He told a Senate economics committee on Wednesday that while a challenging health outlook had persisted, the economy had proved more resilient.

“This likely reflects both policies being more effective than expected and a more rapid adjustment by the community to the tribulations of Covid,” Kennedy said in his opening statement to the hearing.

Treasury’s current assessment was the negative impact on aggregate spending had been relatively muted, particularly when compared with previous Covid-19 lockdowns.

“We do not expect the Omicron wave to have a large negative impact on employment,” Kennedy said.

“It is more likely to have a relatively large impact in the number of hours worked across the economy rather than employment.”

Kennedy said the fiscal response was receding, reflecting the temporary and targeted nature of policies, while monetary policy was beginning to normalise with no additional unconventional programs.

“Interest rates are still close to zero and are expected to remain historically low for some time,” the Reserve Bank of Australia board member said.

Fiscal support needs to taper off to ensure monetary policy has an opportunity to normalise, he added.

“However, there is an even more compelling reason for fiscal support to (be) sensibly tapered and that is the opportunity to achieve full employment,” Kennedy said.

“Tightening policy prematurely could prevent Australia attaining the goal of full employment.”

The unemployment rate fell to a 13-year low of 4.2 per cent in December.

Treasury expects the jobless rate will have a “three” in front this year, “or at the very least settling in the low fours”.