Illustration: Simon Letch. Malcolm Turnbull on Thursday announced Parkinson would return as head of the powerful department of Prime Minister and Cabinet. The re-installation of Parkinson sends a powerful message of recognition that Australia's key economic institutions, and the public service more generally, should not be a plaything of the government of the day. The next test will be the appointment next year of a successor to Reserve Bank governor Glenn Stevens who will retire in September. His clear successor and current deputy, Philip Lowe, is widely regarded as one of the finest economists of his generation. Parkinson, too, is much admired, remaining something of a Treasury secretary in exile since his departure last December. He stole the show at The Australian Financial Review's recent "reform summit", schooling the ACTU's Ged Kearney on tax reform and warning Australians were "sleepwalking into a real mess" if they failed to take up the reform challenges.

New Secretary of the Department of Prime Minister and Cabinet, Martin Parkinson. Credit:Louise Kennerley He has also penned two significant, but little reported, working papers for his alma mater, Princeton University (where he obtained his PhD in 1990 under the tutelage of Ben Bernanke, who went on to head the US Federal Reserve). Parkinson's first paper – a critique of US economic diplomacy in Asia – formed the basis of a speech he delivered this week at UTS in memory of the late economist Warren Hogan. In it, he stressed Australia's future prosperity would depend on our ability to navigate the global shift in power from Australia's traditional ally, the United States, to our biggest trading partner, China. As a mandarin in the re-making, it's not hard to see why he chose not to reprise his second paper, titled: The Lucky Country: Has it Run out of Luck?

Has the Lucky Country run out of luck? In short, if 'out of luck' means we have to rely on our own hard work to sustain and grow living standards, invest for the future and ensure fiscal sustainability, the answer is yes! Former Treasury secretary Martin Parkinson Unshackled from the mild mannered conventions of the bureaucracy, Parkinson's second paper pours forth as a frank and fearless account of Australia's failings and the challenges we face. It didn't attract much media coverage at the time, but bears dusting off now his star is rising again. Clearly not in a mood to mince words, Dr Parkinson argues Australia has become "complacent", "ill-prepared", "in denial", "mediocre" and "vulnerable". "Has the Lucky Country run out of luck?" he asks. "In short, if 'out of luck' means we have to rely on our own hard work to sustain and grow living standards, invest for the future and ensure fiscal sustainability, the answer is yes!"

Australia "frittered away" the prosperity of the mining boom, spending it on tax cuts and permanent increases in spending, leaving the budget deep in deficit. Without serious budget repair, Parkinson warns our once-lucky country will be unable to respond to external shocks in the way we did during the GFC. On climate policy, Parkinson is unrepentant. "Climate change is a real threat to Australia," he writes. "Not just via its direct effects – that is, on rainfall patterns and agricultural production, or on the magnitude and frequency of severe weather events – but also because the way other countries respond could have serious implications for our competitiveness and our capacity to sustain traditional export sources." But on current policy settings, Australia, like many other countries, is "likely to end up with a sub-optimal patchwork quilt of initiatives whereas a coherent, national, response could deliver more effective emissions reductions at lower cost".

While other countries are investing heavily in low-emissions technology, "Australia is not". Instead, our companies and investors are beset by "short-termism" – obsessed with returning dividends to shareholders, rather than reinvesting them. And while much lip service is being paid to the opportunities presented by the rise of China's middle class, Australians are not as "Asia-savvy" as we, and others, believe. More broadly, we suffer a "vacuum of leadership", exhibit a "tendency to talk rather than act" and "our political discourse is failing". As a result, "almost a quarter century of superior economic performance is being replaced by moderate growth at best, and perhaps by a period of sustained mediocre performance".

Ouch. Many might conclude Parkinson is pessimistic about Australia's future. But, like our new Prime Minister, he insists he is an optimist. "Australia's current bout of complacency will be broken and reform will restart," he concludes. "The choice confronting Australians is whether they willing embrace change or have it forced upon them." Basically, we can do reform the easy way, by getting ahead of the game, or the hard way, by having it forced on us by recession. Either way, reform is coming. It will be interesting to see if Parkinson remains as publicly outspoken in his new role.

Regardless, Australia is lucky in one respect: Parkinson will now continue to offer his clear-eyed diagnosis of our national ills at the highest level of government. Whether Turnbull can translate that into a popular agenda for reform is another matter.