Former Treasury secretary Martin Parkinson says Australia will be "sleepwalking into a mess" unless fiscal and productivity reform are dealt with in tandem.
In a dire warning delivered at an economic reform summit in Sydney, Dr Parkinson on Wednesday said the growth of living standards in Australia could fall to half of what it has been over the past 50 years.
"The Australian public are not going to be comfortable with that," Dr Parkinson told AAP.
The summit, attended by business and community groups, drew up a raft of "actions" they called on the government to implement.
They made recommendations for lifting productivity growth and workforce participation; tax reform; fiscal policy for a growing economy; and sustainable retirement incomes.
The summit called on the government to "approach tax reform based on our agreed principles in an open, inclusive and transparent way that does not rule out options for reasons of political expediency".
On fiscal reform, it recommended the government return budgets to structural balance progressively over a decade, and to avoid "unrealistic budget assumptions".
But Dr Parkinson warned that growth in living standards - having already been in decline for three years - will continue to fall unless fiscal and productivity reform are dealt with in unison.
"Even if we get a productivity outcome reasonable to our history, living standard growth is going to fall to about half or maybe a bit less of what we've experienced over the last half century," Dr Parkinson told AAP.
"Unless we recognise that, and recognise that the productivity challenge and the fiscal challenge are intimately linked, and we have to deal with both of them, then we will go on continuing to repeat the mistakes that we've been making and that will get us into a situation that none of us want to be in."
Dr Parkinson earlier told a room of more than 90 corporate, community and academic leaders that productivity reform could not be detached from fiscal reform.
"If our potential growth rate was three per cent, and for argument's sake it's fallen now to 2.5 per cent, that's the equivalent of a loss in GDP over the decade of over five percentage points.
"Or in other words ... it's akin to us willingly accepting the impact of a recession over the decade.
"Unless we actually grab this challenge by the horns and really get concrete about what are the priority issues, rather than saying all these things are good, we're actually going to find ourselves sleepwalking into a real mess."
Earlier, Treasurer Joe Hockey urged the gathering to deliver ideas the community was willing to embrace.
The community was not against change, it just wanted to make sure that reform had a purpose, he said.
Opposition Leader Bill Shorten told the summit that he believes Australia must lift its output, creating an economy that brought more goods, services and jobs.
