Orange book 2016: priorities for the next Commonwealth Government

Overview A federal election is an opportunity to take stock of how Australia is doing, where it’s going, and what governments can do about it. This report surveys policy recommendations from seven years of Grattan Institute reports and outlines what the Commonwealth Government should do to improve Australia. The problems aren’t hard to find. Per capita national income has fallen over the last four years as the mining boom subsided. Economic growth is slow, reflecting trends across the developed world. Unemployment stands at nearly six per cent, higher than in the United States and United Kingdom, countries hit much harder by the Global Financial Crisis than Australia. Underemployment also remains high. Commonwealth budgets haven’t come close to balancing for eight years. Interest on the accumulating debt now consumes 4 per cent of government income, or as much as the Commonwealth spends on public hospitals. Younger generations will be taxed more to pay for today’s spending. Every $40 billion deficit, the norm for each of the last eight years, forces households aged 25 to 34 to pay an extra $10,000 in tax over their working lives. Our large capital cities have growing pains. House prices are very high relative to incomes. Home ownership is falling for all households aged under 55. Most new housing is far from the city centres where most new jobs are being created. More people spend longer in traffic getting to work. The physical divide between rich and poor is growing. School education is not keeping up with the best in the world. Test results are well behind international benchmarks, and Australia is slipping down global rankings. Between Years Three and Nine, talented students from poorer backgrounds fall almost two years behind their peers from richer backgrounds. Our political system is not dealing well with these challenges. Politicians are often creating great expectations that far exceed what government can ever do. Meanwhile, they are failing to act on the things that they can control. The result is an often barren debate that disappoints everyone and makes for a dull campaign. Yet there are many reforms that can contribute to economic growth, improve the quality and reduce the cost of government services, and bring budgets back into balance. A growing evidence base shows which reforms would work. Progress on this agenda has been underwhelming for a decade, perhaps because the prosperity of the mining boom sapped the will for reform. The politics of reform is never easy. Vested interest groups, emboldened by success, are more vocal in protecting their interests. Meanwhile the public interest has few friends. Ironically, though, the public seems to be up for reform. Surveys suggest that people understand the need for budget repair, and are even prepared to contemplate slaying sacred cows such as negative gearing. Our politics can implement this reform agenda by using the evidence that has been assembled, robustly articulating the public interest, and staring down interest groups. Australia has a proud history of enlightened public policy. Many countries would be delighted to swap our problems for theirs. Australia can continue to be the lucky country. But we must make our own luck