Treasury boss John Fraser says there are "challenges aplenty" for the Australian economy as the Reserve Bank held out the prospect of another possible interest rate cut.
The RBA on Tuesday cut the cash rate to a record 1.75 per cent after weak quarterly inflation data.
On Friday, the central bank indicated it was sitting on the sidelines for the time being, but there was the possibility of a further cut as inflation sits below its 2 to 3 per cent target band.
Explaining the budget day rate cut, the central bank's board said: "The board judged that the prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by further easing of monetary policy."
It added: "The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time."
Paul Dales from Capital Economics said the RBA statement implied interest rates would soon be cut by a further 0.25 per cent.
"We suspect that when Philip Lowe takes over as (RBA) governor from Glenn Stevens on September 18, his first task will be to decide whether or not interest rates need to fall below 1.5 per cent," Mr Dales said.
The quarterly statement on monetary policy, released three days after the federal budget, came as Mr Fraser appeared at a Senate hearing where he gave a sobering assessment of the economy.
He said leading economies were entering "new frontiers" with the advent of negative interest rates.
"I think it's going to be more difficult in this low inflation environment," he said.
"(But) one thing we've got to be very careful of is not getting too depressed about it all ... we've got to be careful that we don't extrapolate from current or recent conditions on a long-term basis."
Economic forecasters had not been very good in the past few decades at picking "turning points", he said.
"We've got to realise there is a thing called the economic cycle, but equally, we've got to be prepared for a different environment going forward."
Revenue was a particular challenge for the government.
"The revenue yield may not be as great as we may have thought a year or two years ago ... so there are challenges aplenty."
Mr Fraser talked up the prospects for consumption, new roads, ports and rail projects and housing construction - as well as the non-mining sector - to drive the economy.
"There's a lot of talk and we need to get on and start digging things," Mr Fraser said of the need for more investment in infrastructure.
He said more private sector investment was needed and the low interest rate environment could switch the attention of investors to long-term returns from infrastructure.
