Quebec Corporate Sector Prepares for Economic Impact of Revived Sovereignty Talks
Quebec premier-elect Paul St-Pierre Plamondon is vowing to push ahead with his promise to hold a sovereignty referendum by 2030, setting the clock ticking on a potential breakup of Canada that could affect business confidence and investment.
The mere spectre of a referendum could weigh on corporations’ decisions to invest in Quebec, whether it be a new factory in the province’s hinterland or a hotel in downtown Montreal. It could also weaken Canada at a time when the country is staring down a barrel of threats from the White House.
But another thing could put his minority government on a more immediate collision course with corporate leaders: immigration. Mr. St-Pierre Plamondon has promised to drastically cut immigration, despite warnings from business people that such tightening could make it harder to meet labour needs.
The former lawyer, who studied at McGill University and later played as a goalie for the varsity hockey team while at Oxford, confirmed in his first postelection news conference on Tuesday that he intends to move forward with a vote on independence, though recent polls show 70 per cent of Quebeckers don’t want to separate. He plans to wait until U.S. President Donald Trump leaves office, however, saying there are more urgent matters to deal with.
“The commercial conflict with our neighbours to the south will take up an enormous amount of our time and space over the next several weeks,” Mr. St-Pierre Plamondon said, adding that his other priorities include addressing Quebec’s public finances, providing some cost-of-living relief and launching a secretariat for government efficiency and regulatory streamlining.
The PQ Leader wants to bring the general corporate tax rate down to 9.5 per cent from 11.5 per cent, funded by a revamp of business assistance programs. Cuts to the provincial bureaucracy should bring in $6.3-billion over five years, the party estimates.
Many Quebec business leaders are optimistic about the PQ government’s economic agenda but note Mr. St-Pierre Plamondon will need support from other parties to pass legislation, which won’t be guaranteed. The party’s fragile minority – it won a mandate with just 28 per cent of the vote, the lowest share for any government in Quebec’s history – has also calmed bond markets as investors see the PQ struggling to set the conditions for a secession vote.
“The threat of a referendum, a winning referendum, is not felt by the business community right now,” said Eric Boyko, chief executive of Montreal media company Stingray Group Inc. “That could change in a year but right now, nobody sees it.”
In its blueprint detailing the steps toward national sovereignty, the PQ says “independence is not a leap into the unknown but an essential condition for transforming Quebec’s potential wealth into real wealth and for ensuring its linguistic and cultural sustainability.”
The party says the province would have its own currency and a small army if it were a country.
An independent Quebec “would be poorer” and bleed up to $65-billion in economic activity during the first five years after a yes vote, Quebec’s outgoing finance minister, Eric Girard, has warned, comparing the situation to Brexit in the U.K. The PQ counters that independence would yield billions in savings by scrapping or merging the roughly 230 federal agencies now operating in the province.
Quebec’s next bond offering should provide a fresh indication of how investors assess its political and finance risks over time, said Desjardins Group chief economist Jimmy Jean. The strength of the order book, pricing relative to Ontario and the size of any extra yield the province will have to offer will all be closely watched, he said.
Alain Bouchard, chairman and co-founder of multinational Alimentation Couche-Tard, told reporters last week that angst over sovereignty is nothing new. He said he’s more preoccupied with the need for the Quebec government to radically rethink its approach to economic growth, calling for an end to overregulation and business subsidies.
“If it happens, it happens. It’ll create uncertainty. Whatever,” he said of a possible plebiscite. “I’ve voted ‘yes’ before, and I’ve voted ‘no.’ If it happens again, we’ll see but it’s not my main concern.”
Many businesses big and small, however, are at odds with the PQ on the thorny question of how many people to let into the province.
Mr. St-Pierre Plamondon has said Quebec has “completely lost control” of its immigration system and that new lower targets should to be set that mesh with the capacity of institutions to welcome new arrivals and the wider imperative of protecting the French language. During a campaign stop in Quebec City, he said schools were “overflowing everywhere” in the province, and linked the situation to strains on public infrastructure and immigration mismanagement.
Some business leaders have pleaded for more immigrants to be let in to meet labour needs, noting Quebec is already in a natural demographic decline. Executives with pork producer Olymel are among those who have spoken out, warning that tighter rules could threaten their operations.
“We probably have members who voted for the PQ,” said François Vincent, who leads the Canadian Federal of Independent Business in Quebec. But if the government decides to reduce the number of immigrants, that’s going to “increase the pressure” on smaller companies that need employees to run their business, he said.
The PQ wants to limit the number of permanent immigrants to 35,000 people a year, far less than the roughly 60,000 newcomers that settled in the province last year. And it wants to cut in half the quota for temporary immigrants, from the 530,000 people registered as of July to between 200,000 and 250,000.
The party says certain sectors of the economy will get precedence in temporary immigration permits, namely agriculture and manufacturing, as well as certain sectors in outlying regions and those providing a direct service to the population, such as health care. It wants companies using temporary foreign workers to present business optimization plans so that these workers “are really temporary.”
Quebec holds special powers over immigration under a 1991 Canada-Quebec Accord negotiated with the federal government. The province has exclusive authority to select all of its economic immigrants, such as entrepreneurs and skilled workers, and sets its own annual targets for admissions.
“The facts are clear. If we don’t increase immigration levels, we’ll have a demographic decline, and therefore an economic decline” in the wider urban region, said Isabelle Dessureault, president of the Chamber of Commerce of Metropolitan Montreal. “We’re sounding the alarm.”
Quebec has experienced flights of capital and talent in the past in the lead-up to separation votes.
Sun Life, Cadbury Schweppes Powell and Sheraton Hotels were among 368 registered companies to move their head offices out of Quebec in the 26 months after René Lévesque’s PQ election win in 1976, according to federal data reported at the time. Other firms stayed but some stripped the guts out of their operations and shifted them elsewhere, often west to Toronto.
By the time the second referendum came in 1995, general anxiety had replaced the moving trucks. That year, former PQ premier Jacques Parizeau’s government set aside $17-billion to buy up Quebec bonds it anticipated would be dumped on the market by nervous investors after a referendum victory.
Referendum uncertainty also affected the short-term stock returns of Quebec-based companies in 1995, according to research published in the Canadian Journal of Economics. The effect varied according to their exposure to political risk, notably the size of their international footprint and the structure of their assets, the research found.
Montreal billionaire Andrew Lutfy told The Logic in an interview earlier this year that when he pitched a new shopping centre in Montreal to a private equity firm partly owned by LVMH boss Bernard Arnault in 2018, its board had only one major “made-in-Quebec” concern. Was the risk of Quebec separation still on the table?
The PQ was in a downward spiral at the time as François Legault’s Coalition Avenir Québec commanded the spotlight with its “third way,” a brand of national autonomy within Canada. But it still took directors for the French firm nine months to get comfortable with the idea of putting money into the project, which they did. In the shifting political sands since then, Mr. Lutfy said he wouldn’t bother trying to pitch them again.
This article was first reported by The Globe and Mail
