The budget surplus for 2007-08 is forecast at $376 million, slightly lower than was predicted, but the government managed to deliver a surplus for the 2006-07 year of $444 million, after last year predicting a deficit.  

But the government will come under pressure to maintain the surpluses averaging $500 million it is predicting for years to come, because they are largely based on keeping wage rises at 2.5 per cent a year.

Mr Costa announced that the land tax rate will be reduced from 1.7 per cent to 1.6 per cent and a planned abolition of mortgage duty will be brought forward in a series of tax cuts worth $2 billion over four years.

A taxpayer with land valued at $500,000 will save $140 or 5.6 per cent from their land tax bill and a property owner with land valued at $1 million will have save $640 from their bill, or 5.8 per cent.  

The land tax cut is worth about $100 million a year, while the mortgage duty cut will be worth $138 million for next year and $1.36 billion over four years.

A buyer with a $500,000 mortgage will save almost $2000 on a $500,000 mortgage because of the abolition, which will come into effect for owner-occupied residences on September 1 this year and for investors from
July 1, 2008.

Mr Costa had previously promised to abolish mortgage duty in 2011.

The cuts to the housing duties follow a 2.5 per cent fall in loan approvals for property investors.

The stamp duty on the hire of goods and on leases will also be abolished.

As foreshadowed, the government says it will spend $50 billion on infrastructure in the next four years – about $10 billion more than it promised. Much of this will be on rail, roads and upgrading electricity networks, with spending on the rail clearways program and expansion of the rail network to north-west and south-west Sydney, with $1.9 billion on the desalination plant.

The government is banking on keeping public sector wages growth at 2.5 per cent a year, based on that being the inflation figure for the past 10 years, but previous wage growth has been more like at four per cent.

Wages account for almost half of government expenses.

The Premier Morris Iemma had promised a “prudent” budget last week. The budget has been themed “Meeting our commitments”, in the vein of the government’s campaign slogan “More to do but heading in the right direction”.

Most of the cuts in the budget have been achieved through “efficiency dividends” demanded of departments, where they must cut one per cent of their budget each year.

The budget predicts an increase in economic growth from 1.5 per cent to 2.5 per cent.