SABRA LANE: The head of the Abbott government's commission of audit Tony Shepherd is warning that Australian living standards are at risk without serious budget repair.
With the Federal Budget six weeks away, Mr Shepherd also warns that future generations will suffer as self-interested baby boomers cash in on their pension entitlements.
In an economic review for the Menzies Research Centre, Mr Shepherd says the rising deficit is unsustainable, and without hard decisions now, Australians relying on the social safety net will suffer the most.
Tony Shepherd spoke with the ABC's senior business correspondent Peter Ryan.
TONY SHEPHERD: We cannot afford to sit back and wait. And if we don't take action now, the consequences will be serious and the impact on the average Australian will be quite dramatic.
PETER RYAN: A big problem, you say, is your own baby boomer generation. They're starting to retire and manage their finances to use the aged pension. Is that sustainable?
TONY SHEPHERD: Well it's not. I think that's one of the problems we do face.
Only 20 per cent of Australians are fully self-funded in retirement and there's 80 per cent on a full or part-time pension, but with an ageing population that is creating a real bubble in terms of the cost of aged pension and aged care.
PETER RYAN: One solution being proposed is to include the family home in the pension assets test.
That's a tough political decision, but surely it's an option.
TONY SHEPHERD: It is an option. Yes, it's one certainly that we originally proposed in the budget over a certain value.
But I think that's just one example of the sort of things that may have to be done.
I think the average Australian just regards that, well, so what, doesn't impact on me, just keep going.
And they've lost trust in the institutions. They feel they're working hard and they're not getting ahead.
PETER RYAN: So people working harder, people paying taxes, that feel they need to cash in on their entitlements while they're still there - how do you turn that around?
TONY SHEPHERD: The feeling is that companies are ripping them off, they're not paying their taxes.
So we have to get these myths off the table that are being perpetuated, get the people to understand exactly where Australia is and what the challenges are, and what needs to be done to, you know, ensure our ongoing prosperity.
PETER RYAN: It's an emotive term but does Australia risk becoming a banana republic without hard decisions and an end to the political paralysis?
TONY SHEPHERD: Banana republic might be too tough, but I think we do risk a genuine crisis, a genuine crisis, unless we can get growth going again, unless we can get growth in real wages going again, unless we can get more permanent and real jobs going again.
I think we do risk a real crisis. And the time to act is now, while we're reasonably strong and, you know, things at least on the surface aren't too bad.
If we leave it, then it will really bite.
Tony Shepherd, who's leading an economic review for the Menzies Research Centre, speaking there with Peter Ryan.