Charting the path to a more prosperous Australia

Australia is navigating a period of significant global instability and economic transition. While the nation achieved a ‘soft landing’ following the pandemic and has successfully reduced inflation, long-term structural challenges persist. These include an ageing population, stagnant productivity growth, and a housing system that fails to meet basic needs. This report provides a policy blueprint for the incoming federal government to improve living standards through productivity gains, budget repair, and institutional reform.

Economic growth and budgets

Australia is a prosperous nation, yet real income growth has flatlined since the mid-2010s. The labour market remains a strength, with working-age employment at a record high of nearly 77 per cent, compared to an OECD average of 70 per cent. However, labour productivity growth has slowed significantly, weighing down real incomes. The federal budget faces a structural problem, with payments as a share of GDP projected to average 26.7 per cent over the next decade, while receipts rely heavily on bracket creep.

To address the structural deficit, the report recommends major tax reforms, including halving the Capital Gains Tax (CGT) discount to 25 per cent and curbing negative gearing. These measures could raise more than $11 billion annually. The report also calls for the abolition of the ‘Family Tax Benefit part B’ for couples and the winding back of the ‘WA GST deal’, which currently costs the federal budget over $6 billion a year. Improving productivity requires better allocation of talent, specifically by addressing barriers to women’s workforce participation through more affordable and accessible childcare.

The net-zero economy

Australia has committed to net-zero greenhouse-gas emissions by 2050. To remain on track, the 2035 emissions target should be set between 65 per cent and 75 per cent below 2005 levels. While the electricity sector has made progress, 68 per cent of total national emissions remain unconstrained. The government should build a comprehensive industry policy on the ‘Future Made in Australia’ framework, focusing on areas of comparative advantage like green iron and critical minerals. Winding back fuel tax credits would save the budget $4 billion a year and remove an implicit subsidy on fossil fuels.

Energy

The energy system is being profoundly disrupted by the transition from fossil fuels. All coal generators in the National Electricity Market (NEM) could be retired by 2038. With 44 per cent of households now possessing rooftop solar, system planning must evolve. The role of the Integrated System Plan (ISP) should be extended to provide a single optimal development path to 2050. Additionally, the government must address potential gas shortfalls in southern states beyond 2028 and revise the ‘Future Gas Strategy’ to coordinate a move away from gas dependence.

Housing

Australia’s housing shortage has driven median prices to more than eight times median incomes, up from four times in the early 2000s. Home-ownership rates among the poorest 40 per cent of 25-34 year-olds have plummeted from 52 per cent to 31 per cent. Social housing as a share of total stock has dropped from 6 per cent in 1991 to 4 per cent today. The report suggests tripling the Housing Australia Future Fund (HAFF) to $30 billion to build an additional 37,500 units and incentivising states to replace stamp duties with broad-based land taxes.

Health

Chronic disease accounts for 85 per cent of Australia’s total disease burden. Australia spends significantly less on prevention than peer countries like Canada and the UK. Proposed reforms include a tax on sugary drinks, mandatory salt limits for manufactured foods, and a shift in general practice funding toward flexible patient budgets. To improve fairness, the government should phase in universal dental coverage over 10 years and reduce extreme specialist fees by publishing fee data and clawing back subsidies from high-charging providers.

School education

One in three Australian students failed to meet proficiency benchmarks in the 2024 NAPLAN tests. The maths achievement gap between students from the highest and lowest socio-economic backgrounds is nearly five years. The report calls for a national target of 90 per cent proficiency in reading and numeracy. It recommends a mandatory Year 1 Phonics Screening Check with a Year 2 resit for struggling students and the establishment of an independent body to quality-assure curriculum materials.

The NDIS

The NDIS cost $43.9 billion in 2023-24, making it one of the fastest-growing pressures on the federal budget. Approximately 11 per cent of all Australian six-year-olds are on the scheme. To make the NDIS sustainable, growth must be moderated to 8 per cent per year. This requires investing in ‘foundational supports’ outside the scheme and tightening eligibility criteria to focus on those with the highest level of need.

Retirement incomes

Superannuation tax concessions cost $52 billion a year, with two-thirds of benefits flowing to the wealthiest 20 per cent of households. The report proposes lowering the threshold for higher tax on super earnings to $2 million and including more of the value of the family home (above a $750,000 threshold) in the Age Pension assets test to improve fairness and raise approximately $4 billion annually.

Integrity

Trust in government is low, with 70 per cent of Australians believing the government is run for a few big interests. The report recommends lowering the political donation disclosure threshold to $5,000 and requiring disclosure within seven days during elections. It also calls for increased transparency in lobbying by expanding the Register of Lobbyists and publishing ministerial diaries to include all official meetings.