Martin Parkinson warns of big challenges for Australia and the Australian Public Service

In a valedictory speech to the Institute of Public Administration, Dr Parkinson said Australia faces both opportunities and challenges, and that future public servants will have a more difficult time navigating the big questions around reform, and giving frank and fearless advice.

"We are facing a much more contested region with heightened strategic competition between the US and China likely to be with us for decades. This will shape the environment in which governments, business and citizens operate in the years ahead, constraining some options while creating others," Dr Parkinson said.

Many regional and global institutions are struggling, Dr Parkinson said, with most cracks emerging in the international rules-based order "due to the shift in economic weight from the trans-Atlantic to Asia".

"The United States largely built this order in its own image, under-writing it with security guarantees. We benefit immensely from this order and must help support it wherever we can."

Dissatisfaction from emerging countries who had little say in writing rules and institutions, as well as dissatisfaction from the US were factors in these changes, Dr Parkinson said.

"Some of the cracks are due to the downsides of economic interdependence, such as increased scope for economic coercion and undesirable technology transfer.

"We don't yet know what any new international order will look like. But when it arrives, it will have to reflect the twin realities 'on the ground' of the changed economics in our region and continued US strategic pre-eminence."

In facing those challenges, Dr Parkinson said Australia must remain open and retreat from "vilification of differences that we are seeing overseas".

"Our diverse multicultural society gives us unparalleled advantages in our region. Our merit based culture means we take the best ideas from anywhere in the world and apply them to stay close to the technological frontier."

Comparing the challenges of former governments to those faced today, Dr Parkinson said the reforms of the Hawke-Keating and Howard-Costello governments "managed to turn around the incoherence and populism of protectionism so that today most Australians see the benefits of openness" and that former treasurers Paul Keating and Peter Costello "made it look easy".

"Looking back it now feels that to do reforms in the 1980s and 1990s, all we needed was to open the economic textbook to the right page and leaven it with some political realism," Dr Parkinson said. "Today there is no such consensus on what reform looks like. Some of the economics we now need is not even in the textbooks."