The Treasury is allowing for $1.5 billion in tax cuts in next year's budget.
Finance Minister Michael Cullen said today that the Treasury's updated economic forecasts showed the best economic growth period for "a generation" was set to continue longer and stronger than predicted.
Dr Cullen distanced himself from the Treasury estimate, saying it was simply a working figure.
Treasury said the economic growth would flow through to a larger tax take for the Government which could be converted into $1.5 billion in tax cuts and another $1.8 billion in additional capital spending in Dr Cullen's election year budget.
Dr Cullen said "uncertainties" still existed, but Treasury had "significantly" lifted its revenue forecasts which meant the $1.5b in tax cuts in addition to more spending could be factored in to the budget.
"This figure is very soft as no decisions have been taken on the timing, size, shape or scope of our personal tax cuts," Dr Cullen said.
Even factoring in the $1.5b tax cuts, Treasury now predicted cumulative cash deficits of just $2.6b over the next four years. This compares to the $5.7b predicted in the May budget when the extra spending and cuts were not included in the forecasts.
Dr Cullen said it was possible the outlook could be even rosier and there could be more room for a second round of tax cuts, but he warned repeatedly that no decisions had been on any part of the package including it size.