Budget to yield bumper surplus

By VERNON SMALL

Finance Minister Michael Cullen will trumpet a better-than-expected surplus of about $2.5 billion for the next financial year when he delivers his Budget tomorrow.

The economy has rebounded more strongly than forecast after the worldwide shock of September's terrorism, producing more tax revenue and lower welfare costs.

Treasury forecasts in December tipped only a $1.8 billion surplus.

Dr Cullen has not confirmed the size of the improvement.

But he said the better outlook would make it impossible to claim that he was borrowing for his superannuation scheme.

He has earmarked $1.2 billion for the fund in the next financial year.

The Government is expected to keep within the self-imposed spending cap of $6.12 billion over its three-year term.

New spending programmes in the Budget are expected to total slightly more than $1 billion.

That comprises the $815 million originally set aside and a significant top-up on underspending in previous years.

It will also be partially funded by the re-allocation of some spending in education and social services.

A taste of the higher surplus came in Government accounts for the nine months to March.

They showed the surplus running $905 million ahead of forecast, and that revenue was $505 million better than expected, mainly thanks to a higher tax take.

Spending was $171 million less than expected, thanks to lower welfare and unemployment benefit costs as the economy shrugged off the worst effects of the terror attacks.

In December, the Treasury forecast a surplus of $985 million for the current year, but it would be no surprise if in tomorrow's Budget the new forecast topped $2 billion.

Much of the new spending in tomorrow's Budget has already been announced.

The biggest by far was unveiled late last year - an extra $400 million for health.

Another sizeable chunk will go on a programme to fight meningococcal disease, although funding for that will peak in the 2003-2004 year.

Investments have also been tipped for the justice system and the environment.

Over four years, $36 million will be spent recovering $90 million in unpaid fines and reparations to victims. A further $12 million will go on programmes to cut youth offending.

More than $26 million is being invested in environmental areas, some of it for work to clean up contaminated sites around the country.

The biggest Budget day spending announcements are likely to be about $100 million for tertiary education and a boost for skills training.

These reflect the Government's emphasis on improved innovation in the economy, putting extra social spending into areas that can lift long-term growth.

Dr Cullen is expected to announce a tax cut on employer contributions to pension schemes for people whose annual income is less than $38,000.

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