THE biggest problem with the Commission of Audit report – aside from the fact that most of its recommendations will never see the light of day – is that it is largely built on a falsehood. And that is Australia faces a fiscal emergency.

If Australia has a budget crisis, then the rest of the developed world – including those other few “AAA” rated nations such as Germany and Canada – must be facing veritable Armageddon.

Perspective time: The report warns that if Australia just adopts a “business as usual” approach and doesn’t embrace radical reforms we will notch up an unbroken string of deficits stretching out over the next decade.

This will culminate in our net debt reaching a very scary-sounding $440 billion, or 17 per cent of Gross Domestic Product. That compares, however, with an average net debt to GDP ratio for advanced economies of slightly more than 70 per cent, according to the OECD.

By way of comparison, the United States comes in the mid-80s, while Germany and Canada – the latter two held up internationally as shining examples of fiscal rectitude – are above 40 per cent.

In fact, there has been no shortage of economists in Australia who, in the past 12 months, have urged the Government to take advantage of historically low borrowing costs and invest in economy-enhancing infrastructure.

Our projected deficit this year is about $47 billion, or roughly 3 per cent of GDP, with spending cuts already locked in by the previous government expected to bring this down to 1 per cent of GDP, again, well below the average for our OECD peers.

The other fallacy promulgated by the audit report is the “bloated government’’ line.

As economist Stephen Koukoulas points out, the size of government in Australia, as measured by the sum of government revenues and expenditure as a share of GDP, has been shrinking in recent years, and is back to levels not seen since the 1970s.

During the Howard years, using this measure, the size of government was 49.2 per cent of GDP, while under Rudd and Gillard it was 47.4 per cent. This is a level not seen since the Fraser era.

This is not to say there is not room, indeed need, for reform, just that the apocalypse scenario has been overstated.

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As my colleague Dennis Atkins noted this week, when it comes to cumbersome bureaucracy for example, there exist 140 intergovernmental agreements which are underpinned by a further 230 separate implementation plans.

Then add to this 15 Council of Australian Governments councils, five legislative and governance forums and at least seven oversight and regulatory bodies.

Nor should the budgetary burdens posed by an ageing population demanding more in the way of pension spending and health care come as anything of a surprise.

These challenges were clearly spelt out in the Intergenerational Report of 2010. Then finance minister Penny Wong warned bluntly that “without action to curtail spending growth the overall level of government spending under existing programs would, over the medium to long term, become unsustainable”.

No argument there from either side of politics.

And it is also hard to mount a case against maximising (and indeed extending) workforce participation, or more means testing of benefits that should really go to those in genuine need ahead of those more affluent.

The glaring omission in the audit report, though, is the tax side of the equation, with tens of billions of benefits (in the form of tax equivalent payments) going to the most wealthy in society – through the likes of negative gearing breaks and super contribution tax goodies – all left untouched.

Yes, Australia does need to rein in spending growth.

But we also must lift our performance on the revenue side by looking at corporate and

upper-middle class tax welfare and modernising our tax mechanisms through such measures as raising and broadening the GST.

These, however, are challenges that can be met, rather than constituting an “emergency’’.

The only crisis we have right now is one of rhetoric.

Email paul.syvret@news.com.au