Quebec's business community is holding its breath ahead of Tuesday's election, with the prospect of a Parti Québécois victory and perhaps another referendum adding to the uncertainty that faces the province's already-suffering economy.
While the race is still too close to call, the likely defeat of Jean Charest's Liberals means that one thing is certain – a change in economic policy in Quebec City. Both the PQ and the Coalition Avenir Québec are promising a more interventionist government. Both say they will invest heavily in Quebec companies.
And the PQ, which is still the favourite to win at least a minority government, is promising something else that worries executives and business owners: higher taxes on top earners.
"No one is talking about moving their company outside Quebec [like in the seventies]," said Yves-Thomas Dorval, the president of the Quebec Employers Council, which is the main lobby group for big business. "But as CEOs see an increasingly uncertain business environment, they are putting off investments."
The investment chill comes at an inopportune time for a province that is already lagging behind Ontario and Western Canada. Quebec's economy grew at just 1.7 per cent last year and is likely to continue at that pace this year and next, according to Toronto-Dominion Bank forecasts.
That will not be enough to help the unemployment rate, which sits at 7.6 per cent – above the national average – and which is projected by TD to rise to 8 per cent next year.
Quebec's relatively high level of taxation for small businesses and high-income people has long been viewed as a drag on investment, as has the province's tougher regulatory environment. But questions about what a PQ election win would mean are unsettling some of Quebec's key decision-makers.
On some economic planks, the PQ and the CAQ agree. Both parties say the provincial government should be prepared to invest more in local companies, either directly or through the Caisse de dépôt et placement du Québec, the province's biggest pension fund manager, which is officially at arm's-length from the government.
By doing so, these parties hope to shield Quebec's business champions from foreign takeovers. News of U.S. retail giant Lowe's interest in the Rona hardware chain created a political uproar in Quebec.
The PQ and CAQ also promise to balance the books by the government's next fiscal year, as the Liberals had projected. But the business community remains unconvinced. "Given their promises, we are skeptical on both parties' financial forecasts, which are based on optimistic revenue and conservative expense projections," said Michel Leblanc, president and CEO of the Board of Trade of Metropolitan Montreal.
PQ Leader Pauline Marois attacked the CAQ's economic policy in front of the board's members on Wednesday in the hopes of discrediting François Legault's CAQ party, which stands in the way of a PQ majority government. But in fact, Both parties are competing to show they would push the Caisse to increase its investments in Quebec companies. The PQ wants the Caisse to invest $10-billion more in the province's economy. The CAQ wants the pension fund manager to gradually raise its stake in Quebec companies to 25 per cent of its stock portfolio – it stood at close to 6 per cent at last count.
Business leaders are uneasy with this departure from the Liberals' policy of non-interference. Among them is Martine Hébert, Quebec vice-president for the Canadian Federation of Independent Business, which speaks for the province's 24,000 small companies.
The Caisse manages the employers' contributions to the CSST (Commission de la Santé et de la Sécurité du Travail), which compensates employees for work-related injuries or illnesses. "For the CSST to stay afloat, we need a certain return on our investment," said Ms. Hébert. "Our contributions are not venture capital."
If the two parties see eye-to-eye on the Caisse's increased role, however, both parties differ sharply on fiscal policy.
The PQ wants to pay for its social policies, such as its plan to add 15,000 spaces in seven-dollar-a-day daycare, by increasing the taxation of high earners. Quebeckers would face a 4-per-cent increase in their provincial tax rate, to 28 per cent, on taxable income above $130,000. Another 3-per-cent increase would be slapped on income above $250,000, which would reach 31 per cent.
The CAQ plans to invest heavily in education and in health, by adding an hour to the school day, for example. To finance the party's promises, which a majority of commentators have described as outlandish, it intends to review and eliminate the most ineffective tax breaks to companies.
Both approaches have received mixed reviews from the business leaders interviewed.
The PQ's willingness to increase the taxation of the highest-paid Quebeckers will hurt companies that are already struggling to attract talent, which is highly mobile, Mr. Leblanc said. "It is paradoxical given the party wants to retain head offices in Quebec," he added.
For Ms. Hébert, the personal taxation levels have reached the breaking point. "Quebec is already poor in rich people. It will just discourage entrepreneurs who seek to create value."
Quebec's business leaders are as cautious, on the other hand, on the CAQ's willingness to clean up Quebec's long list of business tax breaks.
"Granted, not all of theses tax credits have had the expected results, namely the R&D credits," said Mr. Dorval. "But they are the easiest way to convince a multinational to establish a presence in Quebec."
Mr. Leblanc is concerned about the video game industry, which is one of Quebec's strongest business hubs. "Many of my American counterparts are in awe of what Quebec has accomplished and have copied our tax breaks. If we touch these, we must do it with the utmost prudence."
The high level of taxation has always been a concern in Quebec. So has the pervasiveness of regulation, which would increase if the PQ is elected, as it promises to extend the reach of Quebec's language law to companies with as few as 11 employees. And now there is the added prospect of a referendum on independence, which the PQ vows to hold at the earliest opportunity. For Mr. Dorval, it all adds up.
"I don't want to scare anybody off, he said. But if CEOs stop investing for a while, we are going to stay put while the others go on."
And this, laments the QEC president, is something Quebec can ill afford.