Cuts to spending and more targeted government expenditure will be part of this year's federal budget, Australian Treasurer Wayne Swan said yesterday.

In an address to a group of business economists in Sydney yesterday, Swan said that the Australian economy was moving back towards trend growth.

Swan dismissed claims that the government's commitment to a surplus was a political not an economic objective.

With a relatively low unemployment and pipeline for investment, it made sense that the government returned the budget to surplus.

"Returning to surplus provides more flexibility for the Reserve Bank to respond to any further developments in the global economy," he said.

Maintaining our credible fiscal policy also sends a strong message of confidence to investors across the world in uncertain times," Swan said.

He said a fall in company tax revenue, a high Australian dollar and global instability from the global financial crisis made it difficult for the government to achieve its surplus.

Substantial savings, therefore, will need to be found in order to return the budget to a surplus and, with Swan stating such a move leading up to next month's budget has been "the most difficult".

He signalled spending cuts in government programs, as well as targeted spending where it is most needed in areas such as education, health services and jobs. 

Although it won't be a "slash and burn" budget, Swan did indicate there would be no new spending.

"I can also tell you there won't be a lot of new spending in this budget," he said.

The tax system will also come under scrutiny following a number of recent court decisions that have gone against the Australian Taxation Office.

"These court decisions exposed weaknesses in specific parts of the law. We're looking at these to see where we can make the tax system more robust, more sensitive to complex transaction and better at deterring people from tax avoidance," Swan said.