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Wayne Swann - Source: ONE News / ABC Australia -
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The Australian federal government's stimulus measures are not set in stone and will be adjusted if it is deemed appropriate, Treasurer Wayne Swan says.
The opposition maintains the government's stimulus spending should be wound back now given that the economy has performed far better than forecast in the May budget, and with interest rates now on the rise.
In an address to the Australian Business Economists grouping on Monday, Swan said it was possible the economy could continue to "surprise on the upside".
But he believes the government's strategy continues to be appropriate as "significant challenges and risks remain", and he expects the economy will operate below par for a while yet.
And although last week's unexpected fall in the unemployment rate was "remarkable", the number of jobless people will continue its rise.
He also said that a sustained global recovery was "no sure thing".
"But ... we are monitoring developments closely and we are quite prepared to adjust fiscal policy setting should circumstances warrant," he told his lunchtime audience in Sydney.
Last Friday, Treasury secretary Ken Henry - a key adviser on the government's stimulus spending - said it would be up to the government if it wanted to change any of its measures.
But he said the economic recovery could be under threat if the stimulus was wound back too quickly, and could add an extra 100,000 people to the dole queue - numbering that has been questioned by the opposition.
Swan was quick to defend the Treasury boss when asked whether Henry had become a "partisan player", saying he had served both Liberal and Labor governments with "distinction".
"I can see that there is some sledging going on from the Liberal and National parties," he told journalists before his speech.
"This is just all about hiding their embarrassment at the fact that they let Australia down when they voted against our stimulus package."
Opposition finance spokeswoman Senator Helen Coonan said there was still a huge $AU20 billion-$AU30 billion worth of stimulus being rolled out.
"You've got the two monetary and fiscal arms starting to pull in different directions," Senator Coonan told Sky News.
"That is really why there is upward pressure on interest rates."
But Swan said just as monetary policy stimulus won't be withdrawn overnight, nor would the fiscal stimulus be withdrawn sharply or prematurely either.
The Reserve Bank of Australia (RBA) became the first G20 central bank to lift its key interest rate since the onset of the global crisis.
At a new rate of 3.25%, the cash rate is still 400 basis points below its 2008 peak, and a full percentage point below a trough under the previous coalition government.
Still, financial markets are predicting a further 50 basis points of increases before Christmas.
New lending data showed that consumers are becoming more confident in borrowing again - albeit before last week's rate rise - and that business conditions are returning to normal.
Lending commitments combined - housing, personal, commercial and lease finance - rose 2.8% in August, pushing the annual rate up 10.2%, the fastest annual growth in 19 months.
"The latest round of data effectively ticks one more box in the Reserve Bank view that the economic recovery is in play," Commonwealth Securities economist Savanth Sebastian said.
