The federal budget's return to surplus should mean lower interest rates and put downward pressure on the Australian dollar, economists say. Returning the federal budget to surplus will put downward pressure on the Australian dollar and could lead to lower interest rates, economists say. Treasurer Wayne Swan on Tuesday night handed down his fifth basket which is forecast to deliver a 1.5 billion surplus for the 2012/13 financial year. AMP chief economist Dr Shane Oliver said the government's commitment to cut spending and return to surplus would hurt economic growth and ad to the case for further interest rate cuts. "It will take a huge chunk out of the economy, we estimate around a one per cent detraction from the economy. "That should be enough to justify further interest rate cuts for the Reserve Bank." The Reserve Bank of Australia cut the cash rate by 50 basis points to 3.75 per cent last week. Mr Oliver said lower interest rates and a reduction in federal government borrowing would reduce the inflow of foreign capital into Australia and put downward pressure on the Australian dollar. However, he said it was disappointing the government had scrapped its promised one percentage point cut to the company tax rate in favour of a carry-back tax rate for small business. "The loss-carry back arrangement will probably be less efficient for the economy. "It will help businesses that make a loss but it won't help those who are making a profit so a one per cent reduction would have been preferable." CommSec chief economist Craig James said it was a credible budget but not a horror budget. "The way that they're achieving the budget bottom line going into surplus, (is) effectively by delaying or revising current measures," he said. "One of the virtues of this budget is that the government is making decisions that improves the bottom line, we haven't seen that for years. "A government, by measures being announced, is actually improving the budget bottom line rather than making it worse." "It is a wafer-thin surplus and there's not much that has to go wrong for the budget to get back into the red and for the government to make some harder decisions." Mr James said the surplus wasn't absolutely necessary. "But it (a surplus) enhances Australia's position on the world stage by a government indicating it is prepared to push it (a deficit) back into surplus," he said. "I think it shows other countries around the world that you don't have to apply significant austerity measures to be able to get where you have. RBC Capital senior economist Su-Lin Ong said the move from a $44.4 billion deficit in the 2011/12 financial year to a projected surplus in 2012/13 of $1.5 billion would help to be a drag on the economy and added to the case for further interest rate cuts. "The starting point for 2011/12 is probably a little worse than we thought, so that implies probably a large tightening in the fiscal stance over the next 12 months," she said. "That will probably put pressure on the RBA (Reserve Bank of Australia) to cut (interest rates) further." However, Ms Ong said the market reaction to the budget had been limited. "Overall, there are no huge surprises in there and the surpluses are pretty much as the Treasurer has been flagging." JP Morgan Australia chief economist Stephen Walters said the budget surplus was unlikely to send the central bank's cash rate even lower in 2012. "I think the turnaround in the budget balance .... doesn't really change the RBA's (Reserve Bank of Australia) thinking," Mr Walters said. "We've already known that this (the surplus) was going to be in the budget, and really, it was just formalised now. "The RBA has already moved quite aggressively, so the assumption in the budget is that rates will go down whatever the futures markets is pricing, which is about three more rate cuts - and that's plausible. "But if you need those rate cuts to get your trend growth, then clearly you need a few things to go right."