GST hike in the mix to cut the deficit

EVERYTHING will be on the table for the Abbott Government's Commission of Audit to consider in its mission to cut more than $15 billion from the federal budget.

Audit commissioners including Chairman Tony Shepherd on Wednesday fronted an Opposition-led Senate inquiry into the nature of the audit.

Mr Shepherd was at pains to illustrate the Commission's terms of reference meant it could consider everything from privatisations of government assets to public service job cuts.

But despite Treasurer Joe Hockey previously promising the audit would not consider increasing the GST, Mr Shepherd confirmed it may consider changes to the tax.

He said the federal budget, which was facing a sixth year in deficit, was not going to fix itself.

"The magic pudding is a fable. Unless we fix this problem now, we will consign our children and their children to a legacy of unsustainable largesse," he said.

But he said the Audit's aim was to make recommendations to deliver savings worth 1% of gross domestic product by 2023-24 - or in today's terms, at least $15 billion in potential budget cuts.

Under heated questioning, Mr Shepherd told the committee he had not received any directions from the government other than in its terms of reference.

However, a letter from Treasurer Joe Hockey and Finance Minister Mathias Cormann, showed the government had contacted Mr Shepherd.

The letter, tabled with the inquiry, said the frontbenchers were writing "to provide guidance to the Commission on the government's approach to public sector resourcing".

While the letter did not mention the Coalition's election promise to cut 12,000 public sector jobs, it instead asked that all of the Commission's proposed reforms were "based on effective staffing and that these are linked to efficient services".

While Mr Hockey's office would not comment on the issue, it referred to a media release last November which outlined the same objectives of "effective staffing" and "efficient services".

Mr Shepherd apologised that he did not recall seeing the letter, but that in any case, he did not consider it a direction for the Commission.

He said the Commission had received no other "instructions from government (and) they have made it clear we are to follow the terms of reference and there are no no go areas".

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