A Senate inquiry into the national commission of audit has heard urgent action is needed to repair the federal budget and deal with debt.

The head of the Abbott government’s national commission of audit says Australia faces deficits for many years to come without action to fix the budget.

Audit chairman Tony Shepherd and his other four commissioners on Wednesday fronted a Senate inquiry into the project initiated by the Abbott government.

Mr Shepherd said the commission had a “broad remit” to look at all areas of federal government spending and would make recommendations on how to deliver a “sustainable budget surplus” of one per cent of GDP.

“Australia faces the challenges of an ageing population, poor productivity, a persistently high Australian dollar, high energy costs, heavy reliance on the resources sector and a volatile global political and economic outlook,” he told senators.

“Without action, deficits are in prospect for many years to come.”

He said the issue would not fix itself.

The commission’s initial report, on the financial position of the commonwealth and the budget’s sustainability, will be provided to the government at the end of this month.

A second report, on infrastructure, public sector performance and accountability is due by the end of March.

Mr Shepherd said he believed Australians recognised the need to repair the budget.

“If we are prepared to make the necessary adjustment now on our approach to government we will have time to readjust and remain on the path to prosperity and rising living standards for all Australians.”

The commission has received more than 300 submissions to date and Mr Shepherd has met with a number of premiers and department secretaries. He said there had been a “good number of ideas and suggestions”.

Labor Senator Sam Dastyari asked Mr Shepherd whether he stood by his previous public comments that the goods and services tax rate should be raised and its base broadened.

“I have made those comments. That does not mean that this commission will recommend that,” Mr Shepherd said.

“I have come with an open mind.”

Asked whether changing the GST could be recommended by the commission, Mr Shepherd said: “I’m not ruling anything in or out. Everything is on the table.”

Mr Shepherd said there were no “no-go areas” for the commission, and also refused to rule out recommending the sale of public assets or welfare changes.

Mr Shepherd said the commission would make recommendations on the sale of public assets “based on the facts”.

However, the Business Council head and experienced businessman said any policy decision was ultimately a matter for the government to accept or reject.

He says the commission will consider some revenue measures but that will be dealt with in more detail in the government’s white paper on taxation.

Mr Shepherd was asked whether he personally believed his commission’s report should be released publicly.

“I don’t believe it should be. I believe it is a report to government and it is up to them.”

Mr Shepherd told the inquiry the commission had not received any guidance from the government other than its terms of reference.

But under questioning, the head of the commission’s secretariat, Peter Crone, revealed that the commissioners had actually received a letter from Treasurer Joe Hockey and Finance Minister Mathias Cormann in November regarding the public service.

The letter, tabled at the inquiry, related to cuts to the number of commonwealth public service jobs.

Labor senator Sue Lines said the letter – which opens with the words “Further to the terms of reference, I am writing to provide guidance…” – looked like further direction from the government to the commission.

But Mr Shepherd rejected the suggestion.

“I took that to mean guidance on the government’s approach to the public sector rather than providing guidance as to the approach they wanted us to take.”

The letter was written in the wake of revelations that the previous Labor government had put in train budget measures which would have led to 14,500 public service jobs being shed.

The coalition went to the election promising to shed 12,000 public sector jobs through voluntary redundancies.