Bernie Fraser, who was the Reserve Bank of Australia's governor from 1989 to 1996, called on the Albanese government to confront obstacles to building a more united nation.
Speaking at the launch of a new annual lecture series named in his honour on Tuesday, Mr Fraser warned Australia risks being drawn into unnecessary military spending while division grows on home soil.Â
Australia was far Prime Minister Anthony Albanese's declaration in May as the world's best country to live in, Mr Fraser said, arguing it had "slid backwards in many areas" since the economic and social reforms of the Hawke-Keating era.
"We remain a long way from that country where all Australians and their families would be healthy and happy living in," he said.
Australia's leaders must be prepared to make "brave decisions" about national priorities, including whether billions of dollars in defence spending under the AUKUS nuclear submarines deal should take precedence over other domestic needs, Mr Fraser added.
"The most difficult questions requiring the bravest answers will revolve around that familiar question, 'Where is the money coming from?'," he said.
"The options are limited: cutting other expenditures such as defence, raising new tax revenue, or borrowing more."
Mr Fraser warned growing global instability, including wars in Gaza and Ukraine that have caused deep pain for Australians, could place further pressures on the federal budget and foreign policy.
He said Australia must carefully weigh the risks of being "dragged in alongside the US" in response to its rising tensions with China.
"Security problems these days are viewed essentially as military problems best addressed by building armed readiness," Mr Fraser said.
"But if unfolding circumstances require brave decisions - such as standing up to the US and backing away from AUKUS - the public will expect the government of the day to have the mettle to act accordingly."
He said Australia's long-term interests would be better served by focusing on relationships in "Australia and Asia, not Washington".
Fraser said many community groups have long tracked inequality and disadvantage, offering a road map for governments to act if the political will exists.
"With the help of communities that have been monitoring these issues for years, it should be possible to prepare plans and timelines for progress, though they will require some brave answers," he said.
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