The Rudd Government will conduct a comprehensive review of Australia's tax system to create a tax structure that positions us to deal with the demographic, social, economic and environmental challenges of the 21st century.

Australia's hard working taxpayers are entitled to a tax system that is as fair and efficient as possible and this review will help to achieve that goal.

The review follows the recent 2020 Summit, which proposed a comprehensive review of State and Federal taxes to consider measures to harmonise and simplify taxes, reduce inefficient taxes, ensure a progressive system and address negative interaction with the welfare system.

There has not been a comprehensive review of the Australian taxation system, including state taxes, for at least the last 50 years.

The Australian economy and Australian society have changed dramatically since then. Globalisation, climate change, population ageing and the internet are transforming the way Australians live and do business. There is stronger pressure than ever for a tax system that works in the fairest, simplest and most efficient way.

The review will encompass Australian Government and State taxes, except the GST, and interactions with the transfer system, and will consider:

• The balance of taxes on work, investment and consumption and the role for environmental taxes;
• Further enhancements to the tax and transfer system facing individuals, families and retirees;
• The taxation of savings, assets and investments, including the role and structure of company taxation;
• The taxation of consumption and property and other state taxes;
• Simplifying the tax system, including the interactions between federal, state and local government taxes; and
• Interrelationships between the elements of the tax system, as well as the proposed emission trading system.

In doing so the review will reflect the government's policy not to increase the rate or broaden the base of the goods and services tax (GST); preserve tax-free superannuation payments for the over 60s; and the Government's announced aspirational goals for personal income tax.

The review panel will be chaired by the Secretary to the Treasury, Dr Ken Henry AC and will also comprise Mr Greg Smith (Australian Catholic University); Dr Jeff Harmer (Secretary of FaHCSIA), Heather Ridout (Australian Industry Group), and Professor John Piggott (University of New South Wales). The review panel will be supported by a working group from within the Treasury, with representation from the Department of Families, Housing, Community Services and Indigenous Affairs, and drawing on other Australian Government and State agencies as appropriate.

In the spirit of the 2020 Summit, the review panel will consult the public to allow for community and business input. The review will also, where necessary, draw on external expertise and shall have the co-operation of State Governments and their Treasuries as well as relevant COAG working groups.

The review will be conducted in several stages. An initial discussion paper will be released by the end of July 2008. The review panel will provide a final report to the Treasurer by the end of 2009.

The terms of reference for the review are attached. This and other information about the review of Australia's Future Tax System can be found on the Treasury website (www.treasury.gov.au) under Reviews, Inquiries and Consultations. The review may be contacted by email at AFTS@treasury.gov.au.