A comprehensive review of Australia's tax system will be unveiled with the Rudd government's first budget on Tuesday, with other measures to include lifting the threshold for the Medicare levy surcharge and raising the tax on luxury cars.
Mr Rudd last night praised the Labor governments of Bob Hawke and Paul Keating for delivering productivity gains of more than 3.3 per cent through the 1990s.
"The result was in high levels of productivity growth that saw the economy through the 90s," Mr Rudd said in a keynote speech to the annual Australian Davos Connection Future Summit in Sydney tonight.
He blamed the 12 years of the Howard government for declining productivity gains of two per cent in the first half of the current decade and 1.1 per cent gains in the last three years.
"Productivity growth is hard but it is one of the critical, critical drivers for the long-term success of this economy.
"That's why it must be at the absolute forefront of any future vision for where we would take this Australian economy long term." Mr Rudd said improving productivity was a goal of Labor's review of the tax system.
"The review will examine and make recommendations to create a tax structure that will position Australia to deal with the demographic, social, economic and environmental challenges of the 21st century," he said.
"The review will consider whether Australia's tax system contains appropriate incentives for workforce participation ... and for individuals to save and to provide for their future, including access to affordable housing."
Mr Rudd also said the review would assess how the tax system affects "the promotion of efficient resource allocation to enhance productivity and international tax competitiveness and reducing tax-system complexity, compliance and costs".
He said it would be "a large undertaking".
Treasury secretary Ken Henry will head the review, assisted by academics, former tax officials and industry figures.
The team will release an initial discussion paper by the end of July and will provide a final report by the end of 2009.
Coupled with tax and budget policy, the prime minister said Australia faces long-term policy changes "beyond those of the economy".
Climate change, water, the economic rise of China and India and the corresponding changes in global politics require Australia to modernise its product and labour markets and deregulate its business environment, he said.
"Today, we are a long way from that goal," Mr Rudd said.
He said Tuesday's budget will address rising inflation, running a strong surplus and lifting productivity.
"It's one step in our program to transform the future competitiveness of the Australian economy," Mr Rudd said.
"For too long budgets have been an annual political give-away which the government of the day served up in an array of handouts and quick fixes."
(AAP)
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