Ewen McKenzie's charges were downed 38-12 at Brisbane's Suncorp Stadium as they suffered their third consecutive defeat in the Rugby Championship following home and away reverses to New Zealand.
Australia are rooted to the bottom of the standings ahead of next week's encounter with Argentina - who were beaten 28-13 by the Kiwis in Hamilton on Saturday - and Lynagh could not hide his anger at the position his country find themselves in.
The former fly-half thinks the Wallabies are a poorer side than the Robbie Deans-led outfit that was conquered by the British and Irish Lions this summer, and says the men in gold must show a lot more character if they are to fix their myriad ills.
"This whole year has not been good and I don't think the team is getting any better - if anything it is getting worse," said Lynagh whilst analysing the Australia-South Africa game in the Sky Sports studio.
"We didn't look like scoring, our defence was very poor - something that has been a factor for the last few games - our scrum has gone backwards, our attack is too predictable and there were many handling errors.
"I am really disappointed at the moment as there is no aspect of the play where you'd say: 'That looks promising'. Australia are in a huge hole and I think that is because they have got too comfortable.
"James O'Connor was laughing with the Springboks at the end and while it's okay to be a good sportsman, I don't think a willy-nilly performance like that hurts them enough.
"They need to have a long hard look at themselves and start working harder as the honeymoon period for McKenzie is certainly over."
Carry on reading to see what Thinus Delport (South Africa), Sean Fitzpatrick (New Zealand) and Mariano Sambucetti (Argentina) made of their nations' performances over round three of The Rugby Championship...
"This was a well-rounded performance from South Africa and backed up the win over Argentina; the guys have gone back to the drawing board, regained their focus and put the things they have worked on in training out on the pitch. They really moved forward in the second half as they were able to absorb the pressure from Australia and apply pressure themselves - and they will now be really confident ahead of the game with the All Blacks and that confidence will help the team evolve."
"It was job done for the All Blacks, who were clinical with and without the ball, and they will be fairly satisfied after coming up against a very committed and physical Argentina side. I thought Francis Saili played very well, they did well to score three tries considering the [wet] conditions, while their defensive qualities were there to see as well - but the injury to Rich McCaw will be a real concern."
"It was a bittersweet thing for Argentina because once again they played well against a top team but didn't win; the scrum went well, the defence went well and they attacked New Zealand, but little mistakes against a team of such quality and work-rate cost them."