"At the same time that our provincial finances are strengthening, the economic news is also promising," he told a meeting of the Halifax Chamber of Commerce.
"Yes, the Canadian, American and European economies are not as robust as we'd like them to be, but the signs of recovery are there."
The speech was punctuated by a flashy video showing people hard at work and sweeping vistas of the province's picturesque landscape.
Steele said he plans to table a budget April 3 that will include "modest but real" personal income tax reductions, but he did not offer details.
Afterwards, he stressed the tax cut will be small and won't be offered to all taxpayers.
"I'm trying not to raise expectations," he said.
Nova Scotians pay among the highest corporate and income taxes in Canada.
Steele rejected the idea of reducing the province's 15 per cent harmonized sales tax, which the NDP government raised by two percentage points in July 2010.
Reducing the HST by only one percentage point would cost the government about $175 million annually in lost revenue, he said.
"That is simply too much to consider," he told a news conference after his speech.
The provincial government collects about $2 billion in personal income tax every year, a sum that accounts for about 22 per cent of provincial revenue.
He also said the government is sticking to its plan to balance the books by the spring of 2013 — only a few months before the fourth anniversary of the NDP's rise to power.
Liberal finance critic Diana Whalen dismissed Steele's tax cut promise as a political stunt.
"This is the same government ... that prior to being elected had promised not to increase taxes, but we've had two years of increased fees and taxes, and that's hurt all Nova Scotians," she said.
"It will be a token (tax cut), if anything. They're on a tack to create an illusion of fiscal management that's going to take them, ultimately, to an election budget next year."
Conservative Leader Jamie Baillie said Nova Scotia taxpayers deserve some tax relief, but he questioned the timing of the promise.
"I think it would be more responsible to actually balance the budget first and then look at cutting taxes," he said.
After his speech, Steele provided an update on the progress of the 2011-12 budget, which had forecast a deficit of $389.6 million. He said the latest figures show the deficit will actually be $128.8 million smaller at $260.8 million as the fiscal year ends March 31.
It's the third year in a row that Steele's deficit forecast has turned out to be far gloomier than the final numbers.
Steele said the government has reduced the rate of growth in health spending and cut health administrative costs by eliminating 20 senior executive positions at the district health authorities.
On the education front, Steele reminded the Halifax Chamber of Commerce that the government asked school boards to reduce administration by 15 per cent.
As a result, he said departmental spending is coming in under budget for the third year in a row — $72 million less than forecast in last spring's budget.
Historically low interest rates have also driven down the cost of servicing the province's debt, resulting in a $34 million saving when compared with the original budget forecast.
Steele said the $25-billion navy shipbuilding contract awarded to Halifax late last year has already started to boost the province's economy, and he predicted that the jobless rate will drop steadily over the next few years.
However, he warned the government is still facing some fiscal challenges, including "unsustainable" wage demands from health-care unions.
Steele had already announced last month that there will be no tax increases in his spring budget.