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People wear face masks as they walk through a subway station in Montreal on July 17.Graham Hughes/The Canadian Press

In less than a decade, Quebec has gone from being Canada’s most indebted province to the one with the country’s soundest public finances.

The fiscal situation is so rosy that, even before the official launch of an election campaign later this month, three of the province’s five main political parties are falling all over themselves to promise meaningful income-tax cuts if they win the Oct. 3 vote.

Canadians elsewhere need not feel jealous. Quebeckers are North America’s most taxed citizens. Provincial government spending approaches 26 per cent of gross domestic product, compared with about 19 per cent in Ontario and 18 per cent in Alberta.

A decade ago, big government had left Quebec with a pernicious structural deficit that sent the province’s net debt-to-gross domestic product ratio to a perilous 53 per cent. The province was headed toward a debt wall until the former Liberal premier Philippe Couillard, elected in 2014, began reining in spending. By 2019, the net debt ratio had fallen below 40 per cent.

Despite a temporary setback caused by COVID-19, Quebec’s finances have bounced back, and the province is poised to blow past its debt-reduction targets. Tax revenues have surged this year, thanks to inflation, and the provincial economy has been on a roll.

The $6.1-billion deficit for 2022-23 that Coalition Avenir Québec Finance Minister Eric Girard projected in his March budget was revised downward on Monday to $729-million – and that is after a $3.4-billion deposit to the provincial Generations Fund, an investment account set up in 2006 under Liberal premier Jean Charest to offset the province’s gross debt.

Another $8.5-billion in contributions to the Generations Fund – which come mainly from water royalties paid by Hydro-Québec, mining royalties and alcohol taxes – are projected to be made in 2023-24 and 2024-25. As a result, the province’s net-debt ratio is projected to fall from 38 per cent this year to about 34 per cent by 2025. Ontario’s net debt, meanwhile, is projected to remain steady at around 41 per cent of GDP over the same period.

Mr. Girard’s budget projections, which were deemed “plausible” in a pre-election report handed down by the provincial auditor-general on Monday, have a built-in cushion of $2-billion a year set aside in case of an economic slowdown or recession occurring in the next few years.

Quebec is also set to receive more than $13.6-billion in federal equalization payments this year, rising to $14-billion next year and $14.5-billion in 2024-25. Neither Ontario nor Alberta is currently eligible for equalization, and neither province is projected to qualify in coming years.

With public finances in good shape, and inflation gnawing at the purchasing power of Quebec households, tax cuts have surged to the top of the election agenda.

The now struggling Quebec Liberals, which were booted from office in 2018 in part because of their “austerity” policies under Mr. Couillard, were first out of the gate in June in vowing to cut income taxes for the middle class.

Leader Dominique Anglade says a QLP government would lower the tax rate by 1.5 percentage points on those earning up to $92,000. That would yield an average savings of $1,000. The Liberals would finance its middle-class tax cuts by raising rates on incomes above $300,000 by two percentage points.

The suddenly relevant Quebec Conservative Party, which has been nipping at the centre-right CAQ’s heels in the Quebec City region, has vowed to outdo the Liberals by cutting middle-class income tax rates by two percentage points. It says its plan would save the average worker earning $80,000 about $2,000 in provincial taxes.

Until Quebec Conservative Leader Éric Duhaime made his move on Sunday, the CAQ had refused to commit to promising income-tax cuts during the election campaign. Mr. Girard’s March budget provided a $500 refundable tax credit to more than 90 per cent of Quebeckers earlier this year to help offset the impact of inflation. And the CAQ vowed to send out a second $500 rebate this fall if re-elected.

On Monday, Mr. Girard, whose party maintains a big lead in the polls, made it official: Income-tax cuts are coming, too: “What we would like to do in a second mandate would be to reduce the gap between the personal income tax burden of Quebeckers versus the rest of North America or Canada,” he said. What remains to be seen is whether the CAQ tries to outbid the Conservatives, its main rival on the right.

Make no mistake: Quebec will face serious budget challenges later this decade as its working-age population continues to shrink. The finance department’s projections show that Quebeckers between 15 and 64 will account for 60 per cent of the population by 2030, down from 64 per cent in 2021. The share over 65 is set to jump to almost 25 per cent from 20 per cent.

For now, however, Quebec’s public finances are in an unusually sweet spot.

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