The federal treasury is bulging with extra money this year as a surging economy produces much higher tax revenue, the Finance Department said Friday. 

The budget surplus for the 2007-08 fiscal year will come in higher than the $3-billion projection made in the federal budget five months ago, the department said in its monthly fiscal monitor release.

The department did not say how much higher it expected the surplus would be, adding that "a comprehensive update" would be provided this fall.

But the latest fiscal numbers show that the surplus has grown to $6.4 billion in the first three months of the fiscal year.

In June alone, the surplus was $2.8 billion.

The department lists two main reasons for the higher surplus:

• A stronger-than-expected economy. Forecasters are now calling for GDP growth of 5.2 per cent in 2007, up from 3.9 per cent at budget time.
• Higher-than-expected revenues. The Finance Department notes that budgetary revenues in the first three months of the fiscal year were $3.9 billion — or 6.9 per cent — above last year's, led by increases in income tax receipts and other non-tax revenues.  

The higher surplus comes despite a 7.6 per cent increase in spending. The latest surplus figures show program spending rose by $3.2 billion in the quarter.

The Finance Department said that was due to increases in transfer payments to the provinces and territories, and more spending by  federal departments and agencies, including National Defence.  

In the 2007 budget, Ottawa said it planned to apply its projected $3-billion surplus to paying down the federal debt.