"The Budget will return to a surplus of $378 million in 2007-08, with forecast surpluses of $707 million in 2008/09 and $1.1 billion in 2009-10," he told Parliament.
"These healthy surpluses are projected to be achieved without any new tax measures."
Mr Costa said the ageing of the population would put pressure on the state's finances in the coming years, with the number of people aged over 65 in NSW to double to more than two million by 2044.
He said health expenditure was growing an average 7.4 per cent per year and community services spending by 6.6 per cent, but commonwealth grants had only grown an average 3.7 per cent per year in the past four years.
"There must be structural reform of the fiscal relationship between
As part of its previously announced plan to reduce non-frontline government spending, the Government would save $600 million in 2006-07, he said.
The Government will spend almost $10 billion on capital works in 2006/07 or $41.3 billion over four years, partly funded by $17.4 billion in borrowings.
Public transport will get an extra $1.6 billion, including $275 million for purchasing new rolling stock and $36 million for the purchase of "clean-diesel" and natural gas powered buses.
There will also be $633 million for a range of hospital upgrades and $1.4 billion in spending on roads infrastructure.
In health, the Government will fund the equivalent of 426 equivalent public hospital beds to allow more elective surgery and faster emergency care.
"We will also invest $10 million on new intensive care beds," Mr Costa.
The Government will also recruit 93 new ambulance officers.
The Government has already announced it will boost funding for disability services by $1 billion over four years. In education, concessions on privately run metropolitan buses will be extended to apprentices and this will gradually be extended to country areas.
There will be 10 new trade high schools and eight new "behaviour schools" for disruptive students.
An extra $120 million will be spent on school maintenance, 67 schools will get security fences, school toilets will be upgraded and Year Two classes will be reduced to a statewide average of 24 students by next year.
In policing, the Government has previously announced it will hire an extra 750 extra officers.
The Budget contains no new taxes.
Beginning in the 2007 land tax year, property values will be calculated using an average over the past three years.
This will cost the Government $57 million in 2006-07 and $395 million over four years in lost land tax revenue.
Mr Costa said the Budget boosted spending in areas of need and provided a massive boost to infrastructure spending.
"This Budget is socially responsive and fiscally responsible," he said.
"It builds not just for a year, but for a decade."
