As Australia prepares for the 2025 federal election, our new Orange Book identifies the big reforms needed to set Australia on a more prosperous path.
Find out what policies should be on the agenda of whoever wins the election – whether Labor or Coalition, majority or minority – on our latest podcast, with Aruna Sathanapally, Tony Wood, and host Kate Griffiths.
Read the 2025 Orange Book.
Transcript
Kate Griffiths: It’s election season, and as Australians prepare to go to the polls, Grattan Institute has been preparing a new report on the policies that should be on the agenda of whoever wins the 2025 federal election. Labor or Coalition, majority or minority. Our new Orange Book draws title inspiration from the red and blue books that the public service prepares for incoming governments. Grattan’s Orange Book is all about the big ideas needed to set Australia on a more prosperous path, and the difficult but necessary reforms where we should stay the course over the next term of government and beyond. I’m Kate Griffiths, Deputy Director of Grattan’s Democracy Program, and I’m joined today by Grattan’s CEO, Aruna Sathanapally, and Director of Grattan’s Energy and Climate Change Program, Tony Wood. Welcome, Aruna. Welcome, Tony.
Aruna Sathanapally: Lovely to be here with you, Kate.
Tony Wood: Good morning, Kat. Thank you.
Kate Griffiths: Aruna, I’ll start with you. The 2025 election comes at a really interesting time, a time of great uncertainty globally. What do you make of the political moment for Australia?
Aruna Sathanapally: It’s kind of feverish, right? So, globally, we’re in a really unsettled period and we’re seeing long standing rules and frameworks that have guided most of the post war, post-colonial period come under question as the United States administration starts to behave in a radically different way. And then the extreme weather events that we expected to start to escalate with climate change are now happening.
Fires through Los Angeles and tropical cyclones moving south just this year. So, there are forces that are out of our control. I think this makes us look back at the past few years with a bit of a different perspective. Like they have been hard, and cost of living pressures have weighed down on many people in Australia. Coming out of COVID, we had a lot of savings and a lot of demand in the economy. But our supply of workers and our supply chains of materials couldn’t keep up. So as hard as it was policy makers, the Reserve Bank and also the government had to slow the economy down as a priority. But it has worked. This particular period of inflation is now behind us and we are seeing real wage growth start to catch up with so much of the sound and fury around us right now and some really big challenges to confront ahead. It’s easy to lose sight of the progress we’ve made through this period, but I would say that there’s no country I’d rather be right now than in Australia.
Kate Griffiths: We’re a small country, so we’re exposed to the global context, but at the same time, we have a highly skilled population from all over the world. We have strong institutions. We’ve invested over time in better quality public institutions, and we trust them. We’re not at the very top of the pack in terms of advanced economies, but we’re not far behind. And despite having some of the world’s longest life expectancies, we actually have a less stark aging problem than a lot of other countries. Our continent has remarkable natural assets, and we do have a more manageable budget position at the federal level than many of the countries we’d compare ourselves to. This election ahead is really about staying the path to shore up the fundamentals of a cohesive and prosperous society, which puts us in the best position to tackle the uncertainty ahead.
The Orange Book itself maps out a prosperity agenda including five big challenges that the next government will need to tackle. I wonder if you can take us briefly through, through those challenges.
Aruna Sathanapally: The first one is the transition to net zero. The biggest transformation that we’ll see in, in our lifetimes in terms of Australia’s economy and tremendous opportunity for this country. We need to further bend the curve on emissions and focus on that economic transformation.
We’ve got Tony to talk, talk a bit about that one. The second is tackling the housing crisis. Australia’s housing problems have been decades in the making, but making housing in this country more affordable is both a social and an economic imperative. And that means. boosting supply in terms of good housing in places where people want to live and supporting that mobility so that people can move to where they need to be and where they want to be. The third is deepening our talent pools. So, we need to improve our school systems. We need to continue to invest in those critical early childhood years. We need to continue, and we need to enhance skilled migration and get to world’s best practice in terms of how we deliver our human services like health. All of this underpins our prosperity in the future because Australia relies fundamentally on the skills and talents of its people. Fourth, we need to meet the needs of an aging population, and we are aging. We need to get better at tackling chronic disease in our health system, and we need to shore up our retirement systems and our aged care service systems. And finally, we need to tackle our structural budget position. We can maybe talk a little bit more about the sort of tax and the spending side of that.
Kate Griffiths: Yeah, absolutely. Let’s come, come back to that because I want to start with that first big challenge you laid out, and come to Tony now. Tony, transitioning to net zero is something you’ve been thinking and writing about for years. What does progress look like in the next three years, and what would the next government actually need to get right in order to bend the curve on Australia’s emissions?
Tony Wood: Kate it’s interesting to think about, from my perspective, if I solve this problem, then the measure of success is I won’t be thinking and writing about this in the next few years. I think the issue here is really to focus on the point that Aruna started to talk about, and that is that this is not a choice that we really have.
This choice is something that is being imposed because of our own behaviour over the last 200 years. And we now have to really address what we do to address that. And it’s not a question of whether we do it or we don’t. It is really a question of how we manage this transition. Do we do it well or we do it badly?
And that’s what we’re looking at. We should reflect as Aruna did also, that we’ve actually made very significant progress in this country. And sometimes we’re looking at, oh my God, it looks so hard ahead. But we reflect on where we’ve come, we have reduced our emissions from one of the largest emitting countries per capita in the world.
Back in 2005, we come from about 600 million tons a year to about 400. We’ve reduced them very significantly. We’ve rapidly grown our renewable energy sector, and that’s been a tremendous success. But now, like most things in life, as we start to get through our teenage years, things get harder. And that’s where I think the real challenge arises.
Because we think about how we’re going to do this. So, in the next three years, we must begin to see, as Aruna has said, a bending of the curve. That means in all the sectors of the economy, we need to see emissions beginning to reduce. They won’t all reduce at the same time, at the same pace, but they all must begin to do so.
Otherwise, we don’t get where we need to go. So, this means we need to set, in our view, a new target for 2035. In our view, that target should be a range of 65 to 75 percent below 2005 levels by 2035. The reason we make it a range of the sort we’ve said, firstly, it is consistent with the science of climate change, but it also allows some flexibility because there’s lots of things we don’t know in the period ahead.
And therefore, we need to be able to adjust and having some flexibility also improve the predictability that investors have against that policy.
The second thing we need to do is really think about that opportunity future that Aruna referred to.
There are very few countries that have our advantages. They will not be landed to us on a plate. The opportunity really results from our resources. And in particular, that’s why we believe that and recommend that the government takes what’s called the Future made in Australia policy and really coordinates that across a whole range of areas to become a real industry policy, the sort of industries that will be important for Australia’s national interest in our strategic interests for the decades ahead. And that means not trying to make solar panels in this country because others will do that better but doing the things that build upon our comparative advantage and our competitive advantage.
Now the second part of the equation, Kate, is that the energy system is fundamentally linked to what we do about climate change. Up until now, energy has been responsible for electricity, about 35 percent of our emissions. Energy overall, 75 percent of our emissions. And we’ve made good progress, as I said, on electricity, and also on the way we use land.
Both of those have done most of the heavy lifting to date. On the energy system, we have fallen behind. We are not building the transmission and the generation, renewable generation that we need to meet the sort of objectives that we have. And at the same time, our coal fired power stations are getting older, and like most of us, as we get older, we start to break down a lot more.
And so, as we’re seeing that happen, we’ve got this disconnect. And people start to, not surprisingly, be worried about disconnect. And if you’re a minister, you’re worried about that disconnect. So, we do need to accelerate really seriously the build-up, build out of that transmission.
We also have to think about the nature of our market. Is it still fit for the purpose that was designed 25 years ago? It did a great job for a while, but the nature of the supply of energy is changing and the market changes settings have to be brought up to date.
And finally, we do need to set out, really sort out something which we call gas policy in this country. We haven’t decided, really, whether gas is our friend or our foe. And the answer is, both. So, for a while yet, we are going to be, need gas. And the challenge for, particularly those of us who live in the southeast, is that we are running out of gas. That problem has to be solved urgently. Success, in my view, over the next three years, will mean, by the end of that three years, as a result of a relatively small number of very important policies, we can see real momentum building towards net zero by the end of that period across the economy.
Kate Griffiths: These are really big, hard things you’re talking about, Tony. This is a whole of economy transformation and something that I know you’ve likened to an industrial revolution with a deadline. Is it, is it all hard work? Are there any quick wins here?
Tony Wood: Where we are today, it’s harder to see the quick wins from where it was maybe five or 10 years ago. There are things we know we can do, which don’t require enormous costs and investment that will make a difference. They’re not going to change things overnight. We have a certain momentum built up and that’s where we are.
So, what we don’t want to do is for example, just splash cash around as we done to some extent, if we’re going to support consumers, we can do two things. Firstly, to help reduce the cost of energy, which is arguably one of the issues people are concerned about in this election, we need to think about rather than just giving people a cash rebate across the entire population, we should target that sort of support and link it to investing in things that would improve the way people use energy in their homes without making them all into energy nerds like me, basically to help them to for example, by having batteries at the home level, help them to electrify.
As we know, electrification is by far the most cost-effective thing you can do in the home. And also, I almost hesitate to bring it up, the idea of the old pink batts saga, but many of our homes do not have adequate insulation. So, they’re the things that would not only move us towards lower emissions and towards this transition.
But they would also improve the affordability and therefore this cost-of-living question that we have.
Kate Griffiths: Aruna, if I can bring you in on a couple of the other challenges you outlined now, in particular adapting to the needs of an ageing population and fixing the structural budget deficit. These two challenges obviously go hand in hand and have been brewing for a long time. What steps could the next government take to set Australia on a better trajectory?
Aruna Sathanapally: I’ll start with our, our health system. Now, Australians are quite lucky. We’ve got, we’ve got a good health system by global standards, but it’s a health system that’s really constructed around uh, what we call episodic care. You go to the doctor, you see the doctor, then you go home. Uh, and, and that’s all you need. It’s just one off.
The real challenge for our system is that as, as we get older and as the nature of you know, the health issues we face changes, the easy ones get solved, the harder ones remain. Chronic disease is really the big system challenge. And that’s something that means that you need regular care, and you need to be supported to take care of your own health so that you don’t end up in hospital again and again.
This is where Australia really needs to adopt more of a prevention mindset and agenda rather than reacting after the fact with a, you know, ultimately a really high-cost way of getting to better health outcomes and not really the best way of getting to health outcomes. So this means we need to think seriously about changing how we fund GP clinics to support management of people’s health conditions and a greater focus on how we can really boost that hospital efficiency to meet a growing demand for care that is coming at us no matter what we do, because as we live for longer, we will need more healthcare. And as health technology advances that healthcare is going to become more and more expensive.
Coming then to our retirement system, we have real opportunities to improve it. We need to simplify it as, as the super system moves into the retirement phase. It’s too complicated and people aren’t actually getting to spending their money and we need to support people in the retirement phase of life to actually be able to manage some really tricky financial problems but at the same time we’ve over egged our superannuation tax breaks. They have more than done the job of supporting Australians to save enough for retirement. They’ve gone too far and that’s affecting the fairness in our taxation system and really creating a leakiness or holes in our income tax, which is making it harder for us to fund the services we need.
But there are a group of people who are vulnerable in retirement, and these are retirees who don’t own their own home and find themselves renting in retirement. And so, we really need to strengthen our protections for that group of people, so they don’t retire in poverty.
The next thing I’d come to is the NDIS. The NDIS provides life changing support to many disabled Australians, but we need to reform it to put it on a sustainable footing, which means looking at the way in which the scheme is designed, moving beyond just a sole focus on individualised support, and building up those broad based foundational supports and also looking and clarifying eligibility for the scheme and for the different types of supports in the scheme.
Now here, the, the direction of travel has in part been set. The real trick is implementing it. And that’s what the next government will, will need to do. Finally, we have to look at our tax system. Grattan has said this for a long time. Australia is a country with high service expectations, but a relatively low tax burden.
It might not feel like it, but in comparative terms we have champagne tastes sort of on a beer budget. Ultimately, we need a tax system that taxes well. So, tax should be both equitable and it should be efficient. There are opportunities to make our tax system more equitable to shift the reliance from income taxes to taxes on wealth and also to be, to be more efficient.
And here in particular the federal government should support more efficient taxes, not just at the federal level, but also at the state level.
Kate Griffiths: So finally, a question for you both. Are there any promises you’d particularly like to see in this election campaign? Or promises you don’t want to see? Let’s start with Tony.
Tony Wood: Well, Kate, what I really don’t want to see is either side of politics promising they’re going to reduce electricity prices by a certain amount by a certain date. They keep doing it, and honestly, it treats voters like mugs. It never happens, and if it does, the government usually didn’t cause it.
There are so many things that contribute to energy prices, some of which are under the influence of governments, but things like the weather, things like technology costs and things like the Ukraine war are not so just stop pretending that we can do that.
The second promise we need to avoid is false promises.
And to some extent, I put the nuclear question into that bucket because nuclear technology is absolutely fine in many ways, many countries in the world. But in Australia, it’s not part of our plan A. To move to where we’d have to be would expose us to enormous risks, costs, delays probably higher prices, and also more emissions.
There are just too many risks associated with that. Certainly, by all means, think about it for the possible future. But right now, it’s, it is not part of our plan A, and it’s probably even not even part of plan B. So, let’s not have these false promises, because whoever’s in government will not be worried about what they have to do about nuclear now.
They’ll be worried about all the other things that we’ve been talking about to get this thing really on track.
And that comes back to what I really do want to see. The one I’d love to see but won’t, is let’s promise to play together. When the current government was elected, they talked about maybe this is the end of the climate war.
No. What it did was set off another round of the climate war. I’d wish that would change, but I don’t think it’s going to. What we can, however, hope to see, I think, is that we do see some clarity about where we’re going with these policies I mentioned. There’s not that many of them, but they are really significant.
The government really needs to think about how they get this, the message across to the Australian people that what we’re doing, we know where we’re going, we know what we have to do, but there are also things we don’t know. We can’t promise you the future, but you do know that we’re heading in the right direction.
And as things change, we will adapt to those things, and we’ll bring the Australian people with us so that we can have a low emissions future that remains affordable and remains reliable because that’s what I think Australians will follow.
Kate Griffiths: Aruna.
Aruna Sathanapally: Gosh, that’s, that’s a wonderful wish list. I will start with what I don’t want to see. I don’t want to see big commitments on spending that aren’t properly thought through. And here I’m really going to point the finger at infrastructure and defence. There’s lots of small commitments of spending that might not necessarily be great ideas, but the things that really hurt in terms of spending is, is those big projects that we commit to before we’ve thought them through.
And before we’ve worked out whether this project actually delivers the thing we want and whether it’s the best way to deliver what we want. But once you’re in train, then you’re, you’re on the train and it’s very hard to get off. The world is a dangerous and fractured place but actually drawing the line between the defence spending that you’re promising and how that is going to make Australians safer is the critical piece. And so, we can throw money at all sorts of things that aren’t actually going to make us safer. So, thinking in a really disciplined fashion about where we put our defence efforts and what, what role spending plays in that. That’s definitely, you know, I want to guard against having an election with a whole lot of big infrastructure and spending commitments without rigor.
At the same time, I don’t want promises around swinging cuts that governments aren’t precise about their plans to deliver. So, you know, big, big cuts of, of workforce without actually telling the Australian people which department and which program you’re presuming that that saving is going to come from. The tough message is there are no easy savings. If there were, governments would have made those savings already to spend on other things.
There are savings available through better designed eligibility for services and better discipline on how we spend for brig projects. But the idea that anyone can come in and just suddenly find 10, 000 people who weren’t doing anything is an utterly false promise.
In terms of what I hope for I think right now there are many people in this country who will be looking at what’s happening in the US and thinking about what kind of country we want to live in here. And that isn’t a divided one. It’s one where we, we pull together and we, we crack on solving our challenges rather than yell at each other about. you know, why someone else hasn’t solved those challenges or is the cause of them. I’m hopeful that actually we, we set ourselves apart in this election as, as a country that has a track record of doing things differently. And that, that we see a more sort of sensible election campaign and particularly a tone and calibre of debate that’s a bit more Australian.
Kate Griffiths: That’s all we have time for today. We really appreciate you sharing your expertise with us, Aruna and Tony. Everything we’ve discussed today and much, much more is published in our Orange Book, which you can read on our website at grattan.edu.au. And many of the challenges touched on today will be explored in more depth in upcoming podcasts too. You can subscribe to our podcast and newsletter on our website or follow us on social media at Grattan Institute. Our expert analysis is freely available thanks to donations of listeners like you. Please consider making a regular or one-off donation at grattan.edu.au/donate. Thank you for joining me today.