Key Challenges

Major strategic
challenges loom
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 is at least a matter of some controversy, what policies may be required to restore wage growth and preserve social cohesion; however, the policies required to address the other key challenges are reasonably clear.
Critical need for infrastructure investment; states lack fiscal powers to fund investment
The most important requirement with regard to adapting to population growth is significant increases in public infrastructure investment. Indeed, Australia’s current predicament is such that increased investment is required not only to cope with future population growth, but even to cater adequately for the growth that has already taken place. Infrastructure investment would also help improve deficiencies in the housing market (although additional policies would also be 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 raising infrastructure investment levels, particularly in Sydney and Melbourne. But much more needs to be done, and the state governments that bear primary responsibility for this task are hampered by the vertical fiscal imbalance that renders them unable to raise additional revenue to help fund the investment.
Energy policy a work in progress; sustainable models already in place
With regard to energy policy, the Turnbull government appeared to be making some progress toward achieving a coherent and stable energy policy, but ultimately was unable to secure the agreement of all party members. The challenge for the Morrison government is thus to implement a policy that reduces carbon emissions, increases reliability and reduces costs to consumers. Australia has substantial scope for improvement in responding to environmental challenges. Considering Australia’s climate, there is considerable potential for the development of sustainable energy and the environmental policies. And indeed, some promising initiatives are already in place. The future of energy policy has begun in the Northern Territory and Western Australia. The Sun Cable project is a solar farm with 15,000 hectares of solar collectors and batteries for storage. Most of the electricity generated there will be exported to Singapore via a 3,800 kilometer cable, supplying enough energy to cover 20% of the city-state’s electricity needs. Even more spectacular is a project in Western Australia, the Asian Renewable Energy Hub. This project consortium, which includes wind-turbine manufacturer Vestas and Macquarie Bank as financiers, is planning to export hydrogen. A capacity of 15 gigawatts is planned for an area of 6,500 square meters. The hydrogen produced here will be sold domestically and exported to South Korea and Japan.
Climate policy a
failure to date
Closely related to energy policy is the challenge of addressing the broader issue of climate change, both in terms of mitigation and adaptation. This has been an area of extreme policy failure on both fronts. The federal government states that it is committed to reducing carbon emissions by 2030 by anywhere from 26% to 28% compared to 2005 levels, but has offered no credible policies to achieve that target. Notably, the current federal government is firmly opposed to pricing carbon emissions. Indeed, what progress has occurred has largely been due to efforts of state governments, as well as non-government actors.
Dependence on China seen as burden
In international relations, Australia is facing a delicate situation. While the country benefited from the high demand for raw materials in the years of the Chinese economic boom, the tide has since turned. The broad dependence on China is perceived as a burden rather than a blessing.
Federal-state relations need rebalancing
Other strategic challenges are more perennial. Closely related to the structural deficit has been the need to manage the implications of an aging population. Existing policies have prepared Australia better for this demographic shift than is true of 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, as well as 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. To remedy this situation, states should be given greater autonomy and accountability, and the degree of conditionality associated with grants from the federal budget should be reduced.
Tax system complex
and 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 reform the system radically. While numerous tax reforms are required, an increase in the goods and services tax rate and the introduction of a land tax are among the more important as recommended by the OECD.
Broad range of outstanding reform priorities
Other long-standing deficiencies that should be priorities for reform include: diversifying 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 policy remains a serious social failure
Finally, the situation of indigenous Australians continues to be the most serious social failure of the Australian political system. Over the course of 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 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. However, whichever major group is in power 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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