Australia's Treasurer says he is using money wisely

Australians are on course for an unexpected tax windfall after the Treasurer, Peter Costello, sacrificed some of his budget surplus to keep the economy ticking over.

He also announced steep increases in spending on defence and security in his budget speech, but that was expected.

Opponents immediately began speculating that the tax cuts and spending increases for health and education pointed to an early election.

But Mr Costello, viewed by some as a potential successor to Prime Minister John Howard, said his plans were simply a matter of using the country's money wisely.

"We are in surplus, we have met our expenses, we have a strong balance sheet and we are returning some money to the taxpayers," he told Parliament, pointing out that extra tax receipts had swollen last year's budget surplus to A$3.9bn (�1.6bn; US�2.5bn) from a forecast of A$2.1bn.

"Don't ask me about what's going to happen in the future."

Surprise, surprise

Until Mr Costello got up to deliver his budget at about 0930 GMT on Tuesday, most observers had rejected the idea of tax cuts out of hand.

Instead, most expected Mr Costello - well known as a deficit hawk - to keep the whole of a predicted A$3-4.5bn surplus and use it to pay off the country's debt.

So a planned surplus of just A$2.2bn was quite a surprise - as was the A$2.4bn in personal income tax cuts and health and education spending.

Less welcome was the cut in growth forecasts by 0.75 percentage points, to 3.25% in 2003.

That is still better than most of Europe, the US or even much of Asia, and Mr Costello said his figures took account of the risks posed to Australia by the Sars virus.

Big spender

Protecting Australians was a theme running through the budget, coming as it did only six months after a bomb in Bali killed 88 Australians.

Sars has triggered plans to be able to screen all foreign visitors within two years, Mr Costello revealed.

But the main thrust of the budget was more traditional security, with a A$2.1bn boost to defence over five years.

In 2003-4, that will take defence spending to A$15bn, or 8% of the government's overall A$170bn budget, including the A$750m cost of the 2,000-strong deployment during the US-led war on Iraq.

Homeland security, border protection and the intelligence services will get an extra A$411m, Mr Costello said.

Australia is also spending an extra A$79m on aid, focused on helping its neighbours in the Asia-Pacific region fight terrorism.