"Medium-term fiscal frameworks [which] reflect an apparent short-term economic weakness or unsustainably strong growth are best responded to by monetary policy," Dr Kennedy said.

However Dr Kennedy, who as a key adviser to the Rudd Gillard government's response in the financial crisis is not opposed to using fiscal responses to boost economic growth, said caution was needed in using such tools.

"In periods of crisis there is a case for further temporary fiscal actions but it is important to consider that, separately from broader policy objectives, temporary responses to crisis can lead to unintended consequences.

"The circumstances that would warrant such a response are uncommon."

The key aspect to keeping the economy growing now was through "automatic stabilisers", Dr Kennedy said.

"Within a medium-term fiscal framework automatic fiscal movements will still assist in stabilising the economy.

"For example revenues will weaken and payments strengthen when an economy is weakened. These automatic movements are called automatic stabilisers. Allowing these stabilisers to work is entirely consistent with a medium-term fiscal framework."

When asked what part of the economy kept him awake at night he said nothing kept him awake.


"As a former nurse I learnt how to switch off after work," Dr Kennedy said.

However he was finding it hard to distinguish what the effect of tax cuts and interest rate cuts were having on consumption. He said that while more people were using tax cuts and interest rate cuts to pay down debt those forms of stimulus would "still lead to consumption coming forward".

"Although we have some indications of consumption slowing for the September quarter ... it's worth noting that even if households use savings to pay down debt that will still bring forward the time when they would spend," Dr Kennedy said.

The economy grew at 1.4 per cent, in the June quarter, its slowest annual growth in a decade.

But since that June quarter there have been three interest rate cuts as well as $7.8 billion in tax cuts.

While short term stimulus was not urgent, Dr Kennedy did insist that structural reform and a lift in productivity was needed.

"The case for structural reform is ever present," Dr Kennedy said.

"Improvements in employment and wages, and in the profitability of businesses are the most obvious and important drivers of this case. The most important long-term contribution to wage growth is labour productivity."


Dr Kennedy also responded to questions about the importance of the full employment level required for inflation pick up.

The Reserve Bank's current view is that the non accelerating inflation rate of unemployment (NAIRU) - the rate of unemployment below which wages growth starts to pick up - is around 4.5 per cent.

Treasury's deputy secretary for Macroeconomic Group Megan Quinn said the department was looking at the relationship between underemployment and wages.

"Our current projection is for 5 per cent for the NAIRU. The OECD is 5.2 per cent and IMF is 4.8 per cent."

However Dr Kennedy said the estimated number was not as crucial as economists thought.

"I wouldn't want to leave people with the impression that the NAIRU is not a useful guidepost but it is just a guidepost."

"I would encourage people not get too fixed on the precise estimates on NAIRU because frankly these are estimates in models," Dr Kennedy said.

"Its more valuable to be digging into the labour market in the manner that Ms Quinn identified around the increase in age cohorts and the participation of the workforce."


Ms Quinn had earlier spoken of how participation rates had reached record levels.

We have seen a big increase of people entering the labour force. Larger than we were expecting.

Questions were also raised about why business investment has not been as strong.

"Given historically low interest it is somewhat of a puzzle that business investment has not grown faster," Dr Kennedy said.

"Partly this could reflect that the rates of return businesses use when looking at the viability of new opportunities, so called ‘hurdle rates’, have remained high despite lower interest rates.

"The current uncertainties surrounding the global economy and significant technological advancements may be contributing to this," he said.