Budget 2014: Back in Black

The Government has raided future surpluses to build a $1.6 billion war chest to fight the next election as it holds out the prospect of "modest" tax cuts ahead.

At the same time it has tried to head off Opposition spending promises, with a Treasury warning that spending any more cash could push mortgage interest rates higher.

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Finance Minister Bill English yesterday delivered his promised forecast surplus for the 2014-15 year, which came in at $372m - up from the paper thin $86m tipped in December.

The centrepiece of the Budget was a family and children's package worth $500m over four years that included an increase to paid parental leave from 14 weeks to 18 weeks, free doctors' visits and prescriptions for children under 13, and extra money to ease the cost of early childhood education.

Legislation was rushed into Parliament last night so the changes could come into effect from next year.

Eligibility for paid parental leave will also be extended and the existing parental tax credit will rise.

But English also opened his chequebook ahead of the election campaign, boosting the cash earmarked for new spending or tax cuts from $1 billion a year to $1.5b from 2015 and rising over time.

That would free up an extra $1.6b for the election campaign, on top of the $3b already earmarked for new spending, while contributing to a slashing of the 2018 surplus from $5.6b to just $3.5b.

Prime Minister John Key said tax cuts would be considered in the coming weeks and could be part of the election campaign, although both he and English said they would likely be modest and have to wait until 2018.

"One of the dividends of a growing economy is there's a bit more room, it's just the question now is where that can best be spent," Key said.

Already, 12 per cent of families paid some 77 per cent of net tax.

"The higher-income earners do pay their fair share in New Zealand."

Key said after years of tight Budgets, it was logical for the first spending to go towards families and particularly to vulnerable children.

But Labour leader David Cunliffe accused him of offering a pale imitation of Labour's policies, such as its pledge to increase paid parental leave to 26 weeks, while "fudging the numbers" to make the books look better.

The Government signalled ACC levies on private vehicles would likely drop by $130 a year, but Cunliffe said the delay was to preserve the surplus.

English said the forecasts showed the average wage would rise by $7600 to $62,300 by 2018. But he conceded home buyers may be disappointed by the Budget, which offered them little beyond dumping tariffs on building materials, estimated to lower the cost of a new home by $3500.

Growth is tipped to reach 4 per cent this year before falling to 2 per cent by 2017, and English warned that some factors driving the so-called "rock-star" economy would peak in the next few years.

Export prices were expected to return to normal, housing supply would catch up and the Christchurch rebuild would slow.