April 7 marks Quebec's provincial election, and as voters head to the polls they are faced with a renewed force behind the concept of separatism, the strongest since the 1995 referendum.
The push for an independent Quebec has been boosted by the recent announcement that billionaire former Quebecor CEO and self-proclaimed sovereignist Pierre Karl Péladeau will run for Parti Québécois candidacy.
This means independence is no longer on the backburner for the PQ - and with the Parti on the verge of a majority, la Belle Province could soon become la Belle Pays.
What would a separate Quebec mean for both the provincial and national economies? Let's take a closer look.
A Look at an Independent Quebec
Separation is a very polarizing topic. Parti Quebecois Leader Pauline Marois has tried to tone down the issue since Péladeau stormed the scene, but not before dropping a few tidbits about how she envisions Quebec as a nation. She paints a rosy picture by drawing an analogy between the European Union, the world’s largest economy, and the province.
Although Quebec would have political freedom as a nation, it would continue to use the Canadian dollar, hold a seat at the Bank of Canada’s governing council, and create its own passport. Canada and Quebec would have a free trade agreement similar to nations in the European Union.
The Economic Risks of Separation
While Quebec as a nation may look good on paper, it poses some serious economic problems Marois has failed to address. Although Quebec, Canada’s second-largest economy, would rank 27th out of 235 countries in gross domestic product per capita, it isn’t the economic powerhouse it once was.
While the Canadian economy has bounced back after the financial crisis, Quebec hasn’t enjoyed the same growth. Not only has Quebec suffered from stagnant GDP growth, it remains the highest taxed jurisdiction in North America, making it an uphill battle to attract businesses and foreign investment. Employment remains a major concern in Quebec – the province shed almost 50,000 full-time jobs in 2013, with no signs of recovering.
Productivity Remains a Problem
Canada is constantly criticized for being less productive than the United States. Although there’s a well-known productivity gap between Canada and the U.S., there’s an even bigger productivity gap between Canada and Quebec. At a GDP per hour worked of $54.95, Quebec workers are the least productive in the country.
A Province in Debt
How is Quebec making up for this productivity shortfall? Through debt – the net direct debt has ballooned to an estimated $175 billion for 2012-2013. To put this into perspective, that’s 49% of Quebec’s GDP, the highest of any province – ouch! If Quebec were to separate, it would have to negotiate its fair share of the national debt. The province would find itself in the company of indebted nations like France and Spain (not a pretty picture).
Friends Without Benefits
An independent Quebec would no longer enjoy transfer payments from Ottawa. Although it could set up its own government programs like Employment Insurance and Old Age Security, it would cost a pretty penny. With a dwindling tax base, it would leave a massive budget shortfall. It would be faced with a grim decision: it could hike taxes even more, slash spending, or finance it through even more debt (although with a debt-to-GDP ratio of 92%, it wouldn’t be cheap).
Missing Out On Monetary Policy
Although Quebec would like to share the Loonie, who’s to say that Canada will welcome them with open arms? Even if Quebec separates and uses the currency, they’ll have little to no say in national monetary policy. How dangerous is this? Just ask European Union nations like Greece and Spain. Even if Quebec creates its own currency, its values could tank worse than Germany’s deutsche mark during the 1920’s. Its cost of servicing debt would skyrocket, as it would find itself teetering on the edge of bankruptcy.
Political Uncertainty Scaring Investors
All this referendum talk has spooked investors, taking its toll on the Quebec economy. Almost immediately after Péladeau’s passionate speech, yields on Quebec’s longer-term bonds inched higher, as investors began to price the political uncertainty of an independent Quebec into the market.
Could an independent Quebec become a reality? The provincial election results could help ignite Quebec’s push for its own nation or stop it dead in its tracks. Only time will tell.