Flush with surplus dollars, Treasurer Peter Costello announced wide-ranging tax cuts totalling 31.5 billion dollars (26.25 billion US) over four years.

With the economy thriving on an insatiable global demand -- particularly from Beijing -- for Australia's mining products, Costello unveiled a budget which could be stamped "Made in China."

There were multi-million dollar handouts for childcare and efforts to fight climate change in a country on the frontline of global warming.

There was also extra cash for the military, which has troops in Iraq and Afghanistan, to support Prime Minister John Howard's close ally, US President George W. Bush.

The defence budget got a 2.1 billion dollar injection over 10 years to encourage recruitment and retention, rising to a total of 22 billion dollars or 9.3 percent of government spending.

Costello also announced 702 million dollars for national security initiatives to safeguard against terrorism.

He presented the budget as the fruit of past policies, with a budget surplus of 13.6 billion dollars (11.3 billion US) for 2006-07, and 10.6 billion for 2007-08.

Howard's conservative coalition has been in power for 11 years but, despite a thriving economy, the centre-left Labor Party is leading in the opinion polls.

Costello boosted Australia's 2007-08 economic growth forecast to 3.75 percent, up from 2.5 in 2006-07.

"Australia is now enjoying the longest economic expansion in its history," he told parliament.

Inflation forecasts are also down, according to Costello, with the consumer price index seen at 2.5 percent for 2007-08, down from 2.75 percent forecast for this year.

Costello said the budget would "bring dividends and benefits for all of us," but denied that it was aimed simply at securing votes in elections due by the end of the year.

The Australian Industry Group said the budget was good for business and should not be inflationary.

Ai Group chief executive Heather Ridout also welcomed the tax cuts for low-income earners and the government's investment in infrastructure.

"The changes to the corporate tax arrangements will particularly benefit the mining industry," Ridout said.

"We don't believe the budget will be inflationary," she said.

"It's broadly neutral in its impact and that's partly because the measures are so carefully targeted."

She said the budget also left the government with a war chest for more initiatives.

Labor's shadow treasurer Wayne Swan said the party welcomed the tax cuts and one-off payments but said the "clever election-year budget" failed the test of the future on productivity and climate change.

"It's obvious that the treasurer is rolling in money, it's been raining gold bars thanks to the mining boom," Swan said.

With environmentalists linking Australia's worst drought in a century to climate change, the government announced spending of 741 million dollars (617 million US) to counter the threat.

The handout to households installing solar energy systems will be doubled to 8,000 dollars (6,600 US), with the programme estimated to cost about 150 million dollars over five years.

The budget also provided for the recruitment of more than 100,000 skilled migrants along with the reshaping of immigration policies to cope with both the booming economy and perceived terrorism threats.

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