Key Challenges

Major strategic
challenges ahead
Australia faces a number of major strategic challenges over the coming years. The most pressing are addressing the lack of growth in wages, managing and adapting to population growth, developing a sustainable, reliable and cost-effective energy sector, preserving and enhancing social cohesion and the system of social protection, and delivering an affordable housing system that meets the community’s needs. It is unclear, or at least contentious, what policies are required to restore wage growth and preserve social cohesion, but the policies required to address the other key challenges are reasonably clear.
Infrastructure falling behind
In adapting to population growth, the most important requirement is significant increases in public infrastructure investment. Indeed, Australia’s current predicament is such that increased investment is required not to cope with future population growth, but to adequately cater for the growth that has already taken place. Infrastructure investment would also help improve deficiencies in the housing market (although additional policies are also required to address this issue). Arguably, the price for Australia’s low level of public debt has been underinvestment in infrastructure. In recent years, there has been some progress in increasing infrastructure investment, particularly in Sydney and Melbourne. But much more needs to be done, and the state governments that have primary responsibility are hampered by the vertical fiscal imbalance that sees them unable to raise additional revenue to help fund the investment.
Urgent reform needs
in energy policy
On energy policy, the Turnbull government appeared to be making some progress toward achieving a coherent and stable energy policy, but ultimately could not secure the agreement of all party members. It therefore remains a challenge to implement a policy that reduces carbon emissions, increases reliability and reduces costs to consumers. Australia has much scope for improvements in responding to environmental challenges. Considering Australia’s climate, there is considerable potential for the development of sustainable policies on energy and the environment. Transport could be made greener, for instance, by financing improvements to inadequate public transport systems through an increase in excise duties on fuel.
Storm clouds on international front
In international relations, Australia is facing a rapidly deteriorating situation. Its biggest customer, China, is intervening in Australia’s domestic policymaking and becoming a much more aggressive player in the Indo-Pacific region. The Australian government is aware of the challenges, but may have to choose between political preferences and commercial interests. The choice will not be simple given the vulnerabilities of the Australian economy.
Perennial challenges persist
Other strategic challenges are more perennial. Closely related to the structural deficit has been managing the implications of an aging population. Existing policies have better prepared Australia for this demographic shift compared to most other developed countries. However, the inefficiencies inherent in the federal system of government have proven more problematic. Notable problems include the division between federal and state responsibilities, and a vertical fiscal imbalance. The need to secure agreement with the states on most major issues of shared concern has proven difficult for recent federal governments, particularly in the policy areas of water, health, education and transport infrastructure. The autonomy of states and their accountability should be strengthened, while the conditionality of grants from the federal budget should be reduced.
Solution to federal-
system flaws elusive
The federal Labor government was at least as proactive in addressing this issue as any past government but found progress difficult. “Cooperative federalism” was supposed to overcome entrenched, parochial interests, but has proven inadequate in facilitating reform on contentious issues. Policies designed, for example, to increase the efficiency of water use or ensure a fairer allocation of water rights have eluded successive governments, and the issue of water security remains a prominent and immediate issue. Australia’s failure to address the water issue reflects structural problems in the federal system.
Tax system remains complex, inefficient
The tax system also remains complex and inefficient. The 2010 Henry Tax Review produced 138 recommendations for improvements. However, the previous Labor government only adopted a few of these. Similarly, the Liberal-National coalition government has shown little inclination to radically reform the system. While there are many tax reforms required, among the more important, recommended by the OECD, are raising the goods and services tax rate, and introducing a land tax.
Reform needs across
policy spectrum
Other long-standing deficiencies that should be priorities for reform include diversification of media ownership; improving regulatory impact assessments by expanding their scope and application; increasing public consultation and transparency, and conducting consultation prior to policy decisions; and introducing a bill of human rights.
Indigenous policies
have failed
Finally, the situation of indigenous Australians continues to be the most serious social failure of the Australian political system. Over recent decades, numerous policy initiatives have attempted to address the appalling outcomes experienced by indigenous people, but there is little evidence that substantive progress has been made. Remedying this must remain a priority over the coming years.
OECD, Economic Survey Australia, December 2014, p. 11.

Kate Darian-Smith: Indigenes Australien – von der britischen Besiedlung bis zur Gegenwart, in: Bettina Biedermann, Heribert Dieter (eds.): Länderbericht Australien. Bonn: Bundeszentrale für politische Bildung 2012, S. 93-125.

Party Polarization

Partisanship impedes cross-party agreement
The dominance of two major political groups, the Labor party and the Liberal-National coalition, induces strong partisanship and extreme reluctance to reach cross-party agreements. Whichever major group is in power, however, typically needs to negotiate with the minor parties and independents to pass legislation in the upper house. Agreements are regularly reached, although as a result most governments feel only partially able to implement their legislative agenda. (Score: 5)
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