The government needs to move on large-scale economic reform in order to set Australia up for prosperity in the decades to come, renowned economist Ross Garnaut says.
Mr Garnaut, who acted as former prime minister Bob Hawke's economic advisor, says lasting economic prosperity in Australia's past has stemmed from major reform instead of a series of incremental amendments.
Addressing a post jobs and skills summit dinner at Parliament House, Mr Garnaut said Australians "have been kidding ourselves about how well our economy is performing" as he called for a shake-up of the system.
Australia has twice gone through an economic shake-up that propped up the system for decades to come, the post-war period and reforms ushered in by former Labor prime ministers Bob Hawke in 1983 and by successive prime ministers until the end of the century, the economist said.
"In both successful reform eras comprehensive change across many activities, with large effects on performance of the economy as a whole, was easier than a succession of smaller changes," he said.
"A reform affecting only part of one part of the economy would excite opposition from affected parties without attracting the interest and support of the wider polity."
Post-war reformation and the 1945 full employment white paper was premised on the "the radical idea that governments should accept responsibility for stimulating spending on goods and services", Mr Garnaut said.
The breaking of this " pre-war monetary orthodoxy", which included the establishment of a central bank, set up the economy until the global economic shocks in the 1970s, he says.
"The malaise ended with the Hawke government with the reforms that began in (1983) and continued until towards the end of the century," he said.
"The reform era defeated deeply entrenched business and trade union interests that stood against the national interest."
In both instances, prosperity was achieved by equally distributing economic benefits and resisting pressures applied by vested interests into policy, Mr Garnaut said.
Such a pathway should be carved out by the current Labor government, he said.
"We don't want to turn the economy back to before the pandemic," he said.
"That's high unemployment and underemployment and stagnant living standards.
"We need unquestionably strong public finances to have low cost of capital, private and public for our superpower transformation, and to shield us from a disturbed international economy and geopolitics."