BUSINESS

Quebec Election 2012: Economic Turmoil Around World Makes Sovereignty Threat A (Relatively) Minor Problem

09/04/2012 08:04 EDT | Updated 09/04/2012 12:49 EDT
CP

With the Parti Quebecois poised to regain power for the first time in almost a decade — be it with a minority or majority government — some members of Quebec’s business community are bracing for the worst.

Chief among their concerns is the political uncertainty that attends the renewed threat of separation and a social democratic platform that promises, among other changes, increased government involvement in the economy and tax hikes for the rich.

But other experts point to much stronger global economic headwinds and tepid sovereigntist sentiment as factors that would mitigate the turmoil wrought by past separatist governments.

Bruce Hicks, a political science professor at Concordia University, said the euro debt crisis and a still-shaky U.S. recovery have dried up investment and constrained economic growth in Quebec in recent years. A change in government would be just more “noise,” he said.

“Because there’s so many unknowns, the PQ victory just becomes more noise in a noisy field, and nobody will be able to discern what’s causing what, and that provides its own stability in a way,” he said.

“The PQ government victory in itself doesn’t really have a consequence just because it’s so noisy out there right now.”

Still, business leaders are skittish about the Parti Quebecois’ ascendency under Leader Pauline Marois and her promise to pursue more interventionist economic policies.

Among them is a plan to set aside $10 billion from the Caisse de dépôt et placement du Québec for a strategic fund aimed at preventing foreign takeovers of Quebec companies. Quebec’s largest pension fund manager, the Caisse operates at arm’s-length from the provincial government.

(The upstart Coalition Avenir Quebec, which is polling in second place, but only slightly ahead of incumbent Jean Charest’s Liberal Party, also wants to use the Caisse to generate more business investment.)

Marois’ pledge to hike taxes on high-income earners in order to pay for 15,000 additional seven-dollar-a-day daycare spaces has also been met with consternation.

University of Montreal economist Michel Poitevin said misgivings about the proposed tax hike are justified.

“When we hire a new professor, they are well aware of tax rates in Ontario, British Columbia, Massachusetts and Quebec,” he said. “If they have different offers, they’re certainly going to look at their after-tax income before deciding where to go.”

But according to Laval University economist Stephen Gordon, Quebec simply doesn’t have enough very high-income earners for this taxation change to make much of a difference to the province’s bottom line.

As he sees it, concerns about these proposals and others are somewhat overblown, particularly given Quebec’s debt problem, which could quickly suck the air out of any big spending promises.

“Looking at the platform, there might be things that aren’t particularly wise, but you’re not going to find things that are completely catastrophic,” he said. “A lot of it really is populist stuff to get elected.”

While Quebec sovereignty remains the PQ’s raison d'être, Marois has been vague throughout the campaign about her strategy, stating simply that a referendum would be held “at the moment deemed appropriate.”

A new CROP survey says support for Quebec independence has dropped eight percentage points during the campaign to 28 per cent. Support for Canadian federalism stands at 62 per cent, while the number of undecideds has increased to 10 per cent.

The survey places support for independence far lower than it was three decades ago, when 40 per cent of Quebecers voted Yes in a 1980 referendum. The decline is even more pronounced when compared to the peak of the early 1990s — when support for sovereignty was double the number in the CROP poll.

Yet the economic shockwaves that resulted from previous PQ government policies and referenda are still fresh in many people’s minds.

In the mid-1970s, the rise of the sovereigntist movement under René Lévesque and the fight over Quebec’s language laws triggered an exodus of head offices from Montreal — and the departure of some 100,000 Anglophones from the province.

And although the “Yes” side was narrowly defeated in the 1995 Quebec referendum, the debate prompted significant economic upheaval, recalls McGill University economist William Watson.

Quebec’s unemployment rate in 1995 was 11.5 per cent, two percentage points higher than in the rest of Canada, Watson told The Huffington Post. Meanwhile, the value of the house he’d just purchased with his wife in Montreal dropped by 35 per cent, despite the federalist victory.

“Over the last 15 years we’ve made substantial progress,” he said, pointing to an uptick in construction activity in Montreal and a decline in unemployment, which stood at 7.6 per cent in July, slightly higher than the national average.

(Despite these gains, Quebec has struggled in the wake of the recent recession: the province’s economy grew just 1.7 per cent in 2011, a full percentage point below the national average.)

“The message ... is that once you stop fixating on separation and the constitution, quite good economic results are possible,” he said.

“How much will a PQ victory put that in danger? If I’m thinking of investing somewhere in North America, or continuing investing in Quebec, it surely can’t help that the constitutional setup is going to be put under challenge.”

The precarious state of the world economy makes it a poor time to “volunteer for more uncertainty and risk,” he add.

Yves-Thomas Dorval, president of the Quebec Employers Council, told The Globe and Mail recently that “as CEOs see an increasingly uncertain business environment, they are putting off investments."

But the big difference, countered Laval’s Gordon, is that the likelihood of a referendum being called and won is negligible this time around.

“It’s very instructive to compare it to [the mid-’70s or the mid-’90s],” he said. “We’re nowhere in that kind of league as far as the sovereignty risk goes.”

With separation on the back-burner, the PQ is left to pursue less economically risky planks in its platform, he said.

“We have a vaguely leftist government promising the sort of things that vaguely leftist governments promise,” he said. “There’s nothing new there.”

With files from The Canadian Press

CORRECTION: This story originally stated that the PQ is "poised to regain power for the first time in more than a decade." The Liberals wrested power from the PQ in 2003, or nine years ago. The story has been edited to reflect this.

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