The author highlights the alternative choices open to Australian policy makers in their quest to achieve an acceptable balance between three potentially conflicting quality goals: improved efficiency (GDP per capita), full employment, and distributional equity.

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In reviewing the liberal economic reforms of the last two decades, the paper makes a distinction between three groups of reforms. One involved the improvements in the administration of government functions (managerialism, outsourcing and privatisation). Another involved the adoption of more direct or market-based methods of policy intervention (such as budget subsidies, incentives, taxes and transfers in lieu of regulation, protection and financial controls). These two groups of reforms were economic-driven: they sought to improve the efficiency and effectiveness of government. Although many mistakes in design and implementation were made, they largely achieved their intended objectives. With sensitive implementation, the reforms achieved a better balance between efficiency and equity than in most other countries. A third group of reforms embodied a new set of policy paradigms (such as downgrading of full-employment and unconditional need-based welfare relative to other policy goals). They offered few efficiency or economical benefits and were mainly driven by idealogy.

Unemployment levels have been falling steadily in Australia for some time—yet, when ‘hidden’ unemployment is taken into account, the work force remains considerably under‐utilised. As well, work opportunities are sharply polarised across households and spatially. These problems stem largely from structural imbalances and inefficiencies in the job market, which are impeding fuller workforce participation. The Government has a number of policy alternatives to choose from—all potentially effective in enhancing participation but with quite different distribution outcomes. The real debate is not about how to reduce core joblessness (the solutions are well known)—but who should pay.