Australia's most respected public policy institute has savaged the Abbott government's approach to crafting federal budgets, warning Australia's economic future is being based on "hope" instead of real policy reform.

The Grattan Institute is calling on the federal government to seriously consider increasing tax collections if it wants to repair the budget and prevent future generations from being saddled with too much debt.

The Abbott government's budget is based on hope, like those of the Rudd and Gillard governments before it. Credit:Alex EllInghausen

It also wants Treasury to change the way it produces its economic forecasts, saying Treasury's erroneous modelling has led successive federal governments — Labor and Liberal — to believe that budget surpluses are just on the horizon, with dire consequences for voters.

In a blistering new paper, Grattan Institute director John Daley says Treasury officials ought to admit that their forecasting projections must change, warning that every time governments' assumptions about revenue growth and spending restraint prove too optimistic it is leading to bigger budget deficits, with the financial burden falling on younger households.