Treasurer Wayne Swan warned on Thursday of spending cuts and programme cancellations for the Australian government to achieve in May the budget surplus it promised. Money would also be redirected where it is needed most, he told the Australian Business Economists breakfast in Sydney.

He said that there would not be a lot of new spending in the budget as he insisted "the days of shovelling out bounty from the boom are long gone."

Mr Swan stressed that a return to a budget surplus is an economic necessity and to achieve that government has to be very hard on spending and look really examine its priorities.

"In an economy moving back towards trend growth with relatively low unemployment and a record pipeline of investment, it is appropriate for the government to be returning the budget to surplus," Mr Swan said.

In November 2011, during the mid-year budget update, the Treasury forecast a $1.5-billion budget surplus for 2012-13 after the government registered a $37.1 billion deficit for the current financial year.

He said there is a need to have a balanced budget for Australia to return to trend growth of about 3.25 per cent. Mr Swan added a surplus would be Australia's best defence in a period of global economic uncertainty. It would also provide the Reserve Bank of Australia more flexibility on interest rates if the global economic worsens, the treasurer said.

However, Mr Swam declined to state where the spending cuts would hit as he declined to speculate if the Gillard government would apply a means test to the 50 per cent childcare rebate. Mr Swan identified the challenges to achieve a budget surplus, namely: the high Australian dollar, low tax receipts as companies recover from the global financial crisis, debt problems overseas, higher petrol prices and households continuing to save.

Mr Swan is scheduled to deliver the federal budget of May 8.

RELATED STORIES