He outlined a list of eight "long-overdue reforms" which he said was the minimum needed but added: "I have no confidence that this list of urgent and essential reforms will be achieved by today's Parliaments".

He said "today's dysfunction" was in stark contrast to previous periods of policy success when politics was every bit as adversarial and partisan "but when the tribal tensions within parties were generally well managed and the political contest appeared to energise policy, not kill it".

He lamented that not one major infrastructure project in the past decade had the shared support of the Coalition, Labor and the Greens and that every single government proposal for tax reform over the same period "has failed".

"And the long-term fiscal, economic growth and environmental challenges identified in four intergenerational reports over the past 15 years? The opportunities identified in the White Paper on Australia in the Asian Century? Simply ignored."

No more donations: NAB chairman Ken Henry. Christopher Pearce

"The reform narrative of an earlier period has been buried by the language of fear and anger. It doesn't seek to explain; rather, it seeks to confuse and frighten.

"Meanwhile the platform burns."

Australia had become so paralysed by political inaction that it had gone from an optimistic nation which pioneered world's best policy and nurtured world's best institutions to a place that nobody looked to anymore "to see how it should be done".


He identified the four priorities: as budget repair, a plan for a growing and ageing population, a settled policy for energy security and climate change, and an approach to "make the most of the Asian century".

And on all four fronts, politics was failing.

He said under current settings, budget spending was not under control. It will be a forecast 25.2 per cent GDP by the end of the decade, down from the current 25.6 per cent, but will then start growing again as the population ages. At the same time, revenue was overly reliant on bracket creep.

Yet the budget is ill-equipped to cope with looming challenges.

Based on current estimates, Australia needs to build a city for two million people every two years or a city the size of Melbourne or Sydney every decade yet the only plan seems to be "stuffing" more people into Sydney and Melbourne.

"Have you ever heard a political leader addressing that question? Do you think anybody has a clue? At the very least, we are going to have to find radical new approaches for infrastructure planning, funding and construction," he said.

"And that includes energy infrastructure, critical to our economic performance and our quality of life."

Dr Henry said the biggest challenge confronting the energy sector was the "shambles" masquerading as climate policy.


"At least 14 years ago, our political leaders were told that there was an urgent need to address the crisis in business confidence, in the energy and energy-intensive manufacturing sectors, due to the absence of credible long-term policies to address carbon abatement," he said.

"It is quite extraordinary, but nevertheless true, that things are very much worse today."

He said the four priorities could be met by adopting, as a minimum, eight reform proposals. These are:

Apolitical infrastructure planning and pricing, including the widespread use of road user charging;

A much lower company tax rate achieved much more quickly than is presently under consideration by our Parliament;

The removal of stamp duties on residential property;

Symmetrical tax treatment of interest and capital gains;

An overhaul of state-based royalties;

Market-based price signals to guide climate change mitigation and long term investment in the energy sector;

A broader base and higher rate of GST;

A substantial adjustment to roles and responsibilities between the Commonwealth and the states.

He warned the budget was in no shape to fund compromises for some of these ideas, such as compensation low income earners for an increased GST.