Bloomberg News

Quebec Separatists May Regain Power With Minority Mandate

September 04, 2012

Quebec voters head to the polls today in an election that may return the separatist Parti Quebecois to power in the French-speaking province for the first time in almost a decade.

Polls last week showed the Parti Quebecois, led by Pauline Marois, leading Quebec Premier Jean Charest’s Liberals and the nine-month old Coalition Avenir Quebec. While Marois’s PQ may win the most districts, polls suggest it may not gain a majority of seats in the province’s legislature.

The lack of a majority for the PQ would probably prevent Marois from pressing ahead with plans for a referendum on Quebec separation from Canada that would lead investors to demand higher yields to hold Quebec debt, said Ed Devlin of Pacific Investment Management Co., the world’s largest bond fund manager.

“The probability of a referendum goes up if they have a majority,” said Devlin, executive vice president and head of the Canadian portfolio management team at Pimco, adding the market seems to be pricing in a minority PQ government. “My sense is that if the PQ wins a minority government, I don’t think we’ll see any changes in yields.”

A survey by pollster Leger Marketing, published Sept. 2 by Le Journal de Montreal newspaper, gave the Parti Quebecois 33 percent voter support, compared with 28 percent for the Coalition and 27 percent for the Liberals. The separatists are one percentage point short of a possible majority, Leger Marketing President Jean-Marc Leger told the Journal. The Internet survey of 1,856 people has a 2.3 percentage-point margin of error.

Early Results

Voting ends at 8 p.m. New York time, with results expected shortly afterward. afterward. More than 5.9 million voters are registered, 980,000 of whom have already cast ballots in advance polls, Quebec’s chief electoral officer said in a statement. When the election was called, Charest’s Liberals held 64 of the 125 seats in Quebec’s legislature, the Parti Quebecois held 47 and Coalition Avenir Quebec had nine. Option Nationale and Quebec Solidaire, two other separatist parties, each had one seat, while two others were controlled by independents and one was vacant.

The three largest parties all say Quebec should assert greater control over its economy in the wake of Mooresville, North Carolina-based Lowe’s Cos. (LOW:US)’s unsolicited bid for Rona Inc. (RON), the Quebec home-improvement retailer. The Liberals, the Parti Quebecois and the Coalition all came out against the Lowe’s bid.

Zero Deficit

The three also say they want to eliminate the province’s deficit as soon as next year. Quebec’s most recent budget, unveiled in March by Finance Minister Raymond Bachand, predicts Canada’s second-most populous province will have a shortfall of C$1.5 billion ($1.52 billion) in the 2012-13 fiscal year, which ends March 31, before reaching balance in 2013-14.

Marois, 63, has pledged to make “zero deficit” a priority, even with C$992 million in new spending her party’s platform identifies. Higher mining royalties and new tax brackets for individuals earning at least C$130,000 a year would bring the government an additional C$1.4 billion in annual revenue, according to the party’s financial plan.

Coalition Avenir Quebec is targeting balanced budgets through 2017-18, starting with a C$263 million surplus next year. It puts its spending commitments at C$5.7 billion over five years.

“Nobody has really deviated” from the commitment to balance the books, said Devlin. “From a bondholder’s perspective, the differences are very small. That’s why I think the markets have been so far relatively rational.”

Government Debt

Relative yields for Quebec have tightened one basis point since the campaign began, while Ontario spreads were unchanged and British Columbia spreads were two basis points wider. Spreads on the Bank of America Merrill Lynch Canadian Provincial and Municipal Index, which tracks 397 bonds with C$504 billion outstanding, have narrowed one basis point over that period.

Government debt amounted to about 62 percent of Quebec’s 2011-12 gross domestic product, highest among Canada’s 10 provinces, according to an August report by Toronto-based credit-rating company DBRS Ltd. Quebec’s debt is rated A+ by Standard & Poor’s, Aa2 by Moody’s Investors Service and A (high) by DBRS.

Clean Up

Francois Legault, the 55-year-old leader of the Coalition, has pledged to “clean things up” through such means as the elimination of 7,000 government jobs. He has also vowed to cut taxes for the middle class, reduce hospital waiting times and ensure that all Quebeckers have access to a family doctor. Legault, a former Parti Quebecois cabinet minister and Charles Sirois, chairman of the Canadian Imperial Bank of Commerce, co- founded the party in November.

“Mr. Legault is pushing for a more efficient administration, and that’s one of the issues in this campaign,” said Jean-Herman Guay, a political science professor at the University of Sherbrooke.

Charest’s Liberals have been weighed down by protests against the government’s plan to boost tuition fees, and allegations of corruption that have made headlines for the last two years. A 2010 Macleans magazine cover story called Quebec the country’s “most corrupt” province. A commission looking into the public contracting process opened in May and is set to resume Sept. 17 after a summer recess.

‘Fatigue Factor’

With Charest bidding for a fourth consecutive mandate, “the fatigue factor has to be considered as part of the reason” the Liberals are trailing, Antonia Maioni, an associate professor of political science at McGill University in Montreal, said in a telephone interview.

Legault argues that Quebec voters are tired of endless debates about the province’s place in Canada. He told CBC Radio Aug. 30 he won’t consider independence for at least 10 years.

Quebec has twice voted in referendums against seceding from Canada, most recently in 1995. The issue has lost momentum in recent years, with an Aug. 31 CROP Inc. poll showing support for sovereignty at 29 percent, while 68 percent said they would vote ’No’ if a referendum were held during a first Parti Quebecois mandate.

Poll results like these, coupled with a likely Parti Quebecois minority, are why McGill’s Maioni and Sherbrooke’s Guay say a referendum is unlikely in the next few years.

“Marois is a pragmatist,” said Guay. “There has to be genuine enthusiasm among voters for sovereignty for the PQ to call another referendum. The sovereigntists can’t afford to lose another one.”

To contact the reporters on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net; Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net


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