Treasurer Wayne Swan said on Tuesday the government would deliver a small A$1.5 billion budget surplus in 2012/13, after a blowout in the current year's budget deficit to A$37.1 billion versus the May budget forecast of A$22.6 billion. 

The Labor government, first elected in 2007, faces elections in late 2013 and is determined to deliver its first surplus before it goes to the polls, although Swan said the surplus was needed to safeguard the economy from global uncertainty. 

"Global economic and financial conditions have deteriorated markedly in recent months, and the risks to global stability from the European sovereign debt crisis have intensified," Swan said. 

The treasurer revised Australia's economic growth forecast down to 3.25 percent for both the current fiscal year and 2012/13, down from an earlier forecast of 4.0 percent growth for this year and 3.75 percent in 2012/13. 

Financial markets showed little reaction to the budget statement, though analysts cited mild falls on the stock market to the lower growth outlook.  

The Australian dollar was little changed at $0.9890, taking a breather after gaining more than 2 full cents on Monday on hopes that euro zone officials would make some progress in resolving the region's debt problem. 

J.P. Morgan economist Stephen Walters said the surplus was an iron-clad political pledge, but could leave room for Australia's central bank to cut interest rates further in the near term. The Reserve Bank of Australia cut rates by 25 basis points to 4.5 percent in November. 

"The government tidying up the budget over time, even if a surplus ultimately can't be delivered next year as promised, provides additional scope for the RBA to cut official interest rates in the near term," Walters said. 

Interbank futures were still pricing in around 150 basis points worth of rate cuts by the middle of next year, believing the RBA would be forced to loosen policy in the face of global uncertainty. 

Despite the slower growth and tax revenue, Swan said Australia's net debt would peak at 8.9 percent of GDP in 2011-12, before falling to 7.7 percent of GDP by 2014/15. 

Swan said the global downturn meant tax revenue dropping by more than A$20 billion over four years, but the government had found A$11.5 billion in new savings. 

The biggest cuts will be a 2.5 percent belt tightening across all government agencies, and a crackdown on tax breaks for foreign workers and executives.

The government said the efficiency cuts would save A$1.5 billion over three years, but unions said they would lead to 3,000 job cuts from the public service. 

HSBC Chief Economist Paul Bloxham said the budget's main contractionary impact had been pushed back to 2012/13, and would now need a "Herculean" contraction equal to 2.6 percent of GDP.

The Australian Chamber of Commerce and Industry welcomed the commitment to a surplus, but said more spending cuts could be needed due to the uncertainty stemming from Europe. 

"Developments in Europe remain a concern for the health of the global economy and any serious downturn would justify a further reconsideration of fiscal policy settings," said chamber spokesman Greg Evans. 

The Organization for Economic Cooperation and Development on Monday said a Australia would have the fastest growth in the developed world next year, with year-on-year expansion of 4 percent and 3.2 percent in 2013. 

Countries in the euro zone were expected to grow by only 0.2 percent next year, while growth in Britain was seen at 0.5 percent and the United States at 2 percent.

Reflecting the relative strength of the Australian economy, Fitch Ratings upgraded on Tuesday Australia's Long-Term Foreign-Currency Issuer Default Rating to “AAA” from “AA+,” while Australia's Long-Term Local-Currency IDR was affirmed at “AAA”, with stable outlooks.