Gov. Mitt Romney announced on Wednesday a 5.3 percent increase to the state budget for the 2007 fiscal year, totaling $25.2 billion, and revealed plans to cut taxes, increase school funding, housing and boost healthcare subsidies.

“The priorities are education, health care, municipal aid and jobs,” the governor said at a Statehouse news conference.

Romney said the school aid and housing proposals are necessary to increase the state’s housing stock, as sky-high prices have become an impediment to job creation and growth.

“The idea is, `C’mon guys, open your doors to more housing,'” the governor told the Massachusetts High Technology Council just hours before he unveiled his spending plan.

Now, communities face an “almost perverse incentive” not to add housing, he said. If they do, they will attract school-age children, thus creating pressure to build more schools – and an additional strain on their own budgets, Romney said.

Romney said that with the economy on the rise, more funds are available to community support programs that were cut in past years.

“After a long period of belt tightening, we’re able to give our communities the support they deserve,” said Lt. Gov. Kerry Healy. “We think that they people of Massachusetts will be very pleased with the budget.”

Romney’s new budget success is a key aspect for the Governor as he is reportedly planning a presidential bid in 2008.

“This year’s budget shows a growth rate of 5.3 percent or $1.5 billion of additional spending,” Romney said. “Still, it is by no means a time of luxury in our municipalities. It’s still a time for conservative spending.”

Romney outlined a new program that will give $164 million to schools, allocated according to average property values and town income, which is a change from the old system that only accounted for property worth.

The state will also offer financial incentive for growth in Massachusetts schools, Romney said, but the schools will lose funding if enrollment significantly declines.

“A city or town that has a growing school population will see more funding in our new program,” Romney said. “We want to communicate to cities and towns that if they are shedding students there will be consequences.”

The governor explained that this investment would not go towards increases in teachers’ salaries, but toward buying computers, improving after-school programs, lengthening the school day and improving the math and science curriculums.

Funding for higher education will also not be distributed evenly, Romney said, but will be “distributed according to enrollment changes and other factors.”

Romney said he also fulfilled his promise to give $200 million to support healthcare reform, adding that he is focusing specifically on the issue of Medicaid.

“We have reigned in a highly accelerating cost of Medicaid, but not by cutting people out,” Romney said. “We’re adding over 30,000 people this coming year. We’re holding down the cost of prescription drugs by directing people to generic products.”

Romney said he hopes the budget will facilitate changes in some towns’ and cities’ laws regarding housing by giving funding for more affordable housing.

“We want to make it very attractive for cities and towns to open their doors to housing,” Romney said.

He added that he and his administration hope to encourage towns to allow the construction of multi-family homes in town centers, which would help to lower housing costs.

“Citizens expect us to economize. By reigning in spending, we are creating a surplus that we can now spend on what we care about most: education, healthcare and the municipality,” Romney said.

“Our tax revenues are going up 1.3 percent and we’re spending 1.3 percent more,” Romney said. “We have a balanced budget.”