Treasury said t' />

1.00pm - By IAN LLEWELLYN

The Government's surplus has reached a record $7.4 billion just weeks away from the next budget.

Treasury said the operating balance was the largest in New Zealand's history.

The surplus for the first nine months of the financial year was $1.5 billion ahead of the December forecast by Treasury.

Finance Minister Michael Cullen is to present his fifth budget on May 27 and has been for some months foreshadowing extra spending to assist low and middle income working families.

For many years Dr Cullen has been cautious about the surpluses recorded during his tenure.

He has feared that spending them may leave the books in deficit if the economy went into recess and the surplus evaporated.

Today's figures and Labour's poor polling will give Dr Cullen more confidence that now is the time to open the cheque book.

Treasury officials said the surplus was the highest ever recorded when compared to gross domestic product, with the operating balance 5.6 per cent of the total economy.

It is also the highest ever recorded in nominal terms.

Treasury officials were still cautious and told NZPA there could be some downturn in revenue and increase in expenditure between now and the end of the financial year.

They did say that the end of year forecast for a $6 billion surplus would be revised in the upcoming budget.

The $7.399 billion operating balance was due to investment income being $548 million ahead of the December Economic and Fiscal Update.

Tax revenue was $278 million higher than predicted and spending was lower than forecast by $531 million.

The surplus excluding revaluations and accounting changes was $6.7 billion.

The Government also has an unusually high cash surplus (actual cash in hand) with core crown cash flow running in the black to the tune of $4.5 billion. Of this $3.3 billion has been spent leaving a cash surplus of $1.2 billion -- $1.1 billion more than forecast just five months ago.

As a result of the positive figures gross debt was down to $37 billion, or 28.5 per cent of GDP, and net Crown debt was $15.2 billion, $1 billion lower than forecast in December.

The accounts show that the increase in revenue was driven by higher than forecast GST receipts of $225 million and investment income by crown entities swelling by $548 million more than expected.

Expenses were below forecasts in education ($142 million) and welfare ($122 million).

This was mainly due to lower spending on student loans, welfare benefits and delays in implementing new programmes.

Dr Cullen's spokeswoman said he would not be commenting on the surplus or its implications ahead of the budget.

In comparison with last year revenue was up $3.9 billion (9.3 per cent), while expenses were stable at $38 billion.

In March last year, the surplus was running at $3.4 billion and net debt was $17.5 billion.

- NZPA