Australians will "fall off their chairs" when the inter-generational report is released, Treasurer Joe Hockey says, because for all the government's efforts "we still don't get anywhere near being able to reduce spending over the medium-term to the same level that exists today".
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In a blunt warning ahead of the release of the report in the coming weeks, Mr Hockey said Australia faced a downward spiral of rising debt levels and ballooning interest repayments that would break the "compact between generations" of Australians.
In a speech to the NSW business chamber, Mr Hockey promised a "genuine community conversation" about the demographic challenges facing Australia's ageing population and the threat of lower economic growth without reform.
"There is a huge task that is ahead of us. If we want to remove the shackles, if we want to give people an incentive to work harder, to earn more money, to be more innovative, if we want to do that, we've got to start living within our means," he said.
"Spiralling debt is not a legacy we can leave for the next generation. This is not the compact between generations we want."
The Treasurer said the inter-generational report would show the percentage of people of working age would fall in the years to come.
"Over the next decade alone, the working population is expected to increase by 12 per cent, while the population over 65 is expected to increase by 36 per cent," he said.
"In other words, the number of people in the 'traditional' workforce supporting those who have left the workforce will nearly halve over the next 40 years."
That meant, in practice, that tax revenues would struggle to meet the rising cost of government services.
Australia had enjoyed a quarter of a century of uninterrupted economic growth, Mr Hockey said, and within two years will have enjoyed the "longest continuing period of economic growth of any modern, developed nation in the world".
"This is exactly where we should be ... the challenge going forward, however, is to maintain, and even raise, this standard of living over the next few decades," he said.
The next inter-generational report would be a "critical document for economists, academics, business and the community" and "not your usual inter-generational report".
"It is a very genuine attempt by the Treasury, in an unprecedented way, to launch a conversation about Australia's future," he said.
"It will be a genuine community conversation about actions that not only protect our current way of life, but protect it for the next generation, and the next, and the next. To safeguard our way of life, we must maintain our incomes and keep people in jobs."
Mr Hockey said the first challenge for government, as the population aged, was to encourage Australian to work for longer, a trend already underway and which will see the participation rate of people aged over 65 grow from 12.9 per cent in 1975 to 17.3 per cent by 2054-55.
