Why major policy reform in Australia has stalled for decades – and how to change it

When last month’s economic reform roundtable was announced, there was both hope and cynicism about the potential for progressing policy reforms in Australia that have been long understood to be necessary – tax reform^[1] being a leading example – but have languished in the “too hard” basket across both Coalition and Labor governments.

The roundtable, broadly considered a success, is now over, leaving the government with a list of tasks^[2]. Some of these can be done immediately, while other, more ambitious ideas will take longer to see through.

But while there’s no shortage of ideas, Australia’s recent track record on implementing large-scale policy reform has been patchy.

In 2021, in the midst of the pandemic, the Grattan Institute published a report, Gridlock^[3], which explored the idea that Australia had lost its ability to do major policy reform.

Australia’s prosperity since the 1990s was underscored by a suite of major reforms enacted from the 1970s onwards. These reforms – liberalising our economy, while setting up supports and services across welfare, healthcare, and education – produced much of the social compact we still have today.

But in the decades since, fewer major reforms have progressed.

Some were proposed then abandoned. Emissions trading^[4] by Labor and the Coalition policies to cut the company tax rate^[5] and increase the pension age^[6] spring to mind.

And some major reforms were enacted but haven’t lasted. Australian governments this century have been more prone to unwinding policy changes of their predecessors.

More than the sum of the parts

One possibility to consider is whether this drop-off in policy reform simply reflects less opportunity for major reform. As many economists will tell you, you can only float the dollar once.

It is true that some of the sweeping reforms to open up Australia’s economy are not easy to replicate. Today’s hunt for productivity-enhancing economic reforms requires looking at a broad range of smaller measures: better regulation, harmonising rules and standards across Australia and reducing barriers across the workforce.

To paraphrase^[8] Productivity Commission Chair Danielle Wood, governments should reform in inches rather than miles.

But it would wrong to assume any of these reforms are easy. Rather, they are the opportunities left precisely because they have been harder to realise.

This is often because they involve different levels of government, or social and business practices that take a suite of measures to shift.

They cannot be delivered in one big bang. They require sustained attention. Perhaps we should be more willing to recognise that major policy reform may actually constitute a series of incremental steps.

The handbrake of public opinion

At the same time, it’s not correct that there are no opportunities for bigger economic reform.

Reforms to the tax mix^[9], to tax in better ways than we do today, remain vital to boosting economic growth and making Australia fairer.

And there are broader opportunities, as we at the Grattan Institute outlined in the 2025 Orange Book^[10], published in the lead-up to the May federal election. It sets out several suggestions across energy and climate change, health, retirement incomes, to name a few. Previous Orange Books have done the same.

In the Gridlock report^[11], the inaugural chief executive of the Grattan Institute, John Daley, analysed the period to 2020. He offered a range of explanations for why policy reform had proved difficult. They included, among others:

These remain potential roadblocks to many sensible reforms. But Daley concluded the most prominent blocker was simply that a reform was unpopular, and politicians were less prepared to take on that challenge.

It might seem self-evident that elected governments have not enthusiastically adopted reforms that do not have public favour.

Yet, it isn’t the role of governments in a democracy to blindly reflect public sentiment. It is their job to respond to the facts and the evidence, to make the case for changes that may not be comfortable – and may indeed leave some people worse off – but will make us better off as a country over the long term.

Indeed, many of the reforms of 1980s^[12] and 1990s were unpopular^[13] at the time.

But the ability of ministers to do this crucial job may well have become harder. There’s a more punishing, short-term media cycle than during the “golden age^[14]” of reform. This has been accompanied by an increasing reliance on more fragmented, non-traditional media and shorter audience attention spans^[15].

Progress without crisis

To their credit, state and federal politicians have taken on the much-needed task of increasing housing density in our biggest cities despite strong opposition.

But such action only happened once housing affordability reached dire levels^[16].

And as the pandemic illustrated, where there is a genuine crisis, Australian governments are able to communicate and effect policies that inflict short-term pain for long-term benefit.

The question now is whether policy reform can progress without a crisis on foot.

The exercise the federal government kicked off over July and August – that of canvassing ideas, even if many are not surprising – can be seen through this lens of building public acceptance.

Bringing people along for the journey is crucial because many of Australia’s public policy challenges are not considered urgent, at least not in the same way as the pandemic or similar events.

There’s little sense of emergency around shaping a health system that meets our growing needs, or the transition to net zero.

Lagging educational performance^[17] continues and gender inequality^[18] remains sticky, but neither issue dominates headlines.

But perhaps, a deliberate and methodical case for reforms to meet these challenges, built up in stages, is the way to get the best kind of policy reform: the kind that actually happens, and sticks.

References

1. ^{^} tax reform (theconversation.com)
2. ^{^} list of tasks (theconversation.com)
3. ^{^} Gridlock (grattan.edu.au)
4. ^{^} Emissions trading (www.smh.com.au)
5. ^{^} company tax rate (www.abc.net.au)
6. ^{^} increase the pension age (theconversation.com)
7. ^{^} Mick Tsikas/AAP (photos.aap.com.au)
8. ^{^} To paraphrase (www.pc.gov.au)
9. ^{^} Reforms to the tax mix (grattan.edu.au)
10. ^{^} 2025 Orange Book (grattan.edu.au)
11. ^{^} Gridlock report (grattan.edu.au)
12. ^{^} 1980s (www.theaustralian.com.au)
13. ^{^} were unpopular (www.businessthink.unsw.edu.au)
14. ^{^} golden age (www.abc.net.au)
15. ^{^} attention spans (time.com)
16. ^{^} dire levels (grattan.edu.au)
17. ^{^} Lagging educational performance (grattan.edu.au)
18. ^{^} gender inequality (theconversation.com)