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Business Briefing Alberta to cut ‘sharply’ today as oil collapse mars budget

These are stories Report on Business is following Thursday, March 26, 2015.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Two key budgets
We'll get a deeper look today at how the rout in the oil market is playing out in Canada.

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Two provinces, Alberta and Quebec, are unveiling key budgets, with their own set of issues.

The question in Alberta, the heart of Canada's oil industry, is how it is adjusting to the collapse in oil prices, and how deep it will cut, and how.

And, as one economist put it, whether it will seize the day to set itself on a sustained path.

In Quebec, the question is how it finds the savings it need.

"The province of Alberta will likely deal the toughest budget this year, as the slide in oil prices has carved and estimated $5-billion to $7-billion hole in government revenues," said senior economist Robert Kavcic of BMO Nesbitt Burns.

"Spending will be slashed sharply, and recent commentary points to a cut of around 5 per cent this coming year, or closer to 9 per cent in real per-capita terms," he added.

"The bigger question is how Alberta will raise revenues, and by how much."

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Don't get the wrong idea here. As Mr. Kavcic and others note, Alberta has more than enough heft to "defend" its triple-A credit rating and still keep its tax regime "among the most competitive in Canada."

In a recent report, deputy chief economist Derek Burleton and economist Jonathan Bendiner of Toronto-Dominion Bank said Alberta has a chance today to put its finances "on a more sustainable path," and take a lesson from past deficit-cutting measures.

"We hope that the government seizes the moment," they wrote.

Mr. Kavcic noted that changes to oil royalties and corporate and sales taxes "have been all ruled out," raising the question of how it finds what it needs.

"It's possible that the 10-per-cent flat income tax structure could be altered, while still maintaining a wide advantage versus the other nine provinces at most income levels," he said.

"And, smaller measures such as gas taxes and user fees will likely be in play as well."

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Quebec, in turn, is poised to unveil a balanced budget for the 2015-16 fiscal year.

"The province still has about $600-million in savings to find, and the taxation review completed this week could be a place to look, though it's clear if the recommendations will make it into [today's] budget," Mr. Kavcic said.

There's plenty to digest for investors.

"More of the focus by provincial bond watchers should remain upon Quebec's austerity budget than Alberta's deficit reduction plans as the latter is occurring against the backdrop of no debt and plenty of taxation powers," said economists at Bank of Nova Scotia.

"Disentangling possible market effects from bigger issues in world markets may prove difficult into tomorrow once markets digest the budgets."

Lululemon slips
Lululemon Athletica Inc. beat estimates with its fourth-quarter results today.

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The yoga wear retailer topped the estimates of analysts with a quarterly profit of $110.9-million (U.S.), or 78 cents a share, compared to $109.7-million or 75 cents a year earlier.

Revenue climbed to $602.5-million from $521-million.

Same-store sales, a key measure in retailing, rose 8 per cent.

Its forecasts appeared to disappoint somewhat.

Lululemon said it expects earnings per share of 31 cents to 33 cents for the first quarter, and revenue of $413-million to $418-million.

For the year, it projects earnings of $1.85 to $1.90 and revenue of just about $2-billion.

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CRTC proposes code
Canada's broadcast regulator is proposing a new code requiring television providers to give customers clearer information, and giving viewers a way to resolve disputes, The Globe and Mail's James Bradshaw and Christine Dobby report.

The draft code, announced today by the Canadian Radio-television and Telecommunications Commission, is a response to complaints from Canadians who said their cable and satellite companies often gave incomplete or misleading information and offered poor customer service.

The code would set standards for easy-to-understand agreements and changes to service between TV providers and customers. And it would "clarify" terms around adding or cancelling channels, early cancellation fees and installation appointments.

Poloz defends central bank
Stephen Poloz says stable inflation expectations are proof that the Bank of Canada's credibility emerged intact from its surprise January rate cut.

Mounting a vigorous defense of the central bank's recent actions, Governor Poloz said financial turmoil is the inevitable consequence of a gradual return to normal monetary conditions after years of extraordinary efforts to keep interest rates ultra-low, The Globe and Mail's Barrie McKenna reports.

"This represents the natural reaction of financial markets to economic uncertainty and a return to a normal trading environment – not an erosion of central bank credibility," Mr. Poloz told a business audience in London today.

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Blaming the collapse in the price of oil, the Bank of Canada cut its key overnight interest rate by a quarter-percentage-point to 0.75 per in January.

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