Australians face a further decline in living standards and inaction on climate change unless whoever wins the next federal election enacts the biggest reform agenda in decades, the Grattan Institute has warned.

After years of political deadlock in Canberra, the Melbourne-based think tank says a backlog of urgent priorities have built up across key areas like the tax system, the environment, housing, education and health care.

And without reforms in the next term of Parliament, Grattan’s economic policy director Brendan Coates says Australians will be left in the lurch.

“There hasn’t been a huge amount of policy reform in Australia over the past decade,” Mr Coates told The New Daily.

“As issues have drifted, the urgency of change has increased.”

Prominent examples include the aged-care staffing crisis and net-zero targets, issues Mr Coates says are not backed by suitable policy reforms.

But in a report published on Sunday titled Orange Book, Grattan has laid out dozens of other reform priorities too, including a broadening of GST to ease income tax and higher childcare subsidies to help families.

Grattan said the next election will be a “crucial moment” for Australia.

It’s all about lifting productivity growth and supporting vulnerable citizens so that declining living standards can be reversed and Australia can play its part in addressing global issues like the climate crisis.

The think tank has also weighed in on what the federal budget strategy should be, saying the current levels of government spending should continue until wages start growing more substantially.

“Once the recovery is secured, target debt sustainability,” Grattan said.

Australia’s decade of stagnation

The statistics tell a confronting story when it comes to living standards.

After Australia had its slowest decade of economic growth in 60 years  between 2012 and 2022, workers have hardly seen their incomes grow.

In fact, the Productivity Commission estimates workers are more than $11,000 a year worse off than if pre-2012 growth levels had continued.

That was when the mining investment boom ended, but the past decade is also defined by a severe reduction in policy reforms out of Canberra.

“We’ve survived COVID fairly well, but Australian incomes have been effectively stagnating for close to a decade,” Mr Coates said.

“Living standards aren’t improving – they’ve been going backwards over the past year.”

Unfortunately, the political winds in Canberra haven’t blown in the direction of a big reform agenda for some time.

When Scott Morrison delivered his annual National Press Club speech last year he summed up this trend, describing large reform projects as exercises in “vanity”.

Meanwhile, on the other side of the aisle, Labor found out the hard way how difficult it is to prosecute the case for reform in 2019, when it’s “100 positive policies” failed to deliver former leader Bill Shorten The Lodge.

This included reforms to negative gearing, which are still supported by many economists, despite being dropped from Labor’s policy platform.

Mr Coates said the attitude towards reform in Canberra must change if workers are to enjoy a turnaround in their economic prospects.

“COVID has shown that when governments solve the problems in front of them they do get rewarded,” Mr Coates said.

“When they don’t solve problems they will be punished.”

That’s easier said than done, but it’s worth nothing that Grattan isn’t a lone voice in calling for a suite of productivity enhancing reforms.

Economists across the country have been highly critical of the federal government for sidelining urgent policy priorities over the past decade.

The concern is that without policy changes to make the economy more efficient and equitable, workers will be worse off in a decade than they are today, while vulnerable communities like the elderly will suffer more.

And larger issues like climate change present an even more pressing case for action, Mr Coates said, because the world is at a crucial point where inaction on reducing emissions could become catastrophic.

“We have this huge energy transition we’re going to have to make and at the moment policy isn’t keeping up with where we need to be,” he said.

Setting the stage for reform

Turning around political attitudes towards large-scale policy changes – such as those pursued by past Coalition and Labor governments in the later half of the 20th century – is no small task.

But Grattan thinks some changes can have a bigger impact than others in building consensus for large-scale changes and improving trust in the political process so voters are willing to provide a mandate for change.

It has urged whoever wins the election to press ahead with establishing a federal anti-corruption commission and changes to political donations.

Mr Coates said such changes will help alleviate mistrust in politicians and set the stage for good faith efforts to address other pressing issues.

“Governments need to make the case over time to explain why policies need to change,” he said.

“Public trust is really crucial there.”

After rising during the pandemic, public trust in government has plunged lately, with just 30 per cent of Australians believing it is a unifying force in society, according to Edelman Australia’s latest trust report.

Mr Coates said whoever wins the next election must use the resources of government to pull together evidence and consensus around urgent policy reforms.

He said the list of urgent priorities is too big for any one government to pursue at once.

“You’ve got to cultivate the ground for reforms that are not immediately doable,” Mr Coates said.

“The next government must commission reviews or spend public sector resources to work out what the best way to go forward is.”