Australia's Labor government has brought down its first budget, aimed at meeting international economic turbulence and high Australian inflation.

The projected budget surplus is nearly $A22 billion - equal to 1.8 per cent of Australia's GDP.

Treasurer Wayne Swan has told parliament that the global economic slowdown means Australia's growth rate will fall below three per cent to 2.75 per cent next financial year.

But Mr Swan also says that robust growth in China and India will lift Australia's terms of trade by 20 per cent - the largest increase "in a generation".

He says Australia is enjoying its 17th year of growth, but inflation of more than four per cent is at its highest since the start of that period.

The budget predicts that inflation will fall from 4.2 per cent in March to 3.25 per cent by the middle of next year.

The Labor Government has announced new spending over the next four years worth $27 billion, but says this is offset by total savings and spending cuts worth $33 billion.

Budget in focus
Mr Swan says the budget aims to restore the balance in favour of low-to-middle income earners.

He says the budget will ease cost of living pressures by introducing targeted tax cuts, increased child care rebates, an education tax refund and a housing affordability package.

"For too long, working families have watched the proceeds of the boom directed elsewhere, in the form of tax cuts skewed to those already doing very well," he said.

"Tonight, we tip the scales in favour of working families."

Mr Swan says three new "nation-building" funds - the Building Australia Fund, Education Investment Fund and the Health and Hospital Fund - are part of a "massive modernisation" of the Australian economy in order to compete with India and China.

Tax
Personal income tax is forecast to be cut by $46.7 billion over the next four years, mostly through increasing tax thresholds.

The so-called "baby bonus" payment to new parents will now only be available to families with annual incomes under $150,000.

The child care tax rebate will be increased from 30 per cent to 50 per cent at a cost of $1.6 billion over four years.

The budget confirms that the public healthcare Medicare levy surcharge will not apply to single people earning less than $100,000 and couples earning less than $150,000.

There will be more taxes on work-related benefits such as work laptop computers, while the tax on luxury cars will increase to 33 per cent.

Mr Swan says the hardest decision he made in the budget was means-testing benefits, but says it was "impossible" to defend bonuses for the very wealthy.

He also defended tax cuts, rebates and refunds, saying they were "essential to reward the hard work of millions of Australians who have fallen behind" because of the rising cost of living.

Health
On top of the $10 billion Health and Hospitals Fund, Mr Swan says $1 billion will be injected immediately to relieve pressure on public hospitals and $3.2 billion to address problems in the public health system such as long waiting lists.

Also in health, $334 million has been allocated over four years to close the life expectancy gap between indigenous and non-indigenous Australians.

Environment and the arts
The budget forecasts a $12.9 billion spend over ten years to alleviate the effects of the drought and secure water supplies.

There is also $2.2 billion allocated over five years for the "Caring for our Country" program which intergrates natural resource management.

Households will be able to apply for "green loans" of up to $10,000 to help reduce greenhouse emissions and improve water and energy efficiency.

The low interest loans will be made available specifically for the installation of solar, water and energy efficient products, and will be offered from early in 2009.

The government will also establish a resale royalty scheme for visual artists.

Arts minister Peter Garrett says $1.5 million will be spent over three years to fund a start-up and initial costs of an agency to oversee the scheme.

Produced by Radio Australia and Australia Network