of Canada’s chartered banks and by other respected economic forecasters,” Prentice said.
The energy sector makes up roughly a quarter of Alberta’s economy. The government relies on royalties from the industry to finance public spending.
University of Calgary School of Public Policy director and economics professor Ron Kneebone thinks debating whether there will be a recession misses the point.
“What I would encourage Albertans to be more concerned about is not this relatively short-term effect [of a recession], but whether or not [a recession is] a sign of a long-term slowdown in Alberta’s economic prospects,” Kneebone said.
According to Prentice, the government faces a $6–7 billion revenue shortfall in 2015. Kneebone believes lower oil prices will be a long-term problem and that the government needs to change how it handles its finances.
“The government needs to get its act together and start to figure out how it can balance a budget when oil is only $40 a barrel,” Kneebone said.
Kneebone argues that increasing the income tax, gasoline tax and perhaps the introduction of a provincial sales tax is necessary to avoid an economic crisis.
“The government has been relying on oil and gas royalties to pay for health care and education and that has got to stop. We’ve got to pay for those things through our taxes rather than through oil and gas royalties,” he said.
Prentice raised the possibility of tax increases, spending cuts and budget deficits to deal with the crisis. Though Prentice said he does not favour introducing a sales tax, he hasn’t ruled it out.
“I don’t think Albertans generally advocate a sales tax, but I’m prepared to be educated and to hear from people,” Prentice told an audience in Edmonton on Jan. 14.
Kneebone believes tax increases will come with cuts to public services. He said income tax, alcohol, tobacco and gasoline taxes will all rise alongside “serious” cuts to post-secondary education.
The financial difficulties facing Prentice and his Progressive Conservative government have also raised the prospect of a provincial election.
U of C political science professor David Stewart, who teaches courses on Albertan politics, agrees that a provincial election is coming.
“I would not be surprised to see one coming this spring in which Mr. Prentice says he needs a mandate from Albertans to deal with this situation,” Stewart said.
Given the defection of nine Wildrose MLAs, Stewart believes a PC victory in the next election is all but certain.