Bridging the gap between policymakers and experts to drive evidence-based policymaking is no small endeavour. Doing so in a way that protects independence and academic integrity, on the one hand, and provides advice in timeframes and language that policymakers can use, on the other, is even harder. However, we are seeing growing momentum in many parts of the world due, in part, to this need to leverage public investment more effectively for positive societal outcomes.

Here in Australia, as the James Martin Institute for Public Policy transitions to its next chapter as the Australian Public Policy Institute, I am reminded of Professor Peter Shergold AC’s piece in this publication, in which he noted that the Institute is a “distinctive and path-breaking collaborative model that ensures that academic research can be translated into a form fit for government purpose.” Regardless of who wins the next election, our collective mission of connecting policymakers to world-leading research will be all the more important.

The Australian economy is no more productive today than a decade ago. Boosting productivity should be high on the agenda for the incoming government, both to sustainably lift household incomes and grow the tax base.

Continuity: Revitalising the National Competition Policy

In November 2024, the Commonwealth and state governments agreed on the first tranche of a reform program to revitalise Australia’s National Competition Policy. This reform program should continue as there is a lot of revitalising to be done.

Australia has some of the most concentrated and least dynamic markets in the OECD – the four largest firms control more than 50 per cent of the market in most Australian industries. This matters because competition drives businesses to deliver better products and services at lower cost – in other words, to be more productive.

Changes in November and the recent budget provide welcome movement, including fast-tracked adoption of international product safety standards and banning non-compete clauses. To realise the promise of a 1 to 1.7 per cent GDP bump, government must deliver on the remainder of the reform program. This includes simplifying and streamlining occupational licences and making it easier for consumers to compare and switch between service providers.

Meaningful competition policy reform can be a heavy lift. Incumbent businesses lobby hard to protect their privileges, and state governments need convincing (and money) to implement the plan. But that is precisely why the next Australian government should maintain the recent momentum.

Change: Reform research and development (R&D) funding

Australia’s productivity is also being held back by its fragmented R&D system.

Our R&D challenges are no secret. Australia’s spending on R&D as a share of GDP is around 60 per cent of the OECD average and less than half of the United States. The impact of this investment is undermined by weak links between industry and our research institutions.

The government has recently launched a much-needed strategic review. Findings are due by the end of 2025, and the incoming government should start preparing for reform now.

A good place to start would be the $4 billion R&D tax incentive (RDTI), which aims to encourage private sector investment in R&D by subsidising its cost. The government should act on the practical and fiscally balanced improvements recommended in a major 2016 review.

Three changes should be prioritised:

1. Lifting the $150 million cap to bring in bigger businesses with larger budgets to innovate.
2. Targeting the tax incentive to R&D spending above a 1 to 2 per cent threshold of total business expenses to incentivise genuinely new expenditure.
3. Adding a 20 per cent premium for business R&D spending on public sector research organisations to strengthen links between industry and researchers.

Advances in AI can increase workforce productivity and generate innovative solutions to persistent policy challenges. However, AI technologies could also deepen social inequalities, introduce new risks with widespread consequences and disrupt economic stability. To date, Australia’s public sector has approached AI through voluntary standards and iterative deployment approaches. An incoming government should consider a whole-of-society approach to better guide AI's ethical development and address critical regulatory gaps.

Continuity: Incremental refinement and controlled experimentation

The government should continue incrementally refining ethical guidelines for AI development and deployment across the public sector. Several recent developments at the Commonwealth level illustrate this approach, including the updated AI Ethics Principles, the release of interim generative AI guidelines, and the Digital Transformation Agency’s piloting of a new AI assurance framework.

Crucially, these efforts have been supported by an iterative deployment approach towards AI technologies across Commonwealth agencies, exemplified by the Microsoft 365 Copilot trial in 2024. This strategy enables the Australian Public Service to test AI technologies in controlled and evaluated environments, ensuring alignment with relevant AI ethical principles while supporting robust risk management before broader deployment.

More broadly, this strategy supports the public sector to capture the benefits of AI usage – including productivity uplift, efficiency gains and new skills development – by gradually building the workforce's AI literacy and capabilities, while also cementing principles of ethical AI usage.

Change: Develop a whole-of-society AI governance strategy

Recent parliamentary inquiries have called for a more proactive and nationally coordinated approach to AI governance. Threats to privacy, data security and labour market stability have highlighted that current legislative frameworks struggle to adapt to rapid AI advancements.

Shifting from a piecemeal regulatory approach to a whole-of-society AI governance strategy is needed. This includes adopting a risk- and principles-based model with mandatory safeguards for high-risk AI applications. Strengthening legislative protections and developing a “market-shaping” strategy would allow the Commonwealth to guide AI development in the public interest.

This approach could help policymakers better manage challenges including labour market disruptions and AI’s growing environmental impacts, such as through rapid reskilling programs and targeted research and development investments.

A more cohesive governance framework must balance stronger protections with fostering AI innovation and remaining agile in response to emerging developments. As an interim step towards a nationally consistent approach, an incoming government could adopt adaptive governance techniques to support policy development, such as strategic foresight and regulatory sandboxes. In line with parliamentary inquiry recommendations, the government could also update legislation to address urgent regulatory gaps, including revising the Privacy Act 1988 and the Fair Work Act 2009.

Renewables are here to stay, even while legitimate questions linger on their interplay with other energy sources, including gas and nuclear. Cementing renewables as a fait accompli will allow a future federal government to focus its bandwidth on the next-order energy policy challenges.

Continuity: Redesigning the National Energy Market

Tim Nelson will chair a review this year of the wholesale electricity market and the physical system that powers NSW, Queensland, the ACT, Victoria, Tasmania, and South Australia. The review is timely, marking a critical opportunity to use market-based levers that incentivise ongoing investment in a renewables-led energy system that is affordable, reliable and sustainable.

Planned reforms will need to strike a careful balance between commercial interests, special interests and self-interests, and answer complex questions, including:

• How will power generators be paid for their capability to produce energy to meet fluctuating demand?
• How can market settings promote ongoing investment in renewables beyond 2030, when the Capacity Investment Scheme expires?
• How can we design a flexible and future-proof market that embraces the rapid rate of technological development in energy?
• What are the consequences of market reform for all energy consumers, including households who choose not to actively participate?

With the report earmarked for release in late 2025, the next government should seize the opportunity to implement the recommendations of this comprehensive review process.

Change: Improving renewable approval processes

Planning approvals are a well-known blocker in boosting Australia’s renewables capacity.

Both the Commonwealth and state governments have been grappling with ways to streamline slow and ambiguous renewables approval processes. Federally, emerging best practice is to refer large renewables projects to the process under the Environment Protection and Biodiversity Conservation (EPBC) Act. This has resulted in a proposal to invest $100 million to speed up environmental approvals under the EPBC Act. Even while the broader suite of environmental reforms remains paused and politically fraught, a future federal government can sharpen the efficiency and robustness of planning approvals.

Done well, an improved approval process will enable decision-makers to navigate complex trade-offs between economic and environmental outcomes, integrating Net Zero and nature-positive considerations in a manner that drives policy coherence between both agendas. Industry will benefit from a clearer roadmap through approval hurdles – or a quick “no” in some cases – which, in turn, will increase appetite for renewables investment. Communities will benefit from principle-based decisions that are grounded in the public interest. Ecosystems will benefit from consistent decision-making approaches integrating considerations to halt and reverse biodiversity degradation.

Planning improvements are also an important complement to efforts elsewhere to improve the whole-of-life environmental impact of renewables infrastructure, including the recently released national Circular Economy Framework.

Addressing chronic disease through adequate provision of primary and community care will remain a key issue for the next government. Not only do individuals with chronic disease face poorer health outcomes, but the disease burden also places downstream pressure on the sustainability of health systems and economies in Australia and worldwide. There is significant opportunity to better support people living with chronic conditions through the provision of primary care: many of the hospitalisations arising from chronic conditions are preventable and currently cost about $2.3 billion per year.

Continuity: Primary care workforce and access reforms

Previous governments have introduced workforce-focused reforms over recent decades to address the growing rates of chronic conditions and the requirements they place on health services. In 2003-04, the Medicare Benefits Schedule was broadened to include allied health services, acknowledging that people with chronic conditions need support from a broader range of health professions than just GPs (e.g., occupational therapists, physiotherapists and psychologists).

These efforts to expand the workforce and broaden the provision of primary care have continued since. The current government recently introduced incentives for multidisciplinary care teams to better support people with chronic conditions, delivering a Scope of Practice Review that examined the barriers health practitioners face working to their full scope of practice.

Chronic disease will remain a critical pressure on our health system for the foreseeable future, so any future governments will need to continue to build on primary care workforce reforms and expand access to multidisciplinary and holistic care.

Change: Medicare funding reform

To complement primary care workforce efforts, Medicare funding reform is needed to move away from a primarily fee-for-service model. Both major parties have recently committed to significant Medicare boosts should they win the election.The government announced a $8.5 billion increase, which was then matched by the opposition.

A portion of this additional funding should be provided through outcomes-based or population-based funding models, encouraging a shift away from purely fee-for-service. The fee-for-service model is no longer fit for purpose as it does not support multidisciplinary care or ongoing and regular care for people who need it (particularly those with chronic conditions). Outcomes or population-based funding formulas can incentivise practices to provide the level of care necessary for their community, rather than sticking to 10-15-minute appointments.

The quality of a child’s first five years – including their early childhood education and care (ECEC) – shapes how their brain develops, ultimately affecting how they experience the world into adulthood. ECEC also boosts economic productivity and grows the tax base through increased workforce participation. To maximise the long-term benefits of high-quality ECEC, the incoming government should keep working towards high-quality, affordable ECEC that is accessible to families who need it.

Continuity: Keep moving towards universal childcare

A recent Productivity Commission report highlights a positive trajectory in ECEC, with the number of ECEC places available increasing by 50 per cent in the decade to 2023. This has resulted in 3 in 4 mothers with children aged 0-4 years in paid employment.

Over the last decade, incremental improvements have been made towards more affordable and accessible ECEC. The 2018 Child Care Subsidy increased assistance for 70 per cent of families. The federal government’s recent commitment to introduce a 3-day guarantee of ECEC will provide a further 100,000 families with additional hours of subsidised care. The next government should build on these positive steps to push towards a universal system.

Change: More active stewardship of ECEC

Although more families are using ECEC services than ever before, significant service gaps remain across the country that cannot be solved by increasing subsidies or legislating a 3-day guarantee. The incoming government has an opportunity to play a more significant stewardship role in addressing service gaps and ensuring ECEC is truly accessible.

Nearly 6 million Australians live in a “childcare desert”, defined as an area where three or more children compete for a childcare place. This issue is more pronounced in regional and remote Australia, where nine or more children compete for a single spot in some areas. Building more childcare centres in these areas is a critical and obvious fix. However, how these centres operate is a critical question that the incoming government must consider.

Research suggests that increasing subsidies for childcare centres and families merely incentivises providers to operate in metro areas where they can charge more. To service thin markets, the government could consider tailoring the service delivery approach of ECEC centres to their context. Potential strategies include:

1. The government could directly deliver ECEC in rural or remote areas with limited provider capacity. Approximately half of ECEC is delivered by for-profit providers, 39 per cent by the not-for-profit sector and 11 per cent by government. For-profit providers have little incentive to run centres in thin markets with a limited pool of participants.
2. Implementing blended payment models for ECEC providers in remote areas with limited provider capacity. This could include a combination of core funding to give providers stability and enrolment payments to drive delivery and maintain the reach of service.

The 2024 National Defence Strategy recognised that Australia “faces its most complex and challenging strategic environment since the Second World War”. The trends underlying this assessment remain, including intensifying US-China competition. Given the maritime domain is a “frontline theatre” for this competition, Australia’s acquisition of advanced naval capabilities remains critical. Next-generation submarines will be vital for deterring and, if necessary, interdicting adversaries in Australia’s maritime approaches, as well as in contributing to regional security in the Indo-Pacific.

Continuity: Recommit to AUKUS as Plan A

Pillar I of the AUKUS agreement – which will see Australia acquire nuclear-powered submarines in collaboration with the US and UK – remains the most viable pathway towards these advanced underwater capabilities.

The US appears to remain committed to the deal with both Defense Secretary Hegseth and Vice President Vance voicing support. Australia’s recent reframing of AUKUS as an investment in US shipbuilding capacity is clever diplomacy. For its part, the UK sees AUKUS as central to its own defence capability and industry plans.

Australia should look to expedite AUKUS in its present form, continuing to make the case to the Trump administration that it reflects America’s best interests. At the same time, Australia’s defence policy must remain unsentimental and vigilant to the sunk cost fallacy in assessing AUKUS’s viability.

Change: Invest in developing a plausible Plan B

While the US alliance is bipartisan Australian policy, prudence demands that whoever forms government after the election actively consider “Plan B” options to acquire submarines.

Recent developments in US foreign policy give Australia good reason to be concerned about Washington’s commitment to AUKUS. Most worrying are recent comments by Elbridge Colby, Trump’s nominee for a senior Pentagon role, who is “very skeptical” of AUKUS, in particular supplying Australia with Virginia-class submarines at the expense of US capability. This has only added to pre-existing doubts about spare capacity in US submarine building. Moreover, with no exemptions to tariffs for Australia, Canberra should be under no illusions that it holds a special place in Washington’s calculations.

Immediately after the election, the next Australian Government could convene an interdepartmental taskforce on the future of AUKUS that develops alternative options for acquiring submarines, including working with France, the UK and Japan. This should form part of a broader strategic policy review process that includes re-evaluating the US alliance, long-term defence spending (potentially to above 3 per cent of GDP), and the extent of Australia’s fundamental defence planning concept, the “Strategy of Denial”.