Quebec, basking in surpluses, unveils tax cuts as election looms

TORONTO (Reuters) - The Canadian province of Quebec projected a C$2.2 billion budget surplus for the fiscal year ending next March and unveiled new tax cuts on Tuesday as it gears up for an election next October.

Quebec, Canada’s second most populous province, also projected that it had a C$4.4 billion surplus in the fiscal year ended March 31, thanks to lowered spending and an increase in tax revenues. The government said that surplus, almost double its target, enabled it to cut taxes in the upcoming fiscal year.

The yield on Quebec’s 10-year bond was trading 1 basis point below Ontario’s 10-year bond on Tuesday indicating that Quebec is paying less to borrow.

The mainly French-speaking province’s government reiterated it would balance the budget in the next three fiscal years to 2020, with surpluses of up to C$2.3 billion in the final year.

The provincial Liberal government, elected in 2014, unveiled a raft of tax cuts aimed at families and said it would invest in education and healthcare.

While Quebec is one of only a few Canadian provinces with balanced budgets, its debt as a percentage of GDP rivals the highest in Canada.

On Tuesday, the government said its debt reduction plan calls for reducing Quebec’s total debt, now 51.9 percent of GDP, to 45 percent by 2026. The C$4.4 billion surplus in 2016-2017 includes C$2 billion that is allocated to the so-called Generations Fund to help tackle debt.

Reporting by Kevin Dougherty; Editing by Tom Brown and Alistair Bell