Launching the 2025 Orange Book

In this special event, our experts discussed the big new ideas Australia needs, and the necessary but difficult reforms where we should stay the course. And they answered audience questions on what should be on the agenda of the next government – whether Labor or Coalition, majority or minority.

Hosted by Fran Kelly from the ABC, the panel featured Grattan policy experts including CEO Aruna Sathanapally, and Grattan Program Directors Tony Wood (Energy and Climate Change), Brendan Coates (Housing and Economic Security), and Sam Bennett (Disability).

Read the Orange Book

Transcript

Aruna Sathanapally: Hello, everyone. Welcome.

Thanks for joining us. We’re here today and massive thanks to the State Library of New South Wales for hosting us at this lovely space. We’re here today to launch Grattan Institute’s 2025 Orange Book. it is my real delight to be able to launch the Orange Book here in Sydney. It’s the first time we’ve done it.

Like the Red Book for a Labor government, or the Blue Book, for a Coalition government, Grattan’s Orange Book takes its name from the incoming government briefs that a government receives when it wins power. Our Orange Book, unlike the Red Book and Blue Book, is publicly available. We release it before the election.

And we take this opportunity to set out from Grattan’s 16 years of work, what are the evidence backed policies that we need to see, whoever wins the election, majority or minority. I want to start by acknowledging that we’re meeting here on Gadigal country, and pay my respects to elders past, present, and emerging.

I want to extend those respects to any Aboriginal or Torres Strait Islander peoples who are joining us here today. I’m going to hand over, the mic now to our host, for the discussion, Fran Kelly of the ABC. so, thanks Fran. Thanks. Thanks for doing it.

Fran Kelly: Thanks very much, Aruna. Am I on here? One, two.

Yeah. And A couple of things. I’m thrilled to be here for the launch of the Orange Book and I’m thrilled to be here with Grattan because as a journalist who’s been covering politics and policy for 30 years, I can’t tell you how we love the Grattan Institute and all these people on stage and the evidence based research they do.

It’s so critical for our work. I’m also wanting to say how wonderful it is to have so many people come out in their lunchtime to talk and listen about public policy. That is, gives me great heart because sometimes you think, wow. Some of these polls are really quite disheartening, what people are, wanting and needing and thinking about, but I, want to say thank you.

Thank you all of you for being, for doing the work you do. I’m assuming some of you, and I know some of you work in the policy space, but for being interested in it, it’s critical for all of us. Let me introduce the panel. Aruna Sathanapally is the CEO and Director of Grattan’s Economic Prosperity and Democracy Program.

Tony Wood is a long-time contact and friend and Director of Grattan’s Energy and Climate Change Program and one of the best in the business in my view. Brendan Coates is Director of Grattan’s Housing and Economic Security Program. So, he’s got it all. And Sam Bennett is Director of Grattan’s Disability Program, which is a new area for, Grattan to be developing, policy, evidence-based policy in.

So, I think it’s just a terrific spread of issues we’ve got here today. I too want to acknowledge the traditional owners of the land we’re gathered on here today, the Gadigal people of the Eora Nation in Sydney. It always was and always will be Aboriginal land. Aruna, you opened it up, so let me start there.

As you say, when we have a change of government, the public servants hand an incoming Labor government a red book, or an incoming Coalition government a blue book. So, here’s Grattan’s orange book. Do you think that might be needed if we end up with a minority government? An orange book. And it might play a part in their negotiations, you never know.

Aruna Sathanapally: Look, absolutely. I know that there are different views as to what a minority government means for Australia. There are some who see a minority government as, disruptive, as antithetical to good public policy. That’s not a view that we share. I think it depends on the nature of your crossbench. It depends on the nature of the negotiations.

What we have seen is a real appetite amongst many members of Australia’s crossbench for real policy. One of the things that independents don’t have access to is So they’re not in government, they don’t have access to the public service. and because they’re not an opposition with a major party infrastructure behind them, they don’t have access to that party infrastructure.

That is why independent sources of evidence based analysis are so important in the context of a minority government, because it puts that fact base and that evidence base, in the hands of, people like the crossbench but also in the hands of the Australian public when they’re watching these negotiations play out.

Fran Kelly: As I say, depending on the result, it could come down to fierce negotiation. We’ve perhaps many of us here remember 2010. And Rob Oakeshott and Tony Windsor and all those talks that went for so many days. I hope you’ve got all their numbers on speed dial, or they’ve got yours. Aruna, these are turbulent times.

We, we have, we’re watching wars overseas, creating uncertainty for supply chains here. That’s having impact on inflation. The second Trump presidency has upended, it’s a word I’m using a lot lately, upended global economic order in less than 60 days. In the midst of these uncertain times, The Grattan Institute’s Orange Book is a blueprint for long term reform.

Is it reasonable, really, to expect our governments to make long term policy decisions and long-term thinking and wind back cost of living help in such an unstable world?

Aruna Sathanapally: I think it’s both reasonable and it’s necessary. in good times, these are the sorts of policy reforms that we would say are necessary to ensure our future prosperity.

In difficult times, these are the necessary policy reforms to ensure that we remain resilient to shocks. So, the fundamentals remain what they are. If we don’t have a resilient economy and if we don’t have strong public policy institutions, we will be less equipped to handle whatever the global turbulent times throw at us.

It absolutely changes the policy context, it changes the space in the public conversation for good long-term thinking, but the answers remain the right answers, which is that a society that has a resilient, adaptable economy, a decent safety net, good health, education and housing. Is a society that can ensure a high quality of life and prosperity, not just for current generations, but future generations.

Fran Kelly: Let’s talk about that word prosperity, because as you read through the orange book, it’s there a lot, just hearing you talk now. The report claims to chart the path to a more prosperous Australia. But in times like this, is prosperity really achievable? should the focus be more on resilience than prosperity?

And how do the two interact? Does one necessarily lead to the other? And should we be always pressing that prosperity button?

Aruna Sathanapally: Look, it’s a good challenge. I think that one of the things that’s quite tempting when there’s an environment of crisis is to think that we have to surge to the crisis, and we have to press pause on everything else.

And it’s a real danger for governments. but the fact of the matter is that we are a big country. We can walk and chew gum. we might, there might be particularly profound challenges on our defence forces in terms of upending their strategic planning. but that doesn’t mean that we press pause on health reform.

That doesn’t mean that we stop trying to get the best educational practices in our schools. And even though it might be the case that the Prime Minister has divided attentions, that doesn’t, we don’t want to see the rest of government grind to a halt, and we certainly don’t want to see the Australian population led to believe that we can’t have policy progress because the global outlook is troubling, because we can’t.

Fran Kelly: And I’m just going to interrupt at this moment to remind you all that there will be questions at the end, so if you’ve got a great question. Hang on to it. Tony, talking of pressing pause, the net zero transition is the first challenge dealt with in the Orange Book. You and I have been talking about this for many decades, I think it feels like.

There’s some good news. Australia has made good progress on emissions reduction; you tell us in the blueprint. But we keep hearing we’re falling behind at the first hurdle, that the 43 percent cut to 2005 emissions by 2030. Are we going to make that?

Tony Wood: If I knew the answer to that I would have invested in this future, and I wouldn’t be here today.

but I think the reality is that we are going, in terms of that target, reasonably well. Partly because at the beginning of this decade we were doing quite well indeed, and we slowed down a bit more recently. So, if we could pick that up and maintain it, that looks achievable. One of the challenges of course is that the government made a very strong commitment.

So, we’re trying to do that by achieving 82 percent of our energy coming, electricity coming from renewable energy. And that one looks much more challenging because for many reasons we ran into problems building the transmission grid to support the renewables themselves. So, I think that that’s looking better.

Electricity has reduced emissions dramatically since, the turn of the century. our emissions overall are well down to what they were then, but it’s slowed down, in some areas and we can regain that. But of course, the problem is, that during COVID, transmission, transport emissions went down a bit.

They’ve come up again. A lot of industrial emissions haven’t come down at all. And so, the other sectors of the economy, Fran, are the ones that we really have to get on top of because we don’t get to reducing emissions unless all the sectors of the economy do that. And so, what we have to see in this next government is the capacity to look across those sectors and do this.

And with absolute respect to my fellow colleagues here, my story on this is. There is nothing more important for the next government than addressing these issues. I’m not saying it’s the most important, there’s nothing more important, because what this government does really set up, really does set up Australia, not just to deal with climate change, but for the benefits that we can get as a country.

Because in many ways, geosecurity is such a big deal, and it favours renewable energy. It really does. And so, I think we’ve got some tremendous opportunities here and we need to make sure we don’t get ourselves caught up in, in, being depressed because we only got to 75 percent renewable by 2030.

Fran Kelly: The fact is that this government, the Labor government has trumpeted its renewable energy target, but it’s gone cold it seems to me on telling us what our 2035 target will be.

And I wonder whether you see this as this makes you nervous. Are this just domestic political wobbles before an election? Or is it more about that global uncertainty I mentioned earlier, to emissions reductions in the light of the US pulling out of the Paris Agreement, terminating big chunks of Joe Biden’s new Green Deal?

Have we gone cold on the ambition in the light of the Donald Trump election and Peter Dutton’s nuclear play?

Tony Wood: Look, I think the, I’m still more than accepting of the current opposition’s position on net zero by 2050. the idea that

Fran Kelly: You mean to get there by nuclear?

Tony Wood: Yeah, I didn’t quite the issue about nuclear is not a solution for today.

If this is really, if this election is partly about the cost of living, something that’s going to affect our energy supply in 30- or 40-yearsyears’ time is not going to have any impact on the cost of living, I would suggest, with due respect to the opposition. The real question, if there was a change of government, and the opposition was to be elected, what would they do on day one and two and three?

Almost nothing to do with nuclear. It’s all going to be exactly the same issues that the current government would have if they were re-elected. those issues to do with making sure we maintain a secure system. Making sure that we retain a reliable system. And making sure it stays affordable. And that’s the hierarchy in which most people when push comes to shove, think about this.

Have I got a reliable system first? If the reliability fails, the rest is stuff. Have I got an affordable system, second. And once those two are achieved, then I think about, have I got a clean system.

Fran Kelly: Okay, and I’ll just stay with Tony a little longer before I go to the others, but let’s talk about gas then, in that framework.

The Greens demand from the Australian Government, no new coal and gas. The coalition condemns Labor’s renewables only policy. The truth is something in the middle. Labor isn’t stopping gas exploration or gas fired power, but is gas a viable fuel in a low emissions future? What is its place? And for how long?

We’ve just seen a big announcement from the coalition today that it would green light and, a huge gas development project, off WA. Look, I

Tony Wood: Think one of the conundrums in this whole story, I think, Fran, has been that We really haven’t decided whether gas is our friend or our enemy. Exactly.

Fran Kelly: What is it?

Friend or enemy?

Tony Wood: It’s both! That’s why it’s tricky, right? Most of these debates are.

Fran Kelly: Politicians can’t say that, Tony. No.

Tony Wood: Sometimes they are. I’m amazed how they can hold two contrary positions in their brain at the same time. But the issue of gas is very intriguing because it has been our friend for many years.

Many decades, in fact. In fact, we’ve had gas in this country for more, almost 200 years. We used to make it from coal. Before we started making, producing it from, from, natural, what’s it called? Natural gas. That’s the best marketing term I’ve ever come with, anyone’s ever invented. It’s no more natural than coal.

We don’t call it natural coal. It’s natural gas, right? It sounds nice and warm. It’s beautiful stuff, right? And you will see right now lots of advertising going on because the gas industry is absolutely paranoid that what’s happening is an existential threat to their business. And it is. Coal is easy to address, gas is more difficult.

So, what we’re going to do is move away from using gas for heating our homes and all those sorts of things. the answer is simple, electrify. That’s not simple to do, the technology is simple. The issue of high temperature heat, making fertilisers and explosives, we do that from gas today. We can do that eventually with hydrogen if we have to.

The real role for gas is going to be to back up wind and solar. It’s not, the government is now more careful about not being all about renewables. It actually has a role for gas. The way I’ve described this is, some of you would be old enough to remember an actress who’s still around called Judi Dench.

I call this a Judi Dench role. That is, it’s a cameo role. What we need gas, it needs to come on the stage, perform well, and get off the stage quickly.

Fran Kelly: Okay, so just very briefly, do we need a whole lot more gas development? Do we need to be unlocking these gas deposits?

Tony Wood: Look, we have a problem, one problem we do have in Australia.

is that we’re running out of the gas where most, many of the people are, which is in the Southeast. And we don’t have the mechanism of getting that gas to them from where we have lots of gas filled in Queensland and the Northern Territory. So that’s one issue is, how do we get the gas to Victoria? And one answer is probably by ship.

And probably cheaper than building pipelines. I don’t have a problem at all having gas in the system, because I think if we had gas playing that backup role, it won’t be all that much gas. We don’t need more gas for our domestic consumption. The real issue is, are we going to continue to be a supplier of gas to other countries in the world that don’t have the same resources we do?

I think the answer is probably yes, but we need to be very careful that we don’t lock ourselves in depending on that, because those countries will also move away from using gas for what they use it today, and we need to be prepared for the transition away from that.

Fran Kelly: Yeah, and it’s you can’t do a transition to net zero if you’re exporting so much gas.

Let’s go down the line. Sam? Sam? The NDIS is a new key area of reform for Grattan. You suggest that the federal government needs to make it a priority in this election. Why? I thought Bill Shorten had resolved it. That’s a joke, by the way.

Sam Bennett: No, it’s a great question, Fran. And yeah, it’s the first time we’ve had a chapter on the NDIS in the Orange Book.

We think it’s a priority and needs to remain one. Because in 12 short years, this scheme has become an essential part of the social fabric here in Australia. But as people will be aware, it’s also one of the biggest pressures now on the federal budget. It was close to 44 billion, in the last financial year, projected to be 2. 1 percent of Australia’s gross domestic product by 2034. So, if we’re making that level of an investment in the EIS, we need to be pretty confident as a country, don’t we, that this is delivering. The results that disabled Australians and tax payers expect, and that it’s doing so from a sustainable platform, and at the moment, although the good news is it’s doing great things for many thousands of, disabled Australians, there are literally hundreds of thousands of people that are getting support from our NDIS that never had any support, from previous state and territory, systems, so it’s been life changing for some.

but it isn’t working for everybody. Only 12 percent actually of people that identify as having a disability in Australia get any support from the NDIS. Even those that do get into it, we know from experience now that some of those groups are not being served well by the current design. And it clearly isn’t on a sustainable trajectory at the moment, despite some, heralded green shoots in more recent time.

Fran Kelly: And it’s part of that sustainability, and Bill Shorten did just do a big, review and trying to tighten up to stop it from, the cost will keep, rising, but they won’t keep rising at the same rate. Eligibility. are there, you’re saying people are finding it hard to get a place within it, but are there those within it who shouldn’t have a place?

I haven’t got the exact statistic, but I heard the economist Chris Richardson say the other day that one in seven, I think he said, year six schoolboys are part of the NDIS.

Sam Bennett: Yeah, absolutely right. You’ve got 14.

Fran Kelly: Why? And that doesn’t seem.

Sam Bennett: Yeah.

Fran Kelly: Does that seem right to you? Yeah.

Sam Bennett: Yeah, look, this is the result of longstanding design issues that have just come into starker relief as the scheme, has grown.

This scheme was set up to be uncapped, demand driven, essentially open ended, as well. And we’ve seen many more people enter it, than were ever anticipated, particularly in the younger age categories. As you say, it’s, 14%, I think, of six-year-old Australian boys are on the NDIS now. That’s not a statistic that anyone ever anticipated more than double the amount of children in the scheme that the Productivity Commission thought would be the case.

Fran Kelly: Sam, what are they there for and should they be there? Or should there some, what’s the answer to this particular cohort, say?

Sam Bennett: Nobody’s doubting that these folks have needs.

This is clearly a huge amount of unmet need, and there’s been a gravitational pull, of people that have, children with developmental disabilities and autism to the NDIS, because it really is the only thing, there at the moment. There’s no other, options available, for them. So, the question isn’t whether they have needs, or whether they should be on, the NDIS.

It’s more about, what’s the best way to meet those needs?

Fran Kelly: And foundational supports that we hear about? Yeah,

Sam Bennett: I think that’s a big part of the solution, absolutely. The NDIS has become completely about individualised funding. That was never actually supposed to be the case. It was supposed to be a much more balanced range of ways that people can get support.

I would say that experience has shown over the last 12 years that giving a bucket of money to a family with a child with a developmental disability to navigate a market of providers that want to, force you to buy more of what they have, to offer and have incentives that continue to do that isn’t necessarily the best, model.

You’d be much better off with timely access to expert advice, in the places that, your child already lives, learns and plays.

Fran Kelly: So, is, this what we lost when the states agreed to sign on and, hand over those budgets? It’s the We don’t have the supports in the schools that kids need to identify or work with a kid who may have, be on the spectrum or have ADHD or, is that what we need to shift back to?

But and who pays for that? Because the states have already handed over that bucket of money, haven’t they?

Sam Bennett: Yes, it’s a great, happily, question. Look, there’s a lot of ire around states services having pulled back over time. The analysis we’ve done though show that the overall spending across governments, including states, is much higher now on disability than it was in the preceding era.

So really the problem is one of the targeting of the funding that’s available for disability, all being in this individualized funding system, not necessarily the most effective and efficient way of providing support to the kind of group that we’re talking about. So, building those services back up is the right idea.

People will know that the States and the Feds are currently locked in negotiations that they can’t get out of. States are all lacking. Eighteen months, I think, almost now that, since the commitment was made to fund these foundational supports. We don’t think that’s necessary, actually. This is one of the big arguments in the Orange Book from Grattan, is that the 58 billion, if you look at the last year of the forward estimates, that all governments have committed to the NDIS, which is already a pooled fund, Admittedly, not 50 50 now, given the extra, growth rate risk that the feds have held.

We think that’s enough. Actually, if you rebalance the way the scheme works, spend that money in a smarter way, in a better way, in a different way, then you can use that to establish a range of foundational supports. as well as deliver on the promise of the NDIS for those that need that individualised funding too.

Fran Kelly: Okay. Brendan, coming to you now, if, renewable energy is, there’s no greater priority for the government, as Tony says, I think a lot of Australians think housing is, should be the top priority in this election campaign, and it will be a huge issue. National Cabinet committed to build 1. 2 million homes over the next five years.

A report out yesterday suggested they’re going to be 400, 000 homes short. If the government can’t build houses more quickly, how can it make housing more affordable in Australia? Isn’t supply the key?

Brendan Coates: Thanks Fran. I think what Tony is saying is that, while all grant and programs are equal, perhaps some are more equal than others.

Fran Kelly: All right. That’s enough of the antler wrestling now. Okay.

Brendan Coates: No, the but on housing, look, it is a huge challenge. we’ve, housing in Australia is in a worse state now than it has been any time in recent decades. prices are now seven, eight in Sydney, 10 times annual incomes. And what’s happened particularly since the pandemic is rental affordability has now gotten so much worse compared to We were before the pandemic where instead of people worrying, can they afford to keep a, to buy a home, they’re now much more worried about being able to afford to keep a roof over their heads.

I think what’s promising is that we are recognising and coalescing the public conversation around supply, that we need to build more. I don’t think that was there five years ago, that we need more housing and that is the number one thing we need to do. It is very unfortunate that coalescing around that policy solution is happening at the same time as, that it’s never been harder.

To build housing in Australia because costs are up, particularly for medium density dwellings 20 30 40 percent because of the supply Chain issues. That’s right. And that’s partly, Ukraine. It’s partly global dislocations and you know There’s more of that potentially on the way It’s because the cost of labour has gone up because we’re in a full employment economy which is a great thing for many reasons, but does have the effect of making it harder to pull workers across

Fran Kelly: I keep hearing, I might come back to the training thing, but I keep hearing that it’s also about, local council regulations and the coalition’s got this big fund that they’re going to propose to help roll out the infrastructure that you need on a housing development to help back up developers.

I’ve been hearing this for 30 years. I remember Peter Costello saying you’re going to get the local councils and the state governments to free up land. Why isn’t it happening? Why hasn’t it happened by now? Why haven’t we managed to break through that regulatory sort of deadlock?

Brendan Coates: I think the politics of it are really hard.

So that is the key reform that we think is necessary, is we have made it hard to build more homes. So, costs of feasibility of development aside, we’ve made it hard to build homes where people most want to live. Which when you look at prices and rents are the inner and middle ring suburbs of our established areas of our established cities.

The reason it is difficult is because the planning system, the zones that regulate what can be built where and how high and how many, have made it hard to build or discouraged or not allowed building in those areas. The result is that Melbourne and Sydney are some of the least dense cities in the world for cities of that size at 5 million plus.

And it results in really expensive housing. So, we’re seeing reforms from the New South Wales government, from the Victorian government, because these are state issues. It’s not the federal government that really holds the pen here. to upzone activity centres in Melbourne, transport area development in Sydney to get more housing in those areas that are job rich, where there is amenity rich.

The question is how far have they actually gone? and what’s stopped them from going further so far, particularly in Sydney, is that a lot of local residents don’t necessarily want to see a lot more density where they are. those people are in those suburbs. I think of the example of my own home.

I live 7km from the city in Melbourne. within 400 metres of two train stations. there’s a single dwelling overlay on my street you literally can’t subdivide. Where I, live probably should be, or the surrounding areas, three, four storeys. But it’s something that can’t be done at the moment, and it leads to more expensive housing.

Fran Kelly: Yeah, and I’m not sure how we break through that resistance, that NIMBYism, because it’s not, unreasonable to think that, you don’t want your street suddenly crowded out with I’ve seen, most of them would be five, five stories, but not, some are suggesting 40 stories, which seems unbelievable.

That’s not an unreasonable human response. How do we break through that? what’s the language? What’s the sweetener? How do we persuade voters to come with us on that?

Brendan Coates: I think it’s a lot of Grattan’s sweet spot, which is to be really clear about the trade-offs. If you are going to say no to development in that area, and we don’t allow it across other suburbs that look like yours.

The net effect is, your kids aren’t going to be able to live near you, which means the grandkids can’t live near you, which means we don’t build the housing that Australia needs as the population grows, and we get wealthier. And I think we’re seeing that realisation, because when you look at things like the Transport Oriented Development Program in Sydney, it’s politically popular, a majority of people support it. The same with things like

Fran Kelly: This is building along the corridors, the transport corridors.

Brendan Coates: Yeah, so within, around particular designated train stations and other transport nodes. so, it is becoming more popular because as the New South Wales Productivity Commissioner said recently, Sydney risks end up being a city without grandchildren.

And that’s not a social outcome as well as an economic outcome that we want.

Fran Kelly: And just before I leave the thing of housing for now, you in the blueprint in this orange booklet which I recommend you all download and read. you suggest a number of immediate actions, including further increases in Commonwealth rent assistance.

Renters are, we know, doing it really hard. But the government’s already done that. Last year’s budget had a 10 percent increase, about 25 a fortnight. It costs a lot, 1. 9 billion over five years. An opinion is split, isn’t it, about whether just doing that then allows the landlords to put the rents up by the 10%?

Brendan Coates: So that’s a great question, Fran. We looked at those recent increases in our work, and when you look across areas of New South Wales with more rent assistance recipients, you do not see faster rents. and the international evidence backs that up.

Fran Kelly: So, it is helping people.

Brendan Coates: Yeah, almost all of it goes into renters pockets as opposed to going into the pockets of landlords.

And so, we’ve seen a 25 or 27 percent increase so far. We recommend you need an extra 50 percent increase for singles, 40 percent for couples. It is not cheap. It’s a couple of billion dollars, but there is no cheaper or easier or faster way of helping that cohort than fixing that gap in the income support system.

Fran Kelly: Okay. It’s not cheap. Aaron, is Australia’s budget position strong enough to weather all these gaps, all these challenges? We haven’t even talked about defence spending, but climate change, housing, aged care, universal childcare, and upskilling of the population, which we’ll talk about. All the things in your orange book, how do we afford it?

Where do you start to either find the savings for these policies that must be paid for or bring in more revenue? Is it the tax system? Is it the training system? Is it the health system?

Aruna Sathanapally: to your first question, can we afford all this? I think that was three questions. It was probably three questions.

Do you want the good news first or the bad news?

Fran Kelly: I’d like the good news for a change.

Aruna Sathanapally: Okay. So, the good news is that actually Australia comes into the period. that we’re facing from a position of strength. And I know that can be really hard to hear because the last few years have been really tough for many Australians.

They haven’t been universally tough for all Australians. There’s been some divides in terms of the experience. we are coming from a position of relative strength. There’s a couple of things I’d point to. one which Brendan mentioned is a full employment economy. We’ve come through a period of inflation, the first in a long time, and to give policy makers their credit, We have not dipped into a recession and we’ve managed to maintain a really healthy employment market and that matters not just because it matters to the individuals, but in the long term, people being in employment helps them up, sets them up for the long term.

It, reduces scarring, the effect of being out of the job market, it increases skills and experience, it boosts productivity. it’s a really good thing where we’re at the moment. We’ve come through a difficult period; we haven’t overcorrected into recession. We’re seeing the economy hit a tipping point.

The other strength we have is, by global terms, we’ve got relatively low net debt. our net debt’s stabilised at about 20 percent of GDP, which is about where it was before COVID. It rose during COVID, and we’ve paid a portion of it down. I’ll get to the bad news in a second because, we have some tough fiscal truths to lay down.

But it’s worth remembering that when things feel like they’re all a bit too hard.

Fran Kelly: If you read the front page of the Australian today, you would think that’s not the fact. Anyway, go on.

Aruna Sathanapally: We’ve just talked about, we’ve talked about two really thorny problems where it’s short-term pain or long-term pain, right?

And so if we, think about net zero, like fine, we can decide it’s all too hard and it’s all too expensive and we’re not going to give it a go now, but all we’re doing is postponing the pain and hoping that somebody else is going to solve the problem for us. But a world, and Tony and Alison and our climate team have said this most clearly, a world of high climate change is very, bad and very, expensive for Australia.

Okay, so what’s the bad news? So, the bad news is that we don’t Structurally, we don’t raise money for the things we spend, and the trends are not in our favour. We tax working people more heavily than we tax older Australians. There’s a very significant generational divide in how we tax in this country.

We rely on income, we don’t tend to rely on other sources of revenue we have as heavily, and we tax wealth really lightly. and because of the demographic trends we’re sitting on, our spending is going up because of aging and that is, that is the biggest call on our health system, on aged care, and yet that is the very cohort that we tax very lightly.

And so, this jaw is, growing between, sources of revenue that are not growing as fast as economic growth and our sources and our, the calls and our spending, which are growing faster. The good thing is, and I’ll close with some good news, is that this is within our hands to fix. This isn’t some insoluble problem.

This is our failure to make some tough choices. If we make the tough choices, if we rebalance our tax system, and if we put our spending in the right place and think pretty critically about targeting our spending to the people who most need it, then this is something we can fix.

Fran Kelly: Brendan, I think it’s over to you then, because you’ve been writing about the retirement income system for a long time and the inequities within it.

Ken Henry, former Treasury head, has called the situation that Aruna had just described intergenerational theft. so, there’s money there in the superannuation system vis a vis the tax breaks that are there. They’re very generous for older Australians who are coming into a time in life when many, not all, but many have paid off their mortgages, they’re getting this pot of gold, and the impact will fall on younger taxpayers.

Why don’t governments want honeypot? Because it would unlock a fortune on other, for other priorities and it would also enthuse younger voters, wouldn’t it?

Brendan Coates: I certainly think it would enthuse younger voters, but it may not enthuse older voters who are those who would have to pay higher taxes. this is the crux of it, is someone’s going have to pay higher taxes just won’t get such a great tax break on their super, right?

That’s right, and the net effect of that is It’s all in the language. Yeah. we’re working on it, Fran. the reason it’s been difficult is because someone has to lose and, people don’t like a situation where they’re being told they’re going to have to either pay more tax or no longer benefit from generous tax concessions.

Super is clearly the place that we should be looking though, because we’re talking about a system where the tax breaks are, north of 30 billion for, I think it’s 45 billion a year now. We have to update this calculation every time we do one of these orange books. I’m astounded at how quickly it’s rising.

And the system is too generous. It can’t be justified on the basis of optimal tax settings. It can’t be justified on the basis of being necessary to support adequate retirement incomes. It can’t really be justified on the basis of fairness because, 80 percent of the tax breaks are going to the wealthiest 20%, and so it is clearly the place that we need to go.

Fran Kelly: So how do you calibrate that? Paul Keating would say you’ve got to have incentives in there because the, the opposition, the coalition doesn’t support a superannuation guarantee and, you need to make people understand that it’s better to put their money there than a deposit for a house.

So, you’ve got to make it attractive. If, how much can you do, how much money would it save? Would it give us back to invest elsewhere?

Brendan Coates: So, if we went the whole hog on Grattan’s recommendations, we could be saving north of 10 billion a year. And I would put that into two buckets. The easier bucket, which is further trimming some of the tax breaks on contributions.

So, lowering the tax, the contributions cap from says 27, 500. dollars a year to 20, 000 a year. There are a few similar ones like that would raise 4 5 billion a year. And that’s a pretty, a package I could imagine a government adopting quite a lot of. It would be a rerun of what we saw in 2016 when the Turnbull government also trimmed concessions somewhat.

And then there’s the crossing of the Rubicon, which is the fact that, once you hit 60, your earnings are then tax free. It basically allows a lot of older Australians to opt out of the tax system. And that’s not sustainable in the long run. And that’s the one that would raise, six, seven billion dollars a year.

Fran Kelly: Tony, crossing the Rubicon is what seems to be getting harder and harder for politicians to do. You’ve been watching them for a long time. Martin Parkinson, former head of Climate Authority, Treasury, PM& C said today that, and he doesn’t speak out much, but he’s come out and he said the major parties need to stop lying to voters about the scale of the problem and treat the, treat the community as adults and spend time explaining.

Do you really think we can do that? As GST changes, maybe even at the time of the initial carbon tax change. we’re in a different world now of social media, of 24-hour news, it’s just not the same, is it?

Tony Wood: I think one thing is the same, and that is that we know from the last history of all this and beyond, that losers always value losses more than winners value gains.

So, they’ll always shout, the losers will shout louder than the winners do when they applaud.

Fran Kelly: And everything tells us that since COVID, we’ve gotten much more, even more used to the gains. Exactly.

Tony Wood: Now, that also means, of course, I think it was Paul Keating who said at one point, remember this for all policy from now on, there shall be no losers.

That’s a very difficult thing to pay for if you’re going to do what Brendan and I have been talking about. But I think the, what is interesting here, when you see what Trump has been able to do so far, I don’t agree with almost anything that he’s doing, but he has put forward a proposition to people that says, this is what I’m going to do.

I’m going to do it, and yes, there will be some consequences, but it’s going to be worth it. Now, I guess the last bit is complete rubbish, but that’s what he’s doing, right? What we’re not doing is doing exactly the same story about this little thing we’re trying to put forward here today in our orange book.

And that is to say, look, they’re asking, this was never going to be cheap and easy. It was always going to be difficult. But, if you listen to the people who say it’s going to be too hard, that’s what’s going to make it even harder. And so, what we need to think about is our politicians really need to be able to say, look, this is where we’re going.

We know where we’re heading. We know how to get there. There are things we don’t know, and we’ll adjust as we go. One of the reasons why we said, set the next target as a range, is because we don’t know a lot of what’s going to happen next; therefore, we need some flexibility as we go forward. So, I think there really is an opening here for someone, one of our political leaders, to take that position.

I’m optimistic that maybe some of those very intelligent independents will push a minority government in that direction.

Fran Kelly: But do we have to, and we’ve had this conversation for a long time, do we have to somehow help Australians understand that, for instance, a renewable energy policy, a net zero policy that is going to hopefully save the planet, might cost us a little more.

You have to pay a little more. And then how do they make sense of that when at the same time they’re saying, hang on, you’re telling us that wind is free, sun shines free, why are we paying more and why are prices going up?

Tony Wood: Part of that’s because We got into this space of trying to say all the time, it’s got to be cheap and easy, renewables are really cheap, that’s not going to be a problem.

And then we realized that if you want to go and live next to a solar farm in Dallas Springs, it might actually be quite cheap. But the problem is that’s not where the people are. And so, the reality has always been that there’s got to be this trade off balance. And it isn’t the case that renewable energy will be more expensive.

It is the case that it won’t be much cheaper than what we’ve had. And if we get it right, we’ll be able to maintain an affordable system. And this is the absolute central part of the story is that there will be some trade-offs. It won’t be, it won’t be all cheaper and beautiful. There will be transmission lines that people won’t like.

The end result will be a system in which we do have affordable and reliable energy. It will be, and it will be cleaner. And we’ll get emissions for free, emissions reduction for free. But that’s not a story that we’ve been able to tell so far because neither side of politics has been prepared to take that second step and stitch together.

This is complicated, but you can, I mean I reckon you could, I reckon I could write the speech for the next Prime Minister, to be honest, about this is why you can convince Australians to come with you, because I talk to, for example, I talk to the guys who wear the yellow vest and women who wear yellow vests in Newcastle.

They know that Newcastle, which is the world’s biggest coal export facility, is going to go through a difficult time. They’re prepared for that, and anyone telling them it’s not, they know it’s bullshit. But they’re ready to come if they can see where they might go next.

Fran Kelly: I think you should write that speech.

It’s almost time for questions, but just on that, Aruna, we talked about, the challenges of getting people to accept five storey buildings in their street, the challenges Tony was just talking about there.

In your policy blueprint, and we’re just days out from a budget, just weeks out from an election campaign starting, your blueprint says we need to make good collective choices. But everything we’re seeing in our society at the moment, in recent election results, in the voice referendum, is that society is fractured and fracturing further.

The fault lines, as we describe them as, are getting bigger. The city country divide, the educational divide, the income divide, even the gender divide. How do we make good collective choices, which means people giving up something, like we’ve just been saying, in these fractured times? And do you think, I’m asking you again I suppose, do you think a minority government would help or hinder that?

Aruna Sathanapally: I’m going to focus on one particular thing. because there’s probably many answers to that question. We could probably talk about it for half an hour or more. but one of the things that we’ve been reflecting on is the role of oppositions. and it’s been the case throughout Australian political history, not everything is on the table all the time.

The two major parties have tended to have a set of things that they do not fight over. There are things that will need to be fixed, no matter who is in government.

Fran Kelly: And we’re not even talking about defence spending yet.

Aruna Sathanapally: And a wise opposition knows that you make a big fuss about a tough reform. That reform is going to be yours to deliver the next time around.

And so I think that one of the things for us to be looking for, and also holding our politicians to account for, no matter, who we support or who we vote for, is that wisdom in opposition, not to just fight things for the sake of fighting them, that a good democratic system involves both the government and the opposition acting responsibly.

Fran Kelly: And Sam, in the era of the NDIS, we did see that. We got bipartisan support. I think Australians generally Felt good about the fact that we’re going to have this system for all we all agreed I think in the social compact that yes, it’s a good idea to pay for it through our Medicare levy to some degree But then we see this blowout in the cost.

We see some people missing out We see too many people or the wrong people on it. That’s what is a general sort of perception Do you think that experience is just another example of it of? of dulling our appetites for these kinds of big ideas that there was trust there and maybe not so much now.

Sam Bennett: That’s a great question.

I really hope not would be my answer I hope I think it remains a scheme for all of its faults. It’s very new. it has had teething problems That’s probably the an understatement there’s a lot of work still to do there’s heavy lifting that this next government will need to do to get this scheme back on track But I think it can be done and we’ve set out some of the ways in which that can be done within, the orange book that we’re talking about, today.

And it still has the potential to be a genuinely world leading scheme. I am the newest Australian on this panel. I came to Australia from the UK in 2018 specifically to work on the NDIS because I thought this was the biggest social reform happening anywhere in the world at that time and that was an excitement.

So, to me, enough to uproot my family and move here. I think it’s an incredible scheme that can, deliver, life changing results. We just need to see it through now.

Fran Kelly: Look, we’re almost out of time. There are big questions. I kept promising we’d talk about skills, but Brendan, I think we’ve run out of time and there’s a question.

But I want to finish on the question of trust. Aaron, we’ve established here reform is difficult. Is trust the key to more reform and post COVID isn’t the evidence in that trust in our politicians and our institutions has taken a battering? Is that the place to start? How do we rebuild that trust?

Aruna Sathanapally: So, the strange thing about COVID was during the COVID response, trust in Australia’s government and institutions have never been higher. And so, what COVID showed us is that when there is a crisis, if governments are open with the public about the shape of it. about what they’re going to do to solve it.

You can see high degrees of trust.

Fran Kelly: But post COVID, I think we’d see, particularly in a state like Melbourne, like Victoria, that trust has taken a battering.

Aruna Sathanapally: Yes, absolutely. And there, there were consequences to a lot of the measures that government in fact took, during, COVID, that with the benefit of hindsight, we may have done some of those things differently.

But if you think back even just a few weeks to tropical cyclone Alfred. And the way in which the population of Queensland and northern New South Wales responded to government and to emergency services. it’s chalk and cheese from the way in which a hurricane in the lead up to the US election played out.

Australians have high degrees of trust in frontline government services. Because we have, by international standards, good frontline government services. We tend to trust our hospitals, we trust our fire service, we trust our emergency workers. we have really strong fundamentals. what we don’t like is vested interests.

We have a high degree of scepticism around the role of vested interests in our politics, which is why reforms that tackle the impact of vested interests, in particular the scale of donations, transparency around who ministers are meeting with. and transparency, around lobbying by, by various groups are really important to secure exactly that trust.

I think if politicians are honest and transparent with the Australian public, they will be able to build trust, but keeping things behind closed doors won’t work.

Fran Kelly: Okay. I think we’re about to see a huge lift in defence funding. so, focus on vested interests is probably very timely. It’s time for you.

do we have a, we’re taking one of these. You can’t take mine because I’m talking. put your hand up if we’ve got time for just a few questions. and keep them tight if you wouldn’t mind.

I didn’t expect to be the first, I’m sorry. I’m probably the oldest fellow here and I’m a cynical old bastard and I have an issue with all the politicians.

But I won’t talk about that, I’ll just ask two questions. Tony, you know we spoke about this gas problem. My understanding is Australia still has a huge amount of gas. And you spoke about the problem. People say we can’t bring it across to the eastern states. All the gas from northern, from WA, as far as I know, goes out by ship.

So, what’s to stop us bringing it around by ship to Sydney and Melbourne, if we have to? That’s the first question.

Fran Kelly: Okay, keep it tight.

Secondly, I never said two, but go on.

Secondly, as far as the housing issue What does the Raton think about the issue of negative gearing? It’s been driving us, causing us problems for the last 60 or 70 years.

Okay. It’s ridiculous.

Fran Kelly: Tony, I think you think the ships is viable?

Tony Wood: Yeah, look, we get a little obsessed about taking, in Victoria we’re going to import gas. we tend to think of Queensland as another country. the fact that the gas might come from Queensland, or the Northern Territory or Western Australia Might actually be almost, certainly, is the most cost-efficient way to do this.

There’s some infrastructure that has to be built. It’s not all that complicated. It’s done in other parts of the world. In Australia we’ve always been an exporter and an importer of liquefied petroleum gas, LPG. We’ve just never done it this way. So, you’re absolutely right to get the gas we need. We’ve got plenty of gas.

To get it to, into Victoria where we need it, and we’ll need it in the next three or four years, is to get it there by ship because everything else will be far more expensive. And the advantage of shipping. Is that if it turns out that as we gradually get off gas in Victoria, as we will, for burning all these things we, we use now for burning it, then gradually we won’t need that anymore and you take the ships away.

You don’t have; you don’t build huge amounts of infrastructure that then becomes a stranded asset.

Fran Kelly: But is this happening? Are they doing it? Are they seeing it as clearly as you are?

Tony Wood: Yeah, look, yes, the last Friday, the ministers, the collective ministers, this is, all the ministers, federal and state, got together last Friday and they were supposed to be reviewing how they were going to solve this problem.

And the answer was, we’ll put it back to the bureaucrats to give us an answer in three months’ time. Okay. That wasn’t very helpful.

Fran Kelly: Time is tight. Brendan. Negative gearing.

Brendan Coates: Yeah, so negative gearing is one of these ones that is always a perennial question in the housing debate. Our view is that it has an impact on prices, but that impact is actually It has an impact.

Yes, it does.

Fran Kelly: It has an impact, yeah.

Brendan Coates: Because those concessions get capitalised into house prices. but our view is that the combined effect of negative gearing and the capital gains tax discount, capital gains tax discount being at 50 percent. If we were to reduce those by ensuring that native gearing could only be used to offset wage and salary income, could only offset those net rental losses against your salary.

And if we halve the capital gains tax discount, we reduce house prices by about one percent. Because that’s all the value, these concessions are worth 10 billion dollars in an 11 trillion-dollar housing market.

Fran Kelly: We know Labor wanted to do it. And Bill Shorten got punished for it, and that’s why everyone’s running scared.

Are you hearing anyone within government or opposition interested again in this?

Brendan Coates: Look quietly. even if we were probably quietly hearing it, this is probably not the forum where we would say, this is what we’re hearing.

Fran Kelly: Alright, I’ll talk to you later. Okay, do we have another question? We have many, so I’m not sure that we’ll be able to get through you all, but we’ll see.

Hi, thanks very much for the panel discussion. So, this is on policy priorities, maybe it’s for Aruna and Brendan. I was surprised to hear no talk about 1P at all, which was productivity. so just some comments around just how important it is today for Australia and one fix on your wish list.

Fran Kelly: Thanks.

Yeah, the one fix is good because we talk about it a lot and that’s where I think skills comes in. But Aruna? Yeah,

Aruna Sathanapally: So, it, it is the fix to everything, right? It is, what we say in the Orange Book is that to solve all of our problems, we need a productivity mindset. And that’s because productivity is about being smarter and doing more with what we have, and that’s absolutely the mindset we need to bring.

Now, in the market economy, productivity isn’t something government really does. We can set the fundamentals, we can have a good education system, and we’ve got recommendations on that. We can have You know, good health system. But fundamentally, productivity in the market economy is down to the private sector.

And we’re nowhere near the world frontier on that. one of the things we can do to get closer to the world frontier is to bring the best global talent to Australia. and there are real opportunities, and Brendan’s previously done work looking at our skilled migration system. we trumpet to the world how good we are at skilled migration, but we could be better.

There’s two ways we could be better. We could make more use of the visas we’ve got. to getting the most highly skilled migrants from the world over to come to Australia. And we are very lucky because they do want to come. And in fact, a more globally volatile, world is one in which Australia will remain quite attractive.

The second is, once they’re here, making sure we’re getting the most of their skills. and that applies not just to migrants, it also applies to women. So really unlocking the talents and skills we have is one of the best things I think we can do for productivity. But as I said, you can find a productivity fix or a productivity argument in all of our, all of our programs.

Fran Kelly: Brendan, let’s leave aside fixing our literacy and numeracy and our TAFE and our universities and capping foreign students and all of that, what’s another fix? Have you got another one?

Brendan Coates: Oh look, I’m gonna go back to housing. Oh. Because land reforming land use planning rules to allow more houses to be built is probably the best way of improving how our labour markets function.

Cause if people can’t get to as many jobs across the city, then that where they won’t match with the employers with whom they could be most productive. And so, you need to think about cities as giant labour market. when we are thinking of housing, and we’re thinking of upzoning to allow more people to live close to where jobs are, we are really saying this is a way for businesses to be able to choose from a larger proportion of the residents of a city.

Fran Kelly: Because they might not be able to track someone out from, Sydney, far west,

Brendan Coates: It’s just the commute’s too far, and if they’re located, if people are located closer, many residents of our cities would happily choose a denser form of housing, if it was closer in. over, say, a greenfield, quarter acre block, let’s face it, they’re now one eighth or one tenth acre blocks on the urban fringe.

Our surveys and the work of others suggest that quite a few people would choose that outcome if they could get it.

Fran Kelly: And that would make a measurable, have a measurable impact, you think, on productivity?

Brendan Coates: Yeah, it would. So, some of the work that’s been done in the US, noting it’s a different system because we’ve got five cities, they’ve got, 40 or 50 decent size ones.

Is that you could boost GDP in the U. S. by several percent of GDP if you actually allowed housing in places like San Francisco and Boston and New York and Seattle.

Fran Kelly: Another question? Here in the middle.

So, this is a question for Brendan. We need more housing in places where people want to live, but there’s a finite skill set to build them and there’s supply chain issues. Why is it the local governments allow, what’s happening in my suburb, where so many houses are being renovated, many are being demolished, including blocks of H, flats being replaced by a single house.

Isn’t there a role here for more regulation by local government to stop this waste of the resource?

Brendan Coates: That’s a great question. I think as a general principle, what we want to see is where land is scarce, which is closer to the centres of our cities. We want to see more housing, going up in those locations.

One of the reasons we see a lot of renovations, is because stamp duty means it’s really hard for people to move to a house that better suits their needs. So, what do they do? They stay in the existing house, and they do an inexpensive, customised renovation. so, they don’t have to pay another 100, 000 in stamp duty if they move.

So as long as the renovation costs them less than, they lose less money on the renovation than they would have to do to move houses. They choose the renovation. In Australia it’s quite striking, about 40 percent of construction activity is in renovations. So, this is what land tax might fix? This is where land tax rather than stamp duty would definitely fix.

so, we need to see more housing and we also need a better allocation of the housing stock. The work that’s been done suggests that if we were able to replace land tax with stamp duty with a land tax, then it would reduce rents and house prices by up to 6%. without having to build a single extra home because you would get a better allocation of the housing stock over time.

Fran Kelly: And again, we’ve known this for a long time, why aren’t states doing it? Is it just they don’t want to give up that revenue stream? Is that all it is?

Brendan Coates: It’s probably three things. One is you want to avoid annoying people that recently paid stamp duty and then you’re going to make them pay the land tax straight away.

Fran Kelly: But surely, we can manage that.

Brendan Coates: The way we manage that is offering concessions. that if we offer concessions, then we’re not fulfilling the other objective, which is making sure the states have still got the revenue to keep the schools running and the hospitals open. So, the only way I can see this is going to happen, Fran, is if the federal government basically says, we will cover, let’s say, 30 percent of the revenue lost over five years for any state or territory government that’s willing to make the switch.

And that’s just an open offer to the states, that if they, if a state then goes, comes and says, yes, we’re willing to do this, they know they’ve got that support. Perrottet was flagging to the federal government for a long time. He wanted to do standard year reform, and the federal government did not come to the table and ultimately it came to nothing.

Fran Kelly: Okay, because they’ve only got one pot of money, so we’re going to have to talk about either retirement incomes or putting up the GST, but let’s not go there. Last question. Anybody? Yes. Let’s keep it tight.

One big argument that, we didn’t speak about is the role of artificial intelligence. And I know that some of it is because we don’t know.

We don’t know much. But I was wondering, Aruna, you mentioned that Australia is in an advantage kind of place. And when we think about artificial intelligence and what we know is Often young people may be more are more likely to use artificial intelligence, so potentially Australia could be in a better place of where, the implementation of technology can be faster than other countries.

What is the role of, like the government in making sure that, we take the best from this technological change, but also. Make sure that we take care of the people and potentially job loss or job displacement.

Fran Kelly: That is a great question, and we should probably have another panel on that.

But that goes to too, innovation and our failure on that front, Malcolm Turnbull. Or for the innovation revolution that never happened. Aruna, just finally.

Aruna Sathanapally: Yeah, I think it’s a big question and we can maybe talk, further afterwards. But one thing I’ll say is that a society that has a good safety net is better able to adapt and take risks.

So, there are some risks in AI. There are potentially huge benefits. We’re facing what economists refer to as a structural labour constraint, right? We’re ageing, we need more labour-intensive jobs, we don’t have enough people. AI and technology are the potential solution for that in healthcare.

Fran Kelly: Watch 7.30 last night, there was a great piece on it.

Aruna Sathanapally: But we’re going to have to be prepared to take opportunities, try, test, potentially fail. At a society level, we’re going to be better able to do that if we’ve got strong safety nets to deal with dislocation.

Fran Kelly: But the thing is, we have a strong safety net compared to the United States, and they whip our butts on AI and other innovation.

Aruna Sathanapally: So, When I say we have a strong safety net, Australia has a system of unemployment protection that is far below what most people earn. So, it’s, a good safety net at the bottom. So not to discredit that, but in terms of how much job mobility we have in Australia, it’s not great. And the downside risk of losing your income when we don’t have an unemployment insurance type system can be pretty.

So, we don’t actually see people switching and trying new things as much as they might otherwise do.

Fran Kelly: Okay, look, there’s a million questions, there’s a million more answers to every question you’ve asked today, and they’ve been great, so thank you. Could you please thank our panel, Aruna Sathanapally, Tony Wood, Brendan Coates, and Sam Bennett.

And I think an even bigger cheer for the Grattan Institute overall. And thank you all of you for coming out and spread the good word. Persuade everybody you know that we’ve got to do some things for the greater good even though it’s gone out of fashion. Thank you.