Bringing back the budget to surplus by next year is imperative for the Australian economy despite claims that deep spending cuts could hamper economic growth.

Federal Treasurer Wayne Swan has reiterated on Sunday that the country heads to the right direction by adopting strategies that would further encourage the domestic economy to assume full-throttle growth.

The economy itself carries the right formula that would support aims by the Labor-led government to achieve a surplus by financial year 2012-2013, Swan has argued on his weekly economic notes issued yesterday.

"With solid growth, contained inflation, very low public debt, low unemployment and a record pipeline of investment, we are the envy of virtually every advanced economy," Swan was reported by Bloomberg as saying on Sunday.

He rejected suggestions that his economic agenda has become an obsession and he could be blindsided by the reality that the surplus, the unbending goal for the government to realise it at all cost, could hurt the economy.

Growth and funding for necessary government services could emerge as casualties of the Labor pledge, economists said.

Swan, however, stressed that the criticisms were unfounded, arguing that "claims that the return to surplus is putting growth at risk overlook the fact that the government's budget strategy has been clear and consistent for a long time."

He hinted at the same time that government spending rolled out at the height of the global financial downturn, which was meant to stimulate growth amidst the economic challenges, now require some fine-tuning.

"Just as it was right to step in and support demand when it was needed, it's right now to be stepping back to provide space for the private sector to grow and to ensure the Reserve Bank has the flexibility to cut interest rates further if it thinks that is necessary." The Treasurer said.

"Returning the budget to surplus is our best defence and is a key sign of our strong economy," Swan added.

Growth, Swan said, will be supported by the RBA's rate policy, which should find a bigger room to implement its expected rate cuts, while the cutbacks on national spending will be filled up by the private sector.

The federal government, however, will ensure that health and other crucial services will not be compromised by plans to reduce expenditures in order to deliver the budget surplus, Swan said.

His projections were most likely buoyed by the RBA's decision to keep the cash rate at 4.25 percent, seemingly convinced that the commodities boom, which has been firing up Australia's economy, will remain strong in the months and quarters to come.

At most, the government would lead to a surplus of no more than $1.5 billion by painfully cutting corners, too measly as economists said compared to the national sacrifices the plan would generate.

Yet Prime Minister Julia Gillard has been adamant in pushing for the goal as she declared earlier that "returning to the surplus is the right thing to do."