"We have been a bit smug and cocky," said crisis commission president Anna Johansson in connection with the presentation of the report to Ibrahim Baylan on Tuesday.
Baylan welcomed the report, arguing that the time had come to put an end to the process of "self-torture" that has gripped the party since its crushing loss in the September 2010 general election.
"In the beginning of April, we have to develop a new programme for the Social Democrats and this report will become an important contribution," he said.
The commission severely criticised the party's policy and work in the report, singling out the voters' lack of confidence in social democracy's ability to attain full employment as one of the main reasons for the party's poor election results.
"The Social Democrats have long failed to live up to its promises of basic services for all, greater equality and greater freedom for everyone. It has created a credibility problem whose importance cannot be overstated," the report read.
The Social Democrats recorded their worst result since 1914 in the September election, polling 30.66 percent. The party's poll troubles have continued since then during a period of turmoil that has included the resignation of party leader Mona Sahlin.
According to the latest opinion poll by United Minds, the party is backed by only 25.6 percent of the electorate, far behind the buoyant Moderates, currently Sweden's largest party.
The period covering the crisis commission's work has been characterised by collective low-esteem, navel-gazing and a lack of internal trust, the report's authors concluded, calling for more initiative in the public discourse.
The report also concluded that Red-Green cooperation ahead of the 2010 elections led to a blurring of the party's profile, resulting in difficulty for the voters, both party members and others, to determine the main pillars of Social Democrat policy.
"Our problem in recent years has been an inability to describe reality correctly," said Anna Johansson, co-chair of the commission and the mayor of Gothenburg.
Johansson argued that the image of the Social Democrats as a conceited and smug party dates back to the 2006 election, when the unemployment issue was not given the correct attention it deserved.
"I think it was a huge mistake to ignore the people outside of the labour market," she said.
In connection with the presentation of the report, a series of proposed policies for investments were outlined and tax increases have not been not ruled out.
"We identify the need to spend money on railways. The quality of schools is not sufficient. We have health insurance that is really awful and also an unemployment insurance that is really awful," said Johansson.
"If you are going to have a sound society for all people, it costs money. Growth will meet a number of these ambitions, but we can not rule out tax increases - it would be politically irresponsible," she added.
The commission also argued that the current caps on health and unemployment insurance should be removed, allowing more people to be included under the systems.
The report also raise the prospect of punishing private schools which extract large profits from their businesses.
The over-arching goal of Social Democratic police should be the push for full employment, Johansson underlined.
To achieve this goal, the report recommends massive investments in infrastructure and the construction of homes where the jobs are, but also measures such as subsidised placements and extra training for groups excluded from the labour market.