Treasury secretary John Fraser has slammed politicians for being out of touch with the struggles of everyday Australians and blamed "extraordinary political instability" for a lack of consistent policy settings that could push the economy forward.
Mr Fraser made his comments as retail figures released on Friday showed yet another month of downbeat results, with a fall in food, clothing and department store sales.
Rising energy prices and the weakest wage growth in Australian history are slugging consumers, driving anxiety among businesses in the lead-up to the crucial Christmas trading period.
In a speech at the Australian National University before the dismal data was released, Mr Fraser said the country was still struggling with "the brutal reminder of the global financial crisis," which took longer than expected to recover from and had led to a "perplexing weakness" in the economy.
"In the cosseted world of Canberra, we in Treasury did not always recognise the major social impacts of such structural shifts on the communities they affected," he said.
Mr Fraser said a lasting effect of the GFC was a lower risk appetite from both corporate boards and investors.
"Put simply, as the mining investment boom ended, Australia has struggled with weak investment in the non-mining sectors, weighing on the labour market, productivity and ultimately economic growth."
He said small businesses - most likely the ones feeling the retail slump the hardest - were struggling under regulatory red tape that forced them to spend money on unnecessary new systems and procedures without having the economies of scale of large companies to absorb those costs.
"This is a real obstacle for many young and older people who want to take on a small business for the first time, or start up their own venture," he said. "I fear that policy makers in Canberra and in the States are not as alive to this issue as they should be when designing policy."
Friday's data from the Australian Bureau of Statistics (ABS) showed retail sales were flat in September, a big surprise given analysts had looked for a bounce of 0.4 per cent after a 0.5 per cent fall in August and a 0.3 per cent drop in July.
Retail turnover fell by between 0.7 per cent and 1.6 per cent in cafes and restaurants, department stores and household goods in the September quarter.
Stephen Walter, chief economist at the Australian Institute of Company Directors, said it had been been an unusually tough period with consumers dealing with the persistent hurdles of rising energy prices and weak wages growth.
"Many with heavy debt burdens also may be adjusting their spending in anticipation of rising interest rates next year, " he said.
"At least the physical labour market is doing well, with the jobless rate recently having slipped to a four-year low."
Mr Fraser said bold changes needed to be pushed through in Canberra to turn the rest of the economy around. He took a veiled swipe at the inertia over energy policy, which needed to become "internationally credible and lasting".
"There is a need for stable and consistent policy approaches to structural issues such as energy and taxation arrangements," he said.
"Much of this is in the hands of politicians and the past decade has certainly been one of extraordinary change and instability on that front."
Mr Fraser backed Treasurer Scott Morrison's call to cut corporate taxes from 30 per cent to 25 per cent to make Australia more competitive.
"There is concern that Australia's 30 per cent company tax rate imposes a large distortion on investment because it sets a higher rate of return hurdle for new investments in Australia than in other countries," he said.
"As I have said elsewhere, the starter's gun has been fired with the UK, US and others all reducing or planning to reduce their rates of corporate tax."
On Friday, Mr Morrison said "it was important that Australia does not get stranded on corporate tax island," as the administration of US President Donald Trump pushes ahead with plans to lower the corporate tax rate to 20 per cent.
"Ensuring we have a competitive tax system is absolutely critical and the Americans, once again, have laid out that challenge," he said.