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Premier John Brumby says the new order in Canberra will need to grapple with difficult longer-term policy challenges

The test for the new minority government in Canberra would be its capacity to make hard decisions for the medium-to-long term, including on tax reform, Victorian Premier John Brumby told CEDA's State of the State lunch in Melbourne on September 8.

While predicting Prime Minister Julia Gillard would be a skilful and effective leader in the new political environment, Mr Brumby said the relationship with rural independents, Greens  and other cross-benchers would need to be flexible enough to allow for important structural economic reform.

"There will be decisions in the next year or two that Australia will need to make for our betterment in the medium to longer term," Mr Brumby said. "Tax reform will be part of that. Getting an emissions trading scheme will be part of that. If they were easy, they would have been done years ago. That's where the hard part of the work will come in."

Addressing prominent business leaders and academics at the annual CEDA event, Mr Brumby also said the Victorian Government remained strong in its support for population growth. "We have always been in that camp.

"However, what I have said over the last 18 months is that we were growing a little too fast, at 2.2 per cent per annum where the long-term average has been 1-1.2 per cent. Last year, we in Victoria added almost as many people as Queensland."

Mr Brumby said a more sustainable population growth rate for Victoria was probably midway between the two, at somewhere approaching 1.6-1.7 per cent each year.

"We need population growth," he said. "I know that not everybody agrees with that. But we need population growth because we have an ageing population, and we need the skills and the workforce if we want to build a strong and prosperous economy and society."

Click here to access the transcript of the Premier's speech