Leading economist Ross Garnaut says failure on the part of Treasury and government meant Australians should prepare for some 'shocking realism' about the state of the budget and has cautioned against 'easy' answers for reform like tax cuts for big business.
But Prime Minister Malcolm Turnbull has a chance to come clean about the true state of the federal budget, he said   
The case for company tax cuts for large business had not been subject to "rigorous analysis," Professor Garnaut said, saying it was important any budget decisions were based on a strong economic case.
"Let us be careful not to exacerbate a dreadful budget problem in our search for productivity gains," he said.
It was "inevitable" that the mid-year budget estimates will have "a major downward revision of revenues".

'Delusional elements'
The true state of the budget had been masked, Professor Garnaut said. 
"All of the delusional elements are in the direction of understating the budget challenge," he said.
But  the current government had a chance "reset expectations about the budget" and position it more realistically. 
"Realism about the budget will be shocking to most Australians," he said.
"Two prime ministers and treasurers were damaged greatly by the Treasury's and their own failure to come to grips with a deteriorating budget outlook after the resources boom had passed its peak. 
"It is important for Australia that Prime Minister Turnbull and Treasurer [Scott Morrison] avoid a similar fate."

No case for business tax cut
Despite regular calls from big business for changes to the tax regime, Professor Garnaut said the economic case for a cut in the corporate tax rate - currently set at 30 per cent for large business - had not been made.
"Let's not be tempted by easy answers put forward without rigorous analysis," he said.
"I count suggestions for an across the board cut in the company tax rate as an easy answer put forward without rigorous analysis."
Treasury has been a big supporter of company tax cuts, but Professor Garnant said even Treasury's own papers had highlighted that "the case depends on the presence of competitive markets for capital and products".
"The case is not made in relation to most of the resources sector, or much of the retail trade, or to utilities, or to banks," he said.

Biggest gains
The greatest productivity gains will come from introducing competition, or simulating the it through "radical reform of price regulation", he said.
"In our search for productivity gains, let us put nothing off limits that is backed by rigorous analysis. 
"Let's be ready to offer support for hard policies in the national interest, even when they do some damage to our own private interests."
Also addressing the conference was Business Council of Australia President Catherine Livingstone. She hit back at accusations that large Australian businesses were not innovative. "The fact that we have large companies that have longevity means they have been innovating," she said.
Ms Livingstone said Malcolm Turnbull's innovation plan released on Monday would help Australia develop more successful technology companies like those in the United States.
"It is true that we have been underdone in the extent to which we have spawned and nurtured technology companies that have grown," she said.
Atlassian was a good example of the types of innovative companies Australia needed to produce more of.
"That's where I think the innovation agenda is so powerful, because it's actually focusing on STEM (Science, Technology, Engineering and Maths) it's focusing on education, it's focusing on startups and facilitating those startups," she said.
"That is laying the groundwork for us to be able to have our own technology companies to be able to take advantage of the growth environment as those US companies have. Whether we have left it too late is another question, but you have to start somewhere.
"The announcement made yesterday [by the government] is a good place to start".