But the upbeat budget review trumpeted by Treasurer Peter Costello also contained a note of caution that the country's trade bill might impede a further relaxation in monetary policy.

"Australia's current account deficit will be comparatively high in the forthcoming year," he said, referring to the new forecast which upped the expected deficit to A$32 billion or 5.5 per cent of Gross Domestic Product (GDP).

"That will be something that will be weighing on the (central) bank's mind and weighing on my mind when looking at monetary policy," said an untypically frank Costello.

The Reserve Bank of Australia, which sets policy independently of government control, trimmed official rates by 25 basis points on December 2.

Economists interpreted the unguarded comment asdampening expectations of further cuts.

"In a budget review containing few shocks or surprises, flashing lights surround the Treasurer's comments on the current account," said Colonial State Bank chief economist Craig James said.

"At a time when exports are weak, a firm domestic economy sucks in imports and leads to a higher external deficit," James said, warning of a possible reaction by international investors who could abandon the Australian dollar.

The government revised up its economic growth rate forecast for the current year to end-June 1999 to 3.25 per cent from the 2.75 per cent forecast prior to the October 3 national election.

"Australia's growth rate of 3.25 per cent will make Australia one of the strongest economies in the developed world and the strong man of this region," Costello said.

The expected budget bottomline was revised upwards by about A$800 million ($500 million) to A$3.3 billion from A$2.5 billion previously.

The general outlook for the 1999-00 year was a little moresober, with the projected economic growth rate revised down to 2.75 per cent from 3.5 per cent previously, based on an expected slowing in domestic investment.

And the budget surplus gains of 1998-99 were projected to erode by about the same A$800 million to A$2.6 billion from a previous projection of A$3.4 billion.

Financial markets generally saw the 1998-99 forecast as conservative, but agreed with the projected slowing in 1999-00.

"They are a conservative set of numbers, a little above what we think will happen for next financial year, but we don't have any major disagreements with what they've published," said Bankers Trust Australia senior economist Kieran Davies.

The Liberal-National coalition government sought re-election at the October 3 poll on a platform of economic competence and Costello said the budget review vindicated the government's reformist policies since it was first elected in March 1996.

"These are the rewards of good economic management," he said.