The Rudd government has pushed its $42 billion economic stimulus package through the parliament after striking a series of compromise deals with seven crossbench senators.
Labor secured the crucial vote of independent Nick Xenophon to pass the legislation in the Senate after agreeing to a package of compromise measures to help rescue the parched Murray-Darling Basin.
The coalition, which opposed the stimulus package, painted the passage of the bills as a tragedy for the Australian economy.
Opposition Senate leader Nick Minchin, a former finance minister, told the Senate it was a tragedy that the strong economy the coalition had gifted Labor was being turned around so rapidly.
"It is a panic reaction, it is not consistent with the economic management of this country," he said.
Senator Xenophon had used his make-or-break vote to torpedo the original package of bills in the Senate on Thursday after voting with the coalition.
But the government immediately reintroduced amended legislation, pushing it through the House of Representatives on Thursday night and bringing it back before the Senate on Friday morning.
There were jovial cheers in the chamber as the crossbench senators moved to vote with the government, passing the legislation 30 votes to 28.
Negotiations between Senator Xenophon and the government went late into Thursday night and continued early Friday before he struck a deal with Treasurer Wayne Swan and Water Minister Penny Wong.
"(They) have agreed to a package of $900 million in spending commitments including fast-tracking spending for the Murray-Darling Basin, for its economy over and above any previous commitments," he told the Senate before finally confirming he would come on board.
Australian Greens leader Bob Brown, who negotiated a separate deal with the government, described Senator Xenophon's announcement as "a splendid outcome".
"The opposition must be wondering how it missed the bus," he told the Senate to jeers from coalition senators.
Family First senator Steve Fielding, who had already decided to vote with the government, won support for a $200 million jobs creation program.
Senator Fielding conceded it was a fraction of the $4 billion he had originally sought but acknowledged "it's a start".
"The program will offer grants to local councils, community organisations and charities to spur job creation at a grassroots level," he said in a statement.
"This new money will be targeted initially to help Victorian communities suffering hardship through significant job losses and will provide employment opportunities for local unemployed people."