On the surface, Canada’s January 23 elections reflect its nearly unparalleled economic strength: With the federal government running an annual budget surplus of more than C$10 billion ($8.5 billion), voters find themselves in the enviable position of choosing between dueling tax cuts offered by Prime Minister Paul Martin of the Liberal Party and Conservative challenger Stephen Harper.
But a potential threat to the economy may be lurking in Quebec, where the separatist Bloc Québécois, led by Gilles Duceppe, appears likely to take almost all the seats. One of the central planks in the Bloc’s platform would have a separate Quebec team in world hockey championships, a prospect that is the subject of much hand-wringing in hockey-crazed Canada. Of far greater concern, however, is the possibility that the separatist provincial party, Parti Québécois, will win the next Quebec election and launch another referendum on whether the province should secede from Canada. The last time that happened, in 1995, concerns about Canada’s future helped drive its dollar down to the equivalent of 65 U.S. cents for a prolonged period. The decline occurred despite economic fundamentals that suggested 80 cents as a more appropriate level.
At the time, Canada was saddled with a huge budget deficit. Now its oil, timber and mineral riches are yielding huge surpluses. “It’s the only G-8 country in a position to reduce taxes,” says Patti Croft, chief economist with Vancouver-based investment managers Phillips, Hager & North.
Still, a tax cut is far from guaranteed. The national election will almost certainly result in another minority government, requiring the formation of uneasy alliances. And If political uncertainty is too great, whether from national alliance-building or threats of Quebec separation, all the oil in the world won’t guarantee prosperity.
