(Adds currency reaction, comments from treasurer and opposition)
CANBERRA, April 2 (Reuters) - Australia's conservative government on Tuesday proposed tax cuts for low and middle-income earners and record spending on health and education while delivering the first budget surplus in more than a decade, setting up its campaign for an imminent election.
Treasurer Josh Frydenberg offered A$158 billion ($112 billion) in tax cuts over the next decade primarily aimed at middle-income earners, on top of tax cuts of A$144 billion last year, as the coalition government, which is trailing in opinion polls, tries to win over voters.
An election must be held by mid-May and could be called as soon as this week.
"The budget is back in the black, and Australia is back on track," Frydenberg told parliament in a budget speech on Tuesday evening.
There was muted reaction by the Australian dollar after the budget release. Earlier on Tuesday, it slid after the country's central bank held interest rates steady but still managed to sound dovish to some, leaving the U.S. currency to benefit from higher bond yields.
Frydenberg predicted a budget surplus of A$7.1 billion in the fiscal year ending June 2020, up from a December forecast of a A$4.1 billion surplus, as higher export receipts and tax revenues boost government coffers.
If achieved, it would be the first surplus since 2007/08, before the global financial crisis hit.
TAX REBATES
The projected surpluses increase to A$11 billion in 2020/21 and A$17.8 billion in 2021/22 before easing to A$9.2 billion in 2022/23.
Offering potential swing voters an immediate dividend, the government said it will double the tax rebate for people earning between A$48,000-A$90,000 a year to A$1,080 in the current fiscal year.
Budget papers showed the cost of the tax cuts out to 2021/22 would be A$15 billion.
Frydenberg also proposed changes in future years that would see income bands widened and tax rates reduced to deliver personal tax cuts.
The government would accelerate tax cuts for small businesses, it said, with the tax rate for businesses with turnover of less than A$50 million cut to 25 percent in 2021/22.
The opposition Labor party said in a statement the budget would not address stagnant wage growth or tackle climate change.
The strong inflows into government coffers meant Frydenberg could increase spending on healthcare, a strength of the opposition Labor party, to a record A$89.5 billion in 2022/23. That is up nearly 10 percent on expected spending in 2019/20.
The government would spend A$100 billion on infrastructure over the next decade to reduce congestion and improve links between Australia's cities and regional towns, a lot of which has already been announced.
MORE RURAL ROADS
Spending on rural infrastructure was forecast to rise by nearly 30 percent, with A$4.5 billion to go for building roads in rural areas, the major support base of the ruling coalition's junior partner.
The government also included an immediate one-off rebate on energy costs to pensioners, another key voter demographic for the coalition, of A$75 for an individual or A$125 for couples.
And Frydenberg announced a A$3.5 billion package to reduce emissions to meet Australia's commitments under the Paris Accord. The government's environmental record is seen as one of its electoral weaknesses with urban voters.
Frydenberg maintained a relatively optimistic outlook for the economy, though he conceded there were risks including from falling house prices and global ones such as Brexit.
The government forecast full-year economic growth of 2.25 percent in 2018/19, which would need activity to pick up in the January-to-June period as the economy grew 0.3 percent in the September quarter and 0.2 percent in the December quarter.
Growth in the A$1.9 trillion economy is seen picking up to 2.75 percent in 2019/20 and 2020/21.
The tax cuts and increased spending, if enacted, could offer a boost to the economy, as consumer spending has been soft recently as falling home prices and high debt levels weigh on sentiment. Financial markets are fully pricing in a 25 basis points rate cut later this year. (Reporting by Colin Packham and Swati Pandey in CANBERRA; Editing by John Mair and Richard Borsuk)