Australians face the risk of falling living standards for the next decade as the country has fallen into a reform malaise, according to one of the country's leading economic authorities, Professor Ross Garnaut.
In a private address to top officials of the Australian Treasury in Canberra on Tuesday, Professor Garnaut blamed two factors that had taken hold in ''the last half dozen years''.
The Australian public had come to expect too much prosperity too easily and the country's political culture had become too timid to make tough reforms, he said.
As a result, Australia's productivity growth had fallen from being among the best in the world to being among the worst in the past decade.
Living standards would fall unless governments made tough reforms. ''After a while, we have restored the old Australian political culture which had guided our chronic underperformance through the first eight decades of our federation.''
The Rudd and Howard governments had rewarded companies and industries for demanding special subsidies and handouts, a ''culture of rent-seeking,'' he said.
Professor Garnaut called on Mr Rudd to live up to his own rhetoric to control government spending and reform the economy.
The Melbourne University academic advised the Rudd Government on climate change policy and was economic adviser to the former Labor prime minister, Bob Hawke, in the pivotal reforms of the 1980s.
He recalled Mr Rudd's demand during the 2007 election campaign that the Howard government's ''reckless spending has to stop''.
''It was wise to increase government spending to offset the great crash of 2008, but now is the time to deliver.''
The renewal of the mining boom would not save the economy in the medium term. As the mining industry opened mines to feed the global demand, it would eventually lead to a rush of new commodities onto the world market.
The relative price of Australia's exports would fall as a result, ''exerting downward pressure on living standards''.
The public had developed unrealistic expectations: ''Nineteen years without recession, and with rising average living standards, is unprecedented in Australia and unusual in the world''.
And in the past decade the Howard and Rudd governments had responded by ''lifting all restraints on government spending and tax cuts''.
Professor Garnaut said ''the idea went around that managing the economy was easy, and that you could have change by buying off every interest group with dollops of money. The high point of this return to the old indulgent political culture was the Howard government's version of the emissions trading scheme.
''We have two big challenges ahead. First, we have to reduce public expectations of rising living standards.
''Second, we have to change the political culture to raise productivity growth'' through a wide range of reforms.
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