Orange Book 2025: Australia’s Big 5 challenges

As Australians prepare to go to the polls, Grattan Institute has been preparing a new book 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 – drawing title inspiration from the Red and Blue Books that the public service prepares for incoming governments – charts a path to improved living standards for all Australians, now and in the future.

Fortunately, Australia is not starting from scratch – progress is being made on several fronts, but the next federal government will need to stay the course on many necessary but difficult reforms, and tackle others that have been left in the too-hard basket for too long.

The 2025 election comes at a time of great uncertainty globally. And for many Australians, recent years have been hard.

Australians emerged from pandemic-era disruptions to find themselves in a cost-of-living crisis. With rising protectionist sentiment threatening global trade, the international rules-based order under siege, and the impacts of climate change showing themselves, is it really any surprise that fewer of us believe Australia is a land of opportunity, where hard work brings a better life?

In this environment, it is easy to lose sight of the progress Australia has made. But we have made progress. Australia has navigated the crises of recent years while avoiding mass job losses and business bankruptcies. Australians are collectively healthier and wealthier than ever. And we are steadily reducing our carbon emissions.

With inflation having fallen, it is long-standing challenges that await, and we are better positioned than most countries to tackle them.

To set Australia on a more prosperous path, the next government will need to tackle the five big challenges we face:

• Transitioning to net zero: we need to further bend the curve on carbon emissions, and focus on the economic transformation that accompanies decarbonisation.
• Tackling the housing crisis: we need to relax planning constraints, boost supply, and support mobility.
• Deepening talent pools: we need to improve our school systems, early childhood education, skilled migration, and delivery of human services.
• Meeting the needs of an ageing population: we need to get better at tackling chronic disease and shore up sustainable retirement and aged-care systems.
• Fixing the structural budget problem: we need to introduce bold tax reforms, implement sensible savings, make hospitals more efficient, and rein in NDIS costs to make the scheme sustainable.

None of these challenges is new. And in each case, Australia has already made a start. But the clock is ticking.

Productivity growth is the key to raising our living standards in the long term. While the federal government doesn’t hold all the levers, it can strengthen the foundations: a competitive economy, a well-functioning labour market, the conditions for people to flourish (housing, health, education, and social cohesion), and the right infrastructure, tax, and regulatory settings.

Our Orange Book puts forward evidence-based policy ideas in all of these areas and more.

The transition to net zero will be easier with a predictable environment for investors and consumers. The next federal government should maintain the 2030 target, and set a 2035 target for emissions reduction of 65 per cent to 75 per cent below 2005 levels. Electricity and gas market reforms, and comprehensive industry policy, will also be needed for a successful transition.

Making housing more affordable is a social and economic imperative. There are substantial economic and budgetary benefits in halving the capital gains tax discount and curbing negative gearing, but boosting supply is the real game-changer for housing affordability.

While most of the levers sit with state governments, the federal government can sharpen states’ incentives to boost supply, fund states to swap stamp duty for land taxes, and triple the Housing Australia Future Fund.

In health, chronic disease is the big system challenge. Australia must adopt a prevention agenda, alongside changes in how GP clinics are funded to support chronic disease management, and a greater focus on hospital efficiency, to help meet growing demand for care.

In education, we must lift our game to ensure the next generation of students gains the essential skills to thrive. Australia needs to set more ambitious targets for student learning, and provide schools and teachers with the robust guidance, curriculum materials, and professional development they need.

The NDIS provides life-changing support to many disabled Australians, but reforms to build up foundational supports and clarify eligibility for individualised support need to be implemented well to make the scheme sustainable.

There are also opportunities for the next government to improve our retirement incomes system by simplifying the system for retirees, curbing superannuation tax breaks that cost far too much, and strengthening the social safety net to protect vulnerable retirees.

Some of our recommendations are major reforms, such as reducing income tax breaks, or broadening and raising the GST. Others are relatively easier, including staying the course on existing policies such as the Safeguard Mechanism and the New Vehicle Efficiency Standard to support the transition to net zero.

Some reforms would cost money, such as raising JobSeeker to a liveable level. Some would save money, such as counting more of the family home in the age pension asset test. Others would have very little budgetary impact but would improve confidence in our policy-making institutions, including reforms to reduce the influence of vested interests.

Governments have limited fiscal, workforce, and capability bandwidth, and that needs to be factored into the extent and timing of reforms. No government could implement all these reforms in a single term.

But if governments were to tackle a reasonable number of these reforms over the next decade, we would be well on our way to a more prosperous Australia.