BUSINESS

Why business will flee a separate Quebec

If the PQ wins this election, the economic exodus will decimate what is left of Montreal’s corporate command structure

Peter C. Newman August 1 1994
BUSINESS

Why business will flee a separate Quebec

If the PQ wins this election, the economic exodus will decimate what is left of Montreal’s corporate command structure

Peter C. Newman August 1 1994

Why business will flee a separate Quebec

THE NATION’S BUSINESS

If the PQ wins this election, the economic exodus will decimate what is left of Montreal’s corporate command structure

PETER C. NEWMAN

Now that Quebec is preparing to elect another separatist government, the usual platoon of official pan-Canadian placaters is at work assuring foreign and domestic investors that it really doesn’t matter, that nothing will change very much, that everybody should take a Valium and relax. They cite as evidence for their lack of concern the fact that Quebec—and Canada—survived intact the nine years of René Lévesque’s reign from 1976, and that Jacques Parizeau, who considers it a lost day when he hasn’t put his foot in his mouth at least once, isn’t nearly as scary as his charismatic predecessor.

The goody-two-shoes spreading this gospel of false joy are wrong on every count.

First off, Lévesque was charming all right, and having been a part of it most of his life, knew how to manipulate the media to soften his message. But in terms of his economic impact on Quebec, he caused much pain and an unprecedented exodus of head offices from the province. It was directly as a result of Lévesque’s obsession with Quebec independence, ultimately expressed in his 1980 referendum on “sovereignty-association,” that the Royal Bank and the Bank of Montreal began to move their head office functions to Toronto. That was equally true for most of the 90 of Canada’s 500 largest companies that maintained their head offices in Montreal at the time of Lévesque’s 1976 victory. As well as the corporate clout they gave the city, these firms directly employed 235,000 people in the province. The ensuing exodus included such giants as Redpath Sugar, Sun Life, Molson’s, Royal Trust, Trizec, and Northern Telecom. On top of these corporate refugees, an estimated 140,000 Anglo-Quebecers left the province in the wake of the Parti Québécois victory. Lévesque was not entirely unsympathetic to business—his finance minister, a good old chap named Jacques Parizeau, introduced the Quebec Stock Savings Plan,

which was a model for its day. The same minister also showed his vengeful streak by summarily firing the Toronto-based investment dealer A. E. Ames and switched its long-standing Quebec Hydro bond issuing account to Lévesque Beaubien Inc. of Montreal.

This time around, if the Parti Québécois wins as expected, the exodus will be much more dramatic, decimating what’s left of Montreal’s still impressive corporate command structure. Such giants of Canadian industry as Bell Canada Enterprises, Alcan, Seagram, Bombardier, and even Paul Desmarais’s Power Corp. will have little choice about moving out of Quebec. Their decisions will not be based on any personal opposition their CEOs might have about the notion of Quebec becoming independent. If it appears likely that Parizeau might succeed in his quest to split up Canada, responsible company directors will be all but forced to vote for moving head offices and corporate charters from a new Quebec republic.

Instead of being based on sentiment, their decisions will flow from the hard world of corporate taxation. We live in a treaty world, and in terms of Canadian companies with

large foreign revenues, no treaties are more important than those that prevent offshore earnings from being taxed both at home and abroad. Profits can in fact be patriated to Canada without being subject to some countries’ punitive withholding taxes—providing they are earned in countries that have reciprocal bilateral tax treaties with Canada. Treaty countries generally charge a 10or 15-per-cent withholding tax, while non-treaty nations charge exorbitant levies of up to 45 per cent. That’s a huge difference, and all of the Montreal-based firms listed above plus many others earn significant portions of their profits outside Canada.

A separate Quebec would no longer be part of Canada’s tax treaty network and even in the unlikely event that Ottawa allowed Quebec to piggyback on Canadian offshore tax arrangements, each of the more than 20 trading partners affected would also have to agree. For that matter, a similar tax treaty would have to be negotiated between Canada and Quebec, which would take much time and effort because both sides would drag into the talks such tricky subjects as division of the national debt and any other outstanding issues between the two jurisdictions.

“The tax situation will cause offices that otherwise don’t want to leave Quebec to have to move their operations into Canadian provinces,” says Sam Slutsky, a prominent Toronto-based tax expert. “Without doing so, carrying on business overseas would become prohibitively expensive. When you’re going from paying taxes of about 10 per cent, recoverable by treaty, to unrecoverable levies of 25 to 45 per cent, it becomes a corporation’s duty to itself and its shareholders to act. At the same time, nonresident multinationals doing business in the new republic of Quebec will have a financial incentive not to have any major operations based there, because without treaties their favorable tax treatment could disappear.”

These could be strong points for Daniel Johnson to make in his campaign. But he is held back by the fact that he is forced to defend the spotty and sometimes shoddy nineyear record of the government by Robert Bourassa. The Liberals are so exhausted that 70 of the party’s 125 candidates are running in ridings where sitting MNAs have refused to stand for re-election. Having retreated from his original intention of running on a platform of reviving the economy, Johnson has boxed himself in by declaring that the election’s pivotal issue has become Quebec’s future within Confederation. The election has thus been turned into a mini-referendum by the candidate who has the most to lose from that scenario. As a result of Johnson’s bungling, Parizeau can now claim that a majority vote for the PQ would grant him the legitimacy to pursue sovereignty by any means, foul or fair, once he’s sitting in the premier’s office.

That’s precisely what he intends to do. But corporate Quebec will not be there to hear his message.