Thursday, September 20, 2012

Will a PQ Minority Government affect the Economy?

There’s a new Premier in Quebec and she’s ready to roll up her sleeves and get to work improving the economy with her party’s plans. The Parti-Quebecois (PQ) squeaked by with victory that landed Pauline Marois in the proverbial magnifying glass. However, that narrow victory (54 seats out of 125) isn’t enough to hold sway. In order for truly sweeping changes, the PQ will have to build a strong coalition among the centrists and right-leaning party members. In many ways, that’s good news because it means a level of stability.

McGill economics professor William Watson put the election results in context during an interview for the Huffington Post. "It's not a bad election result (for business)," Watson said. "I think the program will have to be modified somewhat. I think there will be a push towards the left, but not as far as the program threatened." That’s going to be good news for the small business community who weren’t embracing those policies in the first place.

Marois ran on a platform of promising to pay for services by creating two new income tax brackets that taxed income over $130 000 and $250 000. She also wants to boost royalties and taxes on the various mining firms operating in the region. However, the bigger issue on everyone’s mind is a referendum on breaking away from Canada and becoming a separatist country. The last time the PQ was in control (1980 and 1995) they put forth referendums on the ballot but both times they failed. While that issue might be on the dock in the future, Marois states she wants to focus on the economy.

There is a sense among economists that this PQ victory could put a damper on direct new investment but there is no reason to think that established businesses will suddenly pack up and move off. Part of the reason is that minority governments like this don’t tend to last long. That allows for a “wait and see” type approach among investors. Most experts think that the election results won’t have an impact on housing prices as they are likely to remain flat.

The same is predicted for the Canadian dollar. Thanks to Quebec’s pension fund manager, Caisse de depot and the Bank of Canada there isn’t a chance the Canadian dollar won’t be propped up if it starts to drift downwards. Hours after the election the loonie value didn’t budge from its $1.0142 US. That’s a good sign of confidence.

As the reality of a slowly recovering economy settles in for Marois, some of her platform promises might have to be adjusted or jettisoned all together. Michel Poitevin, an economics professor at the University of Montreal, also commented to the Huffington Post about Marois’ platform promises. “Higher top-tier taxes, for instance, might prompt the early retirement of some of the province's most productive workers,” he warned. “Any party that would have been elected would have had to make tough decisions. I guess for the PQ, maybe it's going to be harder internally because of all the promises that they made."