The prime minister must confront tough choices on defence spending as Australia becomes divided amid ongoing wars, a top economist warns.

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.

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 a

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